The Small Business Administration published a proposed rule on August 20 that would change how every federal contracting officer decides whether a construction company is small. Instead of annual receipts, the test would be headcount.
The rule replaces all 978 existing six-digit NAICS size standards with 338 standards set at the four- and five-digit level, eliminates all 18 exception subindustries, and removes the existing $47 million cap on revenue-based standards entirely. For construction, it converts the whole sector to employee-based thresholds.
The numbers that change
Under the proposal, Commercial and Institutional Building Construction (236220) moves from $45 million in receipts to 600 employees. Highway, Street and Bridge Construction (237310) goes from $45 million to 700 employees. Electrical Contractors (238210), Plumbing/Heating/A-C Contractors (238220) and Site Preparation (238910) all move from $19 million to 550 employees. Roofing (238160) goes to 650. Power and Communication Line Construction (237130) lands at 1,500, and Oil and Gas Pipeline Construction (237120) at 2,000.
SBA’s own language is unusually direct about why: the current standards, it writes, “were developed in 2022 during COVID and have not been adjusted for inflation since,” which “makes the standard unreasonably low for many of the industries, including the construction industry.”
Who gets swept in
SBA estimates a net 114,541 additional firms would qualify as small, including 37,002 that already held federal contracts in FY2025. Together those firms hold 105,655 contracts worth more than $71 billion that would newly count toward agency small-business goals. Engineering Services (541330) is the single largest affected industry at 5,314 newly-small firms; Architectural Services (541310) adds 530.
Those are SBA’s modeled estimates in the preamble, not independently audited counts.
What it means if you bid federal work
Two effects run in opposite directions, and which one you feel depends on where you sit.
If you’re a contractor who outgrew the receipts threshold in the last three years — largely because of material inflation rather than because you got bigger — this puts you back in the small-business pool. A firm doing $60 million with 200 field employees is not a large business in any operational sense, and the receipts test has been treating it like one.
If you’re a genuinely small firm that has been competing inside set-asides against companies at the ceiling, this makes your competitive set considerably tougher. A 550-employee electrical contractor and a 12-employee electrical contractor will be bidding the same set-aside.
There’s also a structural argument for headcount that has nothing to do with fairness: revenue in construction is largely pass-through. A contractor who self-performs little and subs everything books enormous receipts on a small organization. Employee count measures capacity. Receipts measure how much material moved through the books.
Comments close September 21, 2026. A companion notice, the 2026 Revised Size Standards Methodology white paper, published the same day. The rule is signed by SBA Administrator Kelly Loeffler. For context on the scale of federal work the threshold governs, see the Portsmouth Naval Shipyard Dry Dock 1 extension, a $1.73 billion NAVFAC contract funded incrementally across seven years.