How to appeal a denied SBA size standard determination for construction contracts

Understanding SBA Size Standard Determinations in Construction: Core Concepts and Common Pitfalls

For a construction business, an SBA size determination isn’t a bureaucratic formality—it’s the legal gatekeeper to a universe of set-aside contracts, from local infrastructure projects to federal base renovations. The stakes are uniquely high in construction because a single denied determination can lock you out of bidding for entire project categories for years, effectively capping your growth. The system, at its core, is a revenue- or employee-based classification, but in practice, it’s a forensic accounting exercise applied to an industry notorious for volatile, project-based cash flow and complex webs of subcontractors and affiliates.

WHY does this matter? Misclassification is often a death-by-a-thousand-cuts scenario. A firm might comfortably operate under one NAICS code’s revenue cap (e.g., $45 million for NAICS 236220, Commercial Construction) but be blindsided when a contract is classified under a different, lower-threshold code (e.g., $19.5 million for NAICS 237310, Highway Construction). The root cause is a misalignment between how a contractor views its business—by trade or capability—and how the government views it: by the precise, legislated definition of the work being procured. The hidden incentive for competitors is clear; a successful size protest removes a qualified bidder, making the protest itself a strategic weapon in the pre-award phase.

HOW does it work in real life? The mechanism is deceptively simple: your size is based on the average annual receipts or average number of employees over your last five completed fiscal years. For construction, the devil is in the details of what constitutes “receipts” and “affiliation.” Revenue isn’t just what you bill the owner. It includes all income from your construction operations, including materials and subcontractor costs passed through. If you’re a general contractor, the entire value of the project flows through your financials, potentially pushing you over the limit even if your net profit is modest. Furthermore, the SBA’s affiliate rules can aggregate the revenues of legally separate companies under common ownership or control, a frequent trap for family-owned construction businesses or those with related real estate development arms.

WHAT do 99% of articles miss? They treat NAICS codes as static labels. In construction, they are dynamic and often incorrectly applied by contracting officers. A classic pitfall is the misapplication of NAICS 236210 (Residential Construction) versus 236220 (Commercial Construction). A firm building multi-family apartment buildings might be assigned 236220, but if the buildings are primarily for residential use, the correct code may be 236210, which has a different size standard. The overlooked trade-off is aggressive growth: surpassing a size standard is a success, but it also forcibly transitions your business into full-and-open competition with industry giants overnight, a shift for which many operational and financial structures are unprepared. Proactive size analysis should be as integral to your construction business plan as your project pipeline.

Common Construction-Specific Pitfalls

• Project Revenue Timing: Recognizing revenue under the percentage-of-completion method can create a spike in a single year that skews your five-year average. The SBA uses tax return data, so your accounting method directly impacts your calculated size.
• Improper Affiliation: Joint ventures for specific projects are common, but if the JV is not deemed a “separate entity” per SBA rules, the revenues of all venturers may be aggregated. Similarly, common investments or family relationships with suppliers or subcontractors can create unintended affiliations.
• NAICS Code Creep: A contractor successfully performing under NAICS 238120 (Structural Steel) might bid on a contract incorrectly classified under that code when the actual principal purpose of the contract is for NAICS 236220 (Commercial Building), triggering a different size review.

Decoding the SBA Size Protest Process: From Initial Denial to Formal Appeal Pathways

The moment you receive a negative size determination, the clock starts on a procedural maze where missed deadlines are fatal. In construction, this process is frequently initiated not by the SBA, but by a competing bidder filing a size protest. This injects a layer of adversarial strategy absent from a routine self-certification review. Understanding this pathway is less about law and more about project management under extreme duress.

WHY does this matter? The procedural sequence is designed for finality and speed to avoid delaying procurements. For you, this means rights are easily forfeited. A formal appeal isn’t a second chance to tell your story; it’s a highly technical argument that the initial determination contained a clear error of fact or law. The systemic effect is that many small construction firms, overwhelmed by the complexity, simply accept the denial and walk away from future opportunities, reinforcing market consolidation.

