U.S. GOVERNMENT PUBLISHING OFFICE

35–608 WASHINGTON : 2019

CLEARED FOR TAKE-OFF? IMPLEMENTATION OF 

THE SMALL BUSINESS RUNWAY EXTENSION ACT 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED SIXTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

MARCH 26, 2019 

Small Business Committee Document Number 116–012 

Available via the GPO Website: www.govinfo.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA VELA ́ ZQUEZ, New York, Chairwoman 

ABBY FINKENAUER, Iowa 

JARED GOLDEN, Maine 

ANDY KIM, New Jersey 

JASON CROW, Colorado 

SHARICE DAVIDS, Kansas 

JUDY CHU, California 

MARC VEASEY, Texas 

DWIGHT EVANS, Pennsylvania 

BRAD SCHNEIDER, Illinois 

ADRIANO ESPAILLAT, New York 

ANTONIO DELGADO, New York 

CHRISSY HOULAHAN, Pennsylvania 

ANGIE CRAIG, Minnesota 

STEVE CHABOT, Ohio, Ranking Member 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member 

TRENT KELLY, Mississippi 

TROY BALDERSON, Ohio 

KEVIN HERN, Oklahoma 

JIM HAGEDORN, Minnesota 

PETE STAUBER, Minnesota 

TIM BURCHETT, Tennessee 

ROSS SPANO, Florida 

JOHN JOYCE, Pennsylvania 

ADAM MINEHARDT, Majority Staff Director 

MELISSA JUNG, Majority Deputy Staff Director and Chief Counsel 

KEVIN FITZPATRICK, Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Jared Golden ................................................................................................... 1 

Hon. Pete Stauber ................................................................................................... 1 

WITNESSES 

Mr. David Black, Partner, Holland & Knight, Tysons, VA .................................. 5 

Ms. Megan C. Connor, Partner, PilieroMazza PLLC, Washington, DC .............. 6 

Mr. Brian Morales, President, ProCal Lighting, Vista, CA, testifying on behalf 

of the National Electrical Contractors Association ........................................... 8 

Ms. Erin Allen, President, Contemporaries, Inc., Silver Spring, MD, testifying 

in her role as a board member on behalf of the Montgomery County Chamber of Commerce ................................................................................................... 9 

APPENDIX 

Prepared Statements: 

Mr. David Black, Parnter, Holland & Knight, Tysons, VA ........................... 18 

Ms. Megan C. Connor, Partner, PilieroMazza PLLC, Washington, DC ....... 35 

Mr. Brian Morales, President, ProCal Lighting, Vista, CA, testifying on 

behalf of the National Electrical Contractors Association ......................... 42 

Ms. Erin Allen, President, Contemporaries, Inc., Silver Spring, MD, testifying in her role as a board member on behalf of the Montgomery 

County Chamber of Commerce .................................................................... 49 

Questions for the Record: 

Questions from Hon. Jared Golden to Mr. David Black and Answers 

from Mr. David Black ................................................................................... 56 

Questions from Hon. Jared Golden to Ms. Megan C. Connor and Answers 

from Ms. Megan C. Connor .......................................................................... 70 

Additional Material for the Record: 

Statement of EA Engineering, Science, and Technology, Inc., PBC ............ 73 

Statement of Dr. Richard Amos, President, COLSA Corporation, Huntsville, AL ......................................................................................................... 76 

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(1) 

CLEARED FOR TAKE-OFF? IMPLEMENTATION 

OF THE SMALL BUSINESS RUNWAY EXTENSION ACT 

TUESDAY, MARCH 26, 2019 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

SUBCOMMITTEE ON CONTRACTING AND INFRASTRUCTURE, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:05 a.m., in Room 

2360, Rayburn House Office Building. Hon. Jared Golden [chairman of the Subcommittee] presiding. 

Present: Representatives Golden, Balderson, Hagedorn, and 

Stauber. 

Chairman GOLDEN. Good morning. The Committee will come to 

order. 

I want to thank everyone for joining us this morning, and I especially want to thank the witnesses for being here today. I also 

wanted to take an opportunity to thank my Ranking Member, Representative Stauber. I am glad to be getting to know you and I look 

forward to working together to create bipartisan solutions to help 

small businesses all across the country, from Belfast, Maine, and 

hopefully I get this right, to Brainerd, Minnesota. 

Mr. STAUBER. Brainerd, you did. 

Chairman GOLDEN. All right. There we go. 

America’s small businesses are economic engines that drive 

growth and jobs in the U.S. economy. The nearly 30 million small 

firms in the U.S. represent 99.7 percent of all employers and generate two-thirds of all new jobs. Back home in the state of Maine 

where I come from this is very much the case. What is very interesting is how many of our small businesses are truly very small. 

We are talking 10 employees or less that make up the great majority. 

Firms like this play such a crucial role in our economy, and it 

is critical that Congress enact policies that promote small business 

entrepreneurship, job creation, and also provide opportunities for 

growth. In fact, Congress has created tax preferences and loan programs to help small businesses thrive, and as one of the largest 

purchasers of goods and services in the world, the Federal Government is in a unique position to support small businesses by providing contracting opportunities to help small businesses succeed. 

When we establish policies aimed at helping small businesses, 

one of the decisions that Congress has to make is how to define a 

small business. I think very much the subject of this hearing as 

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you all know, how we define that business will determine who is 

eligible for contracting opportunities and other incentives designed 

to help small businesses compete. Getting that target right is important as I can be too narrow, pushing a firm outside the size 

standard, or it can be too broad, allowing a large firm to compete 

in these programs and overpower the small business. The end result is the same—small firms deprived of Federal contracting opportunities. 

Last year, this Committee, and Congress as a whole, addressed 

this very issue by passing the Small Business Runway Extension 

Act, which requires SBA to use the gross receipts of a small business over 5 years as opposed to 3 years when considering granting 

Federal contracts. This change was designed to assist small businesses successfully bridge the gap between competing in the small 

business space and the open marketplace against larger companies. 

The Small Business Runway Extension Act is a move in the right 

direction to ensure that small businesses can mature, become prosperous, and create additional jobs that spur economic growth without having one or two particularly good years or contracts bump 

that firm out of the small business category before it is ready to 

compete with larger firms. 

Unfortunately, since the Runway Extension Act became law last 

year, its interpretation and implementation has been contested. 

Shortly after the bill was passed, questions arose as to whether the 

bill was to take immediate effect. Businesses benefitting from the 

5-year change hoped, and I believe anticipated that the change 

would take effect immediately so they may continue to certify as 

a small business in 2019. Surprisingly, the SBA has suggested that 

the Runway Extension Act applies to every other agency adopting 

its own size standard but not to the SBA itself. 

While the merit of that argument is debated by legal experts, the 

SBA is working on regulations to implement the law, and we are 

doing our own analysis by holding today’s hearing. It is my intent 

that this hearing ensure that congressional intent is not thwarted 

and small businesses have the Federal contracting opportunities 

that Congress decided and determined last year that they deserve. 

I look forward to hearing from our witnesses and exploring the 

controversies surrounding the implementation of the act, discussing 

potential solutions to mitigate these challenges, and examine additional steps, if any, that may be necessary to ensure that this Committee and Congress’s intent is fully implemented and in a timely 

manner. 

I thank all the witnesses for their attendance and insights into 

this important topic. I would now like to yield to the Ranking 

Member, Mr. Stauber, for an opening statement. 

Mr. STAUBER. Thank you, Mr. Chair. And I, too, look forward 

to working with you, and I appreciate this opportunity. 

The Small Business Runway Extension Act, led by the former 

Chairman of this Subcommittee, was intended to be uncomplicated 

and straightforward. In fact, it changes only one word in the Small 

Business Act. Unfortunately, as simple as that was, the actual implementation of the law has been equally difficult. 

The purpose of the Runway Act was to allow graduating small 

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peting against titans of industry in the open market. Recognizing 

the significance of this bill for small businesses, the Runway Act 

easily passed through both the House and Senate, becoming law on 

December 17, 2018. Quickly following the law’s passage, the Small 

Business Association put the brakes on its implementation. The 

SBA sent an information notice to all Federal agencies halting the 

switch to the 5-year rule as mandated by the Runway Act. The 

SBA decided they would keep in place the previous 3-year calculation currently in regulation until the agency could undertake an assessment of the law through the rulemaking process. 

Unfortunately for small businesses fluctuating between small 

and ‘‘other than small,’’ this conflict in the law versus regulation 

poses significant, real-world challenges in the form of potential size 

protests and uncertainty facing small businesses and their recertifications. Advocate for the immediate implementation of the Runway 

Act criticized the SBA’s reasoning on what they view as a straightforward and helpful piece of legislation. 

However, businesses facing declining revenues applaud the 

SBA’s cautious and transparent approach. Who is or is not considered small is up for debate, and understanding how to best achieve 

clarity in the law may help alleviate this uncertainty. 

Regardless of who prevails in the legal arguments surrounding 

this debate, it is important that this Committee take a practical, 

policy-oriented approach to this issue and identify how best to respond to the concerns of our small businesses. 

At the end of the day, our primary responsibility is to small businesses, and we must take the greatest care to uphold and protect 

their ability to compete and succeed. 

I hope through our testimony and our witnesses today that we 

can come to a greater understanding of the problem and discover 

ways to quickly resolve the issue in a manner that will provide 

clarity and consistency for small businesses. 

Thank you, Mr. Chair, and I yield back. 

Chairman GOLDEN. Thank you, Mr. Stauber. The gentleman 

yields back. 

And if Committee members have an opening statement prepared, 

we would ask that they be submitted for the record. 

I will take just a few minutes to explain the timing rules. Each 

witness will get 5 minutes to testify, and each member gets 5 minutes for questioning. There is a lighting system to assist you. I do 

not know if you have done this before so I will go ahead and lay 

it out for you. The green light will be on when you begin. The yellow light will come on when you have 1 minute remaining. The red 

light will come on when you are out of time, and we ask that you 

stay within that timeframe to the best of your ability. It goes by 

quick. 

I would now like to introduce our witnesses. Our first witness is 

Mr. David S. Black. David Black is a partner with the law firm 

Holland and Knight, LLP, in Tysons, Virginia, and Co-Chair of 

Holland and Knight National Government Contracts Group. Mr. 

Black’s practice involves serving as a trusted advisor, problem solver, and advocate for Federal contractors, awardees, and subcontractors in every stage of growth. He provides legal advice and representation to help his clients secure opportunities, enhance perSBR002 with DISTILLER

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formance, mitigate risk, and respond to threats. Mr. Black serves 

contractors and awardees in a broad array of industries with an 

emphasis on innovative technology, cutting age products, professional services, health care, and research and development. Welcome, Mr. Black. 

Our second witness is Ms. Megan C. Connor. Megan Connor is 

a partner with the law firm—I am going to get this wrong. Perhaps 

you want to just go ahead and tell us what it is. 

Ms. CONNOR. PilieroMazza. 

Chairman GOLDEN. PilieroMazza, PLLC, in Washington, D.C. 

In that role, she counsels companies on a variety of government 

contracting and business matters. For small businesses in particular she assists contractors with regulatory compliance, like affiliation issues, limitations on subcontracting, and how to maintain 

size and status. Ms. Connor also represents contractors in state 

and Federal court concerning government contracts, business and 

employment matters. Ms. Connor received her Bachelor of Science 

degree Magna Cum Laude from Boston University, and received 

her law degree Magna Cum Laude from the University of Miami, 

School of Law. Welcome, Ms. Connor. 

Our third witness today is Mr. Brian Morales. Brian began his 

career in the electrical industry at the age of 21 after finishing his 

education at San Diego Christian College. After obtaining his contracting license in 2008, Brian began working as a regional manager for an energy efficiency company based out of Connecticut and 

has managed large public projects in Alaska, Hawaii, Washington, 

Arizona, California, and Colorado. Today, Brian is the proud owner 

of ProCal Lighting, a minority-owned small business with a focus 

on providing equal opportunity to all genders, races, and education 

levels. Because of this approach, ProCal Lighting employs amazing 

individuals who represent the best California has to offer. Welcome 

Mr. Morales. Thank you. 

I would now like to yield to our Ranking Member to introduce 

our final witness. 

Mr. STAUBER. Thank you, Mr. Chair. 

Our final witness today is Ms. Erin Allen. Ms. Allen is the president of Contemporaries, Inc., a small business owner operating locally in Silver Spring, Maryland, and is testifying today in her capacity as Vice Chair of the Small Business Committee of the Montgomery County Chamber of Commerce. In her role as president of 

Contemporaries, Inc., Ms. Allen provides extraordinary staffing 

services to clients in the D.C. metropolitan area, receiving outstanding recognizing from satisfied government clients such as the 

National Institutes of Health. In her role as part of the Executive 

Committee of the Montgomery County Chamber of Commerce 

Board of Directors, she has been instrumental in identifying legislative and regulatory issues impacting small businesses and advocating for policies that benefit the small business community. Welcome, Ms. Allen. 

Chairman GOLDEN. All right. Thank you very much. 

Mr. Black, you are recognized for 5 minutes. 

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STATEMENTS OF DAVID BLACK, PARTNER, HOLLAND & 

KNIGHT; MEGAN C. CONNOR; PARTNER, PILIEROMAZZA 

PLLC; BRIAN MORALES, PRESIDENT, PROCAL; ERIN ALLEN, 

PRESIDENT, CONTEMPORARIES, INC. 

STATEMENT OF DAVID BLACK 

Mr. BLACK. Good morning. First, I want to say thank you, 

Chairman Golden, thank you Ranking Member Stauber for the invitation. It is an honor and privilege to be here today to try to assist the Subcommittee look at the implementation of the Runway 

Extension Act. 

Points I would like to make today are, first, Congress did a really 

good thing back in December. The current status is that it changed 

the 5-year standard. That is a law that went into effect. I have a 

little bit more on that in a moment. And small businesses have 

been relying on that change in the law. For the past 3 months, 

small businesses that would be large under the 3-year standard but 

are small under the 5-year standard have been submitting proposals for set-aside contracts, and they put a representation in 

their proposal stating that based on the change in the law, we are 

an eligible small business under the 5-year standard. And contracting officers are within their discretion to recognize that. And 

so it has been a good thing. And I think when the Subcommittee 

looks at the status quo, it needs to realize this is something that 

has been completed. It is done. It is in the books. And you know, 

from my perspective as a mid-tier contractor lawyer, the community has been relying on that. And so to delay effectiveness or push 

that back at this point would be to take something away from the 

mid-tier small business contracting community that Congress has 

already provided. And so it is a good thing and it should stay in 

effect. 

So what has been happening is basically, SBA has been kicking 

up some sand and dust. And they have sort of put forth two arguments that have pretty easy solutions in the existing law. First, in 

the information notice that you alluded to they say, well, you read 

the Runway Extension Act and there was no effective date. So that 

means it is not effective until we issue our regulations. Well, the 

Supreme Court has an answer to that, and this is sort of basic 

principles of statutory construction. That when Congress passes the 

law, the omission—this is a quote from Johnson v. United States, 

a 2000 case. You should feel comfortable about what you did in December because the omission of an express effective date simply indicates that absent clear congressional direction, it takes effect on 

its enactment date. And everybody knows this. And so the small 

business contracting community has relied on the absence of an effective date. There is no clear direction that Congress intended to 

delay it. Quite the contrary. And so, you know, this ship has sailed. 

And SBA is just legally erroneous when they claim that it did not 

take immediate effect. 

And so the other thing they say is that Section 3 of the Small 

Business Act, and that is where Congress has put these size regulations, the provision that sets forth the parameters for size standards, that is where the 3- and 5-year standards are, were and are, 

that somehow that does not apply to SBA. And I think everyone 

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was surprised to hear this position. I mean, when you read the 

statute, that subsection says that no department or agency may 

prescribe a regulation that conflicts with that. And there is a definition of Federal agency in the statute that clearly includes SBA. 

And so the only carve out from this is unless specifically authorized 

by statute. So Congress said, well, we might for another agency 

specifically authorize by statute. There is a subsection SBA points 

to. There is nothing in there that specifically says you are exempt 

from the size standard requirements that are in subsection 

(a)(2)(C). 

So, again, the solutions are clarifying amendments at most. Congress has done a good thing. It is not to push the deadline back. 

You do not want to take something away that is benefitting the 

community and push it back. Keep it in effect. You do not really 

need to clarify the effective date but you could. December 17, 2018. 

And then the other thing is to clarify that the subsection C, 

(a)(2)(C), when you talk about Federal agency, you could just put 

a little carrot there and say ‘‘including the administrator of SBA.’’ 

And these are clarifying amendments that are not changing the 

law, so they apply retroactively. You would just be clarifying what 

Congress has meant for decades, that SBA does not have this license to come up with its own size standards. And it maintains 

Congress’s hook. You all want to set the policy in this area. You 

set it by applying it to every Federal agency in that subsection and 

you want to maintain that mechanism. 

So with that, again, thank you for the opportunity, and I look 

forward to answering the Subcommittee’s questions. 

Chairman GOLDEN. Thank you, Mr. Black. Ten seconds to 

spare. 

Ms. Connor, you are next. Thank you. 

STATEMENT OF MEGAN C. CONNOR 

Ms. CONNOR. Good morning. Good morning, Chair Golden, 

Ranking Member Stauber, and distinguished members of the Subcommittee. My name is Megan Connor, and I am a partner at 

PilieroMazza, a law firm serving government contractors for over 

30 years. We represent companies of all sizes in a variety of industries, and our firm supports the Runway Extension Act, and specifically changing how small businesses calculate their receipts from 

a 3-year basis to a 5-year basis. 

