[Federal Register Volume 67, Number 51 (Friday, March 15, 2002)]
[Proposed Rules]
[Pages 11881-11888]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6195]



  Federal Register / Vol. 67, No. 51 / Friday, March 15, 2002 / 
Proposed Rules  

[[Page 11881]]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AE95


Small Business Size Standards; Travel Agencies

AGENCY: Small Business Administration (SBA).

ACTION: Proposed rule.

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SUMMARY: The Small Business Administration (SBA) proposes to increase 
the size standard for Travel Agencies (North American Industry 
Classification System (NAICS) code 561510) to $3 million from $1 
million. This action will better define the size of businesses in this 
industry that the SBA believes should be eligible for Federal small 
business assistance programs. This proposed rule is published in 
conjunction with an interim final rule elsewhere in this issue of the 
Federal Register which makes the size standard change effective the 
date of its publication for purposes of SBA's Economic Injury Disaster 
Loan (EIDL) program as a result of the September 11, 2001 attacks in 
New York and Arlington, Virginia.

DATES: Comments must be submitted on or before April 15, 2002.

ADDRESSES: Send comments to Gary M. Jackson, Assistant Administrator 
for Size Standards, 409 3rd Street, SW., Mail Code 6530, Washington, DC 
20416; or via-email to [email protected]. Upon request, SBA will 
make all public comments available.

FOR FURTHER INFORMATION CONTACT: Diane Heal, Office of Size Standards, 
(202) 205-6618.

SUPPLEMENTARY INFORMATION: This proposed rule covers all small business 
programs. SBA is publishing a separate interim final rule elsewhere in 
this issue of the Federal Register addressing the Travel Agencies size 
standard for purposes of economic injury disaster loan (EIDL) 
assistance attributed to the September 11 terrorist attacks.
    SBA has received requests from firms and trade associations in the 
travel industry to increase the $1 million size standard for Travel 
Agencies. These organizations believe that this action is warranted in 
light of the specialized equipment and systems required on Federal and 
corporate travel services contracts and the consolidated and regional 
approach by Federal agencies and large commercial clients in the 
performance of these contracts. They believe that the Federal 
government and corporate client travel markets have changed. These 
clients require specific equipment and systems, and have requirements 
on a regional or national basis. These requirements have raised the 
costs of doing business in this industry to the point that the pool of 
eligible small businesses performing government and corporate client 
travel services has seriously declined. Federal agencies also express 
concern regarding this trend. Specifically, agencies are concerned that 
the pool of eligible small businesses with the ability to perform these 
contracts will result in fewer contracts with small travel agencies.
    SBA agrees that recent changes in the Travel Agencies industry 
warrant a review of the size standard. Below is a discussion of the 
SBA's size standards methodology and the analysis leading to the 
proposal to increase the size standard for Travel Agencies under NAICS 
code 561510 to $3 million.
    Size Standards Methodology: Congress grants SBA discretion to 
establish detailed size standards. The Agency's Standard Operating 
Procedure (SOP) 90 01 3, ``Size Determination Program'' (available on 
SBA's Web site at http://www.sba.gov/library/soproom.html) sets out 
four categories for establishing and evaluating size standards: (1) The 
structure of the industry and its various economic characteristics, (2) 
SBA program objectives and the impact of different size standards on 
these programs, (3) whether a size standard successfully excludes those 
businesses which are dominant in the industry, and (4) other factors if 
applicable. Other factors may come to the attention of SBA during the 
public comment period or from SBA's own research on the industry. No 
formula or weighting has been adopted so that the factors may be 
evaluated in the context of a specific industry. Below is a discussion 
of SBA's analysis of the economic characteristics of an industry, the 
impact of a size standard on SBA programs, and the evaluation of 
whether a firm at or below a size standard could be considered dominant 
in the industry under review.
    Industry Analysis: The Small Business Act requires that size 
standards vary by industry to the extent necessary to reflect differing 
industry characteristics (Section 3(a)(3)). SBA has in place two ``base 
or anchor size standards'' that apply to most industries--500 employees 
for manufacturing industries and $6 million for nonmanufacturing 
industries. SBA established 500 employees as the anchor size standard 
for the manufacturing industries at SBA's inception in 1953 and shortly 
thereafter established a $1 million size standard for the 
nonmanufacturing industries. The receipts-based anchor size standard 
for the nonmanufacturing industries has been periodically adjusted for 
inflation so that, currently, the anchor size standard for the 
nonmanufacturing industries is $6 million. Anchor size standards are 
presumed to be appropriate for an industry unless its characteristics 
indicate that larger firms have a much greater significance within that 
industry than for the ``typical industry.''
    The current size standard for Travel Agencies under NAICS code 
561510 is $1 million, which is lower than the $6 million 
nonmanufacturing anchor. This size standard excludes funds received in 
trust for an unaffiliated third party, such as bookings or sales 
subject to commissions. The commissions received are included as 
revenue. In its review, SBA used the nonmanufacturing anchor for 
comparability purposes.
    When evaluating a size standard, the characteristics of the 
specific industry under review are compared to the characteristics of a 
group of industries, referred to as a comparison group. A comparison 
group is a large number of industries grouped together to represent the 
typical industry. It can be comprised of all industries, all 
manufacturing industries, all industries with receipt-based size 
standards, or some other logical grouping. If the characteristics of a 
specific industry are similar to the average characteristics of the 
comparison group, then the anchor size standard is considered 
appropriate for the industry. If the specific industry's 
characteristics are significantly different from the characteristics of 
the comparison group, a size standard higher or, in rare cases, lower 
than the anchor size standard may be considered appropriate. The larger 
the differences between the specific industry's characteristics and the 
comparison group, the larger the difference between the appropriate 
industry size standard and the anchor size standard. Only when all or 
most of the industry characteristics are significantly smaller than the 
average characteristics of the comparison group, or other industry 
considerations strongly suggest the anchor size standard would be an 
unreasonably high size standard for the industry under review, will SBA 
adopt a size standard below the anchor size standard.
    In 13 CFR 121.102 (a) and (b), evaluation factors are listed which 
are the primary factors describing the structural characteristics of an 
industry--average firm size, distribution of firms by size, start-up 
costs, and industry competition. The analysis also

