The U.S. Small Business Administration ("SBA") announced that, effective June 30, 2007, small businesses will be required to recertify their size status (i) when a contract option is exercised by the government (on long-term contracts), (ii) when a small business is purchased by, or merged with, another business, and/or (iii) at the end of the first five years of a contract. The SBA further determined that the applicable new regulations will not require the termination of an existing contract if the small business changes size during the term of the contract and also does not require changes to the contract's terms and conditions. Such determinations are critical from the perspective of a growing small business. In essence, small businesses will not lose a federal contract if they become a large business during the term of the contract.

From the government's perspective, the most significant impact of the new regulations is on the government's accounting for small business credit. Contracts dollars that have been counted towards an agency's small business goals may not be counted after the contractor recertifies itself as a large business. This should encourage more small business set-asides.

The SBA's new regulations help to clarify an issue which was previously very gray. More specifically, the regulations address the matter of how becoming a large business affected existing contracts which had been set aside for small businesses. Previously, small businesses had well-founded concerns about the possible loss of contract revenue if they were to become large during the term of a contract. This issue has been definitively answered. Furthermore, the value of small businesses has also been positively affected because such businesses can now count on projected contract revenue without the fear of losing a contract due to an increase in the company's size.