However, we believe in implementing this change there are three 

issues that need to be addressed in order to avoid negative impacts 

on small businesses. First, small businesses deserve clarity as to 

the effective date of the change from 3 years to 5 years. Second, 

we strongly recommend a transition period during which firms may 

adjust to the new 5-year calculation. Third, the System for Award 

Management database must be updated to account for this change. 

I will address each of these issues in turn. 

First, there is widespread confusion in industry as to the effective date of the Runway Extension Act. Although it was signed into 

law on December 17, 2018, as Mr. Black stated, the SBA has taken 

the position that it is not presently effective. While we would normally advise clients that Federal law supersedes SBA’s regulations, 

SBA’s regulations still state that 3 years is the basis of calculation 

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and the information notice that SBA published has left contractors 

in a state of confusion. 

To illustrate the confusion this is creating, a client of ours submitted a proposal in October 2018, when the company was small 

under a 3-year calculation. As of January 1, 2019, that company is 

no longer small under a 3-year calculation but is small under a 5- 

year calculation. It recently had to update its representations and 

certifications for that same proposal. The company reiterated that 

it was small at the time of its initial proposal with price, which is 

the relevant date for size purposes, and also stated that it remains 

a small business pursuant to the Runway Extension Act. 

This company, and others like it, should be able to take advantage of the Runway Extension Act now. Accordingly, we recommend that Congress make clear its intent as to the effective 

date of the Runway Extension Act. It is my understanding that the 

Committee is currently drafting legislation to address this. We appreciate the Committee’s efforts and urge the Committee to ensure 

that firms that are benefitted by the act may take advantage of it 

as of the date it became law. 

The second issue the Committee should address in implementing 

the Runway Extension Act is a transition period, which would 

allow firms that are small under a 3-year calculation, but not small 

under a 5-year calculation, to adjust to this change. The reality is 

that the Runway Extension Act unintentionally may harm small 

businesses that are experiencing financial downturns. For example, 

if a contractor unexpectedly loses a valuable follow-on contract or 

graduates from the SBA’s 8(a) program and is no longer eligible for 

8(a) contracts; in both scenarios the contractor often experiences a 

decrease in revenues after years of increases. 

Fluctuations also could be driven by the types of contracts a contractor has. For instance, if the company is a contract holder on a 

large contract vehicle and has won large dollar but short-term task 

orders in some of the recent fiscal years but not every year, then 

it could experience these types of swings. Small businesses should 

be given the option to choose which calculation is most favorable 

for them, 3 years versus 5 years, for a short transition period. In 

this way, firms that are no longer considered small under a 5-year 

calculation will have time to prepare to compete as a so-called midsize firm in the unrestricted marketplace. 

Lastly, in implementing the Runway Extension Act, the System 

for Award Management database (SAM) should be updated to account for the change from 3 years to 5 years. When completing 

SAM registration, contractors must insert one amount representing 

their 3-year average receipts. To conform to the Runway Extension 

Act, SAM should be updated to request a 5-year average receipts 

calculation. 

In conclusion, the Runway Extension Act is a positive change for 

government contractors, but in implementing it, any potential negative impacts should be mitigated through clarity for industry, a 

transition period for firms that are not benefitted by the change, 

and an update to SAM. 

On behalf of PilieroMazza and the government contractors we 

represent, I would like to commend the Committee for continuing 

to consider how best to implement the Runway Extension Act, and 

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I would like to thank the Committee again for the opportunity to 

appear before you today. I look forward to your questions. 

Chairman GOLDEN. Thank you, Ms. Connor. 

Mr. Morales? 

STATEMENT OF BRIAN MORALES 

Mr. MORALES. Thank you, Chairman Golden, Ranking Member 

Stauber, and members of the Subcommittee, for inviting me to testify today. 

On behalf of the National Electrical Contractors Association 

(NECA) and ProCal Lighting, I greatly appreciate the opportunity 

to submit a statement for the record. The Subcommittee is to be 

commended for holding this hearing to better implement and enact 

a prudent bipartisan reform signed into law in the previous Congress. 

My name is Brian Morales. I am the president and CEO of 

ProCal Lighting, which is located in Vista, California. As a second 

generation Mexican American and a participant of the NECA 

IBEW program, I founded my company in 2014 with my father, Anthony Morales, a Purple Heart recipient and a Vietnam War veteran. Since that day, ProCal Lighting has provided energy-efficient 

design and installations to public schools, government buildings, 

and some of our Nation’s largest private industries. We at ProCal 

Lighting are proud members of the National Electrical Contractors 

Association, which serves as the voice of the 4,000 electrical contractors who make up the $171 billion electrical construction industry that brings power, light, and communication technology to 

buildings and communities across the U.S. 

Risk is inherent with any business venture, and a successful entrepreneur knows how to navigate this risk. In order to build a sustainable business and avoid undue risk, a business owner needs to 

be informed. For my company to continue to grow, our estimating 

team needs to consider the competition’s approach and determine 

what level of risk exposure we have through formal requests for information and by receiving clear deliverables. The small business 

classification has allowed, and continues to allow ProCal Lighting 

and many other NECA contractors the opportunity to understand 

this risk, learn from it, and be better suited to grow. 

On a personal note concerning ProCal Lighting, the small business classification has opened numerous opportunities for us to sit 

at the table of government procurement and competitively offer our 

services. Thanks to our small business classification, we, as a company, have seen benefits including access to various workshops, increase relationships with vendors and industry resources like Federal small business loans, and complementary SBA training. These 

resources have aided our company in competitively securing government subcontracts, working on energy efficiency projects such 

as the Marine Corps Recruit Depot in San Diego, as well as the 

Customs and Border Patrol facilities in San Diego and Orange 

Counties. 

We at NECA and ProCal Lighting were pleased to learn about 

the bipartisan legislation from last Congress, the H.R. 6330, which 

extended the small business calculation for average receipts from 

3 to 5 years. This legislation is of particular benefit to companies 

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like my own, who can say over a 5-year period given the measure 

of our current anticipated revenues for this year and the following, 

ProCal Lighting would still hold its certification as a small business. If the same were to be evaluated over a 3-year period, we 

would lose our certification after year 2020. If we were to engage 

in discovering projects with the Federal Government, by the time 

the projects were funded and released for 8(a) certified contractors, 

we would be disqualified from participating and lose all that investment in developing and promoting this work. The new 5-year 

period, when combined with a finite phase-in period benefits companies like mine by providing a measure of flexibly in determining 

our small business status. It also allows ProCal Lighting the ability 

to hold its small business certification for a longer period of time. 

This phase-in period would allow both contractors and the SBA 

time to properly account for the 5-year calculation, while preparing 

businesses for the full implementation of the rule. Upon enactment 

of the previous Congress’s legislation, ProCal Lighting can begin to 

acquire new clients on long-term contracts, having them become 

long lasting revenue sources and subsequently move our company 

into a safer financial position. 

With nearly 80 percent of NECA’s contractor members classified 

as small businesses, legislation allowing our contractors to fully 

benefit from a small business classification is of utmost importance. 

As a small business contractor, I am extremely encouraged by this 

Committee’s efforts to revise and strengthen the Small Business 

Runway Extension Act. The further clarification and guidance of 

this legislation will be a key component for small business owners 

like myself and the 3,200 NECA small business contractors in mitigating the inherent risk of competing in our industry. 

Thank you again for the opportunity to testify. Both ProCal 

Lighting and NECA applaud the Committee’s unwavering efforts to 

reexamine the benefits of government programs for small businesses, and I look forward to answering any questions you may 

have. 

Chairman GOLDEN. Thank you, sir. 

Ms. Allen? 

STATEMENT OF ERIN ALLEN 

Ms. ALLEN. Good morning. Thank you, Chair Golden and Ranking Member Stauber. I want to thank you for the opportunity to 

testify on this very important topic. 

My name is Erin Allen. I am the president of Contemporaries, 

and I am testifying today on behalf of the Montgomery County 

Chamber of Commerce out of the state of Maryland. 

I am here for two reasons. First, to thank you so much for the 

Committee to work with us to pass the Small Business Runway Extension Act last year. And also, to press for expedited implementation on this important law which affects millions of businesses all 

over the country just like mine. 

As government contracts become larger and small business grow, 

it is inevitable that they will face very tough choices, the first being 

to grow beyond the small business programs to compete with large 

companies. The second is to stay small to avoid the difficulties of 

competing in the full and open market. Another option is to sell, 

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and unfortunately, the last and rather tragic option is to go out of 

business. As a result, there are only 1,700 mid-size businesses 

doing Federal work today. These firms compete not only with very 

large businesses, but also with small businesses who receive setaside Federal work. 

Before I go any further I want to tell you a little bit about my 

company and our story and why it is important to me. Excuse me. 

Allergies are crazy. 

I am a second generation business owner. My parents started the 

company back in 1991. When I was tapped as president back then, 

we had just $4 million in sales. Fifteen years later, we are one of 

the largest providers of staffing services to the NIH and as a result 

of that steady growth, we find ourselves at the top of our size 

standard, which is revenue based. Our size standard is $7.5 million, which is microscopic in comparison to the very large businesses in our industry. My concern comes from having the time to 

accommodate future growth in a steady manner. The last few years 

have been really good for us, but the downside of that is that we 

risk losing that momentum should I continue that growth or be 

awarded a large contract. If the Runway Extension Act goes into 

effect, I will have a few more critical years to build my infrastructure, develop talent, and comply with some costly new 

cybersecurity requirements. In the end, my goal is to grow the company, to create new jobs, and to contribute to the economy. 

Last year, a fellow chamber member, Steve Ramaley, recommended changing the formula for small business eligibility to 

the lowest of 3 of 5 years to this Committee. Ultimately, the legislation simply changed the current 3-year revenue average to 5 

years for the purposes of determining size. The rationale behind 

this proposed change can be stated simply—competitiveness takes 

time to build. Revenue is not an indicator of present competitiveness. It is an indicator of future competitiveness. Having a good 

year or even a couple of good years does not mean that a company 

will continue to grow. Moving from the current 3-year lookback to 

a 5-year lookback would give firms more time to adjust to the full 

and open market. 

Not just bigger small companies and midsize companies benefit 

from the Runway Extension Act. Any small business that intends 

to grow will eventually benefit from these changes. Further, having 

more well-qualified firms under the revenue standards will increase the chance that solicitations will be set aside and therefore, 

will give all firms more opportunities to compete. Large businesses 

will also benefit because it increases the pool of well-qualified subcontractors. 

The Runway Extension Act as passed by the last Congress addresses these issues. We expected the change to be effective immediately. However, since its passage into law, the SBA has posed the 

argument that the size determination changes would not take effect immediately as the agency should first be able to utilize the 

rulemaking process and seek public comment. This decision by the 

SBA puts businesses in limbo. 

According to the Administrative Procedures Act, an agency can 

issue a final rule without publishing a proposed rule. And I quote, 

‘‘Congress has already directed a specific regulatory outcome into 

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law.’’ We believe that there is no question as to the intent of Congress. There was a hearing. There was a mark-up. There was a 

clear congressional record, and specific statutory language leaving 

no discretion with respect to the regulatory outcome. 

While it seems unnecessary for Congress to reiterate its intent 

through this new legislation, we support any effort to insist on implementation. The damage caused by the delay is impacting small 

businesses all over the country, not just inside the beltway. The 

longer implementation takes, the more uncertainty and confusion 

there is for all small business owners. On behalf of small business 

owners everywhere, I implore you to press for implementation of 

the Runway Extension Act. 

Thank you for the opportunity to testify today. 

Chairman GOLDEN. Thank you very much, Ms. Allen. 

I appreciate all the testimony that you have all just shared with 

us, and I will begin now by recognizing myself for 5 minutes of 

questions. 

One of the recommendations that we just heard to deal with the 

delay and the implementation of the Runway Extension Act is for 

Congress to pass legislation providing for an interim period in 

which the 3-year and 5-year formula would apply, leaving to contractors to decide which one to use. And this interim period would 

sunset on the date when the Runway Extension Act became effective or when the SBA issues their rules, whichever happens first. 

I believe, Ms. Connor, this is an approach that you have advocated 

for, and I see you are reaching for your button. But I think in the 

interest of having more opportunity for all of you to kind of talk 

about your different proposed solutions, I also want to lay out an 

alternative to deal with the delay would be to pass a legislative 

amendment, something that Mr. Black talked about. 

So in the interest of furthering the discussion for everyone, I 

might ask Mr. Black what you think the advantages and/or disadvantages of the proposed interim rule may be. 

Mr. BLACK. Sure. Well, you know, I think it is not a bad thing 

to help what we call backsliding businesses, businesses that have 

emerged from small and may be struggling to compete and are experiencing a reduction in revenues. 

At the same time, I think if Congress wants to help that part of 

the community, it needs to keep what it has done in place. It needs 

to maintain that continuity for the growing small businesses who 

are relying on this law that went into effect on December 17th. 

And so there is a way to do that where you clarify that the 5-year 

amendment went into effect on December 17th but then we are 

doing a new amendment to add back at the 3-year standard for a 

period of time. And these are all sort of judgment calls. 

So, you know, anecdotally in my practice I think you are helping 

more small businesses who are the growers. I do not have hard 

data. Just I have my experience in my day to day. And my experience says, this law is benefitting—there are more businesses who 

are large under the 3 but small under the 5, and then there is a 

subset of the community. I just think it is smaller. And so this is 

one of those where Congress wants to think about are we letting 

the tail wag the dog? If we do want to help the backsliders, let us 

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do it in a way that makes sure we keep the help in place that we 

have given to the growing small businesses. 

Chairman GOLDEN. Thank you, Mr. Black. 

Ms. Connor, I thought I would ask you a similar question. If you 

could put a different cap on maybe and think a little bit about the 

proposed solution that Mr. Black has. What are some of the flaws 

with that approach or any potential benefits from your perspective? 

Ms. CONNOR. Well, the benefit is that, obviously, SBA is not 

implementing this change, and so the major benefit would be that 

they would have no choice. I think it is unfortunate that it has 

come to that because that subsection of the act, when you read it, 

it is clear that it applies to SBA because it speaks to a Federal 

agency issuing size standards. And to my knowledge, there is no 

other Federal agency that issues size standards besides the SBA. 

And it speaks to the SBA’s rulemaking process for doing so. So it 

is unfortunate that the Committee and Congress are put into that 

position by another branch of government that they are refusing to 

implement this very simple change. 

But with that said, I think my one concern would be that the 

SBA size standard process is so slow and it does not, in my opinion, 

capture small businesses fairly. The current size standards have 

been in place since 2012 and are based on data from 2010-2011, 

and if you look at businesses now, it is 9 years later. They have 

different expectations, different operating costs. It is just not a fair 

representation. So I would hate for anything that would slow down 

the size standard process any further. 

Chairman GOLDEN. Thank you, Ms. Connor. 

You know, in light of the delay that is taking place I just thought 

I would ask if you have any questions as well in the last few seconds that I am leaving you here. You know, what confidence might 

the Committee have that taking, you know, the approach that you 

propose would not result in further delays of the process from SBA? 

Ms. CONNOR. The transition period creates all winners. That is 

what is so great about it. If you are small under 3 years, you are 

still small until some date in the future. If you are small under 5 

years, you are small and you can continue to pursue procurements 

for the next, whatever the transition period is, and then thereafter, 

when the 5-year rule is permanent and effective. So the transition 

period in my mind just creates a pool of winners instead of winners 

and losers. And I do not know what SBA’s intent is and why they 

have issued that information notice and why they are slow to act. 

But if I had to speculate, I suspect that they might be concerned 

about the losers under the Runway Extension Act, i.e., the businesses that are small under 3 years but are not small under 5. And 

the transition period addresses what I think could be their concern. 

So I understand the delay but once it is in the act, and then if the 

Congress says that this is to be an interim final rule and comments 

would be allowed, then it is done. 

Chairman GOLDEN. Thank you very much. My time has expired. 

I now recognize the Ranking Member of the Subcommittee, Mr. 

Stauber, for 5 minutes. 

Mr. STAUBER. Thank you, Mr. Chair. 

A couple of questions or comments before I ask a question. 

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The passion is, I hear loudly and clearly, to immediately implement it. Mr. Black, you made a couple of comments that really resonate. Sometimes the intention or what we desire in Congress does 

not make it to the implementation the way it should. And so this 

hearing is to change it. I, as one member, hear loudly and clearly, 

so the goal is to make this happen, to work with the SBA to make 

sure that it is understood, that it helps a small business. Each and 

every one of you talked about how it will help us. NECA is very 

involved. That is very important for us to hear that. I have been 

a small business owner for 28 years. I get it. 

And so a couple of questions I will ask Ms. Allen. You know, you 

mentioned in your testimony the administrator committed the 

agency to start working on the rulemaking immediately. Are there 

any consequences, both long term or otherwise for firms that might 

lose their small business status during these months but gain it 

back once the SBA issues its final ruling? 

Ms. ALLEN. So, you know, uncertainty is never good, right, in 

small businesses. And so I would just urge honestly, whatever decision is going to be made, just make it and get it done and over 

with. I mean, honestly, that to me is the biggest, if I can say nothing else, it is that. But insofar as small businesses, the wishywashy is a problem. For me as a small business, I know that it was 

the greatest Christmas gift I could have ever gotten because this 

has been weighing heavily on my head for a long time over what 

is going to happen to us? And we have been planning and making 

infrastructure changes and hiring new employees, and I know that 

a lot of my colleagues within the business community are doing the 

same. So it is super critical for us and I think that the 5-year 

lookback is going to be huge for us. 

