The U.S. Small Business Administration (SBA) has released a major proposed rule that would significantly overhaul how small business size standards are calculated across federal contracting and transportation infrastructure programs. Under the new methodology, the SBA is shifting away from traditional revenue-based caps toward employment-based size standards, consolidating NAICS code categories, and eliminating various industry-specific contracting exceptions. Below is a detailed breakdown of what these proposed changes mean for heavy highway contractors, material suppliers, and small business eligibility nationwide.
Heavy Highway Construction
(NAICS 237310, 237990, 238910, etc.)
Most heavy‑civil NAICS codes will shift from gross receipts → to employment‑based size standards.
Under the revised methodology, SBA groups industries at the 4-digit NAICS level and assigns size standards based on Average Market Size. Heavy highway construction is one of the largest and most geographically distributed markets in the country.
That means:
Heavy highway = large national market size → employment-based standard.
Why?
- Annual receipts swing wildly depending on project timing, mobilization, and seasonality.
- Multi-state primes and large regionals distort receipts averages.
- SBA wants to stop penalizing firms for taking on one large project that spikes revenue.
Result: Heavy highway contractors will be classified by number of employees, not receipts.
This is a major shift.
Employment-based standards will be higher than current receipts caps.
Heavy highway firms often have:
- Large equipment fleets
- Seasonal labor surges
- High payroll relative to revenue
- SBA’s new model recognizes this.
Expect:
- Higher employee caps than the old ~$45M–$47M receipts thresholds.
- More firms staying “small” even when they grow revenue.
This stabilizes eligibility for:
- Paving contractors
- Bridge contractors
- Grading/excavation firms
- Guardrail/signage contractors
- Traffic control firms
- Concrete and asphalt producers with construction divisions
Geographic Market Count pushes heavy highway toward larger size standards.
SBA counts how many distinct geographic markets exist.
Heavy highway construction:
- Occurs in every state
- Has hundreds of local markets
- Is bid regionally but supplied nationally
- High geographic market count → lower concentration → higher size standard
This is why heavy highway moves to employment-based thresholds and why those thresholds will be generous.
Contracting exceptions disappear — primes and subs will rely solely on NAICS standards.
SBA is eliminating 18 contracting exceptions, including several used in construction.
This means:
- No special receipts caps for certain DOT work
- No alternative size standards for specific construction subcategories
- Everything defaults to the NAICS standard
- This simplifies contracting but removes escape valves some firms relied on.
Material Suppliers (Aggregates, Asphalt, Concrete, Steel, Pipe, Guardrail, Culverts)
Material suppliers fall into two buckets:
Manufacturers (NAICS 3273, 32732, 3312, 3323, etc.)
Manufacturing NAICS codes are overwhelmingly shifting to employment-based standards.
Why?
- Manufacturing is capital-intensive.
- Revenue is highly sensitive to commodity pricing.
- SBA wants to avoid punishing firms for inflation-driven revenue spikes.
Result: Concrete plants, asphalt plants, rebar fabricators, steel suppliers, guardrail manufacturers, and culvert producers will classify by employees, not receipts.
This is a huge win for suppliers whose receipts balloon during high-volume DOT seasons.
Distributors / Wholesalers (NAICS 4233, 423320, 423810, etc.)
Wholesale trade NAICS codes are more often receipts-based.
Why?
- Distribution margins are thin.
- Employment is not a good proxy for market power.
- SBA’s market-size model shows wholesalers operate in smaller, more concentrated markets.
Result: Aggregate distributors, pipe distributors, and general construction material wholesalers may keep receipts-based standards, but the thresholds will be recalculated.
Expect:
- Higher receipts caps for distributors in large national markets
- Lower caps for niche or regionally concentrated suppliers
The 4-digit NAICS grouping will change thresholds for both contractors and suppliers.
Example:
- 237310 (Highway, Street, and Bridge Construction)
- 237990 (Other Heavy and Civil Engineering Construction)
These may be grouped under 2373 or 2379, depending on cross-references.
If grouped with larger industries → higher size standard. If grouped with smaller industries → smaller size standard.
For suppliers:
- 32732 (Ready-Mix Concrete)
- 32733 (Concrete Pipe)
- 32739 (Other Concrete Products)
These may be grouped under 3273, which has a much larger national market size → higher employee thresholds.
What this means for DOT subcontractors and suppliers
More firms will qualify as “small.”
Employment-based standards are almost always higher than receipts caps.