HOW does it work in real life? The pathway is linear but tight:

1. Initial Protest: A competitor or the contracting officer challenges your size, usually within five business days of bid opening.
2. SBA Area Office Investigation: The SBA requests a massive volume of documentation from you—typically tax returns, financial statements, organizational charts, and details on all affiliates. You have 15-20 calendar days to respond comprehensively.
3. Initial Determination: The Area Office issues a size determination. If adverse, this is your denial.
4. Reconsideration Request: You may request reconsideration by the same Area Office within 15 calendar days, but only based on new information or clear error.
5. Formal Appeal: If reconsideration fails, you have 15 calendar days to file a formal appeal with the SBA Office of Hearings and Appeals (OHA). This is a quasi-judicial process requiring legal grounds.

Data underscores the construction sector’s vulnerability. While exact public figures are sparse, analysis of OHA dockets reveals a disproportionate number of construction cases hinge on affiliate rule challenges, often related to family ownership or joint venture structures, compared to other industries.

WHAT do 99% of articles miss? They ignore the critical importance of the pre-protest phase. The most effective “appeal” is the one you never have to file. This involves conducting an internal size “audit” long before bidding, especially for projects near your revenue horizon. They also fail to highlight that during the SBA’s investigation, your communication must be precise and complete. Submitting incomplete charts of affiliation or poorly explained inter-company transactions is often the nail in the coffin. The counterintuitive truth is that sometimes, the best strategic move after a denial is notcorporate structure to ensure future eligibility, treating the denial as a costly but valuable compliance alert.

NAICS Code Reassessment: Strategic Corrections for Construction-Specific Misclassifications

Challenging a NAICS code designation is one of the most powerful, yet underutilized, weapons in the size appeal arsenal. For construction, it’s often the linchpin. The contracting officer’s initial NAICS code selection is not sacrosanct; it’s an appealable decision. A successful reassessment can move your firm into a size standard you clearly meet, resolving the protest without delving into messy affiliate debates.

WHY does this matter? The NAICS code dictates the applicable size standard. An incorrect code is a fundamental error that invalidates the entire size determination process. This matters disproportionately in construction due to the industry’s granular and overlapping NAICS structure. A highway paving contractor (NAICS 237310) is held to a different standard than a site preparation contractor (NAICS 238990), even if both are bidding on work for the same road project. The hidden incentive for the government is to sometimes assign a code with a lower size standard to increase competition among smaller firms, but this can wrongly exclude mid-sized businesses.

HOW does it work in real life? The mechanism for reassessment is a formal request to the contracting officer, which can be made by any interested party, including the protested firm. The key is arguing the “principal purpose” of the procurement. You must demonstrate, through the Statement of Work (SOW), that the majority of the contract value aligns with a different NAICS code. For example, if a contract for a “Maintenance Facility” is coded as NAICS 236220 (Commercial Construction) but the SOW emphasizes specialized electrical systems, plumbing, and HVAC installation, you might argue it is principally a NAICS 238220 (Building Equipment Contractors) project, which has a $19.5 million size standard.

Example: NAICS Code Reassessment Argument

Contract Description	Assigned NAICS (Size Std.)	Proposed NAICS (Size Std.)	Basis for Reassessment
Construct Veterans Clinic	236220 ($45M)	621111 ($47M)	SOW requires specialized medical gas, radiation shielding, and clinic layout per VA specs, making it “Offices of Physicians” construction.
Repair Runway & Taxiway	237310 ($19.5M)	237990 ($45M)	Work is primarily asphalt overlay and marking, which is “Other Heavy Construction,” not “Highway, Street, and Bridge.”

WHAT do 99% of articles miss? The strategic timing of a NAICS appeal. It can be filed independently of, or concurrently with, a size protest. More importantly, they miss the deep requirement for documentation for appeal. Your argument cannot be speculative. You must dissect the solicitation’s SOW, attach relevant sections, and provide evidence like prior similar contracts coded differently. The overlooked trend is the rise of multi-code or “dual” NAICS solicitations in construction, where the government itself is uncertain. In these cases, your bid must self-certify under the code most advantageous to you, but be prepared to defend that choice vigorously. This front-end diligence is as crucial as writing a winning bid proposal itself. Successfully navigating a NAICS reassessment doesn’t just win one contract; it resets the playing field for all future bids in that project category.

