Seismic shift: How SBA’s proposed rules will reshape federal contracting for every small business, veteran, DBE and WBE/MBE firms

September 18, 2026

Alert

McDonald Hopkins previously wrote about SBA's proposed rule, but now we are taking an even deeper look at how it will affect businesses.

This proposed rule could be the most consequential change to federal small business contracting in decades. On August 20, 2026, SBA issued Docket SBA-2026-0199 (NPRM amending 13 C.F.R. § 121.201) and Docket SBA-2026-0265 (size standard methodology review). The proposal consolidates approximately 1,000 NAICS codes into 338 categories, shifts numerous industries from revenue- to employee-based standards, and removes the $47 million revenue and 1,500 employee caps. SBA targets an October 1 effective date. Comments are due September 21, 2026.

Seismic changes proposed

For construction as well as many other NAICS, the proposed rule eliminates gross receipts entirely, replacing it with employee-based standards. Other NAICS with employee based standards have substantial increases in employees. Here are just a few examples.

NAICS Code	Current	Proposed	Change
236220 Commercial Building	$45M receipts	600 emp	Rev→Emp
237310 Highway & Bridge	$45M receipts	700 emp	Rev→Emp
237990 Heavy Civil Eng	$45M receipts	900 emp	Rev→Emp
238210 Electrical Contractors	$19M receipts	500+ emp	Rev→Emp
541310 Architectural Services	$12.5M	$252M	+1,916%
541330 Engineering Services	$25.5M	$252M	+888%
541512 Computer Sys Design	$34M	$531M	+1,462%
541611 Mgmt Consulting	$24.5M	$295M	+1,104%

Key concerns

The proposal adds approximately 114,000 firms, including 37,000+ federal contractors, to the small business pool. Firms with $500 million to $1 billion in revenue could qualify as “small” and win set-asides without subcontracting plans. This could also disrupt MBE/WBE/DBE programs, undermine mentor-protégé incentives, and create protest uncertainty as six-digit NAICS codes map to broader standards. The pathway for growing small businesses to develop and compete for larger contracts can be threatened, as genuinely small firms must now compete within a vastly expanded small business zone.

Affiliation rules: An Important issue to consider

Neither docket addresses impact on SBA’s affiliation rules at 13 C.F.R. § 121.103. With thresholds jumping 500% to 1,400%, large corporate entities with multiple subsidiaries may qualify as small. Federal contractors should evaluate affiliate relationships against proposed standards and consider raising this issue in comments.

DBE program impact

USDOT DBE regulations vary by funding source: FAA projects follow SBA size standards only, while FHWA and FTA projects require both SBA standards and the $32.82 million gross receipts cap. The proposed rule converts construction NAICS to employee-based standards while the receipts cap remains, forcing DBEs to navigate conflicting metrics. ACDBE firms face similar issues with their $56.42 million cap.

State and local government impact

Most states and local governments have Veteran, WBE/MBE, and other small business certification and contracting programs that utilize the SBA size standards, and those participating contractors can be severely impacted. Most of these programs utilize in whole or in part the SBA size standards. These proposed changes, without sufficient time to implement, could easily cause confusion and disruption of those programs, let alone changing the statutes and ordinances that enacted those programs. Some commenters have requested that the SBA suggest a phase-in program to lessen the impact so those involved can fully understand the new rules and create protocols and procedures for compliance.

Probable business strategy changes

The proposed increases will trigger M&A activity as firms currently exceeding size standards may acquire multiple small businesses and still qualify as “small,” consolidating fragmented sectors. Joint venture activity may increase as large businesses newly deemed small seek partners with federal market history. The proposed rules may drastically affect the incentives and appeal to utilize the SBA mentor-protégé program, especially if those mentors will become small under the proposed rule.

Guidance on submitting comments

Deadline: September 21, 2026, 11:59 PM ET. Submit on each docket separately.
- Submit at: https://www.regulations.gov/document/SBA-2026-0199-0001/comment.
- File NPRM comments in Docket SBA-2026-0199; file methodology comments in Docket SBA-2026-0265.
- Compare your NAICS codes against the proposed new size standards. If you believe the SBA should retain six-digit NAICS specificity, restore ceiling protections, and/or extend the comment period, state so.
- Well-supported specific comments with facts and examples are most effective.
- All comments are public. To submit confidential business information (CBI), email GCBDregs@sba.gov with “RIN 3245–AI67” in the subject line, highlight the CBI, and explain why it should remain confidential.

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