Small Business Runway Extension Act

When Will the 5-Year Average Go into Effect?

On December 17, 2018, President Trump signed the Small Business Runway Extension Act (H.R. 6330) (Runway Act). The purpose of the Runway Act is to change the calculation for small business revenue-based size standards. The current size standard calculation is based on the business’ average annual revenue over the three previously completed fiscal years.  The Runway Act changes this calculation to an average over five previously completed fiscal years.

This change will help businesses in the service and construction industries that have ascending revenues on an upward slope, by utilizing lower revenue from previous fiscal years. The change could negatively impact some businesses with lower revenue in the previous three years, but high revenue four to five years prior.

The Small Business Runway Extension Act provides that, absent specific statutory authority, SBA creates the size standards that apply government-wide. The Small Business Act also provides that if an agency wants to create its own size standards, it must get approval from SBA and follow certain rules, e.g., create service size standards based on annual revenue. The Runway Act amended this section of the Small Business Act that applies to other agencies when they want to create their own size standards.

Historically, SBA has followed the guidance in this section of the Small Business Act when creating the size standards that apply to government contracting.  However, because this section of the Small Business Act does not directly apply to SBA and because the change could negatively impact some small businesses, it is likely that SBA will have to issue a proposed rule to amend 121.104 to implement the Runway Act. After issuing a proposed rule with request for comment, SBA can then issue a final rule after reviewing comments. Typically, a final rule is effective 30 days after publication in the Federal Register.

Once the final rule is effective, the new calculation time period will apply to solicitations issued on or after the effective date and will apply to firms that have to rectify their size for awarded contracts after the effective date as well. As a small business owner trying to figure when this rule will come into effect, you are looking at a timeline of anywhere from several months to a year or more. Government shutdowns will not help move this process along. It is also possible that Congress could try again and amend the Small Business Act to make the new calculation time period apply to SBA when it establishes size standards.

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