I do not know if that answers your question. Does that? Yes? No? 

Mr. STAUBER. Not allowing our small businesses to be in limbo 

is critically important. That is where you are right now. 

Ms. ALLEN. Absolutely. 

Mr. STAUBER. And to Mr. Black, your point of looking and researching other case law, it makes sense that the intention was to 

have it enacted immediately. 

One of the questions that I had was I know that in the small 

business community there are ups and downs. In any lookback, 

give me both a positive and a negative lookback from either the implementation or nonimplementation of this immediately. So what is 

the positive and what is the negative? You alluded to it but I want 

to hear it again. 

Mr. BLACK. Okay. Well, the positive, of course, is that businesses—the small business size standard is relevant on the date 

you submit a proposal for contracts. That is the date. If you are 

small on that date and you win the contract, you are small for the 

rest of the life of the contract. And so that date, the benefit, if you 

are small, if you are small under the 5 year but not the 3 year, 

that means in 2019, you have opportunities that you would not otherwise have. And if there is ambiguity or SBA’s Office of Hearings 

Appeals reaches a different opinion and a business loses a size protest, these opportunities are not coming back. 2019, they will lose 

the revenue. Contracts for programs are typically awarded every 5 

years. It will not be coming around. They will not be small. And 

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so it is critical. The positive and the negative are the same thing. 

When it is clear you are small, you have opportunities now. When 

it is unclear or you are not small, you lose those opportunities and 

you will not get them back. 

Mr. STAUBER. I just go back to the fluctuation in the mindset 

of the small businesses. Our goal is to make sure that you know 

where you sit and the rules are present today and the standards 

are there for the small businesses. I think all in all I really appreciate your comments and your success in small business. It is not 

easy. 

I have said this many times in this Committee that small businesses are the engine of our economy, and I know that the Chair 

and I feel the same way. Coming from rural America, you are Main 

Street businesses and I really appreciate your testimony today. 

Mr. Chair, I yield back. 

Chairman GOLDEN. Thank you. The gentleman yields back. 

We will now recognize the gentleman from Ohio, Representative 

Balderson, Ranking Member of the Subcommittee on Innovation 

and Workforce Development, for 5 minutes. 

Mr. BALDERSON. Thank you, Chairman. 

Good morning, everyone. This question is for Ms. Allen. Good 

morning, Ms. Allen. 

In your testimony you talked about the midsize crisis of the contractual growth. Can you share how these 2 extra years from the 

Runway Act can help a small business successfully integrate into 

the open market without kicking the can down the road? 

Ms. ALLEN. Yeah, though I would like to kick it further down 

the road. But yes. 

It really helps because it gives us an opportunity to, as I said, 

to grow our infrastructure, to hire new employees. If we want we 

could acquire other small businesses to make us larger or more 

competitive, or to joint venture with them, to develop some of those 

relationships that we would not have otherwise needed. As a small 

business, you can kind of do your thing. You do not need to be, you 

know, Mammoth. You do not need to have as many joint ventures 

to operate. But when you are competing against the Lockheed Martins and the SAICs and Leidos of the world, you need to have a 

whole army of folks with you. So it would give us time to put that 

consortium of people together. 

Mr. BALDERSON. Thank you. I have one follow-up question for 

you. In your opinion, how has the over the 3 or 5 year affected contracting firms’ willingness to hire new employees and expand their 

work force? 

Ms. ALLEN. Sure. I mean, any uncertainty as a business owner, 

you know, if I am in a position of, okay, well, so next month I am 

going to be small or am I going to be large? I am not going to take 

that risk and hire new employees. It just does not make sense to 

the bottom line, and then have to turn around and get rid of them 

because, oh, my gosh, now I cannot afford, I am not going to be 

able to compete for those businesses because I am no longer small. 

And so that really puts huge pressure on businesses. And so, yeah, 

whether you are large or small, that uncertainty is not good. 

Mr. BALDERSON. Thank you very much for your answers. And 

I yield back my remaining time. 

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Chairman GOLDEN. The gentleman yields back his time. 

We will now recognize for 5 minutes Representative Jim 

Hagedorn. 

Mr. HAGEDORN. Well, thank you, Mr. Chair, and Ranking Republican Member Stauber, fellow Minnesotan. It is pleasure to be 

here. Thanks to the witnesses and the staff and everyone. 

I would first like to recognize a friend of ours who is in the audience, former Congressman Tom Davis. Tom, appreciate your public 

service. It is nice to see you today. Hope things are going well. 

Ms. Allen, so the concept here, I guess, is that small business begins to grow, you are involved in these contracts and other things, 

and we should maybe set some different limitations or, you know, 

expand it so we do not have to just stop the whole process. I get 

that. We want businesses to grow. We do not want to disrupt the 

apple cart and all that. But, and by the way, I thought the concept 

of maybe the 3 lowest years, that might make more sense if you 

are looking over 5. But if this is a good concept and we do not want 

to have businesses run out of business or limited because of bad 

government, why do we not apply it to everything else that the government mandates? I mean, look at labor laws. Look at health care 

with Obamacare. 

I have spoken to a lot of business owners in southern Minnesota 

who are concerned that their business is getting too good. They are 

starting to grow. They are starting to hire more people. They were 

thinking about going out and buying other businesses and, you 

know, doing all sorts of things. But because of the limits that are 

imposed on them and Obamacare and other statutes by the Federal 

Government, they had to think twice about that. And oftentimes 

they deferred and decided not to. 

What do you think about that concept? Should we be maybe looking at other statutes and seeing how it impedes small business 

progress? 

Ms. ALLEN. Absolutely. Amen. Let us do it. 

You know, I think that anything that impedes the growth of particularly small businesses is, you know, welcome. You know, are 

there other statutes and limitations? I am sure there are, and I 

think that, yeah, that would be valuable. I think all of us would 

applaud that. You know, what are the right ones to change and 

monkey with? I will leave that in your very capable hands. 

Mr. HAGEDORN. I am just saying, if this is a good idea, if this 

is a good bill, it seems to be bipartisan, maybe we should look to 

apply it to all other aspects of government to make sure our small 

businesses can prosper, thrive, and grow and expand and compete 

ultimately with bigger businesses. 

With that, I yield back. Thank you. 

Chairman GOLDEN. The gentleman from Minnesota has yielded 

back. 

I will now move into a second round of questioning for those who 

want to. And I think I will start myself for an additional 5 minutes. 

I wanted to ask Mr. Morales, I think if I understood correctly, 

during your testimony you were saying that under the 3-year rule 

in 2019, you are small. By 2020, you would have grown out of that. 

So I wanted to ask, or just give you another opportunity to tell us 

about how the delay in implementing this law has left you in limbo 

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with a little bit of uncertainty. How is that going to impact your 

planning for what you do compete for or take on in 2019 looking 

beyond to 2020? 

Mr. MORALES. I think some background information about our 

company would be beneficial in this case. We started in 2014, so 

we are a relatively new company. Because of our tremendous 

growth, we have been able to go through a lot of processes that the 

SBA programs have helped us go through and understand. This 

current year is going to be our largest revenue year to date and 

when I was mentioning that if we continued this same type of revenue for the following year, under the 3-year rule we would lose 

our small business status. Now, that is not to mean the previous 

years in which I started the business were even close to breaching 

that. We just had a really good successful year this year. So again, 

the idea is we are a small 5-year-old company who just had a tremendous year and still are learning from the process of contracting 

with the government that we need to understand more formally. A 

big part particular to our company is we began our 8(a) application 

last year, midyear last year. It has been quite a bit of time that 

we have divested into this program. A lot of office time, a lot of 

monies trying to get that 8(a) certification. It is currently in the 

part of being processed, and if we were to continue our revenues, 

we would get the 8(a) in 2019 just to lose it after 2020. And that 

is under the 3-year rule. So if we were to have the 5-year rule implemented immediately, that would help us plan. It would help us 

to look at what kind of solicitations we need to do. What type of 

contract engagements we need to have and patriciate in. We also 

want to start in right away with creating mentorship programs 

under the 8(a). And if we began that process only to lose that certification because we are no longer a small business, then it would 

be a lot of wasted time and effort and monies also. 

Chairman GOLDEN. I thought I might ask if you would just follow up in your experience. Probably you know businesses, maybe 

even your own, struggling with the same kind of uncertainty and 

challenges that Mr. Morales was talking about. But I was wondering if there are other common repercussions that you might 

speak to as a result of the delay of the act. 

Ms. ALLEN. The delay really puts us in a precarious position because there are contracts that we would love to go after. But if we 

are going to be considered large we cannot. And teaming arrangements that we have put together. We do a lot of mentoring with— 

not formal mentoring relationships but mentoring of other small 

businesses that we help and they subcontract under us. And if that 

change happens, not only does it affect me but it affects all those 

other smaller small businesses that no longer can team with me. 

And some might say, well, we could reverse it. They are not in a 

position to be able to prime a contract. They are not large enough. 

They are not a large enough small to be able to prime those small 

businesses. So it really puts all of us in this really wonky period. 

So, yeah. 

Chairman GOLDEN. Thank you all very much. 

I want to thank all the witnesses for taking the time out of their 

schedules to be here with us today. I understand there are no additional questions. 

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I will say that ensuring that small businesses can thrive is the 

number one priority of this Committee. We have heard today the 

SBA’s delay in the implementation of the Runway Extension Act is 

creating widespread confusion and uncertainty. It is clear from our 

hearing that there are several alternatives that can be implemented to address this issue. I look forward to working with my 

colleagues on both sides of the aisle to ensure that small businesses 

have access to Federal contracting opportunities that Congress intends so these companies can continue to grow and add jobs to the 

economy. I think that the Ranking Member and I agree that we are 

looking for the fastest solution to provide the quickest clarity for 

everyone that is out there that will be impacted either by further 

delay or hopefully a quick resolution. 

With that, I would ask unanimous consent that members have 

5 legislative days to submit statements and supporting materials 

for the record. 

Without objection, so ordered. 

If there is no further business to come before the Committee, we 

are adjourned. Thank you very much. 

[Whereupon, at 10:56 a.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

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Written Testimony of 

Mr. David S. Black 

Government Contracts Attorney, Holland & Knight LLP 

At the Hearing Entitled 

"Cleared for Take-off? 

Implementation of the Small Business Runway Extension Act" 

March 26, 2019 

10:00 a.m. 

Before the 

House Committee on Small Business, 

Subcommittee on Contracting and Infrastructure 

Thank you Chairman Golden, Ranking Member Stauber and Members of the 

Subcommittee for the opportunity to submit written testimony regarding the 

implementation of the Small Business Runway Extension Act of 2018, which was 

enacted into law as Public Law No, 115-324 on December 17, 2018, 

I am a government contracts attorney in the law firm of Holland & Knight LLP, where I 

have worked since 1998. I am Co-Chair of the Firm's National Government Contracts 

Team. I work in the Firm's Tysons, Virginia, office. In my practice, I provide advice and 

representation on a full range of issues, matters, and disputes encountered by small 

and mid-tier Federal contractors and subcontractors through every stage of growth. I 

serve contractors in a broad array of industries, with an emphasis on innovative 

technology, cutting-edge products, professional services, healthcare, and research and 

development. Many of my clients participate in small business contracting programs as 

either a prime contractor or subcontractor, and their eligibility as a small business 

concern is important to their growth and success. It is a privilege to provide some 

perspective today from this part of the small business contracting community. 

I. Executive Summary 

We are here today because the U.S. Small Business Administration ("SBA") is creating 

uncertainty and potential delay regarding an important policy imperative of Congress -
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March 26, 2019 

helping small businesses service providers transition from set-aside contracting 

programs to full and open competition. Congress provided immediate assistance last 

year on December 17, 2018, when the President signed the Small Business Runway 

Extension Act of 2018 ("SBREA"). The SBREA amended the Small Business Act and, 

by operation of law, its implementing regulations to lengthen the time period service 

contractors compute their average annual gross receipts for size purposes from three 

years to five years. Unfortunately, SBA has created unnecessary confusion in the small 

business procurement community by erroneously claiming that the SBREA was not 

immediately effective and that it does not even apply to the SBA 

Congress should stand its ground in responding to the SBA's erroneous position. 

Under well-established principles of statutory construction and administrative law, 

Congress drafted SBREA in a way that clearly took immediate effect upon its enactment 

on December 17, 2018. The SBREA also immediately invalidated the SBA's conflicting 

size regulations providing for a three-year look-back period. Moreover, SBA is plainly 

wrong that the size standard "requirements" of 15 U.S. C. § 632(a)(2)(C)-which 

includes the new five-year look-back period for calculating average annual revenueapplies to every other federal agency except for the SBA The plain language of the 

statute-as well as common sense policy-clearly evinces that Congress intended to 

create a common framework of size standard parameters within which all size 

standards must conform across the Executive Branch (including the SBA), including a 

mandatory look-back standard of at least five years for service contractors computing 

average annual revenue. 

Furthermore, it is important for Congress to understand that mid-tier service 

contractors are enjoying the benefits of SBREA now. Such contractors have been 

submitting proposals in reliance upon the new five-year standard, whichnotwithstanding SBA's erroneous view-has been in effect for over three months. Midtier service contractors who would be large under the three-year standard but small 

under the five-year standard are submitting proposals for small business set-aside 

contracts in reliance on the SBREA's five-year standard and the resulting invalidation of 

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March 26, 2019 

the three-year standard in the SBA's regulations. If the SBREA's implementation date 

is amended and delayed by Congress, these mid-tier service contractors will have no 

way of getting back the opportunities and revenue they miss. 

Against this backdrop, Congress should be mindful that any action to delay the 

effectiveness of the SBREA from December 17, 2018, to some future date will hurt the 

mid-tier service contractors Congress intended to help (and is, in fact, helping now). 

Thus, from my perspective as an advisor to emerging small business contractors, I 

recommend that Congress consider the following options: 

1. Leave the SBREA undisturbed as enacted on December 17, 2018. Do 

not re-visit or amend the SBREA's clear effective date. The SBREA 

was clearly effective on December 17, 2018, and mid-tier contractors are 

relying on it to enjoy renewed eligibility for small business set-aside 

contracts. There is no need to delay the effectiveness of the SBREA to 

some future date. 

2. Issue a clarifying amendment of Section 3 of the Small Business Act 

that Congress has always intended SBA to be subject to the size 

standard requirements applicable to "federal agencies" under 

Section 3(a)(2)(C). Under well-established principles of statutory 

construction, amendments to clarify Congress' original intent for a statute 

are "non-substantive" and apply retroactively. It's clear that Congress 

always intended and understood when it passed SBREA that its size 

standard "requirements" set forth in Section 3(a)(2)(C) of the Small 

Business Act applies to the SBAjust as it does every other agency. The 

gentle way for Congress to correct the SBA is through a clarifying 

amendment. 

3. Consider mitigating the impact of the SBREA on "backsliding" 

service contractors, but do not delay the immediate effectiveness of 

the SBREA for emerging mid-tier service contractors. While it is 

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possible the SBREA may have the effect of keeping some business with 

declining revenues from renewed eligibility for set-aside contracts, my 

personal "hunch" based on anecdotal experience is that the number of 

these contractors is fewer than the number of contractors that the SBREA 

has been helping since December. If Congress decides to grant some 

relief to "backsliding" contractors, it is consistent with Congress' overall 

policy to avoid delaying the effectiveness of the SBREA to the community 

of growing service contractors. 

4. Consider whether to "extend the runway" for manufacturing 

contractors under employee size standards, but do not delay the 

immediate effectiveness of the SBREA for emerging mid-tier service 

contractors. The SBREA only amended the look-back period for 

calculating average annual revenue, which applies to size standards for 

service industries. Congress did not amend the look-back period for 

calculating average monthly employee headcount, which applies to size 

standards for manufacturing industries. It is worthwhile to study whether 

similar changes should be made to the employee head count standards. 

But it is not necessary to link this amendment to the implementation of the 

SBREA's five-year look-back period for service contractors. Again, the 

SBREA became effective December 17, 2018, and the industry has since 

been acting in reliance upon it. Rather than hurt mid-tier service 

contractors by delaying effectiveness of the five-year period until some 

future date, Congress should keep it in place and address the size 

standard for manufacturing in a separate legislative amendment. 

II. SBREA's Enactment 

On December 17, 2018, Congress laudably completed a nearly year-long effort to 

amend the size standards under Section 3 of the Small Business Act to "help advancedsmall business contractors successfully navigate the middle market as they reach the 

upper limits of their small size standard." H.R. Rep. No. 115-939, at 1 (2018). 

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Congress enacted, and the President signed, the SBREA, which lengthened the time in 

which federal agencies (including the U.S. Small Business Administration) measures 

the size of a business concern providing services on the basis of average annual gross 

receipts. Specifically, Congress amended Section 3(a)(2)(C)(ii)(ll) of the Act (codified at 

15 U.S.C. § 632(a)(2)(C)(ii)(ll)) so that the size of such service contractors shall be 

determined based on average annual gross receipts over a period of not less than five 

years (extended from the prior statutory period of not less than three years). 

Congress went through a thorough legislative process in enacting the SBREA. On April 

26, 2018, the Committee on Small Business Subcommittee on Contracting and 

Workforce met for a hearing titled "No Man's Land: Middle-Market Challenges for Small 

Business Graduates." On September 12, 2018, the House Committee on Small 

Business issued a report on SBREA. See H.R. Rep. No. 115-939 (2018). On 

December 11, 2018, the Senate Committee on Small Business did the same. SeeS. 

