SBA Final Rule Hits Valuations and Shifts Strategies

An SBA final rule published in the Federal Register on December 17, 2024 could dramatically affect both small and large businesses, especially those with multiple award task order contracts (MATOCs), often called indefinite delivery indefinite quantity (IDIQ) contracts.  Basically, the rule will “disqualify” many small businesses from competing for new task orders and new option awards after they are acquired.  The rules are set to go into effect January 16, 2025 but include a one-year partial exception/transition period for certain recertifications.  In the near term, this partial “delayed effective date” could push some small business deals ahead in 2025 and early 2026.

If allowed to go into effect, the rule is likely to drive small business valuations downward in many cases and reduce the government’s ability to compete work under MATOC/IDIQ contracts set-aside for small businesses.  This, in turn, will affect small business growth strategies and exit strategies, and large business acquisition strategies.

It seems likely this final rule will be challenged in court, or that affected businesses will submit requests for equitable adjustment (REAs) and/or Contract Disputes Act (CDA) claims in an effort to block or recover from the effects of the new rules.  At this time it is also uncertain whether the incoming Trump Administration will allow the rules to go into effect or take other actions that blunt the impact of the rules. We will see. For more information, please contact us.