Takeaways

The Runway Act will allow some service contractors who would have otherwise outgrown their applicable size standard to remain eligible for small business set-aside contracts.
It may also negatively affect certain large businesses with declining revenues by extending the period before they can become eligible for small business set-aside contracts.
Small business concerns and large business concerns that have recently outgrown their size standards should be aware of this change in the method of calculating their average annual revenues when conducting business planning.

The Runway Act, the operative language of which is only one sentence, amends the Small Business Act to extend the period for calculating average annual revenue for service providers from three to at least five years to determine eligibility for small business set-aside contracts using applicable North America Industry Classification System (NAICS) Codes. (The Runway Act states: “Section 3(a)(2)(C)(ii)(II) of the Small Business Act (15 U.S.C. 632(a)(2)(C)(ii)(II)) is amended by striking ‘3 years’ and inserting ‘5 years’.” Pub. L. No. 115-324.) It does not impact the time period for calculating the size of non-services related (e.g., manufacturing) businesses, nor does it affect the SBA’s revenue standards for the NAICS Codes. (See 13 C.F.R. § 121.201.) President Trump signed the Runway Act on December 17, 2018.

By extending the period for calculating a concern’s average revenue, the Runway Act will mitigate the effect of a short-term revenue spike on whether a business meets the applicable size standards. Small businesses that would have otherwise outgrown the size standard may now have an opportunity to continue their eligibility based on the new measurement period. However, businesses with declining revenues that had previously outgrown the applicable size standard due to a temporary revenue spike, but had expected to become eligible to compete for set-aside contracts (as the short-term revenue spike fell out of the measurement period with the passage of time), may find themselves excluded from small business eligibility for a longer period due to the new measurement period.

Although the Runway Act has been enacted, the SBA states that it still needs to promulgate regulations to implement the Act. Shortly after the law was enacted, SBA issued an “Information Notice” stating that “[t]he change made by the [Runway Act] is not presently effective […] until implemented through the standard rulemaking process,” and “until SBA changes its regulations, businesses still must report their receipts based on a three-year average.”

Thus, SBA’s position is that the three-year average will remain in effect for the immediate future, at least until SBA changes it through formal rulemaking. In the meantime, when conducting their business planning, all business concerns interested in maintaining or reestablishing small business size eligibility should be aware of this change in the method of calculating their average annual revenues.