Rep. No. 115-431 (2018). 

In its committee reports, Congress discussed the current situation for mid-sized 

businesses and the need for the legislation to provide mid-sized and advanced small 

businesses an extended runway before they outgrow their size standards and becoming 

eligible only for full and open competition. After outgrowing their applicable small 

business size standard, mid-size contractors face several competitive disadvantages 

against the large, billion-dollar companies that they must now compete against, making 

true competition illusory and potentially freezing emerging small and mid-sized 

contractors out of the marketplace: 

The "other-than-small" category includes firms that have just 

graduated out of their small business size by mere dollars, 

through the entire middle-market spectrum, to also include 

the large, billion- dollar companies. These large companies 

have several competitive advantages over small and midsize firms, making true competition illusory. For instance, 

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large companies have vast past performance qualifications, 

strong brand-name recognition and agency ties, as well as a 

multitude of professional certifications, clearances, and 

greater financial resources. Small and mid-size businesses 

cannot afford to maintain these resources, leaving them at a 

considerable disadvantage. These advantages by large firms 

can have a chilling effect, potentially freezing out emerging 

advanced small companies. 

H.R. Rep. No. 115-939, at4 (2018). 

In addition, large businesses are now increasing competing for mid-size agency 

contract that are most suitable for mid-sized contractors: 

Additionally, large businesses, which once competed 

primarily for large, high-dollar contracts, are now increasingly 

competing for contracts across the spectrum, including those 

contracts that are most suitable for mid-sized and advancedsmall businesses. This puts additional pressure on mid-size 

firms, particularly those emergent, advanced-small 

businesses. 

H.R. Rep. No. 115-939, at 4-5 (2018). "In sum, these mid-size companies occupy a 

unique position in the federal marketplace-they are too big to qualify for small business 

preferences and often lack the resources to compete with larger contractors." S. Rep. 

No. 115-431 at 3. 

To resolve these concerns, Congress passed the SBREA legislation "to provide a 

longer time period for which a business may be qualified as small, arguing that this will 

improve the health of the industrial base, increase competition resulting in lower prices, 

and create and preserve jobs." H.R. Rep. No. 115-939, at 6. 'Th[e]legislation will 

allow small businesses at every level more time to grow and develop their 

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March 26, 2019 

competitiveness and infrastructure, before entering the open marketplace." H.R. Rep. 

No. 115-939, at 2. "The bill will also protect federal investment in SBA's small business 

programs by promoting greater chances of success in the middle market for newlygraduated firms, resulting in enhanced competition against large prime contractors." 

H.R. Rep. No. 115-939, at2. 

Ill. The SBREA's Immediate Legal Effect as of December 17, 2018 

Under well-established principles of statutory construction and administrative law, the 

SBREA took immediate effect and immediately invalidated the conflicting "three-year" 

standard for computing average annual gross receipts of service contractors in SBA's 

regulations: 

• Congress was clear that the SBREA is effective immediately. The SBREA 

directly amended the Small Business Act without providing that effectiveness 

would be delayed until rulemaking was completed. Although no effective date is 

specified, under established principles of statutory construction, "the omission of 

an express effective date simply indicates that, absent clear congressional 

direction, it takes effect on its enactment date." Johnson v. United States, 529 

U.S. 694, 695 (2000) (emphasis added). 

• The three-year standard in SBA's current regulations (13 C.F.R. § 

121.1 04(c)) was invalidated by the conflict with the amended Small 

Business Act, under well-established principles of administrative law. See, 

e.g., Farrell v. United States, 313 F.3d 1214, 1219 (9th Cir. 2002) ("It is wellsettled that when a regulation conflicts with a subsequently enacted statute, the 

statute controls and voids the regulation."); Scofield v. Lewis, 251 F.2d 128, 132 

(5th Cir. 1958) ("A regulation, valid when promulgated, becomes invalid upon the 

enactment of a statute in conflict with the regulation."); see also Kievenaar v. 

Office of Personnel Management, 421 F.3d 1359, 1364-65 (Fed. Cir. 2005) 

(holding that a regulation that conflicts with a subsequently amended statute is 

ineffective). 

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IV. The SBA's Erroneous View that the SBREA is Neither Effective Nor 

Applicable to the SBA 

Since the SBREA's passage, the SBA has created unnecessary confusion regarding 

the SBREA's implementation by erroneously concluding that the absence of an express 

effective date in the statute means that the SBREA has no legal effect until the SBA 

amends its regulations. In an "SBA Information Notice" issued on December 21, 2018, 

to all Government Contracting Business Development ("GCBD") employees, the SBA 

explained: 

SBA is rece1v1ng inquiries about whether the Runway 

Extension Act is effective immediately-that is, whether 

businesses can report their size today based on annual 

average receipts over five years instead of annual average 

receipts over three years. The Small Business Act still 

requires that new size standards be approved by the 

Administrator through a rulemaking process. The Runway 

Extension Act does not include an effective date, and 

the amended section 3(a)(2)(C)(ii)(ll) does not make a 

five-year average effective immediately. 

The change made by the Runway Extension Act is not 

presently effective and is therefore not applicable to 

present contracts, offers, or bids until implemented 

through the standard rulemaking process. The Office of 

Government Contracting and Business Development 

(GCBD) is drafting revisions to SBA's regulations and SBA's 

forms to implement the Runway Extension Act. Until SBA 

changes its regulations, businesses still must report their 

receipts based on a three-year average. 

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(emphasis added.) (For the Subcommittee's convenience, a copy of the SBA's 

Information Notice regarding the SBREA, assigned Control No. 6000-180022, is 

attached.) 

As noted above, the SBA's analysis and conclusion are plainly wrong and are likewise 

squarely refuted by longstanding principles of statutory construction applied by the 

United States Supreme Court ("Supreme Court"). The absence of an express effective 

date does not mean that the SBREA's effectiveness is suspended indefinitely. To the 

contrary, it means that SBREA took immediate effect on December 17, 2018. As the 

Supreme Court has explained, "the omission of an express effective date simply 

indicates that, absent clear congressional direction, it takes effect on its enactment 

date." Johnson, 529 U.S. at 694-95 (citing Gozlon-Peretz v. United States, 498 U.S. 

395,404 (1991)) (emphasis added). 

The SBA has offered an additionally faulty reason regarding why it believes the SBREA 

does not invalidate any of the SBA's regulations. The SBA takes the view that it is 

exempt from the small business size standard "requirements" of 15 U.S.C. § 

632(a)(2)(C), including the standard for computing average annual gross receipts for 

service companies. The SBA's view is based on a plainly erroneous reading of the 

statutory text and flies in the face of congressional intent to establish size standard 

requirements for all "federal agencies"- including the SBA. 

As noted above, "[i]t is well-settled that when a regulation conflicts with a subsequently 

enacted statute, the statute controls and voids the regulation." Farrell, 313 F.3d at 

1219. The SBA's position is that the three-year standard in its regulations remains valid 

because there is no legal "conflict" between § 632(a)(2)(C) and the SBA's regulations. 

The SBA reasons this is the case because Congress did not intend for the SBA to be 

subject to § 632(a)(2)(C). If the SBA is exempt from § 632(a)(2)(C), goes the argument, 

then there is no "conflict" between the SBREA's amendment of§ 632(a)(2)(C) and the 

SBA's current regulations. 

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However, the notion that the SBA is somehow exempt from the size standard 

requirements of§ 632(a)(2)(C) is plainly wrong: 

• By the plain and clear meaning of its text, § 632(a)(2)(C) applies to all federal 

agencies, including SBA By its own terms, § 632(a)(2)(C) applies to every 

"federal department or agency," which is defined in§ 632(b) to as having "the 

meaning given to the term 'agency' by section 551(1) of title 5, but does not 

include the United States Postal Service or the Government Accountability 

Office." There is no dispute that SBA falls within the definition of "agency" 

in 5 USC 551(1). 

• There is one possible way for SBA to exempt from § 632(a)(2)(C), which states 

that the size standard requirements apply to all federal agencies, "unless 

specifically authorized by statute." (emphasis added.) SBA asserts that it 

derives its legal authority to issue size standards under§ 632(a)(2)(A), which 

states as follows: 

In addition to the criteria specified in paragraph (1 ), 1 the 

Administrator may specify detailed definitions or standards 

by which a business concern may be determined to be a 

small business concern for the purpose of this chapter or 

any other Act. 

It is clear from the plain text of§ 632(a)(2)(A) that Congress has not provided any 

"specific authorization" for the SBA to prescribe size standards that do not meet 

the requirements of§ 632(a)(2)(C). This provision sets forth a general authority for 

the SBA Administrator to specify detailed definitions or standards for small business 

concerns, with not specific authorization to be exempt from § 632(a)(2)(C). If Congress 

1 "Paragraph (1)" refers to§ 632(a)(1), which states: "For the purposes of this chapter, a smallbusiness concern, including but not limited to enterprises that are engaged in the business of 

production of food and fiber, ranching and raising of livestock, aquaculture, and all other farming 

and agricultural related industries, shall be deemed to be one which is independently owned 

and operated and which is not dominant in its field of operation." 

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March 26, 2019 

had intended to specifically authorize the SBA to be free of these requirements, it would 

have specifically stated in § 632(a)(2)(A) that "the Administrator is authorized to 

prescribe size standards for categorizing business concerns as small business 

concerns that do not conform to the requirements of§ 632(a)(2)(C)." Of course, § 

632(a)(2)(A) contains no such specific authorization because Congress intended the 

SBA's size standards to comply with the requirements of§ 632(a}(2)(C). 2 

SBA's position makes no sense as a matter of public policy. Under the SBA's view, 

Congress intended to create two sets of size standards for the federal government: one 

established by non-SBA federal agencies subject to the requirements of§ 632(a)(2)(C} 

and another set established by SBA that are unbound and free to contradict the 

requirements of§ 632(a)(2)(C}. Such a balkanization of size standards across the 

federal government would create confusion and divergent outcomes across the SBA 

and non-SBA programs, and remove Congress from having any role in setting 

parameters for the size standards issued by the SBA. This is not what Congress 

intended. 

It is clear that Congress understood that§ 632(a)(2)(C} applies to the SBA when it 

passed the SBREA. In fact, the clear intention of Congress, as expressed in both the 

House and Senate reports on the legislation, was to grant mid-size service contractors 

immediate relief by changing the "SBA's" size standards: 

• "H.R. 6330 lengthens the time in which the Small Business Administration 

(SBA) measures size through revenue, from the average of the past 3 years to 

the average of the past 5 years." H.R. Rep. No. 115-939, at 2 (emphasis 

added). 

• The SBREA "amends the Small Business Act by lengthening the time the SBA 

measures size through revenue, using the average of the preceding five years 

2 A review of all Federal court decisions reveals that there are no judicial decisions addressing 

(much tess supporting) SBA's interpretation that it's regulatory authority under 632(a)(2)(A) is 

not subject to the requirements of 632(a)(2)(C). 

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March 26, 2019 

instead of the preceding three years." S. Rep. No. 115-431, at 3-4 (emphasis 

added). 

V. Consideration of Options for Congressional Response 

1. Stay the Course: Do Not Delay the Effective Date of the SBREA past 

December 17, 2018. 

Congress should not allow SBA to thwart and delay the important work Congress 

completed in December 2018 with the enactment of the SBREA. As noted above, 

Congress drafted the SBREA in such a way that it took immediate effect and 

immediately invalidated the old three-year standard for calculating the average annual 

revenue of service contractors in the SBA's regulations. 

The SBREA is already doing what Congress hoped: benefiting mid-tier service 

contractors, who would experience financial hardship if Congress reverses course and 

elects to delay the effectiveness of the SBREA until some future date. Service 

contractors who are small under the five-year standard of SBREA but large under the 

old three-year standard are now bidding on small business set-aside contracts in 

reliance on the SBREA's immediate effectiveness. Although the System for Award 

Management ("SAM") will require updating to incorporate the new five-year standard for 

determining average annual revenue, contractors may make (and are making) size 

representations based upon the current five-year standard manually in their proposals 

for set-aside contracts. Thus, notwithstanding the time it will take to update SAM, both 

offerors and contracting agencies have an effective method to make and accept size 

standards based on the SBREA's five-year standard. 

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March 26, 2019 

2. Gently Resolve the SBA's Confusion About the Scope of its 

Regulatory Authority by Issuing a "Clarifying" Amendment of 

Section 3 of the Small Business Act Confirming that the SBA Has 

Always Been Subject to § 632(a)(2)(C). 

Congress should be mindful that it is Congress (and not the SBA) that determines the 

meaning and purpose of the Small Business Act. Just because the SBA adopts a view 

of its regulatory authority regarding size standards, which is clearly at odds with the 

plain text of the Small Business Act, is no reason to delay the immediate effectiveness 

of the SBREA and the relief it affords to service contractors who are now "small" under 

the new five-year average annual revenue standard but would otherwise be "large" and 

ineligible for small business set-aside contracts under the old three-year standard. 

A plain reading of§ 632(a)(2)(A) and subsection (a)(2)(C) makes clear that Congress 

did not intend for the SBA to have broader authority than other federal agencies when 

issuing size standards. Congress implemented a policy of uniformity among all federal 

agencies, including the SBA, when prescribing size standards and intended that all such 

size standard meet the minimum requirements of§ 632(a)(2)(C). Congress had yet to 

enact any specific statutory authority for the SBA to be exempt from § 632(a)(2)(C). 

Instead, Congress should act gently act to resolve the SBA's overstated view of its 

regulatory authority by issuing a simple clarifying amendment confirming that Congress 

always intended that the SBA was among the "federal agencies" subject to the small 

business size "requirements" of§ 632(a)(2)(C). It is well established that a "clarifying 

amendment" of a statute by which "Congress necessarily was merely restating the 

intent of the original enacting Congress" has retrospective effect. Dobbs v. Anthem 

Blue Cross and Blue Shield, 600 F.3d 1275, 1282 (10th Cir. 2010). Thus, such a 

clarifying, non-substantive amendment would ·apply retroactively and provide continuity 

and stability regarding the parameters surrounding the SBA's regulatory authority. 

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March 26, 2019 

3. Timing Considerations regarding "Backsliding" Mid-Tier Service 

Contractors 

It has come to the Subcommittee's attention that the SBREA may have the effect of 

"hurting" some mid-size service contractors who have been struggling as "large" 

businesses for the past few years. There is a possible scenario where a company that 

had big revenue years four or five years ago but have experienced declining revenues 

in the past three years will have to wait a longer period before qualifying as "small" 

because the SBREA's five-year standard keeps their average annual gross receipts 

above the applicable size standard. 

I do not have any hard data on the number of contractors who are benefiting from the 

five-year standard compared with the number of concerns who will be delated from 

small business eligibility by it. Anecdotally, my own limited experience suggests that 

there are more growing businesses assisted by the SBREA than "backsliding" 

businesses harmed by it. 

That said, as Congress considers what, if anything, it should do to assist these 

"backsliding" mid-tier service contractors, it should be mindful that it has already 

enacted the five-year standard, which has been in effect since December 17, 2018. 

Taking action to delay the effectiveness of the SBREA by a year or more will hurt the 

growing businesses who are presently benefitting from the law by enjoying extended 

small business eligibility in 2019. Any action by Congress should not disturb the 

effectiveness of the SBREA as applying to growing service contractors, and Congress 

should continue to allow these contractors to submit proposals in reliance on the fiveyear standard. There are ways to take legislative action to assist 'backsliding" 

contractors that do not require or involve amending the December 17, 2018, effective 

date of the SBREA as applied to growing service contractors. 

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March 26, 2019 

4. Timing Considerations regarding Amending the Look-Back Period 

for "Manufacturing" (Employee-Based) Size Standards 

The SBREA amended only the look-back period for calculating average annual gross 

receipts for size standards that apply generally to service industries. Congress has not 

amended the 12-month standard for determining the monthly average number of 

employees, which is the size standard that generally applies to contractors in 

manufacturing industries. The question has been raised whether Congress should seek 

to "extend the runway" for emerging small business manufacturers like it has for service 

providers. 

This is an issue that warrants Congress' consideration. 3 But it should not be linked to, 

or otherwise delay, the implementation of the five-year standard under the SBREA. 

Congress can take separate legislative action that amend § 632(a){2){C) to "catch up" 

the employee-based size standards with the amendments Congress has already made 

to the revenue-based size standards. But it would thwart the policy goal of the SBREA 

to delay implementation of the five-year standard that is already benefiting mid-tier 

service contractors. 

3 One idea is to amend the look-back period for calculating average monthly headcount by the 

same proportion (3:5) as the period for average annual gross receipts was lengthened. In the 

case of the 12-month look-back period for average employment, Congress could strike 

"preceding 12 months" from § 632(a)(2)(C)(ii)(l) and replace it with "preceding 20 months" -the 

equivalent of a 3:5 proportional increase in the look-back period. There could be other 

adjustments as well that may be more appropriate under the circumstances of employment 

headcounts or manufacturing-specific industries. 