[[Page 11882]]

examines the possible impact of a size standard revision on SBA's 
programs. The SBA generally considers these five factors to be the most 
important evaluation factors in establishing or revising a size 
standard for an industry. However, it will also consider and evaluate 
other information that it believes relevant to the decision on a size 
standard as the situation warrants for a particular industry. Public 
comments submitted on proposed size standards are also an important 
source of additional information that SBA closely reviews before making 
a final decision on a size standard. Below is a brief description of 
each of the five evaluation factors.
    1. Average firm size is simply total industry receipts (or number 
of employees) divided by the number of firms in the industry. If the 
average firm size of an industry were significantly higher than the 
average firm size of a comparison industry group, this fact would be 
viewed as supporting a size standard higher than the anchor size 
standard. Conversely, if the industry's average firm size is similar to 
or significantly lower than that of the comparison industry group, it 
would be a basis to adopt the anchor size standard or, in rare cases a 
lower size standard.
    2. The distribution of firms by size examines the proportion of 
industry receipts, employment, or other economic activity accounted for 
by firms of different sizes in an industry. If the preponderance of an 
industry's economic activity is by smaller firms, this tends to support 
adopting the anchor size standard. The opposite is the case for an 
industry in which the distribution of firms indicates that economic 
activity is concentrated among the largest firms in an industry. In 
this rule, the SBA is comparing the size of firm within an industry to 
the size of firm in the comparison group at which predetermined 
percentages of total industry receipts are cumulatively generated by 
firm at that size and smaller. For example, for Travel Agencies, firms 
of $2.2 million in receipts and less generate 50% of total industry 
receipts. This contrasts with the comparison group (composed of 
industries with the nonmanufacturing anchor size standard of $6 
million) in which firms of $5.8 million or less in receipts generated 
50% of total industry receipts. Viewed in isolation, this significantly 
lower figure for the Travel Agencies suggests a size standard at or 
below the $6 million nonmanufacturing anchor size standard. Other size 
distribution comparisons in the industry analysis include 40%, 60%, and 
70%, as well as the 50% comparison discussed above.
    3. Start-up costs affect a firm's initial size because entrants 
into an industry must have sufficient capital to start and maintain a 
viable business. To the extent that firms entering into an industry 
have greater financial requirements than firms do in other industries, 
SBA is justified in considering a higher size standard. SBA collected 
start-up costs data from trade organizations. In addition, SBA is using 
a proxy measure to assess the financial burden for entry-level firms. 
SBA is using nonpayroll costs per establishment as a proxy measure for 
start-up costs. This is derived by first calculating the percent of 
receipts in an industry that are either retained or expended on costs 
other than payroll costs. (The figure comprising the numerator of this 
percentage is mostly composed of capitalization costs, overhead costs, 
materials costs, and the costs of goods sold or inventoried.) This 
percentage is then applied to average establishment receipts to arrive 
at nonpayroll costs per establishment (an establishment is a business 
entity operating at a single location). An industry with a 
significantly higher level of nonpayroll costs per establishment than 
that of the comparison group is likely to have higher start-up costs 
that would tend to support a size standard higher than the anchor size 
standard. Conversely, if the industry showed significantly lower 
nonpayroll costs per establishment when compared to the comparison 
group, the anchor size standard would be considered the appropriate 
size standard.
    4. Industry competition is assessed by measuring the proportion or 
share of industry receipts obtained by firms that are among the largest 
firms in an industry. In this proposed rule, SBA compared the 
proportion of industry receipts generated by the four largest firms in 
the industry--generally referred to as the ``four-firm concentration 
ratio''--with the average four-firm concentration ratio for industries 
in the comparison groups. If a significant proportion of economic 
activity within the industry is concentrated among a few relatively 
large producers, SBA tends to set a size standard relatively higher 
than the anchor size standard to assist firms in a broader size range 
compete with firms that are larger and more dominant in the industry. 
In general, however, SBA does not consider this to be an important 
factor in assessing a size standard if the four-firm concentration 
ratio falls below 40% for an industry under review.
    5. Competition for Federal procurements and SBA Financial 
Assistance. SBA also evaluates the possible impact of a size standard 
on its programs to determine whether small businesses defined under the 
existing size standard are receiving a reasonable level of assistance. 
This assessment most often focuses on the proportion or share of 
Federal contract dollars awarded to small businesses in the industry in 
question. In general, the lower the share of Federal contract dollars 
awarded to small businesses in an industry which receives significant 
Federal procurement revenues, the greater the justification for a size 
standard higher than the existing one.
    As another factor to evaluate the impact of a proposed size 
standard on SBA programs, the volume of guaranteed loans within an 
industry and the size of firms obtaining those loans is assessed to 
determine whether the current size standard may restrict the level of 
financial assistance to firms in that industry. If small businesses 
receive ample assistance through these programs, or if the financial 
assistance is provided mainly to small businesses much lower than the 
size standard, a change to the size standard (especially, if it is 
already above the anchor size standard) may not be appropriate.
    Evaluation of Industry Size Standard: The two tables below show the 
characteristics for Travel Agencies activities and of a comparison 
group. The primary comparison group is comprised of all industries with 
a $6 million receipt-based size standard (referred to as the 
nonmanufacturing anchor group). Since SBA's size standards analysis is 
assessing whether the Travel Agencies size standards should be higher 
as compared to the nonmanufacturing anchor size standard, this is the 
most logical set of industries to group together for the industry 
analysis. SBA examined economic data on these industries from the 1997 
Economic Census prepared under contract by the U. S. Bureau of the 
Census. SBA also examined Federal contract award data for fiscal years 
1998-2000 from the U. S. General Services Administration's (GSA) 
Federal Procurement Data Center, and GSA's award data and information 
on its Travel Management Centers.
    Industry Structure Consideration: Table 1 below examines the size 
distribution of Travel Agencies. For this factor, SBA is evaluating the 
size of firms that account for predetermined percentages of total 
industry receipts (40%, 50%, 60%, and 70%). The table shows firms up to 
a specific size that, along with smaller firms, account for a

