In the past year, we’ve seen several changes to government contracting regulations that affect small businesses specifically, including updates from the Small Business Administration (SBA) and amendments to the Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS). Many of these changes benefit small business government contractors by increasing their government contracting opportunities and streamlining the acquisition processes.
In this blog, we’ll give you a synopsis of the recent policy changes and discuss how they’ll impact small businesses in 2025. We’ll also let you know which policies are proposed and which have already become effective.
SBA’s Proposed Small Business Subcontracting Program Updates
This past December, the SBA proposed several revisions to its Small Business Subcontracting Program Regulations. These include the following key new rules:
- Prime contractors must notify Contracting Officers if they fail to make full or timely payments to subcontractors 30 days after the due date. Primes must also complete corrective actions to ensure the subcontractor receives full payment.
- Contracting Officers may include negative reporting on the prime contractor’s past performance rating if the prime contractor is late in paying the subcontractor.
- Prime contractors may base the subcontractor’s size status on the latter’s primary North American Industry Classification System (NAICS) Code, rather than determining a NAICS code based on the nature of the subcontract.
- Prime contractors may use the SBA’s Dynamic Small Business Search (DSBS) in addition to the System for Award Management (SAM.gov) when researching potential subcontractors.
- Prime contractors may base their subcontracting plans on the government’s fiscal year, if desired.
These proposed rules benefit small business subcontractors by encouraging faster payments from their prime contractors. They also allow prime contractors to streamline subcontracting reporting and market research, indirectly benefiting subcontractors involved in these processes.
SBA’s Proposed Expansion of “Rule of Two”
This proposed rule from the SBA aims to expand the “Rule of Two” to orders under Multiple Award Contracts, with the goal of increasing small business participation in government contracting. Per the proposed rule, if a Contracting Officer determines that there is a reasonable expectation of receiving offers that are competitive in price, quality, and delivery from two or more small business contract holders under the Multiple Award Contract, then the task order must be set aside for small businesses.
If this rule is passed, it would apply to all new Multiple Award Contracts, orders placed under those contracts, and new orders on existing Multiple Award Contracts that allow for a set-aside. The rule would not affect existing task and delivery orders. It also would not affect orders under the Federal Supply Schedule, including Multiple Award Schedule (MAS) orders, among other exceptions.
As a result of this rule, small businesses holding Multiple Award Contracts can expect to see more contracting opportunities — the SBA estimates that this rule could increase small business contract spending by $6 billion a year. However, there is some disagreement about whether the proposed rule will have positive long-term effects on small businesses.
SBA’s HUBZone Program Updates and Clarifications
On January 16, the SBA implemented HUBZone program revisions that clarify the requirements for participating in the HUBZone program. Small businesses must meet the requirements below to qualify as a HUBZone business and compete for the program’s set-asides:
- The principal office must be located in a Historically Underutilized Business Zone with at least 35% of employees living in that zone. This percentage remains unchanged, after a proposed increase to 51% (for businesses working fully remotely) faced strong opposition.
- Employees must work at least 10 hours per week to be considered HUBZone employees, compared to 40 hours per month under the previous rule.
- In addition to maintaining HUBZone certification, businesses must now meet eligibility requirements at the time of submitting an offer for a HUBZone contract.
- Businesses must recertify for the HUBZone program every three years, instead of annually.
These revisions don’t substantially alter the HUBZone program’s eligibility requirements. However, small businesses should be aware of even subtle changes to the requirements, to ensure they’re still eligible to take advantage of HUBZone contracting opportunities.
FAR Amendment: Re-representation of Size and Socioeconomic Status
Effective January 17, this amendment to the Federal Acquisition Regulation (FAR) addresses changes in business size and socioeconomic status during the life of a Multiple Award Contract. Per the amended rule, businesses holding unrestricted Multiple Award Contracts must recertify their small business status at the task order level, for that particular order’s NAICS Code size standard.
Previously, businesses could retain their original small business status at the time of award for the life of their Multiple Award Contract. This amendment ensures that only small businesses qualifying at the time of the task order can receive a small business set-aside order. Businesses that lose their small business status due to a merger or acquisition would not be eligible to compete for set-aside task orders.
There are a few exceptions to this rule. Businesses holding Multiple Award Contracts that were originally set aside for small businesses can continue to compete for orders using their original size status. Businesses competing for orders placed under an FSS contract, such as a Multiple Award Schedule contract, don’t have to recertify their small business status at the task order level, either. However, Contracting Officers have the discretion to require recertification.
DFARS Amendment: Past Performance Evaluation of Subcontractors
Effective November 15, 2024, this amendment to the Defense Federal Acquisition Regulation Supplement (DFARS) requires that Contracting Officers evaluate the past performance of small businesses’ proposed subcontractors, in addition to the offeror’s own past performance, for competitive procurements. The rule doesn’t affect contracts at or below the Simplified Acquisition Threshold (SAT) for commercial products or services.
This new rule may help small businesses become more competitive in the offer process if their proposed subcontractors can demonstrate strong past performance. Going forward, small businesses will want to be mindful of this new emphasis on subcontractors’ past performance when choosing subcontractors.
Proposed FAR Amendment: Inflation Adjustment of Acquisition Thresholds
Proposed this past November, this amendment to the FAR will increase multiple acquisition-related thresholds. These increases include the following:
- Standard Micro-Purchase Threshold (MPT): $10K to $15K
- Standard Simplified Acquisition Threshold (SAT): $250K to $350K
- Simplified acquisition threshold for commercial items under FAR 13.500: $7.5M to $9.5M
- Threshold for reporting first-tier subcontracting information including executive compensation: $30K to $40K
- Threshold for limiting competition to eligible 8(a) awards: $25M to $30M
- Approval thresholds for other-than-full-and-open competition, as outlined in FAR 6.304: $750K to $950K, $15M to $20M, and $100M to $150M.
- Ceiling for using simplified procedures for commercial items in FAR 13.500(c): $15M to $20M.
- Cost or pricing data threshold: $2M to $2.5M
- Threshold for justifying single-award indefinite-delivery contracts: $100M to $150M
- Floor for prime contractor subcontracting plans: $750K to $950K ($1.5M to $2M for construction contracts)
Acquisition thresholds such as the micro-purchase threshold and simplified acquisition threshold give small businesses access to government contracting opportunities without the time and expense of going through a competitive bidding process. The proposed increases above are intended to adjust for inflation and ensure that these thresholds continue serving their purpose of streamlining acquisition processes for small and large businesses alike.
However, since this is a proposed amendment and we have a new presidential administration, this could end in its tracks, or take longer to be made final.
Staying on Top of Policy Changes in Government Contracting
While we’ve covered some important SBA, FAR, and DFARS updates specific to small businesses, small businesses should make sure they’re staying on top of all of the latest policy changes in government contracting, especially with a new administration. We recommend checking out our analysis of key Executive Orders impacting federal contractors and our breakdown of federal contracting trends to follow in 2025. Multiple Award Schedule (MAS) contractors may be curious to know how the new administration will affect the MAS program specifically.
To stay up to date on future policy changes in government contracting, subscribe to our blog and monthly newsletter. If you have any questions on how these policy changes affect your contract, our consultants are here to help.