Beyond Revenue: Proving Primary Activity in Mixed-Contract Construction Scenarios

For a construction firm handling a federal project, the SBA’s size determination isn’t just a math problem; it’s a narrative battle over your company’s identity. Generic guides tell you to pick the NAICS code representing the “primary” revenue source. But in construction, where a single contract often blends earthwork, concrete, framing, and finishing, “primary” is a contested site. The SBA’s initial assignment frequently defaults to the code with the highest revenue, ignoring the operational reality that your firm’s core expertise—and competitive advantage—lies elsewhere. Winning an appeal requires you to prove not just what you did, but what you are.

Why This Narrative Battle Matters: More Than a Code

This matters because an incorrect NAICS code assignment isn’t a clerical error; it’s a strategic disqualification. It can place you against giants in a size standard you can’t meet, while barring you from the set-aside contracts perfectly suited to your actual capabilities. The root cause is a fundamental mismatch: the SBA’s static, revenue-based classification system versus the dynamic, project-based nature of construction work. A firm specializing in complex interior build-outs might derive 60% of its revenue from a single, massive site-prep subcontract. To the SBA’s algorithm, they’re an excavation company. This misclassification triggers systemic exclusion, locking skilled specialists out of the niche markets they dominate.

How to Build Your Case: Evidence Beyond the Ledger

To win, you must move the argument from accounting to operations. This means submitting evidence that demonstrates where your firm’s principal business activity and invested resources truly lie. Financials are the baseline, but construction-specific documentation tells the compelling story.

• Project Schedules & Superintendent Logs: Detailed CPM schedules and daily logs don’t just track progress; they prove who was managing the critical path. Highlight logs showing your supervisory personnel were dedicated to the scopes of work aligning with your claimed primary NAICS code.
• OSHA 300 Logs & Certified Payroll Records: These are rarely cited but powerful. OSHA logs categorize incidents by trade (e.g., “carpentry,” “electrical”). A pattern of incidents and training within a specific trade supports your primary activity claim. Similarly, certified payrolls (required on Davis-Bacon projects) detail labor hours by craft, providing a quantitative, government-verified breakdown of your workforce’s focus.
• AIA G702/G703 Payment Applications: Don’t just submit the totals. Use the line-item breakdowns on these applications to map your billings directly to specific NAICS codes. This creates a project-by-project revenue allocation that is more credible than annual aggregates.

The goal is to show the SBA’s Office of Hearings and Appeals (OHA) that your firm’s operational heart—its skilled labor, management focus, and technical expertise—beats in rhythm with a different NAICS code than the one initially assigned.

What 99% of Articles Miss: The Power of “Excluded” Revenue

Most advice stops at re-categorizing revenue. The expert move is to identify revenue that can be excluded entirely from the size calculation under SBA rules. For construction, this is a game-changer. According to SBA Standard Operating Procedure (SOP) 10 05 1, revenue from intra-company transactions and certain pass-through costs can be excluded. In practice, this often applies to:

• Equipment Lease Revenue: If your firm leases heavy equipment to a joint venture you’re part of, that revenue might be excluded as an internal transfer.
• Material Pass-Throughs: Revenue for specialty materials purchased specifically for a project and billed at cost (with clear documentation) can sometimes be argued as an agent activity, not a primary revenue-generating activity.

Successfully excluding even 10-15% of your total receipts can be enough to slide under a size standard. This requires meticulous documentation—separate invoices, bank records showing pass-through, and subcontracts defining your role as an agent—but it’s a legal grounds for appeal most contractors never explore. For a deeper dive into structuring your business finances to withstand such scrutiny, see our guide on essential financial statements for construction.

Navigating Affiliate Rule Challenges: The Hidden Triggers in Construction Joint Ventures

Affiliation is the silent killer of small business status in construction. While beginners fear overt ownership ties, experts know the real danger lies in the informal, operational links that create “de facto” control. The SBA’s broad definition of affiliation—where one concern controls or has the power to control another—is triggered more easily in construction than in almost any other industry due to the sector’s reliance on shared resources and collaborative project delivery.

