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                                                     Calendar No. 636
115th Congress       }                     {                 Report
 2d Session          }                     {                  115-431




                December 11, 2018.--Ordered to be printed


 Mr. Risch, from the Committee on Small Business and Entrepreneurship, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 3562]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Small Business and Entrepreneurship, to 
which was referred the bill (S. 3562) to amend the Small 
Business Act to modify the method for prescribing size 
standards for business concerns, having considered the same, 
reports favorably thereon without amendment and recommends that 
the bill do pass.

                            I. INTRODUCTION

    S. 3562, the Small Business Runway Extension Act, was 
introduced by the Committee's Ranking Member, Benjamin L. 
Cardin, for himself on October 9, 2018. The bill would amend 
the Small Business Act to modify the method for prescribing 
size standards, using the preceding five years of annual 
average gross receipts, rather than three, to determine a 
business's size. The bill was approved unanimously in a roll 
call vote as part of a manager's package.


    The Small Business Act of 1953 (P.L. 83-163), as amended, 
authorized the Small Business Administration (SBA) to establish 
size standards for determining eligibility for federal small 
business assistance.\1\ SBA has primarily measured the number 
of employees and the average annual receipts in the previous 
three years to determine a business's eligibility.\2\ These 
size standards vary from industry to industry to account for 
differences in the marketplace.
    \1\15 U.S.C. Sec. 631.
    \2\Small Business Size Standards: Revised Size Methodology, 83 Fed. 
Reg. 81 (April 26, 2018). Federal Register: The Daily Journal of the 
United States. Code of Federal Regulations, https://
    The SBA size standards represent the largest size that a 
business (including its subsidiaries and affiliates) may be to 
remain classified as a small business concern.\3\ This 
classification is then used to determine eligibility for SBA's 
financial assistance and other federal programs, including 
government procurement programs designed to assist small 
    \3\Small Business Administration,
    Each year, the federal government awards approximately $400 
billion in contracts, and the SBA works with agencies to ensure 
that at least 23 percent of all prime government contracts are 
awarded to small businesses. Between Fiscal Year (FY) 2006 and 
FY 2017, the federal government awarded an average of more than 
$90 billion in contracts to small businesses annually, with FY 
2017 marking the first year that small business contracts 
exceeded $100 billion.\4\
    \4\Small Business Administration,
    The SBA also has programs to help socially and economically 
disadvantaged small businesses gain preferential access to 
federal contracting and subcontracting opportunities. These 
programs are particularly beneficial to women-, minority-, and 
veteran-owned small businesses. Not only do they help small 
businesses become acquainted with the federal marketplace but 
they also level the playing field so small businesses can 
better compete.\5\
    \5\Small Business Administration,
    Since their inception, SBA contracting programs have proven 
to be a powerful tool for helping small businesses compete and 
win federal contracts. In addition, they spur innovation and 
inject diversity into the federal marketplace, guarding against 
supplier consolidation, and non-competitive pricing. Without 
this competition, the federal contracting sector would stagnate 
and jobs could potentially be lost.\6\
    \6\No Man's Land: Middle-Market Challenges for Small Business 
Graduates, Hearing before the House Committee on Small Business 
Subcommittee on Contracting and Workforce, 115th Congress (2018), 
testimony of Stephen Ramaley on behalf of the Montgomery County Chamber 
of Commerce, on file with the Committee.
    With these federal contracting goals firmly in place, more 
contracts are flowing to small businesses. The increase in the 
number of awards to small businesses has resulted in more small 
businesses growing out of their size standards.\7\ Moreover, 
the value of these contracts are becoming larger, meaning small 
firms that win one large contract could potentially outgrow 
their size standards.
    \7\Supra note 6, testimony of Eminence N. Griffin on behalf of 
Information Technology Alliance for Public Sector, on file with the 
    After firms outgrow their size standard, they are no longer 
eligible for SBA programs and small business set-asides. At 
this juncture, they enter the open marketplace and are forced 
to compete against large, multi-billion dollar companies.
    Large firms have several competitive advantages over small 
and mid-size businesses. They have extensive past performance 
qualifications, strong brand name recognition, a broad array of 
professional certifications, and security clearances.\8\ 
Competing against these larger firms for a share of federal 
contracting dollars is inherently difficult for mid-size 
    \8\Tonya Saunders, The Mid-Tier Paradox: Too Small to Compete, Too 
Large to Survive, Bloomberg Government (May 13, 2016) http://
    Moreover, large companies have teams of specialists, 
including lawyers, graphic designers, and communications 
experts to help them comply with the additional federal 
requirements of competing in an open marketplace.\9\ One such 
requisite is the development of subcontracting plans, which 
small firms are not required to prepare. Mid-size companies 
often lack the financial resources needed to prepare these 
detailed plans, placing them at a disadvantage in the open 
    \9\Mark Amtower, Be Prepared: GWACS, IDIQs will grow in this age of 
uncertainty, Washington Technology (March 16, 2017) http://
    Many small businesses have to decide whether to compete 
against their larger competitors, scale back to avoid the 
challenges of competing in an open marketplace, or consider 
becoming acquired. On April 26, 2018, the House Small Business 
Committee Subcommittee on Contracting and Workforce held a 
hearing entitled, ``No Man's Land: Middle-Market Challenges for 
Small Business Graduates.'' Mr. Stephen Ramaley, testified on 
behalf of Montgomery County (Maryland) Chamber of Commerce, in 
his testimony he remarked that ``more and more firms''' are 
opting to ``stay small, sell, or go out of business.''\10\ Ms. 
Lisa Firestone, MHSA, President and CEO of Managed Care in 
Bethesda, Maryland stated during the same hearing that, ``The 
federal government on one hand encourages us to grow, 
emphasizing the need for access to capital and entrepreneurial 
assistance. Many SBA programs emphasize, educate and support 
growth. But on the other hand, it structures policies that 
discourage growth such as its size standard structure and 
limitation on small business program participation. . . . Let's 
work together to make sure we reward growth, not stifle 
    \10\Supra note 6, testimony of Stephen P. Ramaley on behalf of 
Montgomery County Chamber of Commerce, on file with the Committee.
    \11\Supra note 6, testimony of Lisa Firestone on behalf of Women 
Impacting Public Policy, on file with the Committee.
    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. As small companies become 
larger, more successful, and transition to mid-size companies, 
many contracts become out of reach. Allowing a longer 
transition to the open marketplace for advanced small and mid-
size businesses would protect SBA's initial investment in these 
small companies, promote competition in the federal 
marketplace, and preserve jobs.
    The Committee believes that it is important to give 
advanced small and mid-size businesses the tools they need to 
succeed and grow in the federal marketplace once they graduate 
from the small business size standards.

