SBA’s Final Rule: What It Means for Small AE Firms and M&A

The architecture and engineering (AE) industry has long relied on government contracts to support small businesses entering the market. The Small Business Administration (SBA) has played a crucial role in ensuring that small AE firms can compete with larger firms on federally funded projects. Over the years, SBA rules have enabled countless small AE firms to secure critical funding and expand their presence in public sector work. Now, with the recent SBA Final Rule, the game is about to change.

The SBA’s Role in Supporting AE Firms

The SBA’s small business contracting programs have provided AE firms with pathways to grow and compete. Some of the most impactful avenues include:

• Set-Aside Contracts: When the SBA designates certain federal contracts exclusively for small businesses, leveling the playing field against industry giants.
• Mentor-Protégé Program: This initiative allows smaller AE firms to partner with more experienced AE firms to gain expertise and access to larger contracts.
• Joint Ventures: Small businesses can team up with other firms to pursue larger contracts while maintaining their small business status.

These policies have helped many small and mid-sized AE Firms grow their government contracting practice and generate sustainable growth.

The SBA Final Rule: A Game-Changer for AE Firms

The SBA’s recently issued Final Rule (dated December 17, 2024) includes several significant provisions that will affect how AE Firms compete for federal work, having a consequential effect on M&A activity in the AE industry.

Under the new rule, if a contractor with small business status under a restricted multiple award contract (MAC) suffers a disqualifying recertification (and thus, no longer qualifies as a “small” business due to a merger, acquisition, or sale), it is no longer eligible to bid on future task orders set aside for small or disadvantaged businesses.

This change has significant implications for prospective buyers, as the loss of eligibility could substantially reduce the value of these MACs. The good news is that this portion of the rule does not take effect until January 17, 2026. After this time, firms currently holding small business status under restricted MACs will likely see their valuations decline.

Understanding MACs

Federal agencies utilize a variety of procurement vehicles to secure their contracting needs, including MACs, which are indefinite delivery, indefinite quantity (IDIQ) contracts awarded to multiple eligible contractors. These MACs enable agencies to issue multiple task orders through competitive or directed awards.

Frequently, MACs are restricted for small businesses and those with specific SBA certifications, such as 8(a), Women-Owned Small Business, Veteran-Owned Small Business, or HUBZone. Additionally, agencies themselves may set aside individual task orders under both restricted and unrestricted MACs for small or disadvantaged businesses.

Life Before the Final Rule

Prior to this rule, a contractor’s size and eligibility for a restricted MAC were determined at the time of the initial contract award. So, even if the firm grew beyond the small business threshold during the life of the MAC contract, it could still compete for set-aside task orders under the MAC throughout the duration of the contract.

In certain situations, the government could require small business recertification; however, the only consequence of failing to recertify was that any future task orders awarded to the contractor could no longer be counted towards the awarding agency’s small business target. This meant that, in the event of an acquisition, the acquitting firm could continue to compete for task orders under the MAC.

What’s Changing: The Final Rule’s Impact

The final rule eliminates the previous eligibility protections. Now, if a contractor undergoes required recertification following a merger or acquisition and submits a “disqualifying recertification,” it immediately becomes ineligible to bid on future set-aside task orders under the MAC. This change is significant for owners of small or disadvantaged firms and will have an impact on the M&A activity and related valuations of these firms in 2026.

Recognizing the need for businesses to adjust to this change, the SBA implemented a delayed effective date. If an M&A transaction closes and the resulting disqualified contractor submits its required recertification before January 17, 2026, the prior rule will still apply, preserving the firm’s ability to compete for set-aside task orders. This deadline creates a strong incentive for both buyers and sellers to complete an M&A transaction before the deadline.

Next Steps

The SBA Final Rule introduces significant changes that small AE firms must address now to protect their future in government contracting. To help you navigate these shifts, Stambaugh Ness is hosting a two-part webinar series dedicated to breaking down the rule’s impact.

If your firm relies on set-aside contracts, this series will provide critical insights on how to safeguard your opportunities before the rule takes full effect in 2026. Our GovCon M&A experts will guide you through key considerations to determine the best path forward, whether preparing for growth or planning an exit.