On Tuesday, September 25, 2018, the U.S. House of Representatives passed the Small Business Runway Extension Act of 2018 (H.R. 6330). The bill amends the Small Business Act at 15 U.S.C. § 632 to require that the size of a federal contractor be measured by an average of five rather than three years of revenue, for the purpose of assessing small business program eligibility.

The objective of the legislation is to chip away at the federal marketplace’s “mid-size no man’s land problem.” [1] Contractors that outgrow their size status and lose access to set-aside procurements tend to experience difficulties succeeding in the environment of full and open competition. [2] Often, graduated smalls are forced to sell, fall back to small, or go out of business. [3] As a result, there are thousands of successful small contractors, and a significant number of firms with more than $500 million in revenue, but relatively few success stories in between, thus creating the “mid-size no man’s land.” [4]

By giving small businesses a longer “runway,” i.e., two more years, to adjust to rapid growth and to prepare for other-than-small status, graduated firms should have an increased likelihood of being successful in the full and open marketplace. [5] If it becomes law, the change should have the short-term result of increasing the pool of well-qualified small business subcontractors for large businesses—with the potential for a longer relationship. [6]

The legislation was supported by the testimony of Miles & Stockbridge’s Stephen P. Ramaley, who testified before the House Small Business Subcommittee on Contracting and Workforce on behalf of the Montgomery County Chamber of Commerce (“MCCC”), Maryland. Mr. Ramaley’s testimony is available here.

Mr. Ramaley characterized the mid-size problem as a challenge for the U.S. economy:

Small business programs are not designed to subsidize business development; the purpose is to ensure supplier diversity in the federal marketplace in order to spur innovation and guard against supplier consolidation and noncompetitive pricing. And, of course, small businesses produce the majority of American jobs.  Without these firms growing to become midsize firms, who in turn grow to compete and challenge large businesses, the federal contractor ecosystem would stagnate, and jobs would likely be lost. [7]

In explaining why a transition to a five-year lookback would help, Mr. Ramaley added:

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 good years) does not mean that the company will continue to grow. [8]

Similarly, Gigi Godwin, CEO & President of MCCC, stated that “[s]mall business success is critical to our local, regional and national economy.  This bill provides the necessary runway for small businesses to have a chance of continued success once they take off.” [9]

The bill now goes to the U.S. Senate for consideration.

[1] No Man’s Land: Middle-Market Challenges for Small Business Graduates, Hearing Before the H. Comm. on Small Bus., Subcomm. on Contracting and Workforce, 115th Congress (Apr. 26, 2018) (Statement of Stephen P. Ramaley).
[2] See id.
[3] See id.
[4] Id.
[5] See id.
[6] See id.
[7] Id.
[8] Id.
[9] Gigi Godwin Cmts. (Sept. 27, 2018).

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