By: Joseph A. Hackenbracht 

On July 18, 2012, the Small Business Administration published a proposed increase in the small business size standard for “Dredging and Surface Cleanup Activities” from $20 million to $30 million in average annual receipts. 77 FR 42197. The average annual receipts are calculated by averaging a concern’s receipts for the last three fiscal years. 13 CFR 121.104(c). Receipts means “total income.” 13 CFR 121.104(a).

In order to qualify as small on a Federal procurement, a concern must also perform at least 40 percent of the volume dredged with its own equipment or equipment owned by another small dredging concern. 13 CFR 121.201; note 2. This requirement, sometimes referred to as the “40 percent rule,” has been in SBA’s size standards for small business since 1974. Before 1974, the Department of Defense’s Armed Services Procurement Regulations (ASPR’s) had contained such a requirement for many years. (ASPR 1-701.1(A)(2)). In 1974, it was determined that DoD was exceeding its authority because the obligation to set size standards for small business was within the jurisdiction of the SBA.

When the SBA proposed to increase the size standard for Dredging in July, 2012, it also sought comments regarding the requirement that in order to qualify as small that a concern must perform at least 40 percent of the dredging with its own equipment or equipment owned by another small dredging concern. SBA has heard from small dredging firms that believe they should be able to lease equipment from any size firm as long as employees from the small firm perform the work on the contract.

At this time, however, SBA has proposed to continue requiring small dredging concerns to comply with the “40 percent rule,” in order to ensure that these firms perform a significant and meaningful portion of a dredging project set aside for small business. SBA has asked for comments from the industry and the public concerning (1) whether there continues to be a need for the current 40 percent equipment requirement; (2) whether there is a rationale for a different percentage; and (3) whether a different and more verifiable requirement based on an alternative measure (such as value of contract or personnel involved) may achieve the same objective of ensuring that small businesses perform significant and meaningful work.

The following methods can be used for the submission of comments: (1) the Federal eRulemaking Portal:, by following the instructions for submitting comments; or (2) Mail/Hand Delivery/Courier to Khem R. Sharma, Ph.D., Chief, Size Standards Division, 409 Third Street SW., Mail Code 6530, Washington, DC 20416. Please note that SBA will not accept comments to this proposed rule submitted by email. Also, be sure to refer to “RIN 3245-AG37” when submitting comments, so that SBA correctly attributes your comments to the proposed rule in question.

Joseph A. Hackenbracht is a Partner in the firm and a member of the Federal Contracting Practice Group.