President Donald Trump has signed a bill altering the way companies are assessed to be small businesses eligible for federal contract set-asides, the White House announced Tuesday.
In a brief statement, the White House said that President Trump had on Monday signed into law H.R. 6330, the Small Business Runway Extension Act of 2018, alongside several other bills. The bill had passed the House in September through a voice vote, and then passed the Senate on Dec. 6, again by voice vote.
The bipartisan bill tweaks the Small Business Act to allow companies to use their average revenue from the last five fiscal years for the purposes of determining whether they qualify as a small business under Small Business Administration standards, rather than the previous standard of three years.
It does not change any revenue limits, which vary depending on industry and can go as high as nearly $39 million in average revenue for companies in certain industries.
What the change means in practice, the House Small Business Committee noted when it first considered the bill, is that most smaller federal contractors will stay formally qualified as a small business, eligible for federal set-aside contracts and assistance from the Small Business Administration, for longer.
Rep. Steve Knight, R-Calif., one of the bill’s two main sponsors, had said in a statement when introducing the bill in July that the three-year average standard had led in some cases to some still-fledging “mid-tier” companies being ejected from small business programs prematurely.
One circumstance that could lead to that happening, according to Knight, is an uncharacteristically big year that pulls a company’s average revenues above the threshold for being considered a small business.
“This leads to some companies intentionally throttling back their own success or being forced into an overly competitive environment they are not ready for,” unable to fully compete with larger companies in the unrestricted federal market, he said.
By giving companies the chance to average their revenue over five years for small business qualification purposes, they will have more certainty as they grow, and more time to prepare for competition with larger companies if they do choose to move outside the small business category, Knight claimed.
After Knight introduced the bill, Chairman of the Small Business Committee Steve Chabot, R-Ohio, said the bill would help address a long-standing problem of smaller companies effectively being ignored by the government once they graduate from small business status into the “middle market,” despite often lacking the capability to fully compete with larger businesses.
The end result of the Runway Act will be to increase competition in federal contracting and therefore save taxpayers money, Chabot claimed.
Reactions from several attorneys who represent small business contractors were largely positive Tuesday after Trump signed the bill into law.
They echoed Knight’s comments about small businesses on the threshold of exceeding revenue limits under the previous standard having to curb their revenue growth, as well as noting that some other small business owners had effectively been forced to sell their businesses rather than dealing with the complexity of the unrestricted federal contracting marketplace, with those business sales sometimes coming at fire-sale prices.
There is one type of smaller business that may lose out under the new rules, however, they said — companies whose revenues peaked several years ago but are now on the decline, which may no longer qualify as small businesses when they would have under the previous standard.