Small Business Administration Final Rule Makes Significant Changes to Recertification Regulations and Various Government Contracting Programs

New Terminology
The final rule unifies SBA’s recertification regulations, placing them in a new section of its regulations, 13 C.F.R. § 125.12. The final rule also introduces new basic terms, most notably: “disqualifying” and “qualifying” recertifications. “Disqualifying” recertifications are simply those recertifications made by a contractor stating it is “other than small or other than a qualified small business program participant that is required for eligibility to participate in a Set Aside or Reserved Award.” In other words, a disqualifying recertification occurs when a contractor certifies that it is no longer a small business or no longer meets another type of small business program status (i.e., 8(a), HUBZone, WOSB/EDWOSB or SDVOSB) when a set-aside contract is premised on such status. The potential consequences of a “disqualifying” certification are complex, as discussed below.

Conversely, a “qualifying” recertification means “a recertification as small or as a qualified small business program participant that is required for eligibility to participate in a Set Aside or Reserved Award.” A contractor that has a qualifying certification will remain eligible for new set-aside orders and options under multiple-award contracts (MACs) for up to five years from the date of the recertification, unless there is a subsequent disqualifying recertification.[1]

When Is Size Determined?
The final rule does not change the general rule that a contractor’s size is determined as of the date of its submission of its proposal including its price and that the contractor’s status does not change throughout the life of the contract. The final rule does, however, clarify one of the key exceptions to this rule, concerning orders or agreements set aside under most unrestricted MACs. SBA emphasized that, in such a procurement, size is determined at the time of proposal submission for the set-aside order or agreement, not at the time of the award of the underlying contract. SBA also emphasized that this rule applies to all unrestricted MACs except the Federal Supply Schedule (FSS). For orders and agreements set aside under the FSS program, size is determined as of the date of submission of the proposal for the FSS contract or the date of the latest recertification for the contract, not the date of the submission of the proposal for the set-aside order or agreement.

The other key exceptions to the general rule are the following recertification events: (1) In the event of an acquisition, sale, merger or novation, both the acquired and acquiring concern, and their affiliates, must recertify within 30 days after the acquisition, sale, merger or novation approval; (2) For long-term contracts (i.e., contracts with terms, including options, exceeding five years), recertification is required before the end of the fifth year of the contract and before the end of each option period thereafter; and (3) A contracting officer, in his or her discretion, may request recertification in connection with a particular solicitation for an order or agreement that is set aside under any contract.

SBA’s final rule focuses on the impact of recertification in the event of an acquisition, sale or merger, and under long-term contracts.

Acquisition, Sale or Merger
As an initial matter, the final rule provides two important clarifications in the meaning of the terms acquisition, sale or merger, as used in the final rule. First, recertification is required only for a transaction that results in a change in “controlling interest” of the contractor. Second, in an important change from SBA’s proposed rule, recertification is not triggered by the execution of an “agreement in principle.” An agreement in principle presumably can still lead to affiliation, but in the final rule, SBA decided that an “agreement in principle” is not sufficient to trigger recertification.

Set-Aside-Multiple-Award Contracts
The final rule’s recertification requirements will have perhaps its most dramatic effect on the award of orders under MACs that were set aside for small business (including contract awards of small business “reserves”) following a disqualifying recertification for the MAC. As noted above, a contractor must recertify under a long-term contract before the end of the fifth year of the contract and before the end of each option period thereafter and must recertify in the event of an acquisition, sale, merger or novation.

SBA’s current rule does not prohibit agencies from continuing to award new task orders and agreements to a contractor under a set-aside MAC after the contractor has recertified as other than small. Now, per SBA’s final rule, agencies will be prohibited from continuing to award new set-aside task orders and agreements to a contractor under a set-aside MAC after the contractor has submitted a disqualifying recertification. The contractor will also be ineligible for any new options under the MAC. The contractor, however, will remain eligible for unrestricted orders and agreements if such orders and agreements are allowed under the MAC.

One-Year Delay
Critically for many companies considering engaging in a transaction in the next year, SBA is delaying the effective date of the above prohibition on further awards under set-aside MACs until January 17, 2026. A contractor that submits a disqualifying recertification due to an acquisition, sale or merger that occurs before January 17, 2026, will remain eligible for awards under set-aside MACs. Similarly, a contractor that submits a disqualifying recertification prior to the fifth year of a long-term-set-aside MAC will remain eligible for any options that are exercised prior to January 17, 2026. Note that these permissions may be limited by the MACs themselves, as discussed below. In any case, the contracting agency may not count the value of such options towards its socioeconomic contracting goals.

Transactions Involving Two Small Businesses
As a major exception to the above prohibition on further awards under set-aside MACs, if a contractor submits a disqualifying recertification due to a merger, acquisition or sale involving another small business, the contractor will continue to be eligible for set-aside orders and agreements. The contractor also remains eligible to receive options under the MAC. Again, these permissions may be limited by the MACs themselves. And again, the contracting agency may not count the value of an order or agreement awarded to such a contractor towards its socioeconomic contracting goals.

Set-Aside MAC Terms and Conditions
Notably, many MACs contain special contract terms and conditions that bar a contractor from receiving new set-aside orders or agreements, or new options under the MAC, after a disqualifying recertification. The final rule does not expressly address these situations. These contract terms and conditions may continue to apply—notwithstanding the delay of parts of the final rule until January 17, 2026, and the exception for transactions involving two small businesses.

Single-Award Contracts
The final rule does not change the recertification regime regarding existing single-award contracts. A contractor that submits a disqualifying recertification under a single-award-set-aside contract remains eligible for orders, agreements and options under such contract. The contracting agency, however, may not count the value of orders, agreements and options awarded after a disqualifying recertification towards its socioeconomic contracting goals.

Pending Offers for Set-Aside Awards
The final rule also changes the effect of a disqualifying recertification on pending offers for set-aside awards. The effect depends first on whether the event triggering the recertification (i.e., the acquisition, sale, merger or novation) occurred within 180 days after the submission of the offer. If the recertification event occurred within 180 days, the offeror is ineligible for that set-aside award. The offeror is ineligible regardless of whether the procurement is for a single award or multiple awards.

If the recertification event occurs more than 180 days after the submission of the offer, the effect depends on whether the procurement is for a single award or multiple awards. For a multiple-award-set-aside, the offeror is still ineligible, even though more than 180 days have passed since proposal submission. However, for a single-award-set-aside, if the recertification event occurs more than 180 days after the submission of the offer, the offeror will be eligible for award; moreover, the contracting agency in this instance may count the award towards its socioeconomic contracting goals.

New Protest Rights
Finally, SBA will now allow size protests of recertifications made by other contractors under MACs. In its final rule, SBA stated that it believes that other contract holders should have the ability to question a size recertification.

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SBA’s final rule makes sweeping changes to the recertification regime that will significantly affect many small businesses and large businesses in connection with M&A activity. Some of the effects remain unknown, will be subject of debate, and may be fleshed out only after litigation or clarification from the SBA. Pillsbury’s experienced government contracts team stands ready to assist you in determining how these changes affect your business.

^{[1] For simplicity, this alert discusses recertification in terms for recertification of size status. The recertification rules apply equally the other types of small business program status (e.g., 8(a), HUBZone, WOSB/EDWOSB or SDVOSB).}