Fewer firms will age out due to one big project.
Receipts volatility is no longer a threat.
Supplier eligibility becomes more predictable.
Manufacturers benefit the most; distributors see mixed effects.
DBE/ACDBE/MBE programs are NOT affected.
This is strictly SBA size standards — not DOT’s DBE size cap ($30.72M).
But it does affect:
- Small Business Set-Asides
- 8(a) eligibility
- WOSB/EDWOSB eligibility
- HUBZone eligibility
- Small business subcontracting plans
- Prime contractor small business self-certification
Bottom Line for Heavy Highway & Suppliers
Heavy Highway Contractors
- Move to employment-based standards
- Thresholds will be higher
- Eligibility becomes more stable
- No more receipts-based volatility
Material Suppliers
- Manufacturers → employment-based
- Distributors → receipts-based (but recalculated)
- Grouping may significantly raise thresholds
Purpose of the Revision
SBA is updating its size standards methodology to:
- Better reflect industry structure and competitiveness.
- Reduce situations where firms “stay small” to avoid losing eligibility.
- Make size standards more stable, less volatile, and easier to apply.
- Align with statutory requirements under the Small Business Act and subsequent amendments.
The revised methodology replaces the 2024 model, which relied on seven statistical factors, with a more streamlined, economics-based approach.
Core Components of the New Methodology
SBA’s proposed size standards will be based on Average Market Size, which has three inputs:
National Industry Size
Total economic size of the industry, including:
- For-profit firms
- Nonprofits
- Government-owned entities
- Adjusted for imports/exports
Industries with larger national size → larger size standards. Industries with smaller national size → smaller size standards.
Number of Geographic Markets
SBA analyzes how many distinct geographic markets exist for an industry. Fewer markets = more concentrated competition → larger size standard. More markets = more dispersed competition → smaller size standard.
Net Import Adjustment
Accounts for international competition faced by domestic firms.
Major Structural Changes
Grouping at the NAICS 4-Digit Level
SBA proposes to reduce the number of size standards from 995 to 338 by grouping industries at the 4-digit NAICS level when appropriate.
Grouping is allowed when:
- The U.S., Canada, and Mexico agree at that NAICS level; or
- Cross-references among 5-digit industries form a complete graph (i.e., industries are closely related).
Result:
- 276 size standards at the 4-digit level
- 62 at the 5-digit level
Simplifies classification and reduces errors by contracting officers.
Shift Toward Employment-Based Size Standards
SBA proposes to convert many receipts-based standards to employment-based standards because:
- Employment is less volatile year-to-year.
- Employment avoids penalizing firms for revenue growth.
- Employment is more consistent across high- and low-cost regions.
- Employment is inflation- and productivity-proof.
Outcome:
- 208 employment-based standards
- 129 receipts-based standards
- 1 asset-based standard (Depository Institutions)
Only Fishing (NAICS 1141) remains receipts-based because it relies heavily on independent contractors.
Elimination of Most Contracting Exceptions
SBA proposes to remove 18 federal contracting exceptions, arguing that the new methodology addresses the underlying issues more consistently.
Only one exception (Environmental Remediation Services) may require further comment because of its potential impact.
Statutory & Historical Context
The methodology is grounded in:
- 15 U.S.C. 632 (Small Business Act)
- Jobs Act of 2010 (five-year review requirement)
- NDAA 2013, 2017, 2021 (updates to averaging periods and agricultural standards)
- SBREA 2018 (five-year receipts averaging)
The document also traces the evolution of size standards from WWII-era 500-employee rules to today’s NAICS-based system.
Data Sources
SBA uses 22 federal data sources, including:
- Statistics of U.S. Businesses (SUSB)
- Non-employer Statistics
- County Business Patterns
- Census of Agriculture
- EIA energy data
- FDIC and NCUA banking data
- Education datasets for public schools and colleges
- Water/sewage system data
- Transit system data
- Import/export tables
These feed into the calculation of national industry size, geographic markets, and import adjustments.
Expected Effects
For Small Businesses
- More stability in size status
- Less risk of losing eligibility due to temporary revenue spikes
- Easier classification
- More consistent competition across regions
For Federal Contracting
- Fewer misclassifications by contracting officers
- More predictable eligibility
- Reduced administrative burden
For Advocacy & Policy
- Clearer justification for size standards
- More transparent methodology
- Stronger basis for commenting on proposed standards
Comment Period
Comments are due September 21, 2026. Docket No. SBA-2026-0265.