                        III. DESCRIPTION OF BILL

    Under current law, a business must report its annual 
average gross receipts over the preceding three years to 
determine its eligibility for access to Federal programs. The 
Small Business Runway Extension Act of 2018 (S. 3562) amends 
the Small Business Act by lengthening the time the SBA measures 
size through revenue, using the average of the preceding five 
years instead of the preceding three years.

                           IV. COMMITTEE VOTE

    In compliance with rule XXVI(7)(b) of the Standing Rules of 
the Senate, the following vote was recorded on October 11, 
    A motion to adopt, S. 3562, the Small Business Runway 
Extension Act of 2018, a bill to modify the method for 
prescribing size standards for business concerns, was approved 
unanimously by a roll call vote as part of a manager's package. 
Senators Risch, Cardin, Rubio, Paul, Scott, Ernst, Inhofe, 
Young, Enzi, Rounds, Kennedy, Cantwell, Shaheen, Heitkamp, 
Markey, Booker, Coons, Hirono, and Duckworth voted for the 

                            V. COST ESTIMATE

    In compliance with rule XXVI(11)(a)(1) of the Standing 
Rules of the Senate, the Committee estimates the cost of the 
legislation will be equal to the amounts discussed in the 
following letter from the Congressional Budget Office:
                                     U.S. Congress,
                               Congressional Budget Office,
                                                    Washington, DC,
Hon. James E. Risch,
Chairman, Committee on Small Business and Entrepreneurship,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 3562, the Small 
Business Runway Extension Act of 2018.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Stephen 
                                                Keith Hall,

S. 3562 Small--Business Runway Extension Act of 2018

    Under current law, a business must report its average gross 
receipts over the prior three years to determine their 
eligibility for access to certain resources, programs, and 
assistance offered to small businesses by the Small Business 
Administration (SBA) and other federal agencies. S. 3562 would 
extend that reporting period to five years.
    The new reporting period under S. 3562 could affect the 
number of businesses eligible for certain SBA assistance 
programs or loan programs and thus raise or lower both the 
number of participants in those program and the SBA's 
administrative costs. However, CBO has no basis for estimating 
the number of entities that either would newly qualify or would 
no longer qualify as small businesses under S. 3562 for such 
programs nor whether the costs of making loans or loan 
guarantees to those entities would be higher or lower. 
Furthermore, because S. 3562 does not authorize any change in 
appropriations for small business assistance programs or 
contract awards for small businesses, CBO expects that the net 
effect on spending on those programs and contracts would be 
    Using information from the SBA on the costs of similar 
activities, CBO estimates that updating the rules to reflect 
the revised reporting period would cost less than $500,000; 
such spending would be subject to the availability of 
appropriated funds.
    Enacting S. 3562 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply.
    CBO estimates that enacting S. 3562 would not increase net 
direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2029.
    S. 3562 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    On September 13, 2018, CBO transmitted a cost estimate for 
H.R. 6330, the Small Business Runway Extension Act of 2018, as 
reported by the House Committee on Small Business on September 
12, 2018. The two pieces of legislation are similar and CBO's 
estimates of their budgetary effects is the same.
    The CBO staff contact for this estimate is Stephen Rabent. 
The estimate was reviewed by H. Samuel Papenfuss, Deputy 
Assistant Director for Budget Analysis.


    In compliance with rule XXVI(11)(b) of the Standing Rules 
of the Senate, it is the opinion of the Committee that no 
significant additional regulatory impact will be incurred in 
carrying out the provisions of this legislation. There will be 
no additional impact on the personal privacy of companies or 
individuals who utilize the services provided.


Section 1. Short title

    This section designates the bill as the ``Small Business 
Runway Extension Act of 2018.''

Section 2. Modification to method for prescribing size standards for 
        business concerns

    This section amends section three of the Small Business Act 
by modifying the method for prescribing size standards, using 
the previous five years of annual average gross receipts, 
rather than three, to determine a business's size.