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specific percentage of total industry receipts. For example, Travel 
Agencies with $900 thousand or less in receipts obtained 40% of total 
industry receipts. Within the nonmanufacturing anchor group, firms of 
$3.2 million or less in receipts obtained 40% of total industry 
receipts in the average industry.

                            Table 1.--Size Distributions of Firms of Travel Agencies
                                          [Data in millions of dollars]
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                                                                Size of      Size of      Size of      Size of
                          Category                            firm at 40%  firm at 50%  firm at 60%  firm at 70%
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Travel Agencies.............................................         $0.9         $2.2         $5.8        $27.1
Nonmanufacturing Anchor Group...............................          3.2          5.8         11.9         28.0
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    These data show the prevalence of much smaller businesses in the 
Travel Agencies industry than for businesses in the nonmanufacturer 
anchor comparison group. Travel agencies accounting for between 40% to 
60% of industry revenues are one-fourth to one-half of the size of 
businesses in the nonmanufacturing anchor group that capture a similar 
proportion of industry revenues. However, large firms at the 70% level 
are equivalent in size to those in the nonmanufacturer anchor group, 
which reflects the influence of large corporations offering travel 
services. The distribution of travel agencies revenues by size of 
business in relation to the nonmanufacturer anchor group indicate a 
size standard below the $6 million anchor size standard is appropriate. 
Also, that a size standard between $2 million to $3 million would 
represent a reasonable size standard for the Travel Agencies industry 
since these businesses capture approximately half of industry activity.
    Table 2 lists the other three evaluation factors for Travel 
Agencies and the comparison groups. These include comparisons of 
average firm size, the measurement of start-up costs as measured by 
nonpayroll receipts per establishment, and the four-firm concentration 
ratio.

