July 6, 2022

SBA Proposes New Size Standards for 2022 NAICS Codes

Matt Carter, Dinesh Dharmadasa, Richard Oliver

Pillsbury Winthrop Shaw Pittman LLP

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The Small Business Administration’s proposed rule would adopt the latest NAICS revision issued by the Office of Management and Budget, creating 111 new industries by reclassifying, combining or splitting 156 existing industries.

TAKEAWAYS

SBA’s proposed size standards for 111 new industries would result in an increase to the size standards for 21 industries and 27 parts of three industries.

Retail Trade (Sectors 44-45) accounts for the largest proportion of NAICS 2017 industries that SBA proposed to change or amend.

Comments on the proposed rule are due on August 4, 2022.

On July 5, 2022, the U.S. Small Business Administration (SBA) issued a proposed rule to amend its regulations to incorporate the Office of Management and Budget’s 2022 revision to the North American Industry Classification System (NAICS 2022). SBA has consistently revised its size standards to reflect changes to the NAICS structure over the past 20 years—most recently in 2017. SBA’s proposed rule would create “111 new industries by reclassifying, combining, or splitting” 156 existing industries under the NAICS structure from 2017 (NAICS 2017).

Essentially, the new NAICS codes combine or divide certain industries to reflect how those industries have recently evolved. To revise its size standards, SBA relied on the same guidelines it used when it updated size standards to adopt revised NAICS structures in 2002, 2007, 2012 and 2017. For example, where two or more NAICS 2017 industries had the same size measure (e.g., receipts-based) but did not have the same size standard, SBA used “the highest size standard among the NAICS 2017 industries and part(s) that comprise the NAICS 2022 industry, provided that the highest size standard does not include dominant or potentially dominant firms.”

Retail Trade (Sectors 44-45) size standards account for the largest proportion of NAICS 2017 industries that SBA proposed to change or amend—roughly 47 percent, followed by Manufacturing (Sectors 31-33) and Information (Sector 51) size standards. In all, the SBA’s proposed rule results “in an increase to the size standards for 21 industries and 27 parts of three industries under NAICS 2017, a decrease to size standards for seven industries and 41 parts of one industry, a change in the size standard measure from average annual receipts to number of employees for one industry, a change in the size standard measure from number of employees to average annual receipts for a part of one industry, and no change in size standards for 118 industries and 33 parts of eight industries.”

Comments on the proposed rule are due by August 4, 2022. SBA proposes to adopt the NAICS 2022 size standards by October 1, 2022, the beginning of fiscal year 2023.

Government contractors should review the proposed rule to determine whether the SBA proposes to revise any of the size standards that are relevant to their companies.

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DISCLAIMER: 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.