Government Contracts Intelligence Briefing

On August 20, 2026, the US Small Business Administration published two linked proposed rules in the Federal Register that, together, represent the most consequential change to small business size standards since SBA began its five-year rolling reviews under the Small Business Jobs Act of 2010. The first proposal, Small Business Size Standards (RIN 3245-AI67), sets new size standards for 338 industry groups and industries. The second, Revised Size Standards Methodology, replaces the analytical framework SBA has used since 2024 with a fundamentally different model for calculating those standards. Comments on both proposals are due 30 days after publication.

For government contractors, subcontractors, and the primes and agencies that rely on small business set-asides, these proposals are not incremental housekeeping. They restructure how “small” is defined across nearly every NAICS code that matters to federal procurement and, notably, SBA is proposing to raise standards across the board while declining to lower any of them, even where its own analysis says a reduction is warranted.

Also, as will be further expanded below, some common government contracting NAICS codes for small business sizes are expanding substantially. In some instances, they are increasing by more than 10 times their current levels. Some IT services are being proposed to move to more than $500 million.

A New Methodology, Not Just New Numbers

SBA’s proposed rule expressly incorporates its companion Revised Methodology white paper, and the two must be read together. The current (2024) methodology scored each 6-digit NAICS industry against seven factors - simple and weighted average firm size, average assets per firm, the national four-firm concentration ratio, the national Gini coefficient, and two federal-contracting disparity ratios for industries with at least $20 million in average annual federal contract dollars and then averaged the results and capped them within a fixed floor and ceiling.

The Revised Methodology discards that model. Size standards will instead be set primarily at the 4- and 5-digit NAICS level (rather than the 6-digit level), collapsing roughly 1,000 individual standards into 338, and eliminating all existing size standard exceptions. Each industry or industry group’s “average market size” - a composite of national industry size, the number of distinct geographic markets in which firms compete, and an adjustment for net imports and exports - is run through a single formula to produce the standard, replacing the seven-factor averaging approach entirely.

Five Changes Government Contractors Should Track

• NAICS aggregation: 6-digit standards collapse into a mix of 4- and 5-digit codes, and all federal-contracting “exceptions” are eliminated - a change that will require contractors to re-map their NAICS-based small business certifications.
• Default to employee-based standards: SBA now defaults to employment-based size standards wherever it has discretion, reversing the 2024 preference for receipt-based standards outside manufacturing and services. This should reduce “bouncing” in and out of small business status caused by inflation and revenue volatility.
• Three-factor market model: The seven legacy factors (including the federal-contracting disparity ratios) are replaced by national industry size, geographic market count, and a net-imports adjustment - a framework SBA says tracks the Small Business Act’s “not dominant in its field of operations” standard and echoes how DOJ and the FTC define a relevant market in the Horizontal Merger Guidelines.
• No ceiling, still a floor: The prior methodology’s hard maximum size standard is gone. SBA retains only a minimum, which by design allows standards to run meaningfully higher than under the current table.
• Productivity adjustment layered onto inflation: For the first time, SBA proposes to adjust monetary-based size standards for economy-wide productivity growth in addition to inflation, on the theory that employee-based standards already receive an implicit productivity adjustment and monetary standards should be placed on equal footing.

Changes for Key Government Contracting NAICS Codes

Because the size standard directly determines eligibility for small business set-asides, socioeconomic programs (8(a), WOSB, SDVOSB, HUBZone), and subcontracting plan credit, contractors performing in professional services, IT, engineering, and R&D codes should pay close attention to the magnitude of the proposed increases. Receipt-based standards in particular are proposed to rise far beyond what an inflation or productivity adjustment alone would suggest - a byproduct of the shift to the new market-size formula and the removal of the maximum-standard ceiling. A representative sample of government contract-relevant industries:

Source: SBA, Small Business Size Standards NPRM, RIN 3245-AI67 (pre-publication text, Aug. 19, 2026). Firm counts are SBA estimates using Statistics of US Businesses data and are approximate.

The jump in professional and technical services codes is especially notable for the government contracting industry. Custom Computer Programming Services (541511), Computer Systems Design Services (541512), and the broader IT services codes move from a $34 million receipts a standard to $531 million receipts standard - more than a 15-fold increase. Engineering Services (541330) rises from $25.5 million to $252 million. If finalized as proposed, businesses that lost small business status years ago under the legacy receipts test could become eligible again, and current small businesses will have materially more runway before graduating out of small business set-aside eligibility. This has direct implications for teaming strategy, small business subcontracting plan compliance, and 8(a)/SDVOSB/WOSB program eligibility calculations, all of which key off the applicable NAICS size standard.

On the other hand, businesses that qualified as small businesses under the current standard will be competing against much larger companies for small business set-asides.

SBA’s “No Reductions” Policy

Perhaps the most legally interesting feature of the proposal is SBA’s categorical decision not to lower any size standard, even where its own analytics identified 45 industries for which a decrease was indicated. SBA frames this as consistent with precedent - it likewise declined to lower standards following the 2007 to 2009 recession - and grounds the policy in the Small Business Act’s directive that SBA “aid, counsel, assist, and protect the interests of small business concerns.” The proposal cites difficult economic conditions from 2021 to 2024, the risk of stifling small business growth, and Executive Order 14267’s directive to reduce anticompetitive regulatory barriers as justifications. For each of the 45 affected industries, SBA is proposing to retain (or, in most cases, actually raise) the current standard rather than adopt the lower, analytically indicated figure. A sample:

Source: SBA, Small Business Size Standards NPRM, Table (“45 affected industries”).

Because the “no reductions” approach departs from SBA’s own analytical results in a uniform, categorical way rather than through industry-specific findings, industry groups on the other side of set-aside competition, large businesses competing to be excluded from, or small businesses hoping to retain the benefit of, a narrower competitive pool may argue SBA has not adequately justified departing from its own data on an industry-by-industry basis, an issue that could surface in any post-final-rule challenge.

Practical Implications for Contractors

• Re-verify NAICS eligibility now: Because 6-digit codes are being folded into broader 4- and 5-digit groupings and existing exceptions eliminated, contractors should not assume their current small business certification will map cleanly onto the new table; some firms could see their governing standard change even without any change in their own revenue or headcount.
• Model the receipts-to-employee shift: Firms in industries moving from a receipts-based to an employee-based standard should model their status under both measures, since the effective date and any grandfathering provisions in the final rule will matter for existing set-aside contracts and SAM.gov representations.
• Watch federal contracting disparity ratios disappear as a factor: Removing the two federal-contracting disparity ratios from the calculation means an industry’s set-aside participation history will no longer directly influence its size standard going forward, a change worth flagging in comments for any industry where those ratios previously pushed standards in a contractor-favorable direction.

What’s Next?

Both proposed rules were published in the Federal Register on August 20, 2026, opening a 30-day comment period. SBA has indicated the Revised Methodology and the industry-specific size standards proposal are to be read as a single package, and comments on the underlying methodology are likely to be most effective if tied to the specific NAICS codes and dollar or employee figures at stake for a particular commenter. Given the scope of the proposal - 338 industry groups, a new market-size formula, and the elimination of all size standard exceptions - contractors, industry associations, and small business advocates should not wait until late in the comment window to begin analyzing how the proposed standards would affect their specific NAICS classifications, teaming arrangements, and set-aside eligibility.

Hunton Andrews Kurth’s government contracts practice is closely tracking both rulemakings and is available to help clients evaluate the impact of the proposed size-standards on specific NAICS codes, prepare comments, and plan for the eventual final rule.