                              Table 2.--Industry Characteristics of Travel Agencies
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                                                              Average firm size      Non payroll     Four firm
                                                         --------------------------  receipts per  concentration
                        Category                            Receipts                establishment    ratio (in
                                                           (millions)   Employees     (million $)     percent)
----------------------------------------------------------------------------------------------------------------
Travel Agencies.........................................        $0.44          8.1        $0.188           16.3
Nonmanufacturing Anchor Group...........................         0.95         10.6         0.562           14.4
----------------------------------------------------------------------------------------------------------------

    For Travel Agencies, the average firm size in receipts is lower 
than the nonmanufacturing anchor group's size. However, the average 
number of employees is about the same as the nonmanufacturer anchor 
group size. Based on this factor, a size standard of $2.5 to $3.5 
million, or approximately half the nonmanufacturer anchor size 
standard, is supportable.
    Nonpayroll receipts per establishment, a measure of capital 
requirements to enter an industry, comparatively, are much lower (a 
three-to-one ratio) for Travel Agencies as those of the nonmanufacturer 
anchor group. These data do not support a basis for a higher size 
standard. However, SBA collected additional information on start up 
cost from the Society of Government Travel Professionals (SGTP). SBA's 
research has found that for travel agencies involved in arranging 
travel services for large corporate clients and the Federal Government, 
start-up costs are higher as compared with the firms leisure travel 
services. Corporate clients and the Federal government require firms to 
have dedicated equipment, secure lines, and access to two or more 
airline ticketing reservation services. The Federal Government and the 
corporate world insist on seamless travel management and back-end 
systems. Firms must be able to link to corporate and Federal travel 
systems that links customer, travel agent, billing systems, credit card 
reconciliation systems, provide 24 hour and seven days a week service 
centers; train government and contractor personnel; and provide quality 
control and inspection plans. Start-up costs for these requirements 
amount up to $160,000 to $200,000 on an average contract of 
approximately $8.5 million in travel bookings. These clients also 
require that travel agencies prepare periodic reports on their travel 
activities. This reporting responsibility requires travel agencies to 
utilize management information systems to monitor their clients and 
represents a service activity beyond the arrangement of travel and 
related accommodations. Therefore, higher start-up costs associated 
with serving Federal and corporate clients support an increase in the 
size standard for the Travel Agencies industry of at least twice the 
current size standard. SBA welcomes public comment on start-up costs 
for Travel Agencies, in particular, how these costs are relevant to 
corporate and Federal government contracts. Comments supporting these 
costs should include information and costs associated with what type of 
specialized equipment, bonding, management information systems, 
security and training requirements are needed for corporate and Federal 
government clients, along with any other relevant requirements and 
information.
    The Travel Agencies four-firm concentration ratio, however, is 
relatively low, indicating that the industry is not dominated by large 
businesses. This factor does not support a basis for a higher size 
standard for Travel Agencies.
    SBA Program Considerations: SBA also reviews its size standards in 
relationship to its programs. This proposed rule gives more 
consideration to the pattern of Federal contract awards than to the 
level of financial assistance to small businesses to assess whether its 
size standard should be revised.
    In fiscal year 2000, 45 loans for $4.5 million were guaranteed to 
Travel Agencies, with 78% of these loans going to firms with less than 
$545,000 in receipts. It's unlikely that an increase to

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the size standard will have much impact on the financial programs and, 
consequently, this factor is not part of the assessment of the size 
standard.
    The Federal government spends approximately $7 billion on official 
travel per year. In addition, the Department of Defense awards 
contracts for leisure travel services, which are worth $5 billion per 
year (as reported to the House of Representatives, Small Business 
Committee on November 4, 1999 by the Society of Travel Agents in 
Government (STAG)). Federal Procurement Data System (FPDS) statistics 
for the fiscal years 1998 through 2000 show that awards to small 
businesses averaged less than 1% of the total dollars awarded for 
Travel Agencies Services. For Fiscal Year 2000, $206,000 out of $25 
million was reportedly awarded to small businesses. However, Federal 
travel services are procured mostly through the General Services 
Administration's (GSA) Travel Management Centers (TMCs) and the Defense 
Travel System. Awards made through these contract vehicles are on a 
transaction fee basis and all travel costs that are purchased with a 
government credit card, are not recorded in the FPDS. In fiscal year 
2002, the Department of Defense (DoD) hopes to set aside six of its 24 
contracts to small business. Currently, GSA has awarded contracts to 49 
firms for TMCs of which 20 firms are small businesses. Out of the 20 
firms, 17 have task orders. GSA also provided SBA with its estimate for 
the fiscal year 2001 tickets, sales, revenues, and fees received by its 
TMCs.