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SBA Information Notice 

TO: All GCBD Employees CONTROL NO.: 6000-180022 

SUBJECT: Small Business Runway Extension 

Act of2018 

EFFECTIVE: 12-21-18 

On December 17, 2018, President Trump signed Public Law No. 115-324, the Small Business 

Runway Extension Act of2018 (Runway Extension Act). The Runway Extension Act amends 

section 3(a)(2)(C)(ii)(Il) of the Small Business Act as reflected in the appendix (next page) to 

this notice. In short, the Runway Extension Act modifies the method for prescribing size 

standards for small businesses. Under prior law, firms in industries with receipts-based size 

standards calculated size based on annual average gross receipts over three years. The Runway 

Extension Act provides that, unless specifically authorized by statute, receipts-based size 

standards be based on annual average gross receipts over five years. 

SBA is receiving inquiries about whether the Runway Extension Act is effective immediatelythat is, whether businesses can report their size today based on annual average receipts over five 

years instead of annual average receipts over three years. The Small Business Act still requires 

that new size standards be approved by the Administrator through a rulemaking process. The 

Runway Extension Act docs not include an effective date, and the amended section 

3(a)(2)(C)(ii)(II) does not make a five-year average effective immediately. 

The change made by the Runway Extension Act is not presently effective and is therefore not 

applicable to present contracts, offers, or bids until implemented through the standard 

rulemaking process. The Office of Government Contracting and Business Development 

(GCBD) is drafting revisions to SBA's regulations and SBA's forms to implement the Runway 

Extension Act. Until SBA changes its regulations, businesses still must report their receipts 

based on a three-year average. 

For more information about the Runway Extension Act, you may contact Khem Sharma, Chief, 

Office of Size Standards, at (202) 205-7189, or Sam Le of the Office of General Counsel at (202) 

619-1789. 

RobbN. Wong 

Associate Administrator 

Office of Government Contracting and Business Development 

EXPIRES: 12·01-19 

SBA Form 1353.3 (4-93) MS Word Edition; previous editions obsolete 

Must be accompanied by SBA Form 58 

F.Jorol Re<~dm~ h<'l!f<ml () Plmtcd "" Rcoyd<d Par<•· 

PAGE1 
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Appendix 

Section 3(a)(2)(C)(ii)(II) of the Small Business Act, 15 U.S.C. § 632(a)(2)(C)(ii)(II) 

SEC. 3. DEFINITIONS. 

(a) Small Business Concerns.--

(!)* * * 

(2) Establishment of size standards.--

(A) In generaL--In addition to the criteria specified in paragraph (1), the 

Administrator may specify detailed definitions or standards by which a business concern may be 

determined to be a small business concern for the purposes of this Act or any other Act. 

(B) Additional criteria.--The standards described in paragraph (1) may utilize number 

of employees, dollar volume of business, net worth, net income, a combination thereof, or other 

appropriate factors. 

(C) Requirements.--Unless specifically authorized by statute, no Federal department 

or agency may prescribe a size standard for categorizing a business concern as a small business 

concern, unless such proposed size standard--

(i) is proposed after an opportunity for public notice and comment; 

(ii) provides for determining--

(!) the size of a manufacturing concern as measured by the manufacturing 

concern's average employment based upon employment during each of the manufacturing 

concern's pay periods for the preceding 12 months; 

(II) the size of a business concern providing services on the basis of the 

annual average gross receipts of the business concern over a period of not less than [3 years] 5 

years; 

(III) the size of other business concerns on the basis of data over a period of 

not less than 3 years; or 

(IV) other appropriate factors; and 

(iii) is approved by the Administrator. 

EXPIRES: 12-01-19 

SBA Form 1353.3 (4-93) MS Word Edition; previous editions obsolete 

Must be accompanied by SBA Form 58 n 

Ft>dorJl Rc'<O}d!!ll_l Pragrom ~~ l'litMJ nn Rcc;dc<l l'"f"'' 

PAGE 1 
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Written Testimony of 

Megan C. Connor 

Partner 

PilieroMazza PLLC 

Before the 

House Committee on Small Business 

Subcommittee on Contracting and Infrastructure 

"Cleared for Take-off? Implementation of the 

Small Business Runway Extension Act" 

March 26, 2019 
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Good morning, Chairman Golden, Ranking Member Stauber, and Distinguished 

Members of the Subcommittee. Thank you for the opportunity to appear before you today. My 

name is Megan Connor, and I am a partner at PilieroMazza PLLC, a law firm serving 

government contractors for over 30 years. I am joined today by our managing partner, Pam 

Mazza. We represent government contractors of all sizes and in a variety of industries. Many of 

our clients, though, are small businesses directly impacted by the Small Business Runway 

Extension Act of2018 (''Runway Extension Act"). 

Our firm supports the Runway Extension Act and, specifically, changing how small 

businesses calculate their receipts from a three-year basis to a five-year basis. However, we 

believe that, in implementing this change, there are three issues that need to be addressed in 

order to avoid negative impacts on small businesses. First, small businesses deserve clarity as to 

the effective date of the change from three years to five years. Second, we strongly recommend 

a transition period during which firms that are small under a three-year calculation, but not small 

under a five-year calculation, are able to adjust to the marketplace. Third, the System for Award 

Management database must be updated to account for this change. I will address each of these 

issues in turn. 

Effective Date 

First, there is widespread confusion in industry as to whether the Runway Extension 

Act-which was signed into law on December 17, 2018-is actually in effect. Our firm receives 

questions from clients on a nearly daily basis about the Act and the impact it has on the client's 

size calculation. This confusion arises from the fact that, while the Act amended the Small 

Business Act to provide that a firm's receipts calculation shall be based on five years, the Small 

Business Administration's ("SBA") regulations still state that receipts are to be calculated based 
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on the average of the three recently completed fiscal years. 1 While we would normally advise 

clients that federal law supersedes federal regulations, SBA issued an internal Information 

Notice to SBA employees on December 21, 2018, stating that "[t]he change made by the 

Runway Extension Act is not presently effective and is therefore not applicable to present 

contracts, offers, or bids until implemented through the standard rulcmaking process."2 

Therefore, notwithstanding the Runway Extension Act's change to the Small Business Act, SBA 

expects contractors to calculate their size for a receipts-based size standard based on a three-year 

average. 

To illustrate the confusion this is creating, a client of ours submitted a proposal in 

October 2018, when the company was small under a three-year calculation. As of January 1, 

2019, that company is no longer small under a three-year calculation, but remains small under a 

five-year calculation. This company was elated with the change made by the Runway Extension 

Act and its ability to continue pursuing small business contracts. But two weeks ago, the 

procuring agency sent them correspondence regarding the October 2018 proposal and asked the 

company to submit a proposal revision and include, among other things, updated representations 

and certifications of size. In response, the company reiterated that it was small at the time of its 

initial proposal with price, which is the relevant date for size purposes/ and also provided 

updated representations and certifications that it remains a small business pursuant to the 

Runway Extension Act. This company, and others like it, should be able to take advantage of the 

Runway Extension Act now. 

See 13 C.F.R. § l2l.l04(c)(l). 

SMALL BUSINESS ADM!N!STRAT!ON, SBA Information Notice Control No. 6000-180022 (Dec. 21, 

20 18), available at http://thecgp.org/imagesllnformation-Notice-6000-180022-re-Small-Business-RunwayExtension·Act.pdf. 

See 13 C.F.R. § 12l.404(a). 

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Accordingly, we recommend that Congress make clear its intent as to the effective date 

of the Runway Extension Act. It is my understanding that the Committee is currently drafting 

legislation to address this, which is welcome news. We appreciate the Committee's efforts and 

urge the Committee to consider, when establishing an effective date, how firms that are 

benefitted by the Act may take advantage of it as of the date it became law. 

Transition Period 

The second issue the Committee should address in implementing the Runway Extension 

Act is a transition period that would allow firms that are small under a three-year calculation, but 

not small under a five-year calculation, to adjust to this change. It was clearly the Committee's 

intent that the Runway Extension Act would "allow small businesses at every level more time to 

grow and develop their competitiveness and infrastructure, before entering the open 

marketplace."4 However, by extending the time period for the receipts calculation, the 

Committee may have assumed that revenues either remain stagnant or grow year-to-year at a 

steady rate. While this may be true for some companies, it is not true for all. 

Indeed, the reality is that the Runway Extension Act unintentionally may harm small 

businesses that are experiencing financial downturns-for example, if a contractor unexpectedly 

loses a valuable follow-on contract or graduates from SBA's 8(a) Program and is no longer 

eligible for 8(a) contracts. In both scenarios, the contractor often experiences a decrease in 

revenues after years of increases. 

To illustrate, Company A, an information technology ("IT") contractor, has had revenues 

grow by exactly 9% every year for the last five years: 

H.R. Rep. No. 115-939, at 2 (2018). 

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Company A 

Fiscal Year Total Receipts Growth 

2014 $22,000,00.00 

2015 $23,760,000.00 +9% 

2016 $25,660,800.00 +9% 

2017 $27,713,664.00 +9% 

2018 $29,930,757.12 +9% 

Company A's current size calculation is $27,768,407, based on its three recently completed 

fiscal years (20 16-20 18), and it is therefore considered "other than small" for IT contracts under 

the $27.5 million size standard. But if Company A's size is calculated based on the last five 

fiscal years (2014-2018), pursuant to the Runway Extension Act, Company A's current size is 

$25,813,044, which would make Company A a small business again under the $27.5 million size 

standard. Company A is a winner under the Runway Extension Act. 

Now, let us consider Company B, another IT firm, which has had extreme growth and 

downturns over the last five years: 

Company B 

Fiscal Year Total Receipts Growth 

2014 $35,000,000.00 

2015 $40,000,000.00 +14% 

2016 $30,800,000.00 -23% 

2017 $27,400,000.00 -11% 

2018 $23, l 00,000.00 -16% 

These fluctuations could be driven by the types of contracts Company B has. For instance, if 

Company B is a contract holder on a large contract vehicle and won large-dollar but short-term 

task orders in some of the recent fiscal years, but not every year, then it could experience these 

swings. Company B' s current size calculation, based on its three recently completed fiscal years 

(2016-2018), is $27,100,000. Therefore, under SBA's current regulations, Company B is small 

for purposes of a $27.5 million size standard. If Company B's receipts for the last five fiscal 

years (2014-20 18) are averaged, though, Company B will be over the $27.5 million size standard 

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and no longer considered small. Company B, therefore, is a loser under the Runway Extension 

To address this inequity, small businesses should be given the option to choose which 

calculation is most favorable for them-three years versus five years-for a transition period. In 

this way, firms that are no longer considered small under a five-year calculation will have time to 

prepare to compete as a so-called mid-sized firm in the unrestricted marketplace.6 Such 

preparations could include identifying opportunities in industries with larger size standards, 

small businesses with which to form a mentor-protege relationship, and teaming partners with 

which to pursue both set-aside and unrestricted opportunities. 

System for Award Management 

Lastly, in implementing the Runway Extension Act, the System for Award Management 

("SAM") should be updated to account for the change from three years to five years. SAM is a 

federal database of contractors doing business with the government. Except in narrow 

circumstances, all contractors pursuing work with the federal government must register in SAM. 7 

In order to be registered in SAM, firms must complete representations and certifications, 

including of the firm's size for purposes of federal procurement.8 When completing SAM 

These "Company A" and "Company B" examples were originally published in a post for the 

PilieroMazza blog. See Megan C. Connor, New Receipts Calculation for Federal Contractors?, P!LlEROMAZZA 

BLOG (Sept. 26, 20 18), https://wv.-w.pilieromazza.com/new-reeeipts-calculation-for-federal-eontractors. 

The Committee recognized the pressures on "other than small" firms that barely exceed the size 

standards applicable to their contracts, and are therefore considered mid-sized, but must compete against multibillion dollar companies. See H.R. Rep. No. 115-939, at 3 (2018). 

See 48 C.F.R. § 4.ll02(a). 

See 48 C.F.R. § 52.204-7(a). 

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registration, contractors must insert one amount representing their three-year average receipts. 9 

To conform to the Runway Extension Act, SAM should be updated to request a five-year 

average receipts calculation. 

Conclusion 

In conclusion, the Runway Extension Act is a positive change for government 

contractors, but in implementing it, any potential negative impacts should be mitigated through 

clarity for industry, a transition period for firms that are not benefitted by the change, and an 

update to SAM. 

On behalf ofPilieroMazza and the government contractors we represent, I would like to 

commend the Committee for continuing to consider how best to implement the Runway 

Extension Act. And I would like to thank the Committee again for the opportunity to appear 

before you today. I look forward to your questions. 

This amount is then used to auto-populate a size certifications chart in SAM with "Y" and "N" to 

indicate whether the company is a small business for its designated North American Industry Classification System 

codes. 

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Statement of Brian Morales 

President and CEO 

of Pro-Cal Lighting 

on behalf of the 

National Electrical Contractors Association 

1\!AfWNAt I tH I!HlAl (Oflf!<A(IO!!S ASSOCIATION 

to the Committee on Small Business Subcommittee on 

Contracting and Infrastructure 

U.S. House of Representatives 

for a hearing on: 

"Cleared for Take-off? Implementation of the Small Business 

Runway Extension Act" 

March 26, 2019 

NECA is the voice of the $171 billion electrical construction industry that brings power, light and 

communication technology to buildings and communities across the U.S. Our national office 

and 1181ocal chapters advance the industry through advocacy, education, research and 

standards development. A diverse group of nearly 4,000 member companies account for 

approximately 300 million man hours per year. 

NATIONAl ElECTICAl CONTRACTORS ASSOCATION 

412 First Street, SE Suite 110 

Washington, D.C. 20003 

Phone: (301) 657-3110 

FAX: (301) 215-4500 

@NECAGovtAffairs 
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Statement of Mr. Brian Morales 

President and CEO of Pro-Cal Lighting 

On behalf of the National Electrical Contractors Association 

Committee on Small Business Subcommittee on Contracting and Infrastructure 

March 26, 2019 

Thank you, Chairman Golden, Ranking Member Stauber, and members of the 

subcommittee for inviting me to testify today. On behalf of the National Electrical Contractors 

Association (NECA) and Pro-Cal lighting, we greatly appreciate the opportunity to submit a 

statement for the record to the House Small Business Subcommittee on Contracting and 

Infrastructure. The subcommittee is to be commended for holding this hearing to better 

implement and enact the prudent bipartisan reforms signed into law in the previous Congress. 

My name is Brian Morales and I am the President and CEO of Pro-Cal Lighting in Vista, 

California. As a second generation Mexican American and participant of the NECA/IBEW 

apprenticeship program, I founded my company in 2014 with my father, Anthony Morales, a 

Purple Heart recipient and Vietnam War veteran. Since that day, Pro-Cal has provided energy 

efficient design and installations to public schools, government buildings, and some of our 

nation's largest private industries. In each year since we broke ground, our company has 

doubled in revenue and now employs over 50 trained and skilled electricians with plans to hire 

16 more this year. 

As a small business, Pro-Cal Lighting encountered numerous hurdles related to financial 

risks, access to capital, and finding a trained workforce. To overcome these and other hurdles, 

Pro-Cal Lighting found an immediate need to partner with the National Electrical Contractors 

Association. Our partnership with the 117-year-old association has allowed us to take 

advantage of the expert apprenticeship training programs while strategically utilizing industry 

resources like government small business lending programs and free SBA training in 

government contracting. The association and these programs have afforded Pro-Cal Lighting 

the support it needed to continue to provide job opportunities to a diverse workforce while 

implementing appropriate growth strategies. 

We at Pro-Cal lighting are proud members of the National Electrical Contractors 

Association, which serves as the voice of the 171 billion-dollar electrical construction industry 

that brings power, light, and communication technology to buildings and communities across 

the U.S. NECA's national office and 1181ocal chapters advance the industry through advocacy, 

education, research and standards development. A diverse group of nearly 4,000 membercompanies account for approximately 300 million hours worked each year across the country. 

While working with NECA, I have had the pleasure to serve as a member of the Diversity 

Engagement Council (DEC) which represents the minority-owned and disadvantaged businesses 

within NECA's membership and endeavors to build an environment that embraces diversity as 

an integral factor for ensuring the electrical construction industry's viability. This group has 

been working to support governmental efforts related to business development, capacity 

building, career advancement, and involvement opportunities for people from all backgrounds, 

races, nationalities, genders, sexual orientations, and disabilities. 

While both the DEC and our business are young, we at Pro-Cal Lighting hold an 

optimistic outlook for the years to come; we intend to weather the ups-and-downs of the 

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volatile construction industry through our partnership with NECA and our willingness to utilize 

the programs you all seek to better legislatively. 

SMALL BUSINESS AND STABILITY HURDLES 

RISK AND GROWTH: 

Risk is inherent with any business venture and a successful entrepreneur knows how to 

navigate this risk. In orderto build a sustainable business and avoid undo exposure, a business 

owner must be informed. For my company to continue to grow, our team needs to consider 

the competition's approach and determine what level of risk we have through formal request 

for information and clear deliverables. The small business classification has allowed and 

continues to allow Pro-Cal Lighting and many other NECA contractors the opportunity to 

understand this risk, learn from it, and be better suited to grow. 

The bidding process is complex and competitive, and often pits small businesses against 

larger more experienced contractors. To a subcontractor a bid for work is an extension of risk; 

they must be confident that the bid submitted for the proposed work is accurate and free of all 

maladies. Business training along with industry insight and experience provide a small 

contractor the best opportunity to become a successful bidder and therefore a successful 

business. 

In contrast to a small construction firm whose failure to bid a job appropriately means 

life and death, a larger company, that holds a greater amount of liquidated cash has the ability 

to recoup losses on a poorly structure bid by pulling funding from other sources. We have seen 

numerous small business fall into bankruptcy from failed business ventures characterized by 

low-profit, high-risk margins and fueled by misinformation or lack of industry and business 

knowledge. What the small business classification does for companies like Pro-Cal lighting is 

limit exposure while opening up other doors for strategic growth. 

