Thanks to activism by the Associated General Contractors of America, a wider group of construction companies will be eligible for the Paycheck Protection Program authorized under the umbrella of the CARES Act. According to the legislation passed by Congress, the program provides loans to companies with fewer than 500 employees, but, in preparing to administer the loans, the Small Business Administration issued a rule clarification that would have excluded thousands of construction companies.
The issue was tied to a nuance in the language the SBA used in its rule clarification, which said that a company must have fewer than 500 employees AND be a “small business concern” as defined by SBA standards in order to be eligible. For most industries, the technicality in language wouldn’t matter, but construction companies are coded differently than most in the North American Industry Classification System, and that small shift made a big difference. “Because a small business concern is tied to the NAICS codes, and because a construction firm’s size under the NAICS codes is tied to its gross receipts rather than its number of employees, many construction businesses might not be able to meet both of the requirements connected by the “AND” above. As a result, these many construction businesses would not be able to qualify for these PPP loans,” the National Law Review explains in an article covering the matter.
Officials from AGC issued a strongly worded objection to what it called an incorrect interpretation of the intentions of the legislation, saying the SBA rule was not in accordance with the actual provisions of the Paycheck Protection Program as outlined by the U.S. Treasury. “Such a construction effectively nullifies the 500 or fewer employee test put forth by Congress in the CARES Act and Treasury in its guidance and makes the traditional gross receipts test the only one applicable to the construction industry,” AGC officials wrote in their challenge to the SBA.
Indeed, in the original language of the legislation, to be eligible a company needed to meet one of those two criteria, not both of them. After reviewing the objection of AGC, the SBA reversed itself with new guidance that removed “and” and replaced it with “or” – a move that immediately restored the eligibility of countless construction firms across the country.