                           Table 3.--GSA TMC Small Business Contractor's Sales Revenue
----------------------------------------------------------------------------------------------------------------
                                     Number of                                      Transaction
                                      Tickets       Sales  ($)      Commissions        fees        Total revenue
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Total TMCs......................       1,292,917    $518,966,320     $24,423,055     $12,630,279     $33,647,038
Percent of total to small                    3.8             3.5             3.4             6.7             3.5
 business TMCs..................
----------------------------------------------------------------------------------------------------------------

    These statistics reveal that small business, despite the fact that 
they are awarded 41% of the number of contracts, receive very little of 
the ticket orders, commissions, fees, and revenues. These statistics 
also support the Federal contracting officers concerns that the pool of 
small businesses capable of submitting viable proposals for their 
travel service contracts is dwindling because of the sophistication and 
significant investments required of these firms. New procurements for 
travel management services require firms provide automation of the 
travel arrangements process through the use of on-line booking 
products; 24 hour and seven days a week service centers; interfaces 
with an agency's finance system; complex travel management information 
systems; secure or dedicated lines that meet privacy and security 
requirements; training for government and contractor personnel; 
compliance costs; and quality control and inspection plans. As 
mentioned earlier, the SGTP estimates these start-up costs to be 
$200,000 on an average contract of $8.5 million in travel bookings.
    The FPDS statistics, plus other contract factors such as large 
start-up costs to implement a Federal travel service contract and the 
declining pool of small businesses submitting proposals suggest that a 
size standard significantly higher than $1 million may be appropriate 
for Travel Agencies.
    Overview: Based on the analysis of each evaluation factor, SBA is 
proposing a $3 million size standard. Four out of the five factors 
support an increase to the $3 million size standard for Travel 
Agencies. Two factors support a size standard approximately half of the 
nonmanufacturer anchor size standard--average firm size and 
distribution of travel agencies. Two factors support an increase at 
least twice the current $1 million. Start-up costs, especially for 
those firms that have corporate and Federal clients, have higher costs 
due to client requirements than for travel agencies offering primarily 
leisure travel. Travel agencies providing services to corporate and 
government clients tend to be larger in size than travel agencies 
offering leisure travel in order to finance needed investment in the 
equipment and personnel. Procurement statistics, increasingly 
sophisticated procurement requirements, and higher contract start-up 
costs have lead to the decline in the pool of viable small businesses 
that have the ability to compete on travel service contracts, as 
evidenced by the extremely low small business percentages for tickets, 
sales, commissions, fees, and total revenues. A size standard at least 
twice the nonmanufacturer size standard will increase the pool of small 
businesses that can meet the government's requirements.
    Dominant in Field of Operation: Section 3(a) of the Small Business 
Act defines a small concern as one that is (1) independently owned and 
operated, (2) not dominant in its field of operation and (3) within 
detailed definitions or size standards established by the SBA 
Administrator. SBA considers as part of its evaluation of a size 
standard whether a business concern at or below a proposed size 
standard would be considered dominant in its field of operation. This 
assessment generally considers the market share of firms at the 
proposed or final size standard or other factors that may show whether 
a firm can exercise a major controlling influence on a national basis 
in which significant numbers of business concerns are engaged.
    The SBA has determined that no firm at or below the proposed size 
standards for Travel Agencies would be of a sufficient size to dominate 
its field of operation. For Travel Agencies, a firm $3 million in size 
would generate an estimated .01% of the total industry receipts. This 
level of market share effectively precludes any ability for a firm at 
or below the proposed size standard to exert a controlling effect on 
these industries.
    Alternative Size Standards: SBA considered doubling the Travel 
Agencies size standard from $1 million to $2 million, but believed that 
this level would not fully capture the small business segment of the 
Travel Agencies industry. A survey of Travel Agencies showed that those 
with $1 million and less in revenues have declined by more than one-
third while Travel Agencies with more than $2 million have almost 
doubled. This fact indicates that Travel Agencies have needed to expand 
their operations to remain competitive. In addition, SBA is very 
concerned about the capabilities of smaller Travel Agencies to satisfy 
the requirements of government and corporate clients. The initial 
capital resources and recurring costs to obtain and maintain travel 
systems and to provide other travel related services also suggest a 
size standard greater than $2 million. These trends are reflected in 
the analysis of Travel Agencies' industry data. Two factors, 
distribution for receipts by firm size and average firm size, supported 
size standards of at least $2 million and

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as high as $3 million to $3.5 million. These considerations, along with 
the uncertainties with regard to compensation for travel services and 
the expanding use of internet technology for travel reservations, 
convinced SBA that a size standard higher than $2 million should be 
considered.
    SBA also contemplated as an alternative size standard adopting the 
$6 million anchor size standard to the Travel Agencies industry. As 
discussed in the description of SBA's size standards methodology, SBA 
applies the $6 million anchor size standard to the nonmanufacturing 
industries unless the industry's characteristics are significantly 
different from the typical nonmanufacturing industry. The analysis of 
the various industry factors shows that the characteristics Travel 
Agencies are significantly below those of the nonmanufacturing anchor 
group industries. Thus, a size standard below the anchor size standard 
is appropriate for this industry. As discussed above, SBA believes the 
characteristics of Travel Agencies support a size standard higher than 
the $1 million but lower than anchor the nonmanufacturing size 
standard.
    SBA welcomes public comments on its proposed size standard for the 
Travel Agencies industry. Comments supporting an alternative to the 
proposal, including the option of retaining the size standard at $1 
million, should explain why the alternative would be preferable to the 
proposed size standard, how it would impact current small businesses, 
and how it would effectively assist small businesses. SBA also welcomes 
comments and additional information on start-up costs of travel 
agencies serving corporate and government clients.

