Three Changes in 2020 that Will Affect Small Businesses

By Susan M. Puska, President & CEO

Best Wishes for a Happy and Prosperous New Year 2020!

While there has been a push for increased use of small businesses in U.S. Government (USG) contracting, small businesses working within this market will face some critical regulatory requirements and challenges during the 2020 that will affect their bottom lines.

Cybersecurity Maturity Model Certification (CMMC).

Cybersecurity is a top threat to the nation, and government contractors tend to be a potential vulnerability in the supply chain. In response, the Department of Defense (DoD) will implement the Cybersecurity Maturity Model Certification (CMMC) in 2020. Announced in June 2019, CMMC seeks to certify companies’ compliance with federal cybersecurity regulations for controlled unclassified information (CUI). CMMC will evaluate and rate contractors’ ability to protect sensitive data on a scale of 1 to 5. The framework is expected to be finalized in January 2020. Although there are still many unanswered questions about flow down responsibilities, third-party certification, and governance, training and accreditation, among others, contractors will be required to implement CMMC by Fall 2020. Given the threat to the USG, cyber security requirements that begin with DoD can be expected to be extended to other government agencies. Small businesses with less resources will face some steep challenges to meet and sustain CMMC requirements.

The End of Self-Certifications for Women Owned Businesses

The Small Business Administration (SBA) will close a loophole that has allowed a Woman-Owned Small Business (WOSB) to self-certify its eligibility for the program, despite a provision in the 2015 National Defense Authorization Act mandating SBA end self-certifications. In March 2019, the Government Accountability Office (GAO) found about 40% of the WOSB-certified businesses in its audit sample were ineligible for the program. GAO had also expressed concerns about the performance of several third-party WOSB certifiers. The final rule governing the WOSB program is anticipated by mid-2020. Once in place, a woman-owned small business will be required to follow the new regulation in order to be certified as a WOSB.

Small Business Runway Extension Act

On Dec. 5, 2019, SBA published a final rule modifying its method for calculating average annual receipts used to determine size standards for small businesses. Specifically, in accordance with the Small Business Runway Extension Act of 2018, SBA is changing its regulations from a three-year averaging period of annual receipts to a five-year averaging period. SBA’s new size standard average annual receipts calculation rule is effective Jan. 6, 2020, with a transition period through Jan. 6, 2022, during which firms may choose between using a three-year averaging period and a five-year averaging period. For a small business on the verge of graduating from its small business status, this act allows them to remain as a small business for a longer period, but it also increases the competition for smaller businesses.

USG contracting is still a potentially lucrative market for small businesses, but they must understand that compliance with USG regulations will be even more challenging in 2020.