On a personal note to Pro-Cal lighting, the small business classification has opened 

opportunities for us to sit at the table of government procurement and competitively offer our 

services; while understanding the demands and requirements placed on government 

contractors. In addition, we have attended procurement workshops and created relationships 

with vendors that have allowed us to be more competitive. Because of our small business 

classification, we have been able to competitively secure government subcontracts working on 

energy efficiency projects at the Marine Corps Recruit Depot in San Diego and the Customs and 

Border Patrol Facilities in San Diego and Orange counties. The Small Business Administration 

certification allows us to present our company in a satisfactory way while mitigating our risk of 

over exposure. 

WORKFORCE AND INDUSTRY RESOURCES: 

With our economy returning to its pre-2008 levels and markets on a robust upward 

trajectory, the construction industry has seen a clear increase in work. All across the country, 

work has become so plentiful that NECA contractors are extraordinarily hard-pressed to find 

enough skilled workers to complete the job. While there are numerous causes for the 

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workforce shortage in the country, it is undeniable that its effects on small businesses are 

profound and cannot be overstated. 

In response to this challenge, NECA has turned to its 70-year-old partnership that 

produces the best electricians in our industry, the National Joint Apprenticeship Training 

Program (NJATC) run by NECA and the IBEW. The newly rechristened and jointly managed 

"Electrical Training ALLIANCE" invests well over $300 million in private funds annually into the 

largest and most successful apprenticeship training program in the nation. 

Over the decades this program has shown its ability to transform apprentices, even 

those without any prior knowledge of the craft, into full-fledged, high-skilled, journeymen and 

journeywoman. The NECA/IBEW apprenticeship is a full-time blended learning education, 

meaning time is spent both in a classroom and on the construction site. The goal of this 

program has always been and will remain to be providing the electrical construction industry 

with the highest level of trained and skilled workers possible. To accomplish this, apprentices 

receive a required 8,000 hours of on-the-job training and 900 hours of classroom time. 

Throughout this three to five-year education (varying on locale), all electrical apprentices 

receive incremental raises as they reach certain milestones. We take pride that they are not a 

burden to the taxpayers because the training is fully funded by the industry without any 

taxpayer assistance. Instead, our apprentices and others in the program contribute in excess of 

$600 million dollars in federal, state, and local taxes each year. Lastly, they receive retirement 

plans and medical coverage for themselves and their families provided at no cost to the 

American taxpayer. 

This Congress and many past, have made clear that addressing our nation's current and 

future employment needs is critically important to expanding and rebuilding our nation. We at 

NECA and Pro-Cal Lighting believe the existing apprenticeship structure provided by the 

construction trades is a sure-fire bet for success, particularly for small businesses. 

Upon realizing the need to be involved in developing the next generation of trade 

professionals, I became focused on creating platforms for under-represented minorities to 

excel. In partnership with a local high school! then created an apprenticeship readiness 

program that recognizes the emerging opportunities in energy and green building. A majority of 

the students in our program are second generation Hispanic Americans who are further driven 

by seeing someone like themselves running a successful multi-million-dollar company. It is 

programs like this, building from the ground up, that will begin to chip away at the institutional 

roadblocks to our small businesses having a well-educated, diversified workforce to draw from. 

To compliment this grassroots work, NECA in 2018 formed its Diversity Engagement 

Council (DEC). This governmentally focused contingent is made up of construction professionals 

from all over the country, from Detroit to New Orleans, from New York to San Diego. These 

contractors are committed to growing the diversity of their industry and working with elected 

officials to collectively bettering the contracting environment. A key pillar to NECA's DEC has 

been spreading the conversation on best practices and regulations that our smaller and 

disadvantaged contractors have experienced over the years. We believe that through efforts 

like the DEC and my own, we can diversify our solutions to the workforce shortage while 

bettering our small businesses economically. 

In addition to our involvement with the NECA/IBEW apprenticeship and NECA's Diversity 

Engagement Council, Pro-Cal Lighting has had the opportunity to take advantage of a variety of 

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industry resources via the small business classification; these resources have in-turn allowed 

our company to hire a more diverse workforce. Tools like the previously mentioned small 

business loan program gave our company the ability to challenge the risks of the construction 

industry and to win work which then permitted our staff, office administration, and our field 

electricians to grow professionally. Due to the requirements of federal contractors to be 

proficient in record keeping and safety, upon winning federal work our staff was required to 

receive additional training and certifications ultimately making them better suited to win more 

work in the future. Much of this training was free, and all of it has been appreciated. 

While there is nationwide concern over the workforce shortage, we at NECA and Pro-Cal 

Lighting are taking advantage of all the platforms offered to us; understanding that while we 

must develop our workforce we must also sustain our small businesses. Whether resources are 

well-established like those offered by the SBA, or the 70-year-old NECA/IBEW apprenticeship, 

or if business owners create them themselves, we remain optimistic that the skills gap and 

workforce shortage can be bridged, all while advancing small businesses. 

BENEFITS OF THIS LEGISLATION 

We at NECA and Pro-Cal lighting were pleased to learn about the bipartisan legislation of 

last Congress extending the classification calculation time period for average receipts from 

three to five years. We again were elated to be asked to participate in this hearing seeking to 

further clarify, strengthen, and elaborate on that legislation. As a small business owner, keeping 

up with regulatory and legislative changes is extremely time consuming. By allowing a longer 

determination period, companies like mine will be granted the time to properly anticipate their 

cash flow and the effects of risk on their individual classifications. 

This legislation is of particular benefit to companies like my own who can say that a fiveyear period given the measure of our current anticipated revenues for this year and the 

following, Pro-Cal Lighting would still hold its certification as a small business. If the same were 

to be evaluated over a three-year period, we would lose our certification after the year 2020. If 

we were to engage in discovering projects with the Federal Government, by the time the 

projects were funded and released for 8(a) qualified contractors we would be disqualified from 

participating and lose all that investment in developing and promoting this work. Instead, upon 

the passing of this legislation, Pro-Cal Lighting can begin to acquire new clients on long-term 

contracts, becoming long lasting revenue sources and subsequently moving our company into a 

safer financial position. 

With nearly 80 percent of NECA's contractor-members able to be classified as small 

businesses, legislation like this allowing our contractors to utilize the small business 

classification for any additional length of time is of the utmost importance. Helping create small 

business is a great endeavor, but helping a small business grow and sustain its growth is what 

this nation needs to reflect a healthy economy. This legislation will positively affect thousands 

of small businesses across the country. 

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FURTHER LEGISLATIVE PROPOSALS 

REGIONAL CALCULATION FOR SMALL BUSINESS CLASSIFICATION: 

There is no doubt that the small business classification is a beneficial tool for companies 

to gain a foothold in the industry allowing our business to compete and succeed in a 

competitive industry. That said, it should come as no surprise to this subcommittee that there 

are shortcomings to the structure, namely its one-size fits all approach. 

By basing the classification off of annual receipts and extending that time period to five 

years, Congress has shown its understanding that current market realities must be taken into 

account when working to serve the small businesses that make up over 90 percent of this 

nation's economy. The next market reality to be addressed arises from the basic concept that 

the cost of doing business in one locale of the country can be drastically different from another. 

As a contractor in a high cost area, simple math makes me more likely to graduate out of the 

small business classification well before a contractor in a lower cost area. For instance, the 

annual average receipts of $35 million in Illinois, amounts to around $31 million in California, 

and over $40 million in Mississippi. The differences in these sums equates to the reduction in 

small businesses classification benefits from high cost areas to low ones. 

Although it m<;Jy not be a perfect science, accounting for these variances is something 

that can be responsibly addressed by Congress. By taking the small business classification of 

annual average receipts over five years and tying this amount to a regionally adjusted sum then 

joined to inflation, Congress will be able to give each business its intended benefit from the 

program. 

CONCLUSION 

As a small business contractor, I am extremely encouraged by this committee's efforts 

to revise and strengthen the Small Business Runway Extension Act. The further clarification and 

phase-in period of this legislation will be a key component in small business owners like myself 

mitigating the inherent risks of competing in our industry. The small business classification has 

been an integral part to our success as a business and has offered invaluable industry resources 

to our team. In addition, as contractors at NECA continue to address the workforce shortage 

nationwide, we urge this subcommittee to continue its recognition of the apprenticeship 

system as a critical tool in educating our nation's men and women. 

This legislation will aid the nearly 3,200 NECA small business contractors in their quest 

to solidify their business for the long-term. As one of those contractors, Pro-Cal Lighting will 

immediately benefit and in doing so will pass down those benefits to a new, diverse generation 

of workers. While the legislation offered by this committee is a step forward, there are many 

more opportunities to come; namely the regionally adjusting of the average annual amount 

classifying a business as "small." We at NECA and Pro-Cal Lighting see this as an immediate and 

beneficial areas of action by this subcommittee. 

Thank you for the opportunity to testify at this very important hearing. NECA applauds 

the subcommittee's unwavering efforts to reexamine the benefits of government programs for 

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small businesses. We are optimistic that this subcommittee remains capable to address the 

many challenges facing our nation's small business and look forward to working with you all to 

make those changes in a responsible and swift fashion. 

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Written Testimony of 

Erin Allen 

President of Contemporaries, Inc. 

On Behalf of 

Montgomery County Chamber of Commerce (MCCC) 

Before the 

House Committee on Small Business Subcommittee on Contracting 

and Infrastructure 

"Cleared for Takeoff? Implementation of the Small Business 

Runway Extension Act" 

March 26, 20 19 
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Good morning Chair Golden and Ranking Member Stauber. I want to thank you for the 

opportunity to testify on this important topic. My name is Erin Allen, President of Contemporaries, 

Inc. I am testifying today on behalf of the 500-member Montgomery County, Maryland, Chamber 

of Commerce (MCCC) and am a member of its Board ofDirectors and co-Chair of the Chamber's 

small business committee. 

l am here for two reasons: first, to thank this Committee for working with us to pass the 

Runway Extension Act last year and second, to press for expedited implementation of this 

important law which affects businesses, like mine, nationwide. 

As background, an important part of the Chamber is its GovConNet Council, which is 

comprised of industry procurement experts. The Council meets monthly to tackle federal 

contracting issues that affect small and midsize firms. Large companies are also an important part 

of the Chamber membership and they support efforts to assist small and midsize companies to 

obtain success in federal contracting. 

Two years ago, the GovConNet Council identified a problem with· respect to small 

businesses who were exceeding their size standard quickly. As small businesses and government 

contracts become larger, it is inevitable that they will face choices - grow beyond the small 

business programs to compete with large companies, stay small to avoid the difficulties of 

competing in a "full and open" environment, sell, or go out of business. Unfortunately, it appears 

that more and more firms are being forced to make those latter choices - stay small, sell, or go 

out of business. 

These midsize businesses, of whom there are only 1,700 doing federal contracting work, 

compete not only with very large businesses, but also small businesses who receive set aside 
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federal work. 1 The Council recommended to Congress and this Committee that a path forward 

would be to allow small businesses to take into account a 5-year lookback with respect to revenues 

rather than the current three years. This is a relatively modest change, but an important one-at 

least to the many companies nationwide who have contacted us to express their gratitude for the 

change. 

Before I go any further, let me just take a minute to give you the story of Contemporaries 

and why this issue is important to me. I am a second generation business owner- my parents 

started this business in 1991, providing administrative and clerical support to federal agencies, 

local universities, and a multitude of private sector companies. When I was tapped as President, 

our business had just under $4 million in sales. Fifteen years later, we are one of the largest 

providers of staffing services to the National Institute ofHealth (NIH). Federal contracts constitute 

the majority of our revenue. In the D.C. metro, we are ranked as one of the top ten vendors under 

the GSA Federal Supply Schedule for Schedule 736. As a result of that steady growth, we find 

ourselves at the top of our size standard, which is revenue based. 

Our size standard is $7.5 million, a very small business for our industry, when compared 

to the large companies that sell these services to the federal government. My concern comes from 

having the time to accommodate future growth in a steady manner. The last three years have been 

good for our business. But the downside is that I risk losing that momentum, should I continue 

that growth or be awarded a large contract. If the Runway Extension Act goes into effect, I will 

have a few more critical years to build my infrastructure, develop talent, and comply with the 

costly new cyber security requirements the federal government is putting into place for its 

1 Bloomberg Govemment, The Mid-Tier Market 2018 Company Report (2018). 
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contractors. In the end, my goal is to grow the company, create new jobs and contribute to the 

economy. 

Fellow MCCC member, Steve Ramaley, testified before this Committee in April of2018 

on this critical issue, outlining MCCC's recommendations, including changing the formula for 

small business eligibility to the lowest three of the last five years. The rationale behind this 

proposed change can be stated simply: competitiveness takes time to build. Revenue is not an 

indicator of present competitiveness; it is an indicator of future competitiveness. Bigger small 

businesses that are about to graduate from the set-aside world need time to recruit talented 

employees, develop their intellectual property and build infrastructure to compete at the next level. 

Having a good year (or even a couple of good years) does not mean that the company will continue 

to grow. Moving from the current three-year look-back, to a five-year lookback, would give firms 

more time to adjust to the full-and-open marketplace. Furthermore, firms that show consistent high 

revenues would still be graduated. In addition, another member ofMCCC, Lisa Firestone, testified 

on behalf of Women Impacting Public Policy. Her testimony focused on the issue her business 

was facing-transitioning to a midsize company. 

Small businesses face enormous infrastructure hurdles especially if they grow very quickly 

or win larger federal contracts with big task orders. Some refer to this as the Powerball effect, 

leaving businesses scrambling to stay ahead ofthe demands of their growth and simultaneously 

trying to compete on the open market. A firm like mine simply can't compete with the large 

federal contractors overnight. Government contractors experience a unique pattern in their growth 

which is causing this midsize crisis- or no man's land. Contractor growth can be mercurial, 

sometimes hovering in the single digits and then exploding over two or three years. This pattern 

of sudden growth is increasingly common because of the Government's more frequent use oflarge 
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indefinite delivery, indefinite quantity (IDIQ) contract vehicles, under which contractors can be 

awarded huge task orders. It is not unusual for a contractor to win a single award or task order 

that, on its own, bumps the contractor out of the small business program. As referenced earlier in 

my testimony, the SBA uses a three year average of revenues to determine program eligibility. So 

a company with historic revenues of$15-$20 million might win an $80 million task order and be 

very quickly slingshotted out of the set-aside environment and into the full-and-open world. The 

Runway Extension Act was aptly named, as Congress understood that as planes became bigger 

and faster, runways had to be extended. As contracts become larger, small businesses need more 

time so that they don't crash land into full and open competition. 

As we testified last year, not just big small and midsize companies benefit from the Small 

Business Runway Extension Act. Any small business that intends to grow will eventually benefit 

from these changes. Further, having more well-qualified firms under the revenue standards will 

increase the chance that solicitations will be set-aside, and therefore will give all small frrms more 

opportunities to compete. Separately, large businesses benefit because it increases the pool of 

well-qualified subcontractors. A major complaint we hear from large primes is that by the time 

they find a great small partner, the work garnered from that relationship makes the partner large. 

The Small Business Runway Extension Act, as passed by the last Congress, addresses these 

issues. Unlike MCCC's original proposal, which would have allowed companies to choose the 

lowest of 3 out of previous 5 years, the legislation simply changed the current 3-year revenue 

average to a 5-year average for purposes of determining size. The bill, signed into law on 

December 17, 2018, provided a collective sigh of relief for many small businesses all over the 

country. 
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We expected the change to be effective immediately. However, since its passage into law, 

the SBA has posed the argument that the size determination changes should not take effect 

immediately, as the agency should first be able to utilize the rulemaking process and seek public 

comment. This decision by the SBA puts business decisions in limbo. While the law says they 

can take a 5-year average, SBA's rulemaking delays the process putting businesses in a precarious 

spot. Should they plan on a 5-year revenue average if and when the SBA makes the change final. 

Or should they risk being bumped out of being small, reengineer their business plan only to be 

eligible again when the SBA acts? 

During a Senate Small Business hearing last month, Administrator McMahon committed 

to Senator Cardin that the agency would start work on the rulemaking immediately. In that vein, 

we urge the Agency to expedite the process by issuing a final rule, thus cutting out months in the 

rulemaking process. According to the Federal Register, under the Administrative Procedures Act, 

an agency can issue a final rule without publishing a proposed rule when, among other things, 

"where an agency has no discretion to propose a rule because Congress has already directed a 

specific regulatory outcome into law."Z We believe that there was no question as to the intent of 

the Congress-there was a hearing, a markup, a clear Congressional record. and specific statutory 

language leaving no discretion with respect to the regulatory outcome. The law amended the Small 

Business Act by replacing "3 years" with "5 years". Together with the Congressional record, SBA 

is left with no discretion to deviate from a 5-year period of measurement. 

While it seems unnecessary for the Congress to reiterate its intent that the legislation passed 

be implemented by issuing new legislation, we support any effort to insist on implementation. 

2 A Guide to the Federal Rulemaking Process, Office of the Federal Register, available at 

https://www.fcderalregister.gov/uploads/20 ll/0 !/the _rulemaking__process.pdf (20 II). 
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Agency delay is not unfamiliar to us - the SBA took II years to implement the women's 

procurement program (8m) of the Small Business Act. This committee is within its right to insist 

on expedited action. At the end ofthe day, regardless ofthe method of implementation, the Small 

Business Runway Extension Act is an important first step toward assisting successful small 

businesses to grow. The damage caused by the delay is being felt by small businesses all over the 

country, not just inside the beltway. The longer implementation takes, the more uncertainty and 

confllsion results for small business owners. 