Why It’s the #1 Reason for Denials: Unintended Control

It matters because a single, overlooked connection can aggregate your firm with a much larger entity, instantly blowing your size standard. The systemic effect is perverse: contractors form joint ventures (JVs) or teaming agreements to compete for larger projects, only to have the very collaboration that makes them competitive disqualify them as “small.” The hidden incentive for the SBA is risk mitigation—aggregating firms protects against large businesses using small “fronts.” But this often ensnares legitimate small businesses in a web of affiliation based on perceived, not actual, control.

How Affiliation Works in Real Life: Shared Cranes and “Apparent Authority”

The mechanisms are concrete and often non-contractual. Common, underreported triggers include:

• Shared Key Personnel: A safety officer or crane operator who works for two separate companies on the same project site. The SBA may argue this shared resource constitutes common management or identity of interest.
• Equipment Interdependence: Regularly leasing equipment from the same larger firm, especially on favorable terms, can suggest economic dependence.
• “Apparent Authority” in Subcontracts: A clause granting a general contractor unilateral authority to remove your superintendent or make binding decisions on your behalf can be interpreted as control, even if never exercised. This turns a standard contract term into an affiliation trap.

To defend against this, your documentation must preemptively disprove control. This means maintaining separate:

• Bank accounts and financial statements for each JV member.
• HR and payroll systems, even for shared-site personnel (use third-party PEOs to create clear separation).
• Equipment logs and maintenance records to prove asset independence.

What 99% of Articles Miss: The FAR Exception for Construction JVs

The generic advice is to avoid affiliation, which is impractical. The advanced tactic is to structure your collaboration to fit within an explicit regulatory safe harbor. For construction, this is found in the Federal Acquisition Regulation (FAR) 9.603-2(c). It states that a joint venture of two or more business concerns may submit an offer for a construction contract so long as each party is small under the size standard for the NAICS code assigned to the contract. Crucially, the SBA’s affiliation rules will not apply to the joint venture members for that specific contract, provided the JV is not permanent and is formed for the purpose of performing that contract.

This is a powerful, industry-specific exemption. To leverage it, your JV agreement must be airtight, specifying:

1. The exact, singular contract the JV is formed to pursue.
2. The proportional responsibilities and profits of each member.
3. A definitive end date tied to project completion.

This structure, while limiting the JV’s longevity, provides a clear legal grounds for appeal if the SBA tries to aggregate the members’ sizes. For more on structuring such agreements, review our analysis of construction joint venture agreements.

Documentation for Appeal: Building an Irrefutable, Construction-Specific Record

In an SBA size appeal, your paperwork is your testimony. Generic advice to “submit three years of tax returns” is a path to failure. The SBA adjudicator is not a construction expert; your evidence must educate them while leaving no room for doubt. The goal is to translate the chaotic, project-driven reality of your business into a clear, auditable narrative that aligns with SBA regulations.

Why Construction Evidence Demands a Different Playbook

It matters because the SBA frequently dismisses project-based revenue calculations as “unverifiable” if they aren’t backed by industry-standard documents. A simple income statement showing $5M in revenue tells the SBA nothing about whether you’re a small residential builder or a mid-sized commercial contractor. The root cause of lost appeals is presenting financial data in a vacuum, without the connective tissue of project management artifacts that prove what that revenue represents.

How to Compile Irrefutable Proof: A Proprietary Checklist

Move beyond the basic financials. Your appeal package should be a multi-layered dossier:

Document Type	Purpose in Appeal	Pro-Tip for Validation
AIA G702/G703 Payment Applications	Provides line-item, project-specific revenue allocation. Proves what work was performed and billed each month.	Ensure they are architect/engineer certified. This third-party validation adds immense credibility.
Certified Payroll Records (for Davis-Bacon/prevailing wage jobs)	Government-mandated records detailing labor hours by craft/classification. Objectively proves workforce deployment.	Use them to calculate the percentage of total labor hours spent on your primary NAICS code activities.
Equipment Lease Agreements & Logs	Demonstrates independence from affiliates and supports exclusion of pass-through costs.	Leases should be arm’s-length, with fair market rates. Logs should show exclusive use for your projects.
Daily Superintendent/Project Manager Logs	Shows management focus and control over specific scopes of work tied to your claimed primary NAICS.	Logs should be contemporaneous (daily), detailed, and correlate with the project schedule.
Bid Sheets & Estimating Worksheets	Shows your firm’s cost structure and expertise in your primary field, even if you didn’t win the bid.	They demonstrate capability and business development focus, reinforcing your primary activity claim.

This collection does more than prove size; it demonstrates professionalism and meticulous record-keeping, which subtly strengthens your credibility before the OHA.

What 99% of Articles Miss: Validating Revenue Exclusions Per SOP 10 05 1

The expert-level maneuver is to use these construction documents not just to categorize revenue, but to exclude it. SBA SOP 10 05 1 allows for the exclusion of revenue from certain transactions. Your project documentation is the key to unlocking this.

• Scenario: Your firm is part of a JV. You lease a crane to the JV. The JV pays you $200,000.
• Generic Approach: Include the $200k as receipts.
• Expert Approach: Argue for exclusion. Submit: 1) The JV agreement showing the JV is a separate entity. 2) The equipment lease agreement. 3) Your corporate tax return showing the JV’s K-1 income (proving it’s a pass-through). 4) A statement that the lease revenue is merely recovery of a cost from an affiliated entity (the JV) and does not represent primary earnings.

This transforms your financial profile. Mastering these nuances is critical for long-term planning, as detailed in our resource on applying for government construction contracts as a small business.

Precision Execution: The Reconsideration Request Timeline and Legal Grounds

The appeal process is a strict procedural gauntlet. Missing a deadline by one day forfeits your rights. Understanding the timeline isn’t administrative—it’s strategic, allowing you to marshal the complex evidence outlined above within the narrow windows the SBA permits.

Why Timing is a Legal Weapon, Not Just a Deadline

It matters because the SBA’s process is designed for finality. The strict, sequential timeline creates pressure, but also opportunity. A timely, procedurally perfect petition forces the SBA to engage with the substantive merits of your case. Missing a deadline, however, allows them to dismiss your appeal on procedural grounds without ever considering your evidence. The hidden incentive here is efficiency for the SBA; your counter-incentive is to use precision as a demonstration of your firm’s competence and respect for the process.

How the Process Works: A Stage-by-Stage Map

1. Initial Determination: The contracting officer or SBA Area Office rules your firm “other than small.”
2. Size Protest Window (5-day rule): You have 5 business days from when you “learned” of the determination (often via notification) to file a formal size protest. This is not an appeal, but a request for reconsideration by the same office. It must be in writing and detail specific errors. This is your first and most critical deadline.
3. SBA Area Office Review (15-day target): The Area Office re-examines its decision. This is where 90% of battles are won or lost with the evidence dossier described earlier.
4. Appeal to Office of Hearings and Appeals (OHA) (15-day rule): If the Area Office reaffirms its decision, you have 15 calendar days from receipt of that decision to file an appeal with the SBA’s OHA. This is a formal, litigation-like process. Your petition must state clear legal grounds for size standard appeal, such as: “The Area Office incorrectly applied the affiliation rules per 13 C.F.R. § 121.103,” or “The Area Office erred in its NAICS code designation by ignoring the firm’s primary activity as shown by project logs.”
5. OHA Decision (90-day guideline): OHA will issue a decision, which is binding on the SBA and the contracting agency.

What 99% of Articles Miss: The “Good Cause” Extension and Grounds Beyond “Mistake”

The common fear is missing the 5 or 15-day windows. What’s rarely discussed is that OHA can grant an extension for “good cause.” “Good cause” can include your counsel’s unavailability, complexities in gathering project-based evidence, or even a showing that the initial determination was so unclear it delayed your response. Always file a motion for extension if needed; don’t assume it’s hopeless.

