Challenging SBA’s size standards

A few months ago, we wrote about SBA’s proposed rule which, using an overhauled methodology, radically changes the size standards for small businesses. Many are displeased with that proposed rule. But can displeasure be converted into a legal challenge once the final rule hits the street? The answer is yes.

In this post, we discuss size standard petitions, a mechanism to challenge recently revised or modified size standards at SBA’s Office of Hearings and Appeals (OHA). Let’s review the essentials for filing these little-known petitions.

Who can file?

Any person adversely affected by SBA’s decision to revise, modify, or establish a size standard can file a petition. But the regulations specify two qualifications for being adversely affected. First, the petitioner must conduct business in the industry associated with the size standard. And second, the petitioner must either qualify as small before or after the size standard revision or modification.

When to file a petition?

This is important. Get your petition to OHA within 30 calendar days after the final rule revising or establishing a size standard is published in the Federal Register. If you miss this deadline, OHA will mercilessly dismiss the petition.

You might ask: can I file my petition while SBA’s rule is still a proposed one, not yet final? No. Do not file until the final rule is published. (Here’s a quick overview of the administrative rulemaking process.) Otherwise, OHA will dismiss the petition as premature.

A petition may challenge more than one size standard if the petitioner can demonstrate that it meets the requirements for challenging each one. (See the Who can file? section above.)

What is the standard of review?

Frustration and incredulity alone do not a size standard petition make. For that reason, a petition must say more than “I don’t like what SBA did.” To obtain any relief, it’s imperative to show that the process SBA used to revise or establish a size standard was arbitrary, capricious, an abuse of discretion, or contrary to law. It’s not enough to argue that SBA should have established the size standard as X instead of Y. The petition must drill down into what SBA actually did, pick it apart, and explain why it was unreasonable.

Must one file comments on the proposed rule before filing a petition?

Filing comments on the proposed rule is not a rigid administrative prerequisite for filing a size standard petition. But, if you did file comments, you must attach them to the petition.

Strategically, however, you should always file comments on the proposed rule. That way, if SBA does not swing the rule in your favor, you have a record of advocacy before arriving at the petition stage. Availing oneself of the administrative process may add to the persuasiveness of your petition. If nothing else, filing comments will force you to grapple with and articulate the problems with SBA’s size standard process. Almost invariably, a petition will be more compelling if preceded by comments during rulemaking.

If my small business doesn’t file a petition, can I intervene in the proceeding?

Yes. Interested concerns with a direct stake in the outcome of the case may contact OHA to obtain a copy of a petition and participate in the proceeding. An intervening party may file a response either supporting or opposing the petitioner’s arguments. Intervention is a powerful tool to potentially shape OHA’s decision.

OHA’s decision

After the record closes, OHA has a soft deadline of 45 days to issue its decision. If it grants the petition (i.e., finds the petitioner’s arguments persuasive), then it will remand the matter back to SBA for further analysis and consideration. At that point, SBA must act to restore the previous size standard, which will remain in effect until SBA issues a new size standard. If OHA denies the petition, then the size standard remains as published in the final rule.

Wrap up

Take heart! If SBA issues a size standard that you find ill-conceived, there is a means to challenge that decision. But do everything in order: file thoughtful comments on the proposed rule, keep you eyes peeled for the final rule, and file your petition within 30 days of the final rule’s publication.

If you have any questions about size standard petitions, please reach out to us by calling our office at 913-354-2630 or email us at this link.