United States: Five-Year Annual Receipts: Don't Start Until SBA Says "Go!"

Last Updated: August 23 2019
Article by Damien C. Specht and Lauren J. Horneffer

Absent further action by the Small Business Administration ("SBA") Office of Hearings and Appeals or a Federal Court, the GAO has effectively ended the argument as to whether the Small Business Runway Extension Act of 2018 ("Runway Extension Act") immediately changed the annual receipt average for revenue-based small business size standards from three years to five. In short, firms should continue to apply the three-year standard until SBA's regulatory process runs its course.

Given fairly clear congressional intent that the change should be immediately implemented, but guidance from SBA that pointed in the opposite direction,1 there was some debate about whether the Runway Extension Act was immediately self-executing or whether formal rulemaking was required for it to take effect. SBA took the position that it needed to implement the change through rulemaking, and has taken steps to do so as of June 24, 2019. However, this rulemaking came too late for TechAnax, LLC and Rigil Corporation, two pre-award protesters of a General Services Administration ("GSA") solicitation for new contracts on the One Acquisition Solution for Integrated Services ("OASIS") small business pools. In TechAnax, LLC; Rigil Corporation, B-408685.22; B-408685.25, GAO held that it was not unreasonable for the agency to use a three-year annual receipts average in accordance with SBA guidance.

The solicitation provided for the award of indefinite delivery, indefinite quantity ("IDIQ") contracts in small business pools 1, 3, and 4. To be eligible for award, each offeror was required to be a small business under the size standards corresponding to the North American Industry Classification System ("NAICS") codes for the pool(s) in which it intended to compete. Both protesters intended to compete in Pool 1, which has a small business size standard of $15 million in annual receipts. On June 6, 2019, GSA issued an amendment to the solicitation stating that the GSA would follow SBA's position that the Runway Extension Act was inapplicable until a final rule was promulgated. Accordingly, GSA intended to apply a three-year average to calculate size. TechAnax and Rigil protested the terms of the solicitation, arguing it did not comply with the Runway Extension Act, which (they argued) took effect immediately upon enactment of the statute.

GAO denied the protest, holding that, although the Runway Extension Act might have been effective immediately, the Act itself requires SBA to promulgate regulations to give effect to the new measurement period. At the time of the GAO decision, SBA had not yet finalized a rule giving effect to the change from a three-year to a five-year annual receipt average. As a result, GAO deferred to SBA's interpretation of the statute and denied the protests.

In the interim, SBA's rulemaking continues on, with the due date for comments on its proposed rule implementing the Runway Extension Act set on August 23, 2019. In all likelihood, that means a final rule late this year or early next year. Until that time, businesses should continue to use the three-year average for revenue-based size standards.

Footnotes

[1] See SBA Information Notice No. 6000-180022 dated December 21, 2018.



Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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