Furthermore, most appeals argue the SBA made a “mistake of fact.” The more powerful, yet overlooked, legal grounds are “error of law” or “clear error of judgment.” Arguing an “error of law” means the SBA misapplied its own regulations—for example, failing to apply the FAR 9.603-2(c) JV exception. A “clear error of judgment” means the decision was unreasonable given the evidence, like ignoring your certified payrolls while focusing solely on tax return totals. Framing your appeal on these grounds elevates it from a factual dispute to a legal one, which OHA takes seriously. Success here requires a firm grasp of the rules governing your business structure, such as understanding pass-through entity structures and their implications.

Ultimately, working with the SBA Office of Hearings and Appeals is less about emotional pleas and more about cold, hard, well-organized evidence presented within an unforgiving procedural framework. Your appeal is a construction project in itself: it requires a solid foundation in the regulations, a clear blueprint of your argument, and the right materials—your project documents—assembled on time and to specification.

Why Timing and Legal Grounds Are Everything in Your Appeal

In the world of federal construction contracting, a denied size standard is less a verdict and more a procedural puzzle. The difference between a reinstated bid and a permanently lost opportunity hinges on two critical, and often misunderstood, elements: an unforgiving clock and a narrow legal path. Understanding this is not just about filing paperwork; it’s about recognizing that the SBA size protest process is a quasi-legal arena where procedural mastery dictates substantive outcomes. For construction firms, where projects are high-value and timelines are tight, missing a deadline or citing the wrong regulation isn’t a simple mistake—it’s a fatal one.

The Non-Negotiable Clock: Your 10-Business-Day Window

The moment you receive a negative size determination, a strict countdown begins. You have precisely 10 business days from the date you receive the determination to file a request for reconsideration with the SBA’s Office of Hearings and Appeals (OHA). This is not a suggestion; it’s a jurisdictional requirement under 13 CFR 134.304. In practice, “receipt” is often defined as the date the email arrives or the letter is delivered, not when you finally read it. Construction company owners, frequently juggling active job sites, are disproportionately vulnerable to missing this window. The consequence is absolute: OHA will dismiss an untimely appeal for lack of jurisdiction, regardless of the appeal’s merit. This transforms a potentially winnable argument about your firm’s size into an irreversible administrative closure.

Moving Beyond “I Disagree”: Identifying Actionable Legal Grounds

Most appeals fail because they argue feelings, not law. A successful reconsideration request must be anchored in specific, recognized legal grounds. The most powerful, yet frequently overlooked, ground for construction companies is “material error in fact.” This isn’t about disputing the SBA’s conclusion, but proving they based it on incorrect data unique to the construction context.

Weak Argument: “The SBA is wrong; we are a small business.”
Winning Argument: “The SBA committed a material error in fact under 13 CFR 121.1009 by incorrectly aggregating the average annual receipts of an alleged affiliate. The SBA included revenue from Company X, citing common ownership. However, the attached corporate records and signed affidavits demonstrate no common ownership, management, or identity of interest as defined by 13 CFR 121.103. Therefore, this revenue must be excluded, bringing our three-year average below the $45.0 million threshold for NAICS 236220.”

Construction-specific examples of “material error in fact” include:

• Project Square Footage Miscalculation: For size standards based on physical dimensions (e.g., dredging), the SBA may incorrectly calculate your cubic yard capacity or fleet size.
• Misapplication of the Employee-Based Standard: For NAICS codes using an employee count, the SBA may have improperly counted part-time, seasonal, or job-site workers who do not meet the definition of “employee” per 13 CFR 121.106.
• Affiliate Rule Misinterpretation: The SBA may assert affiliation based on subcontracting relationships or “identity of interest” between family members that doesn’t hold up under the specific tests in 13 CFR 121.103. A common construction error is affiliating companies that share a piece of equipment or a project superintendent, which alone does not establish control.

Your appeal must function like a legal brief: cite the exact regulation (e.g., 13 CFR 121.1001(b)(2)), state the error, and provide irrefutable evidence (contracts, payroll records, organizational charts) that directly contradicts the SBA’s finding.

Building an Airtight Appeal: A Construction-Specific Checklist

Befo