End of an Era: State of Recertification Regulations Grace Period

The Small Business Administration (“SBA”) grace period for implementation of its new recertification regulations ended as of January 17, 2026. As we previously advised, last year SBA substantially rewrote its recertification regulations, moving them to 13 C.F.R. § 125.12 and fundamentally changing the treatment of small business contracts after a recertification. These new regulations were technically effective January 16, 2025, but a one-year grace period delayed their implementation for small business set aside multiple award contracts (“MACs”). Now in effect for all types of contracts, the new regulations do not change previous requirements for recertification of size and small business status from buyer and seller (and affiliates thereof) within 30 days of a merger, acquisition, or other transaction that results in a change of control. However, as further outlined below, the effects of that recertification changed significantly under the new regulations, at least with respect to eligibility for future task orders on small business multiple-award contracts, as well as small business task orders on General Services Administration (“GSA”) multiple award schedule contracts.

In short, under the new regulations, when a concern represents itself as Other Than Small following a transaction with a large concern, it is:

1. For Single-Award Set-Aside Contracts: Eligible to continue performing, have options exercised, and receive orders.
2. For Multiple-Award Set-Aside Contracts: Not Eligible to bid on future orders or have contract options exercised.
3. For GSA Schedule Contracts: Not Eligible for award of future set-aside orders or blanket purchase agreements (BPAs).
4. For Pending Proposals:
   • Eligible for award of single-award set-asides if the proposal was submitted at least 180 days prior to the acquisition.
   • Not Eligible for award of pending proposals for single-award set-asides submitted within the last 180 days.
   • Not Eligible for pending multiple-award set-aside contract proposals, no matter when submitted.

Although the new regulations went into effect last year for many types of contracts, they contained a grace period for small business set aside MACs. Specifically, the regulations provided that any recertifications as large on small business MACs prior to January 17, 2026 resulted in the contractor remaining eligible to compete for future task orders (except in the limited instances where a contracting officer specifically requires recertification of present size status in connection with an individual task order proposal) and eligible to receive options under the MAC unless and until the contractor has a disqualifying recertification event after January 17, 2026.

After January 17, 2026, any recertifications as large on small business MACs (other than in connection with a transaction involving another small business) will render the contractor ineligible for future task orders and option exercises thereunder.

A few major items to keep in mind as we enter this new era:

1. Contractors have been living under most of this regime for a full year. Although SBA’s regulations included the grace period, the grace period only applied to recertification on small business set aside MACs. In other words, SBA’s new recertification regulations have been applicable to full and open contracts, such as GSA Schedule contracts, since January 16, 2025.
2. The same is true for pending proposals. This rule is old news. The grace period did not apply to the pending proposal regulations. Therefore, any recertification on a small business set aside MAC pending proposal as a large business due to a transaction involving a large business after January 16, 2025 would have rendered the contractor ineligible for such an award (an important fact in the age of multi-year proposal evaluation for seemingly every MAC).
3. The end of the grace period does, however, mean that future recertifications will have a different effect than old ones. As a result, just because a transaction closed before the grace period ended does not mean that a follow-on acquisition won’t require recertification from buyer and seller that could have disqualifying consequences.
4. In fact, a contractor does not need to do a deal to have a disqualifying recertification. Recertification is required no more than 120 days prior to the end of the fifth year of long-term contracts and no more than 120 days prior to exercising any option after that. If a firm recertifies as large on a MAC at either of those events, then the firm is ineligible for any future options – even if it has never completed a single merger or acquisition.
5. These new rules are paired with broader size protest rules, so the expiration of the grace period will also mean that any recertification will likely be challenged by competitors that have significantly more tools to do so.