Improving the SBA's Methodology for Setting Small Business Size Thresholds

Abstract

The Small Business Administration (SBA) recently developed a new method for determining whether a business is small or other-than-small for procurement purposes. The resulting firm-size thresholds determine whether a business is eligible for federal procurement preferences, as well as whether the Department of Defense meets its statutory goals for direct contract dollars with small businesses. The definition of what goods and services represent an industry, as well as what metric the SBA should use to measure firm size, affects the outcome of the method, as does the data that are used for it. If the industry definition is too broad or narrow, if the metric is inappropriate for the industry, or if the data is flawed because of how it is collected, the size threshold will be inappropriate. A method that more directly assesses industry characteristics, as well as reassesses the industry definition and metric used to measure firm size, would help improve the quality of the size-thresholds determination process.