Pennsylvania Expands Definition of Small Business, Opens More Opportunities for State Contracts

Small business team using computer© BraunS from Getty Images Signature / Canva

PENNSYLVANIA — The Pennsylvania Department of General Services (DGS) recently increased the revenue limit defining small businesses from $38.5 million to $47 million. The change, effective from January 1, 2024, is in line with an executive order signed by Governor Shapiro last September and aims to level the playing field for small businesses, small diverse businesses (SDBs), and veteran business enterprises (VBEs).

“This adjustment will allow more small businesses that have been priced out due to inflation to qualify for Commonwealth small business programs,” said DGS Secretary Reggie McNeil. “Increasing their participation in state contracts is crucial to retaining their business and fostering economic growth.”

The last time the DGS raised the revenue limit was in 2018. This new threshold aligns the state’s definition of small businesses more closely with the U.S. Small Business Administration‘s standards, which account for inflation.

This move is part of a broader initiative under Executive Order 2023-18, which seeks to enhance opportunities for small businesses and SDBs to secure prime contracts. The order also mandates DGS to lead efforts with other Commonwealth agencies to increase their total operational spend and participation in the Commonwealth’s Small Business Reserve (SBR) program.

To ensure transparency and progress, DGS will publish semiannual data reflecting each agency’s total operational spend for SBR procurements. This will provide a clear benchmark for measuring the growth in spending with small businesses, SDBs, and VBEs.

The executive order also established the Pennsylvania Advisory Council for Inclusive Procurement (PACIP) to advise Commonwealth agencies on making state contracting opportunities more inclusive. Chaired by Lieutenant Governor Austin Davis, with Secretary McNeil and PennDOT Secretary Mike Carrol as co-vice chairs, the council held its inaugural meeting last month.

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In the 2022-2023 fiscal year, for the first time in Pennsylvania history, the Commonwealth spent over $1 billion with small businesses, SDBs, and VBEs. The DGS’ Small Business Opportunities Annual Report highlights this achievement along with other program improvements that have increased small business participation in state contracting opportunities.

Governor Shapiro is also advocating for updating the definition of who is considered a small business to align with federal guidelines. Currently, Pennsylvania businesses with more than 100 employees are not considered small businesses, while federal standards set the cut-off at over 500 employees. The Governor aims to work with the General Assembly to pass legislation that further aligns the Commonwealth with these federal standards.

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