SBA Assesses Inflation Impact and Increases Thresholds for Size Standards, Economic Disadvantage and 8(a) Program
December 20, 2022
The Small Business Administration (SBA) published an interim final rule on November 17, 2022, which increases the thresholds for receipt-based sized standards, economic disadvantage programs and the 8(a) sole source dollar limitation, effective December 19, 2022. The SBA is required to assess the impact of inflation on its monetary-based size standards at least every five years, with the most recent adjustment in July 2019. However, due to recent record inflation, the SBA completed a second review this year and determined that industry structure and federal market conditions warranted an increase in the following areas.
Economic Disadvantage Thresholds for 8(a) And EDWOSB Programs
Net Worth: Under current regulations, the net worth of an individual claiming economic disadvantage under the 8(a) program or the economically disadvantaged woman-owned small business (EDWOSB) program must be less than $750,000. Because inflation (as measured by change in the GDP price index) increased by 11.86% since 2019, the SBA adjusted the net worth threshold by this percentage, equating to $838,943, which the SBA rounded up to $850,000.
Aggregate Gross Income (AGI): Under current regulations, the SBA presumes an individual is not economically disadvantaged if their three-year average AGI is over $350,000. Applying the same 11.86% inflation adjustment, the increase would equal $391,506, which the SBA rounded up to $400,000.
Total Assets: Under current regulations, if the fair market value of an individual’s assets exceeds $6 million, they are generally not considered economically disadvantaged. Applying the same 11.86% inflation adjustment, the adjusted threshold would equal $6,711,534, which the SBA rounded down to $6,500,000.
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8(a) and EDWOSB Thresholds |
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Current |
Adjusted |
|
|
New Worth |
$750,000 |
$850,000 |
|
Three-year AGI |
$350,000 |
$400,000 |
|
Total Assets |
$6,000,000 |
$6,500,000 |
Monetary-Based Size Standards
The SBA calculated that inflation increased 13.65% from the fourth quarter of 2018 to the first quarter of 2022 and used this percentage as the adjustment for size standards. All receipts-based industry size standards are increased by 13.65% and results are rounded to the nearest $500,000, except agricultural industries, which are rounded to the nearest $250,000.
8(a) Sole Source Dollar Limitation
Participants in the 8(a) program (other than those owned by an Indian Tribe, ANC, NHO or CDC) cannot receive sole source 8(a) contract awards in excess of $100 million during program participation. This threshold was implemented in 1998 and has never been adjusted for inflation. The SBA calculated that since 1998, inflation has increased by 68.33% and has increased the sole source limitation by that percentage, adjusting the limit to $168,500,000 (rounded).
Summary
It is uncommon for the SBA to review and adjust thresholds outside of the five-year cycle, and these adjustments are good news for small businesses. Companies currently in the 8(a) and EDWOSB programs may be able to maintain eligibility longer due to these threshold increases, and some companies may be able remain or return to small business status given the adjusted size standards.
If you have any questions about how these adjustments could impact your company, eligibility under the 8(a) or EDWOSB programs, or the NAICS codes relevant to you, reach out to Cherry Bekaert’s Government Contractor Consulting Services advisory team.