Thank you for the opportunity to testify and I look forward to answering any questions you 

may have. 
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Response to Questions for the Record 

Mr. David S. Black 

Government Contracts Attorney, Holland & Knight LLP 

At the Hearing Entitled 

"Cleared for Take-off? 

Implementation of the Small Business Runway Extension Act" 

Submitted on April 9, 2019 

Before the 

House Committee on Small Business, 

Subcommittee on Contracting and Infrastructure 

Thank you Chairman Golden, Ranking Member Stauber and Members of the 

Subcommittee for the opportunity to respond to the following "Questions for the Record" 

sent to me on March 29, 2019, as a follow up to my appearance at the abovereferenced hearing on March 26, 2019. 

Question for the Record No. 1: Given the SBA's decision to go through the 

rulemaking process to implement SBREA, what are your thoughts on SBA's 

position that the public should have an opportunity to provide comment before 

changes are made? 

The December 2018 effective date of SBREA does not prevent SBA from undertaking a 

notice and comment process before finalizing the update to its regulation at 13 C.F.R. 

121.1 04( c) as an interim rule. Moreover, as explained in response to Question No. 2, 

during the time between the SBREA 's effective date and SBA 's issuance of an interim 

or final rule, contractors and Federal agencies may rely on SBREA's minimum five-year 

standard in determining small business eligibility. 

A. SBA is Required to Provide an Opportunity for Public Notice and Comment, 

and the Immediate Effectiveness of the SBREA does Not Preclude Such 

Rulemaking. 

Section 3(a)(2)(C) of the Small Business Act requires SBA and any other Federal 

agency prescribing size standards to do so "after an opportunity for public notice and 
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Responses of David S. Black to Questions for the Record 

April9, 2019 

comment" 15 U.S.C. § 632(a)(2)(C)(i). Section 3(a)(2)(C) establishes certain minimum 

parameters for size standards required by Congress, and beyond which SBA and 

Federal agencies have no discretion to regulate. 15 U.S. C.§ 632(a)(2)(C)(ii). One of 

these mandatory parameters for size standards imposed on Federal agencies is the 

minimum time for measuring size based on average annual receipts, which the SBREA 

changed from "not less than 3 years" to "not less than 5 years." 15 U.S.C. 

§632(a)(2)(C)(ii)(ll). 

B. Because SBA Has No Discretion to Prescribe a Size Standard with a 

Measurement Period of "less than 5 years," SBA May (and Should) Issue its 

SBREA Regulations as an Interim Rule with Immediate Effectiveness. 

Although SBA must undertake public and notice comment when issuing regulations 

prescribing its size standards, the Administrative Procedure Act (APA) provides SBA 

with a range of options, including one with a faster track. It is well established that the 

APA permits agencies to finalize some rules without first publishing a proposed rule in 

the Federal Register in cases where the agency has "good cause" to find that the 

notice-and-comment process would be "impracticable, unnecessary, or contrary to the 

public interest" 5 U.S.C. § 553(b). Situation where an agency may issue an "interim 

rule" with immediate effectiveness include minor technical amendments and corrections 

where there is no substantive issue and some instances where an agency has no 

discretion to propose a rule because Congress has already directed a specific 

regulatory outcome in a law. See id. 

In the case of the SBREA, it is not difficult for SBA to conclude that "good cause" exists 

to issue an interim rule. If SBA decides, as expected, to adopt Congress' "mandatory 

minimum" look-back period of five years (rather than some longer period), then public 

comment on its amended regulation as a "proposed rule" is clearly unnecessary. 

Given the very limited statutory change made by the SBREA, SBA has no discretion to 

propose a look-back period of less than five years. Therefore, it is highly likely that SBA 

will simply update 13 C.F.R 121.104(c) as follows: 

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(1) Annual receipts of a concern that has been in business 

for five tJ:ifee or more completed fiscal years means the total 

receipts of the concern over its most recently completed 

three fiscal years divided by five tJ:ifee. 

(2) Annual receipts of a concern which has been in business 

for less than five tJ:ifee completed fiscal years means the 

total receipts for the period the concern has been in 

business divided by the number of weeks in business, 

multiplied by 52. 

(3) Where a concern has been in business five tJ:ifee or 

more complete fiscal years but has a short year as one of 

the years within its performance measurement, annual 

receipts means the total receipts for the short year and the 

four ~ full fiscal years divided by the total number of 

weeks in the short year and the four ~ full fiscal years, 

multiplied by 52. 

Congress literally changed only one number in 15 U.S. C.§ 632(a)(2)(C)- it changed"~ 

years" to "§.years" in § 632(a)(2)(C)(ii)(ll). As demonstrated above, updating SBA's 

regulations at 13 C.F.R. 121.104(c) to reflect the statutory change Congress made in 

the SBREA should be just as simple - swapping out the old references to "three" fiscal 

years with references to "five" fiscal years -with no real value expected from the public 

comment process. Because SBA has no discretion to propose a look-back period less 

than five years, it is not necessary to consider public comments on a shorter timeperiod, and SBA would likely be found to have "good cause" to issue its amendments to 

13 C.F.R. 121.104(c) as an "interim rule" with immediate effectiveness. 

The only possible exception is a scenario where SBA would propose a look-back period 

of longer than five years. As amended by the SBREA, Section 3(a)(2)(C) of the Small 

Business Act gives Federal agencies (including SBA) discretion to prescribe size 

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standards for business provided that the size standard for concerns performing services 

is "on the basis of the annual average gross receipts of the business concern over a 

period of not less than 5 years." (Emphasis added.) Thus, in theory, SBA could issue 

a proposed rule proposing a size standard that is longer than 5 years. In a case that 

SBA elected to amend its regulations to prescribe a look-back period that is longer than 

Congress' mandatory minimum set forth in the SBREA, then there could, in theory, be 

some value in receiving public comments. 

However, such a scenario is nothing more than a hypothetical exercise. Historically, 

SBA has never established a look-back period for services contractors that has 

exceeded the mandatory minimum established by Congress in Section 3(a)(2)(C) of the 

Small Business Act. While I have not spoken to anyone at SBA, in its public utterances 

on the implementation of the SBREA, I have not heard SBA indicate that it is interested 

in establishing a lookback period that is longer than five years. Provided that SBA 

intends to stick with the Congressional mandatory minimum of a five-year look-back 

period, there is no value in considering public comments. SBA has no discretion to 

prescribe a look-back period shorter than the five-year period established by Congress 

in the SBREA. 

Again, the immediate effective date of the SBREA in December 2018 does not preclude 

SBA from undertaking a rulemaking process that includes an interim rule to "catch up" 

its regulations to the SBREA and an opportunity for public comment. As the Office of 

the Federal Register has explained in its "Guide to the Rufemaking Process,"1 

When an agency finds that it has good cause to issue a final 

rule without first publishing a proposed rule, it often 

characterizes the rule as an "interim final rule," or "interim 

rule." This type of rule becomes effective immediately upon 

publication. In most cases, the agency stipulates that it 

1 The Office of the Federal Register's Guide to the Rufemaking Process is available at 

https://www.federalregister.gov/uploads/2011/01/the rulemaking process. pdf (visited on AprilS, 

2019). 

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will alter the interim rule if warranted by public 

comments. If the agency decides not to make changes to 

the interim rule, it generally will publish a brief final rule in the 

Federal Register confirming that decision. 

(Emphasis added.) 

Question for Record No. 2: In your written testimony, you mention that small 

businesses are already enjoying the benefits of the Runway Extension Act. Can 

you specify how small businesses are already enjoying such benefits given that 

the SBA, in their Information Notice, alleges that the Runway Extension Act is not 

currently effective? 

As set forth below, businesses who are "small" under the SBREA's new five-year lookback period are benefitting from the SBREA's December 2018 effective date by 

submitting offers for new set-aside contracts in reliance on the statutory changes made 

by the SBREA and the invalidating effect this had on the three-year measurement 

period in SBA's conflicting size regulations. 2 Because SBA's conflicting regulations are 

rendered immediately invalid and Contracting Officers have broad discretion in 

procurement matters, it is reasonable and therefore legally permissible for Contracting 

Officers to accept size representations based on Congress' new mandatory minimum 

look-back period of five years while SBA finalizes its regulations. In short, during the 

2 As a point of practice, offerors relying on the SBREA's five-year look-back standard to qualify 

as a small business may include a written representation in each particular proposal. In the 

event the written representation in the proposal under the five-year standard conflicts with a size 

representation in the System for Award Management (SAM) based on the three-year standard, 

the offeror can state that the written representation in its proposal governs the procurement, 

notwithstanding the out-of-date representation in SAM. 

Because this practice is available to offerors and agencies, it is not necessary to update the 

System for Award Management (SAM) in order for contractors to utilize the amendments to the 

Small Business Acts size standards established by Congress. SAM provides administrative 

convenience for contractors and agencies, but it is not the exclusive method by which a 

contractor may represent its size to a Federal agency. Instead, before SAM is updated to 

accommodate size standards based upon the five-year period of measurement or a hybrid 

standard, contractors may represent their size directly in their proposals that include price, 

pursuant to 13 C.F.R. 121.404. 

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time between the SBREA's effective date and SBA's issuance of an interim or 

final rule, contractors and Federal agencies may rely on SBREA's minimum fiveyear standard in determining small business eligibility. 

A. The Interplay Between the SBREA and the Procedures for Representing as 

an Eligible Small Business. 

By enacting the SBREA, Congress intended to help emerging small businesses who are 

not eligible for small business set-aside contracts under the three-year look-back period 

but are eligible under a five-year look-back period. Since December 17, 2018, these 

small business have been enjoying the benefits of the SBREA by submitting offers for 

set-aside contracts and representing that they are "small" under the applicable size 

standard using the five-year period of measuring average annual receipts. 

Small business size eligibility for a set-aside contract is determined "as of the date the 

concern submits a written self-certification that it is small to the procuring activity as part 

of its initial offer (or other formal response to a solicitation, which includes price." 13 

C.F.R § 121.404(a). Size eligibility for subcontracts set-aside for small businesses 

under a Federal prime contract are determined "as of the date of the offer for the 

subcontract" 13 C.F.R. § 121.3(C)(1 )(v). "A concern that represents itself as a small 

business and qualifies as small at the time of its initial offer (or other formal response to 

a solicitation), which includes price, is considered to be a small business throughout 

the life of the contract." 13 C.F.R. § 121.404(g) (emphasis added). 3 

Based on the foregoing rules for determining eligibility for small business contracts and 

subcontracts, a small business who is submits an initial offer for a set-aside 

contract or subcontract after December 17, 2018, that includes a representation that 

it is small under the new five-year look-back period of measurement established by the 

SBREA is eligible to receive award. Furthermore, the company will be considered to be 

3 In certain circumstances, such as the exercise of an option period under contracts with 

durations of more than five years and within 30 days of an assignment of a contract or a merger 

or acquisition of a contractor, the contractor is required to re-certify its size to a contracting 

officer. See, e.g., 13 C.F.R. § 121.404(g). 

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a small business "throughout the life of the contract." In this way, mid-tier businesses 

who are small under the five-year look-back standard are enjoying the benefits of the 

SBREA 

B. Under Applicable APA Standards of Review, a Federal Agency Will Likely 

Be Deemed to Have Reasonable Exercised its Discretion to Accept Size 

Representations Based on the SBREA's Mandatory Minimum Look-Back 

Period of Five Years. 

Such contract awards are likely to survive a protest by a disappointed offeror alleging 

that it was improper for a contracting officer to accept a size representation based on 

the SBREA's five-year standard. Contracting officers at Federal agencies are within 

their broad discretion to accept size representations based on the new five-year lookback period authorized by the SBREA even before SBA issues interim or final rule to 

update its regulations. As explained in my original written testimony, SBREA took 

immediate effect on the date of enactment- December 17, 2018- and immediately 

invalidated the conflicting "three-year" standard for computing average annual gross 

receipts of service contractors in SBA's regulations: 

• Congress was clear that the SBREA is effective immediately. The SBREA 

directly amended the Small Business Act without providing that effectiveness 

would be delayed until rulemaking was completed. Although no effective date is 

specified, under established principles of statutory construction, "the omission of 

an express effective date simply indicates that, absent clear congressional 

direction, it takes effect on its enactment date." Johnson v. United States, 529 

U.S. 694, 695 (2000) (emphasis added). 

• The three-year standard in SBA's current regulations (13 C.F.R. § 

121.104(c)) was invalidated by the conflict with the amended Small 

Business Act, under well-established principles of administrative law. See, 

e.g., Farrell v. United States, 313 F.3d 1214, 1219 (9th Cir. 2002} ("It is wellsettled that when a regulation conflicts with a subsequently enacted statute, the 

statute controls and voids the regulation."); Scofield v. Lewis, 251 F.2d 128, 132 

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(5th Cir. 1958) ("A regulation, valid when promulgated, becomes invalid upon the 

enactment of a statute in conflict with the regulation."); see a/so Kievenaar v. 

Office of Personnel Management, 421 F.3d 1359, 1364-65 (Fed. Cir. 2005) 

(holding that a regulation that conflicts with a subsequently amended statute is 

ineffective). 

Thus, a court reviewing either the contracting officer's or SBA's application of the 

SBREA to an offer submitted after December 17, 2018, but before SBA issues its 

interim or final regulations would likely conclude it would not be "arbitrary, capricious, an 

abuse of discretion, or otherwise not in accordance with law" (which is the applicable 

standard of judicial review) for a contracting officer to accept a size representation 

based on the SBREA's mandatory minimum five-year standard. While SBA has 

discretion under§ 3(a)(2)(C) of the Small Business Act to establish a look-back period 

longer than five years, under no circumstances does it have legal discretion to prescribe 

a measurement period of less than five years. After the SBREA became effective on 

December 17, 2018, the Small Business Act is clear that any Federal agency (including 

SBA) prescribing a size standard for service companies must provide a measurement 

period for average annual receipts "of not less than 5 years." 15 U.S.C. § 

632(a)(2)(C)(ii)(ll) (emphasis added). Thus, given the preemptive effect of the SBREA 

on the three-year look-back standard in SBA's regulations and the absence of discretion 

of SBA to establish a replacement standard that is less than 5 years, it is well within the 

discretion of contracting officer's to award contracts to companies who represented 

themselves as "small" under the SBREA's five-year look-back standard after the law 

went into effect on December 17, 2018. 

C. SBA's Explanation of Why Its Three-Year Standard Remains in Effect 

Provided in SBA's internal Information Notice Is "Not In Accordance With 

Law" and Will Likely be Found Unjustified Under APA Review. 

SBA's internal "Information Notice" does not change this legal reality. The Information 

Notice offers only one reason why its three-year standard allegedly remains in effectCongress's refusal to establish an "express" effective date in the SBREA: 

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SBA is receiving inqu1nes about whether the Runway 

Extension Act is effective immediately-that is, whether 

businesses can report their size today based on annual 

average receipts over five years instead of annual average 

receipts over three years. The Small Business Act still 

requires that new size standards be approved by the 

Administrator through a rulemaking process. The Runway 

Extension Act does not include an effective date, and 

the amended section 3(a)(2)(C)(ii)(ll) does not make a 

five-year average effective immediately. 

The change made by the Runway Extension Act is not 

presently effective and is therefore not applicable to 

present contracts, offers, or bids until implemented 

through the standard rulemaking process. The Office of 

Government Contracting and Business Development 

{GCBD) is drafting revisions to SBA's regulations and SBA's 

forms to implement the Runway Extension Act. Until SBA 

changes its regulations, businesses still must report their 

receipts based on a three-year average. 

(emphasis added.) As noted above, the SBA's analysis and conclusion are plainly 

wrong and are likewise squarely refuted by longstanding principles of statutory 

construction applied by the United States Supreme Court ("Supreme Court"). The 

absence of an express effective date does not mean that the SBREA's effectiveness is 

suspended indefinitely. To the contrary, it means that SBREA took immediate effect 

on December 17, 2018. As the Supreme Court has explained, "the omission of an 

express effective date simply indicates that, absent clear congressional direction, it 

takes effect on its enactment date." Johnson, 529 U.S. at 694-95 (citing GozlonPeretz v. United States, 498 U.S. 395, 404 (1991)) (emphasis added). Because the 

Information Notice articulates a position that is clearly "arbitrary and capricious" and 

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"otherwise not in accordance with law," it is entitled to !!.Qjudicial deference even 

though SBA is the agency designated by Congress to implement the Small Business 

Act. 

Although not mentioned by SBA in its internal Information Notice, representatives of 

SBA have offered an additionally faulty reason regarding why it believes the SBREA 

does not invalidate any of the SBA's regulations. The SBA takes the view that it is 

exempt from the small business size standard "requirements" of 15 U.S.C. § 

632(a)(2)(C), including the standard for computing average annual gross receipts for 

service companies. As explained in Section IV of my original written testimony 

submitted to the Subcommittee, the SBA's view is based on a plainly erroneous reading 

of the statutory text and is contrary of congressional intent to establish size standard 

requirements for all "federal agencies"- including the SBA. 

Question for Record No. 3: During the hearing, one of your recommendations 

was to issue a clarifying amendment to Section 3(a)(2)(C), specifying that the SBA 

Administrator is subject to that section. 

a. Even if a clarifying amendment was issued, would the SBA be 

statutorily bound to go through the rulemaking process due to the 

requirement in section 3(a)(2)(C)(i)? 