Compliance With Executive Orders 12866, 12988, and 13132, the 
Paperwork Reduction Act (44 U.S.C. Ch. 35) and the Regulatory 
Flexibility Act (5 U.S.C. 601-612).

    The Office of Management and Budget (OMB) has determined that the 
proposed rule is a ``significant'' regulatory action for purposes of 
Executive Order 12866. Size standards determine which businesses are 
eligible for Federal small business programs. This is not a major rule 
under the Congressional Review Act, 5 U.S.C. 800.

Regulatory Impact Analysis

i. Is There a Need for the Regulatory Action?

    SBA is chartered to aid and assist small businesses through a 
variety of financial, procurement, business development, and advocacy 
programs. To effectively assist intended beneficiaries of these 
programs, SBA must establish distinct definitions of which businesses 
are deemed small businesses. The Small Business Act (15 U.S.C. 632(a)) 
delegates to the SBA Administrator the responsibility for establishing 
small business definitions. It also requires that small business 
definitions vary to reflect industry differences. The preamble of this 
rule explains the approach SBA follows when analyzing a size standard 
for a particular industry. Based on that analysis, SBA believes that a 
revision to the current size standard for Travel Agencies is needed to 
better define small businesses in this industry.

ii. What Are the Potential Benefits and Costs of This Regulatory 
Action?

    The most significant benefit to businesses obtaining small business 
status as a result of this rule is eligibility for Federal small 
business assistance programs. Under this rule, 723 additional firms may 
obtain small business status and become eligible for these programs. 
These include SBA's financial assistance programs and Federal 
procurement preference programs for small businesses, 8(a) firms, small 
disadvantaged businesses, small businesses located in Historically 
Underutilized Business Zones (HUBZone), as well as those awarded 
through full and open competition after application of the HUBZone or 
small disadvantaged business price evaluation adjustment. Other Federal 
agencies use SBA size standards for a variety of regulatory and program 
purposes. SBA does not have information on each of these uses to 
evaluate the impact of size standards changes. In researching the 
Travel Agencies industry, SBA contacted representatives of the GSA and 
the DoD. These two agencies account for the largest proportion of 
Federal contracting for travel services. However, in cases where SBA 
size standards are not appropriate, an agency may establish its own 
size standards with the approval of the SBA Administrator (see 13 CFR 
121.801). Through the assistance of these programs, small businesses 
may benefit by becoming more knowledgeable, stable, and competitive 
businesses.
    The benefits of a size standard increase to a more appropriate 
level would affect three groups. First, businesses that benefit by 
gaining small business status from the proposed size standards and use 
small business assistance programs. Second, growing small businesses 
that may exceed the current size standards in the near future and who 
will retain small business status from the proposed size standards. 
Third, Federal agencies that award contracts under procurement programs 
that require small business status.
    Newly defined small businesses would benefit from the SBA's 7(a) 
Guaranteed Loan Program. SBA estimates that approximately $450,000 in 
new Federal loan guarantees could be made to these newly defined small 
businesses. This represents 10% of the $4.5 million in loans that were 
guaranteed by the SBA under this financial program to Travel Agencies 
in FY 2000. Because of the size of the loan guarantees, most loans are 
made to small businesses well below the size standard. Thus increasing 
the size standard will likely result in only a small increase in small 
business guaranteed loans to Travel Agencies, and the $450,000 
estimated figure may overstate the actual impact.
    The newly defined small businesses would also benefit from SBA's 
economic injury disaster loan program. Since this program is contingent 
upon the occurrence and severity of a disaster, no meaningful estimate 
of benefits can be projected.
    SBA estimates that firms gaining small business status could 
potentially obtain Federal contracts worth $347 million in sales out of 
approximately $9 billion in total Federal travel expenditures under the 
small business set-aside program, the 8(a), Small Disadvantaged 
Business, and HUBZone programs, or unrestricted contracts. Since most 
of these travel dollars will pass through to airlines, hotels, and 
automobile rental companies, SBA estimates actual revenues to Travel 
Agencies will range between $25 million and $42 million (7% to 12% of 
the estimated $347 million in sales). This also represents 
approximately $36 million of additional Federal contracts that may be 
awarded to businesses becoming newly designated small businesses. These 
estimates reflect a 10% increase in the awards to small businesses that 
the Federal government expends for travel services.
    Federal agencies may benefit from the higher size standards if the 
newly defined and expanding small businesses compete for more set-aside 
procurements. The larger base of small businesses would likely increase 
competition and would lower the prices on set-aside procurements. A 
large base of small businesses may create an incentive for Federal 
agencies to set aside more procurements creating greater opportunities 
for all small businesses. Small business opportunities will be enhanced 
in open

