Size standards define small business
Size standards define the largest size a business can be to participate in government contracting programs and compete for contracts reserved or set aside for small businesses. Size standards vary by industry and are generally based on the number of employees or the amount of annual receipts the business has.
You can find small business size regulations in Title 13 Part 121 of the Electronic Code of Federal Regulations (eCFR).
There are some common terms you should be familiar with to help you ensure that a business is classified correctly as small.
- Affiliates: You must include the employees or receipts of all affiliates when determining the size of a business. Affiliation with another business is based on the power to control, whether exercised or not. The power to control exists when an external party has 50% or more ownership. It may also exist with considerably less than 50% ownership by contractual arrangement, or when one or more parties own a large share compared to other parties. Check SBA’s compliance guide for size and affiliation for more detailed information.
SBA determines affiliation in accordance with 13 CFR 121.103.
- Annual receipts: This is the “total income” (or “gross income”) plus the “cost of goods sold.” These numbers can normally be found on the business’s IRS tax return forms. For purposes of Federal contracting, receipts are averaged over a business’s latest five complete fiscal years. Applicants to SBA's Business Loan and Disaster Loan Programs, as well as the Surety Bond and Small Business Investment Company (SBIC) Programs, may use either three or five years to determine average annual receipts. If a business hasn’t been in business for five years, multiply its average weekly revenue by 52 to determine its average annual receipts.
SBA calculates annual receipts in accordance with 13 CFR 121.104.
- Employee calculation: This is the average number of people employed for each pay period over the business’s latest 24 calendar months. Any person on the payroll must be included as one employee, regardless of hours worked or temporary status. The number of employees of a concern in business less than 24 months is the average for each pay period that it has been in business.
SBA calculates the number of employees in accordance with 13 CFR 121.106.
You can find the full definitions of these terms, and others, in 48 CFR 19.
Qualifying as small is one of the basic requirements your business needs to meet before you can compete for government contracts that are set aside for small businesses.
You can find out if your business qualifies as small by using the Size Standards Tool, or by referencing SBA's table of small business size standards. Both the tool and the table help you find the small business classification requirements according to individual NAICS codes.
When you calculate the size of your business, you must include the annual receipts and the employees of your affiliates. When another person or business can control your business, they are an affiliate. This is true even if they don’t exercise their control.
In addition to meeting the numerical standards for small, your business must:
- Be a for-profit business of any legal structure
- Be independently owned and operated
- Not be nationally dominant in its field
- Be physically located and operate in the U.S. or its territories
Businesses outside the U.S. may still be counted as small if they have an operation in the U.S. that makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials, or labor.
Are you small enough?Size standards vary by industry. Use the Size Standards Tool to see if your business qualifies as "small" for government contracting.
How size standards are determined
Size standards are established by SBA’s Administrator. The Office of Size Standards makes recommendations to the Administrator for establishing or revising size standards, according to changes in industries and the economy. When making these recommendations, the office uses the most recent data and NAICS codes available.
The Size Standards Methodology Whitepaper explains SBA’s process for establishing, reviewing, and modifying size standards.
You can follow announcements about updating size standards from the Office of Size Standards.
How you can comment on size standards
Size standards are reviewed every five years. When SBA considers revising size standards, it issues a notice of proposed rules. SBA takes comments from the public into consideration before finalizing proposed rules on size standards. SBA welcomes suggestions on alternative methodologies, factors, datasets, effects on competition, and approaches that make sense in the current economic environment.
Size protest and NAICS code appeals
Any interested party can protest a winning bidder's small business size status.
To file a protest, send the specific reasons for why you believe the winning business is not small to the contracting officer for that procurement. The procedures for making a size protest are outlined in 13 CFR 121.1001-1010.
There are severe criminal penalties for knowingly misrepresenting the size of a business for a federal contract. The penalties are defined in 13 CFR 121.108.
NAICS code appeals
Contracting officers must designate a NAICS code for a contract according to 13 CFR 121.402. However, you can appeal the NAICS code designation of any contract.
You must send any NAICS code appeal to SBA's Office of Hearings and Appeals (OHA) within 10 days of the publication of the solicitation. Follow the procedures in 13 CFR 121.1102-1103 and 134 Subpart C.
- For questions on size standards and affiliation rules for participating in government contracts, please reach out to firstname.lastname@example.org.
- For questions about Economic Injury Disaster Loans (EIDL) and the application process, please reach out to SBA's disaster assistance customer service center at 800-659-2955 or e-mail email@example.com. If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services.
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