Buying or selling relating to a small business federal contractor? What you need to know about SBA’s new recertification rules

On Jan. 16, 2025, the Small Business Administration’s (SBA) amended rules governing recertification of size and SBA program status became effective, transforming companies’ recertification obligations with respect to contract awards and mergers and acquisitions. A company’s status as a small business or a qualified small business program participant is vital for the company’s ability to bid on and receive contract awards that are set aside for small businesses or set aside under one or more of the SBA’s set aside contracting programs, including the women-owned small business (WOSB), service-disabled veteran-owned small business (SDVO), HUBZone, and 8(a) programs. The amended recertification rules will affect the ability of small businesses and SBA program participants to continue to qualify for continued performance under awarded contracts and to bid for future contracts and orders that are set aside for small business or SBA program participants. The anticipated effects are causing waves in the small business government contracting communities, so we are here to provide a quick overview of the recertification rule changes.

Who is affected by these recertification rule changes?

The recertification rules and the applicable size standards only apply to contracts or orders that are set aside for small businesses or SBA program participants. These recertification rules do not apply to contracts or orders that are considered “full and open” to all bidders. However, even on full and open awards where a company certified its size status for agency small business goaling purposes, companies typically should inform procuring agencies of changes in the company’s small business size and program status.  Recertification rules may also apply to SBA program participants. 

When is size status determined?

Generally, a company must certify its size status as “small” or “as other than small” when it submits an initial bid or proposal that includes the company’s pricing in response to a solicitation for a contract or option that has been set-aside for small businesses of some kind. In order to qualify as “small” for a procurement, the business must not exceed the maximum size standard for the NAICS code assigned to a contract or order.

As a general rule, if a company qualifies as small as of the applicable certification (i.e., the “size determination date”), then the company will qualify as small throughout the life of the contract. However, there are several exceptions to this general rule, which is where the recertification rules come into play.

Recertifications following M&A

 A company must recertify its size and SBA program status within 30 days of a merger, acquisition, or sale by the company or any of its affiliates, where the transaction results in a change in controlling interest. This means that recertification applies to both equity and asset sales. An often-overlooked aspect of this rule is the impact on affiliates:  the buyer, the target company, and their affiliates may each have an obligation to recertify their respective size and program status following a merger or acquisition. This recertification can significantly affect the target and affiliated companies’ ability to continue to perform under (and bid for) small business contracts and other set-aside contracts.

Key implications of these SBA recertification rule changes for small business and SBA program participants include:

1. Applicable size standard. A company will recertify its size status based on the size standard in effect on the date of the recertification, rather than the size standard associated with the initial certification.
2. Agreements in principle. “Agreements in principle” are no longer sufficient to trigger a company’s recertification obligations. Thus, recertification and size/status changes will be more predictably tied to transaction closing dates.
3. Effect of recertification. If a company can recertify as small or as a qualified small business program participant required for eligibility to participate in an applicable contract or award, then the company will generally be considered small or a qualified small business program participant, as applicable, for up to 5 years following the date of recertification.
4. Single-awardee contracts. If a company cannot recertify its small business size or SBA program status required for eligibility to participate in an applicable contract or award, then, in the case of single awardee contracts, including IDIQs, the company will continue to be eligible to receive options under the contact; however, the procuring agency cannot count the option period as an award to a small business or a qualified small business program participant for goaling purposes.
5. Outstanding proposals – 180 day rule. In the case of outstanding proposals for single awardee contracts, if a company cannot recertify its size or SBA program status required for eligibility to participate in an applicable award, then, the participant may not be eligible to receive award of outstanding proposals. If the transaction/closing occurs within 180 days after the date of the offer, but prior to the award, the company will be ineligible to receive the pending small business or set aside award. If transaction occurred more than 180 days following proposal submission and prior to award, then the company may be eligible for certain awards. Multiple awardee contracts are not subject to this 180-day rule; instead, the awardee is no longer eligible for award. Note that affected bidders may also have reporting obligations to inform the agency of changes in their size/status.
6. Multiple awardee IDIQ contracts. Multiple awardee contracts and relevant orders are subject to additional nuanced rules. McDonald Hopkins will issue a follow-up article regarding these contracts in the weeks ahead. We recommend that you consult with qualified government contracts counsel regarding recertification requirements in this area.
7. One-year grace period. The SBA has delayed effectiveness of some of the impacts of disqualifying recertifications in connection with mergers and acquisitions until January 17, 2026, but this does not apply to all situations. This grace period creates a significant incentive for parties contemplating potential mergers or acquisitions involving small business federal contractors to complete those transactions during that grace period.

McDonald Hopkins M&A attorney Francis Massaro and government contracts attorney Carissa Siebeneck Anderson are available to answer questions regarding government contracts issues, including recertification matters, in mergers and acquisitions.