[[Page 11886]]

procurements as they gain experience in Federal contracting through the 
set-aside and other small business procurement preference programs. 
Large businesses with small business subcontracting goals may also 
benefit from a larger pool of small businesses by enabling them to 
better achieve their subcontracting goals and at lower prices. No 
estimate of cost savings from these contracting decisions can be made 
since data are not available to directly measure price or competitive 
trends on Federal contracts.
    To the extent that 732 additional firms become active in Government 
programs, this may entail some additional administrative costs to the 
Federal government associated with additional bidders for Federal small 
business SBA's procurement programs, additional firms seeking SBA 
guaranteed lending programs, and additional firms eligible for 
enrollment in SBA's PRO-Net data base program. Among businesses in this 
group seeking SBA assistance, there will be some additional costs 
associated with compliance and verification associated with 
certification of small business status and protests of small business 
status. These costs are likely to generate minimal incremental costs 
since mechanisms are currently in place to handle these administrative 
requirements.
    The costs to the Federal government may be higher on some Federal 
contracts. With greater number of businesses defined as small, Federal 
agencies may choose to set-aside more contracts for competition among 
small businesses rather than using full and open competition. The 
movement from unrestricted to set-aside is likely to result in 
competition among fewer bidders for a contract. Also, higher costs may 
result if additional full and open contracts are awarded to HUBZone and 
SDB businesses as a result of a price evaluation preference. The 
additional costs associated with fewer bidders, however, are likely to 
be minor since, as a matter of policy, procurements may be set-aside 
for small businesses or reserved for the 8(a), HUBZone Programs only if 
awards are expected to be made at fair and reasonable prices.
    The proposed size standard may have distributional effects among 
large and small businesses. Although the actual outcome of the gains 
and loses among small and large businesses cannot be estimated with 
certainty, several trends are likely to emerge. First, a transfer of 
some Federal contracts to small businesses from large businesses. Large 
businesses may have fewer Federal contract opportunities as Federal 
agencies decide to set-aside more Federal procurements for small 
businesses. Also, some Federal contracts may be awarded to HUZone or 
small disadvantaged businesses instead of large businesses since those 
two categories of small business are eligible for price evaluation 
adjustment for contracts competed on a full and open basis. Similarly, 
currently defined small businesses may obtain fewer Federal contacts 
due to the increased competition from more businesses defined as small. 
This transfer may be offset by a greater number of Federal procurements 
set-aside for all small businesses. The number of newly defined and 
expanding small businesses that were willing and able to sell to the 
Federal Government would limit the potential transfer of contracts away 
from large and currently defined small businesses. The potential 
distributional impacts of these transfers may not be estimated with any 
degree of precision since the data on the size of business receiving a 
Federal contract are limited to identifying small or other-than-small 
businesses.
    The revision to current size standards for Travel Agencies is 
consistent with SBA's statutory mandate to assist small businesses. 
This regulatory action promotes the Administration's objectives. One of 
SBA's goals in support of the Administration's objectives is to help 
individual small businesses succeed through fair and equitable access 
to capital and credit, government contracts, and management and 
technical assistance. Reviewing and modifying size standards when 
appropriate ensures that intended beneficiaries have access to small 
business programs designed to assist them. Size standards do not 
interfere with state, local, and tribal governments in the exercise of 
their government functions. In a few cases, State and local governments 
have voluntarily adopted SBA's size standards for their programs to 
eliminate the need to establish an administrative mechanism for 
developing their own size standards.

Initial Regulatory Flexibility Analysis

    Under the Regulatory Flexibility Act (RFA), this rule may have a 
significant impact on a substantial number of small entities. As 
described above in the Regulatory Impact Analysis, this rule may impact 
small entities in two ways. First, small businesses in the Travel 
Agencies industry competing for Federal Government procurements 
reserved for small business, and small disadvantaged businesses and 
HUBZone businesses eligible for price adjustment, may face greater 
competition from newly eligible small businesses. Second, additional 
Federal procurements for Travel Agencies may be set-aside for small 
business as the pool of eligible small businesses expands.
    The proposed size standard may affect small businesses 
participating in programs of other agencies that use SBA size 
standards. As a practical matter, SBA cannot estimate the impact of a 
size standard change on each and every Federal program that uses its 
size standards. For this particular proposed rule, SBA did consult with 
GSA and DoD regarding a possible increase to the Travel Agencies size 
standard. In cases where an SBA's size standard is not appropriate, the 
Small Business Act and SBA's regulations allow Federal agencies to 
develop different size standards with the approval of the SBA 
Administrator (13 CFR 121.902). For purposes of a regulatory 
flexibility analysis, agencies must consult with SBA's Office of 
Advocacy when developing different size standards for their programs.
    Immediately below, SBA sets forth an initial regulatory flexibility 
analysis (IRFA) of this proposed rule addressing the following 
questions: (1) What is the need for and objective of the rule, (2) what 
is SBA's description and estimate of the number of small entities to 
which the rule will apply, (3) what is the projected reporting, record 
keeping, and other compliance requirements of the rule, (4) what are 
the relevant Federal rules which may duplicate, overlap or conflict 
with the proposed rule, and (5) what alternatives will allow the Agency 
to accomplish its regulatory objectives while minimizing the impact on 
small entities?