As explained above in response to Question No. 1, a clarifying amendment would still 

require SBA to amend its regulations to "catch up" with the SBREA, including providing 

"an opportunity for public notice and comment" in accordance with 15 U.S. C.§ 

632(a)(2)(C)(i). But SBA would have good cause to issue an interim rule because it has 

no discretion to prescribe a measurement period of less than five years and it has no 

intention of prescribing a longer period. 

But, as explained in response to Question No. 2, the fact that SBA is required to 

undergo a rulemaking process does not preclude mid-tier contractors from submitting 

proposals in reliance on the SBREA's mandatory minimum five-year standard or 

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contracting officers from awarding set-aside contracts in reliance on them before SBA 

has issued its interim or final rule. As explained above in response to Question No. 2, 

mid-tier contractors who are small under the SBREA's five-year look-back standard are 

eligible to submit offers after the SBREA's effective date of December 17, 2018, and 

contracting officers are within their discretion to rely on such representations when 

awarding small business set-aside contract. Under well-established principles of 

administrative law, the three-year standard in SBA's current regulations (13 C.F.R. § 

121.1 04(c)) was immediately invalidated by the conflict with the Small Business Act, as 

amended by the SBREA on December 17, 2018. Based on SBA's rules for determining 

eligibility for small business contracts, a small business who submits an initial offer for a 

set-aside contract after December 17. 2018, that includes a representation that it is 

small under the new five-year look-back period of measurement established by the 

SBREA is eligible to receive award and will be considered to be a small business 

"throughout the life of the contract." As explained above, a contracting officer would act 

"reasonably" within his or her "broad discretion" to rely on such a size representation 

when awarding a set-aside contract. 

Question for Record No. 4: If Congress were to proceed with a transition period 

where the 3 and 5-year formula would both apply: 

• How much time do you believe it would take the SBA to implement such 

transition period, considering the current delay and that certain tools such 

as SAM would need to be updated accordingly? 

If Congress amends Section 3(a)(2)(C) of the Small Business Act so that a new 

"mandatory minimum" size standard includes a transition period where contractors may 

elect between a three-year or five-year measurement standard, Congress can draft this 

to have immediate effect that immediately invalidates SBA's conflicting size regulations. 

As noted above, Congress may ensure that such an enactment has immediate effect by 

either not providing an effective date or providing expressly that the act is effective upon 

its enactment. Once legally effective, it will immediately invalidate SBA's conflicting size 

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regulations. Under the legal domino effect described above in response to Question 

No. 2, small business contractors who are small under the new hybrid look-back 

standards would be eligible to submit offers after the statute's effective date, and 

contracting officer's would be within their discretion to rely on such representations 

when awarding small business set-aside contract, even though SBA has not yet 

completed the rule making process. 

Based on SBA's recent track record issuing amendments to its small business 

regulations in response to Congressional amendments of the Small Business Act, I 

estimate that SBA would require between 9 and 18 months to issue an interim rule and 

18-36 months to issue a final rule. SBA could conceivably shorten these time periods if 

it was highly motivated and had cooperation from other Federal agencies who review 

drafts of its regulations, but past experience cautions against maintaining such an 

expectation. 

It is not necessary to update the System for Award Management (SAM) in order for 

contractors to utilize the amendments to the Small Business Acts size standards 

established by Congress. SAM provides administrative convenience for contractors and 

agencies, but it is not the exclusive method by which a contractor may represent its size 

to a Federal agency. Instead, before SAM is updated to accommodate size standards 

based upon the five-year period of measurement or a hybrid standard, contractors may 

represent their size directly in their proposals that include price, pursuant to 13 C.F.R. 

121.404. 

• Would this solution require a period of public comment or rulemaking on 

the SBA's part? Moreover, are there any legitimate arguments the SBA can 

use to say that it needs to go through the rulemaking process? 

As set forth above, SBA would have "good cause" to issue an "interim rule" that took 

immediate effect prior to consideration of public comments under the Administrative 

Procedure Act." If Congress amended the Small Business Act to change its 

measurement period from a "mandatory minimum" to a specific period of time- thereby 

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depriving SBA of any discretion in the matter- then SBA could issue a "direct final rule" 

without requesting public comment 

Question for the Record No. 5: Some small businesses have suggested that the 

employee-based formula used for certain industries should also be modified and 

recommend calculating average number of employees over more than 12 months. 

Does the employee-based formula accurately reflect what a small business is or 

does it provide leeway for bigger companies to be classified as small? 

I do not have supplemental information or commentary to add to my original written 

testimony on this topic. Any changes Congress may decide to make to the employeebased size standard should not modify or delay the December 2018 effective date of the 

SBREA 

Question for the Record No. 6: Speaking generally of size standards, where can 

we as Congress make improvements? 

SAM is paternalistic and cumbersome, and can force unwary or inexperience concerns 

into making inaccurate representations regarding size. SAM requests information about 

a concerns employees or receipts and them applies a formula to compute annual 

averages of receipts and monthly averages of employees. But SAM does not provide 

complete step-by-step guidance in accordance with SBA's regulations regarding how to 

calculate "receipts" and "employees" and how to determine size when a small business 

concern is newer than the standard period of measurement Furthermore, SAM 

provides incomplete guidance regarding what constitutes an "affiliate" and how to 

compute size that includes the employees or receipts of affiliates, as may be applicable. 

Congress should clarify that size representations in SAM should be entered manually by 

the contractor at the NAICS Code level without relying on inputs regarding employees 

and revenue. 

Beyond the foregoing, I do not have supplemental information or commentary to add to 

my original written testimony on this topic. Any changes Congress may decide to make 

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to the small business size standards should not modify or delay the December 2018 

effective date of the SBREA. 

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l'!IO).'!·: 2U.! $}7·iU(Hl 

n\: .:w.z FI)J-nloo 

April3, 2019 

VIA EMAIL (laurenJinks(a!mail.house.gov) 

Lauren Finks 

Clerk 

House Committee on Small Business 

2361 Rayburn House Office Building 

Washington, DC 20515 

Re: Response to Questions of the House Committee on Small Business 

Dear Ms. Finks: 

In response to the request of the House Committee on Small Business, below please find 

my responses to the Committee's questions for inclusion in the hearing record. 

1. Given the SBA's decision to go through the rulemaking process to implement 

SBREA, what are your thoughts on SBA's position that the public should have an 

opportunity to provide comment before changes are made? 

The U.S. Small Business Administration ("SBA") could issue an interim final rule, 

changing the receipts calculation from three years to five years, and seek public comment on the 

change and other impacts it has on the regulations. SBA could do this as an interim final rule, 

with regard to the years. and as a proposed rule to any other ancillary changes SBA believes are 

necessary, and seck comment to same. 

2. If Congress were to proceed with a transition period where the 3 and 5-year formula 

would both apply: 

a. How long do you think this transition period should be? 

We propose that the transition be at least two years. representing the change in the two 

formulas, in order to allow small businesses to adjust to the change. 
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April3, 2019 

Page 2 

b. How much time do you believe it would take the SBA to implement such 

transition period, considering the current delay and that certain tools such as 

SAM would need to be updated accordingly? 

SBA could implement a transition period immediately with an interim final rule (and 

seek public comment to same). As far as the System for Award Management ("SAM"), offerors 

also submit representations and certifications with their proposals for set-aside prime contracts, 

so SBA's interim final rule could provide that, until SAM is updated, an offeror's representations 

and certifications in its proposal will control over the representations and certifications the 

offeror makes in SAM. 

c. Would this solution require a period of public comment or rulemaking on 

the SBA's part? Moreover, are there any legitimate arguments the SBA can 

use to say that it needs to go through the rulemaking process? 

If the transition period is statutorily directed by Congress, it is difficult to foresee any 

reasonable basis for public comment or rulemaking on SBA's part. However, if the transition 

period is not directed by Congress, SBA could propose a transition period on its own, in 

implementing the Small Business Runway Extension Act of20 18 (''SBREA ''), in which case 

SBA reasonably could argue that this proposal would need to be subject to public comment. 

d. Are there any implementation issues that we haven't yet considered if 

Congress decides to move fonvard with this approach? 

While we do not believe this is an implementation issue for Congress, SBA will need to 

modify its forms-most notably, SBA Form 355-that request information related to a firm's 

receipts calculation 

3. During the hearing, one ofthe recommendations presented was to issue a clarifying 

amendment to Section 3(a)(2)(C), specifying that the SBA Administrator is subject 

to that section. 

a. Even if a clarifying amendment was issued, would the SBA be statutorily 

bound to go through the rulemaking process due to the requirement in 

section 3(a)(2)(C)(i)? 

No, SBA is not statutorily bound to go through rulemaking for this change under Section 

3(a)(2)(C) because that Section addresses the mlemaking process for size standards. The 

SBREA makes a change in how receipts are to be calculated, but does not change size standards. 

Similarly, the proposed clarifying amendment does not address size standards (other than to 

make clear the SBA must follow a process that it already follows). 
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Page 3 

4. Some small businesses have suggested that the employee-based formula used for 

certain industries should also be modified and recommend calculating average 

number of employees over more than 12 months. Does the employee-based formula 

accurately reflect what a small business is or docs it provide leeway for bigger 

companies to be classified as small? 

We believe a study as to whether the employee-based calculation period of measurement 

should be changed could be helpful; we have not heard anything from our clients on this point. 

The employee-based size standards are appropriate for the industries to which they apply (Q&, 

manufacturing, environmental remediation, and research & development) because the firms in 

those industries incur operating costs significantly higher than traditional service contractors. As 

a result, the values of contracts awarded to these firms are often higher, suggesting higher 

receipts tor the firms, but the firms then pay out large percentages of those receipts to vendors, 

suppliers, and subcontractors. Accordingly, these firms may appear to have large receipts on 

paper, but not necessarily large profits in reality. 

5. Speaking generally of size standards, wbere can we as Congress make 

improvements'! 

SBA should be required to revisit and reissue size standards more frequently. The Small 

Business Act requires SBA to go through this process every five years (see 15 U.S.C. § 632 note 

(201 0)), but SBA is already two years behind that target for the current size standards. Plus, it 

takes SBA years to issue the size standards, so by the time SBA does so, they are based on stale 

data. SBA should revisit size standards in greater frequency based on more recent data. We 

question whether SBA has the resources and staff to develop and modify size standards to keep 

the size standards in line with the current economy. Therefore, Congress should insist that its 

laws be followed and reasonably provide SBA with the tools and resources it needs to do so. 

Sincerely, 
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Statement for the Record 

House Small Business Committee- Subcommittee on Contracting and 

Infrastructure Hearing 

Clearedfor Take-o[f? Implementation of the Small Business Runway Extension Act 

2 April2019 

United States House of Representatives Committee on Small Business 

Subcommittee on Contracting and Infrastructure 

2361 Rayburn House Office Building 

Washington, DC 20515 

Chairman Golden and Ranking Member Stauber: 

We appreciate your convening of the hearing on March 261

h to discuss the Small Business 

Runway Extension Act that was passed in December 2018. On behalf of all the employeeowners of EA Engineering, Science, and Technology, Inc., PBC (EA), we thank you for the 

opportunity to express our support for the Small Business Runway Extension Act, and hope that 

your Subcommittee will expand the legislation to include companies like EA that operate under 

employee-based size standards. 

EA is a I 00% employee-owned Public Benefit Corporation that provides environmental, 

compliance, natural resources, and infrastructure engineering and management solutions to a 

wide range of government and industrial clients. In business for more than 45 years, EA has 

earned an outstanding reputation for technical expertise, responsive service, and judicious use of 

client resources. Headquartered in Hunt Valley, Maryland, EA employs approximately 500 

professionals through a network of26 offices across the continental United States, as well as 

Alaska, Hawaii, and Guam. 

EA qualifies as a small business in the Environmental Remediation Services sub-industry under 

NAICS Code 562910, which currently has a size standard of750 employees, measured on a 

trailing 12-month basis. At our current rate of growth, we anticipate that we eould exceed the 

750-employee threshold in the next two to three years. This concern has limited our strategic 

planning, and our ability to expand and hire additional employees. 

We strongly support the Runway Extension Act, aud urge the Subcommittee to consider 

expanding it to apply to employee-based size standards. 

We applaud the Subcommittee's efforts in addressing the delay in implementing the Small 

Business Runway Extension Act. Overall, we think this legislation goes a long way in providing 

a planning pathway for small businesses that want to grow and graduate from small business 

status in a position of strength. However, we believe the Subcommittee should also consider 

including employee-based size standards, along with receipts-based standards, in any further 
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Statement for Subcommittee on 

Contracting and Infrastructure 

2 April2019 

Page 2 

modifications to the Small Business Runway Extension Act. Should the Subcommittee and the 

Committee as a whole wish to first fix the issues impacting the legislation's implementation, 

we would then urge the Committee to advance legislation that would afford the same 5-year 

lookback to employee-based size standards like EA. 

The expansion of the calculation period for employee-based size standards makes sense on many 

levels. First, there.are 505 industries governed by employee-based standards, nearly as many as 

the 526 industries covered by receipts-based standards. Employee-based size standards therefore 

represent nearly half of the industries governed by SBA, and should therefore be considered in 

any revision to the rules for calculating size standards. Second, employee-based standards are 

even more sensitive to business variability than receipt-based standards, because they are 

currently calculated over a 12-month rolling average with a new headcount every month, versus 

a current three-year period for receipt-based standards calculated once per year. Third, a longer 

calculation period makes even more sense for employee-based standards because the hiring of 

employees usually precedes the earning of revenue in a typical business. Thus, when we hire a 

team of employees in anticipation of a contract or task order award, the impact to our headcount 

is immediate, while the revenue may follow months or years later. 

Allowing a longer "runway" to calculate our average head count would give us muchneeded insulation from beadcount volatility, and time to adapt our business model, before 

graduating from small business status. 

As a small business, we are very concerned with ensuring our business has a successful pathway 

towards future success and growth. Our business planning cycles are typically done in 5-year 

windows, not year by year or month by month, which we are forced to consider under the current 

12-month rolling average approach. Having a longer glidepath to count employee totals would 

allow EA, and businesses like ours, to plan, hire, and retain employees for the long-term, while 

developing our strategic path forward to graduate through sustained growth. 

The current 12-month rolling average produces heightened degrees of volatility when we bring 

on new hires. This volatility is magnified because every employee we bring aboard essentially 

counts as 1/12 towards our rolling average. EA often engages in large environmental 

remediation projects which involve the hiring of short-term field staff and technicians, raising the 

risk that we could inadvertently exceed our size standard. Under a five-year lookback, that risk 

would be lessened, and we would be able to hire for projects and meet the needs of our clients 

with more flexibility. A longer average period would go a long way in ensuring our company 

can hire and retain quality people, while planning for our long-term growth and eventual 

graduation from small business status. 

While the Small Business Committee and its Subcommittee on Contracting and Infrastructure 

continue to work on this issue, EA is available to be a helpful resource in any way possible. As 

the legislative process continues, we would like to be able to continue to voice our comments 
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Statement f<1r Subcommittee on 

Contracting and Infrastructure 

2 April20!9 

Page 3 

and concerns surrounding additional changes that may be made to the Small Business Runway 

Extension Act. 

Again, we appreciate your et1otts to implement and improve the Small Business Runway 

Extension Act. Thank you for your time to hear our concerns surrounding this legislation and 

your concern for the success of America's small businesses. 

Sincerely, 

Jan D. MacFarlane 

President and Chief Executive Officer 

EA Engineering, Science, and Technology, Inc., PBC 

IDM/pn 
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Statement of Dr. Richard Amos, President, COLSA Corporation, Huntsville, AL 

Submitted to the U.S. House of Representatives Committee on Small Business on Tuesday 

March 26, 2019, Room 2360, Rayburn House Office Building 

Hearing Entitled "Cleared for Take-oft? Implementation of the Small Business Rnnway 

Extension Act" 

Chairwoman Velazquez, Ranking Member Chabot and fellow members of the Committee, 

Thank you for the opportunity to submit a written statement regarding the potential 

impact of implementing changes in determining the small business size under the North 

American Industrial Classification System (NAICS). 

My name is Richard Amos, and I am the President of COLSA Corporation (COLSA), 

which is headquartered in Huntsville, Alabama. COLSA, as a Small Business, has supported the 

federal sector, especially the Department of Defense, for more than 3 5 years. We have 

consistently provided outstanding performance to our customers. 

COLSA has significantly benefited from the small business programs and from the 

emphasis the Federal sector has on growing small businesses. COLSA appreciates the continued 

focus by this committee on providing opportunities for small businesses to grow and to 

contribute to our Nation's success. 

Over the past decade the federal sector spend has substantially changed in services. In the 

Department of Defense, services that include R&D represent approximately 50% of the total 

spend, but the changes in revenue and employee size fur small business identification have 

minimally increased. 

The recent change to extend the rolling average to five years for the revenue-based NAICS 

codes in the Small Business Runway Extension Act of2018 was an excellent step, and COLSA 

congratulates the committee on taking that step. However, the act failed to address employee· 

based NAICS detennination for small business size determination. 

The employee based NAICS code 541715, which supports research and development, 

represents a significant portion of the DoD services spend and includes the most technically 

challenging support services. The employee based NAlCS codes only have a one year rolling 

average. 

A one year rolling average simply results in companies that outgrow their size in one 

month, only to find themselves small again with the loss of one contract within a very short time 
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