SBA’s Final Size Standard Recertification Rule: What Private Equity Companies Need to Know

The rule’s general policy revisions remain unchanged in the final version. It impacts small business government contractors who hold multiple award vehicle contracts, rather than single award contracts.

Under the prior rule, which will now remain in effect until January 17, 2026, when a small business is awarded a multiple award contract set aside for small businesses, a change in the small business’s size status – such as following a transaction – does not automatically disqualify the business from receiving options and orders under the multiple award contract, even after the business no longer qualifies as small. Agencies are prohibited from counting spending on set-aside orders and options awarded to these “grandfathered” contractors toward their small business government contracting goals. This creates some disincentives for making such awards, but there was no blanket prohibition. Thus, the prior rule created a dynamic where small businesses were competing for orders set aside specifically for small businesses against contractors who may have once been small but had since become large businesses, either after being acquired or after simply growing. The SBA explained in the final rule that this dynamic was not how the agency intended the rule to operate:

“SBA never intended to allow a firm’s self-certification for the underlying unrestricted multiple award contract to control whether a firm is small at the time an order or agreement is set-aside for small business years after the multiple award contract was awarded.”

As discussed in more detail in our previous article, the key impact of the now final new rule is to end eligibility for future set-aside orders and options under a multiple award contract when a small business recertifies as other than small. Generally, such recertifications are required by the SBA regulation in one of three circumstances:

1. Within 30 days of a merger, acquisition, or sale of or by a contractor or an affiliate of the contractor resulting in a change in controlling interest;
2. No more than 120 days prior to the end of the fifth year of contracts or orders with a duration of more than five years and no more than 120 days prior to exercising any option thereafter. A contracting officer may also request where recertification prior to the 120-day point in the fifth year of a long-term contract or order; and
3. When a contracting officer explicitly requires contractors to recertify their size or status in response to a solicitation for a set aside or reserved order or agreement.

For example, if, following a transaction, a small business recertifies to the SBA that it is no longer small, the contractor may continue to perform the remainder of a contract’s current period of performance. However, under the new rule, the contractor will now be ineligible for future restricted orders and options under any multiple award contract or agreement. Similarly, if in response to the recertification requirement for long-term multiple award contracts a contractor recertifies as no longer small, that contractor is ineligible to bid for set-aside or reserved awards. However, in circumstances where a contracting officer requests recertification for a particular order or agreement and the contractor recertifies as no longer small, the contractor is only ineligible for award of that order or agreement. The contractor can continue to qualify as small for other orders or agreements where a contracting officer does not request recertification.

In finalizing the new rule, the SBA made some important changes to what it initially proposed that will significantly impact transactions involving small business government contractors:

1. As discussed above, the biggest change delays until January 17, 2026, implementation of the rule against receiving set-aside options and orders following a disqualifying recertification made either in response to a merger, acquisition, or sale, or prior to the end of the fifth year of a long-term contract. We expect this delayed implementation may incentivize small businesses contemplating a merger, acquisition, or sale, or large businesses contemplating acquiring a small business, to complete those transactions before the new rule goes into effect. As the SBA explained in the final rule, “a firm that has a disqualifying size or status recertification due to a merger, acquisition or sale that occurs prior to one year after the effective date of this final rule will remain eligible for orders issued under an underlying small business multiple award contract.”
2. The second major change introduces an exception for transactions involving two small businesses. In the final version, a small business is only ineligible for future orders and options after a disqualifying certification following a merger, acquisition, or sale to a large business. As the SBA explains, “[w]here two business concerns individually qualify as small before a merger, acquisition or sale but do not in the aggregate after such occurrence, the final rule allows the contract holder to remain eligible for orders issued under an underlying small business multiple award contract.” Agencies are still prohibited from counting the order or option period as an award to a small business for purposes of small business contracting goals, but there is no blanket prohibition against making the award.
3. Finally, the SBA chose to drop the provision requiring recertification in response to agreements in principle. The SBA recognized that agreements in principle may “never be finalized or the ultimate sale or merger may take a long time.” Thus, in the final rule, the recertification requirement is triggered only by a merger, sale, or acquisition, or because a contractor is in the fifth year of performance on a long-term contract.

If you have questions or need assistance preparing for the rule’s implementation, please reach out to the authors.