(1) What Is the Need for and Objective of the Rule?

    The revision to the size standards NAICS code 561510 more 
appropriately defines the size of businesses in these industries that 
SBA believes should be eligible for Federal small business assistance 
programs. A review of the latest available industry data supports a 
change to the size standard.

(2) What is SBA's Description and Estimate of the Number of Small 
Entities to Which the Rule Will Apply?

    Within the Travel Agencies industry, 21,496 out of 22,687 
businesses are small. Only a small proportion of businesses in this 
industry utilizes SBA programs. In SBA's PRO-Net (a SBA database of 
small businesses interested in contracting with the Federal Government) 
166 Travel Agencies are currently registered. In fiscal year 2000, 54 
small business Travel Agencies

[[Page 11887]]

received 7(a) or 504 guaranteed loans. Thus, the likely impact of this 
rule would be limited to 732 small businesses, based on the U.S. Census 
Bureau's special tabulation of the 1997 Economic Census for SBA's 
Office of Size Standards. The following table shows these data for the 
Travel Agencies Industry.

                      Travel Agencies Industry Data
------------------------------------------------------------------------
                                                                 Travel
                           Category                             agencies
------------------------------------------------------------------------
Total businesses..............................................    22,687
Small businesses..............................................    21,946
Small businesses registered in PRO-Net........................       166
Small businesses with 7(a) loans..............................        54
------------------------------------------------------------------------

    SBA estimates 732 additional businesses out of 22,687 firms in the 
Travel Agencies activity would be considered small as a result of this 
rule, if adopted. These businesses would be eligible to seek available 
SBA assistance provided that they meet other program requirements. 
Businesses becoming eligible for SBA assistance as a result of this 
rule, if finalized, cumulatively generate approximately $1.0 billion 
out of a total of $10 billion in revenues. The small business coverage 
in the Travel Agencies would increase by 10% of total receipts.

(3) What are the Projected Reporting, Record Keeping, and Other 
Compliance Requirements of the Rule and an Estimate of the Classes of 
Small Entities That Will Be Subject to the Requirements?

    A new size standard does not impose any additional reporting, 
record keeping or compliance requirements on small entities. Increasing 
size standards expands access to SBA programs that assist small 
businesses, but does not impose a regulatory burden as they neither 
regulate nor control business behavior.

(4) What are the Relevant Federal Rules Which May Duplicate, Overlap or 
Conflict With the Proposed Rule?

    This proposed rule overlaps other Federal rules that use SBA's size 
standards to define a small business. Under section 632(a)(2)(C) of the 
Small Business Act, unless specifically authorized by statute, Federal 
agencies must use SBA's size standards to define a small business. In 
1995, SBA published in the Federal Register a list of statutory and 
regulatory size standards that identified the application of SBA's size 
standards as well as other size standards used by Federal agencies (60 
FR 57988-57991, dated November 24, 1995). SBA is not aware of any 
Federal rule that would duplicate or conflict with establishing size 
standards.
    SBA cannot estimate the impact of a size standard change on each 
and every Federal program that uses its size standards. In cases where 
an SBA's size standard is not appropriate, the Small Business Act and 
SBA's regulations allow Federal agencies to develop different size 
standards with the approval of the SBA Administrator (13 CFR 121.902). 
For purposes of a regulatory flexibility analysis, agencies must 
consult with SBA's Office of Advocacy when developing different size 
standards for their programs.

(5) What Alternatives Will Allow the Agency to Accomplish its 
Regulatory Objectives While Minimizing the Impact on Small Entities?

    SBA considered as an alternative size standard adopting the $6 
million anchor size standard to the Travel Agencies industry. As 
discussed in the description of SBA's size standards methodology, SBA 
applies the $6 million anchor size standard to the nonmanufacturing 
industries unless the industry's characteristics are significantly 
different from the typical nonmanufacturing industry. The analysis of 
the various industry factors show that the characteristics of Travel 
Agencies are significantly below those of the nonmanufacturing anchor 
group industries. Thus, a size standard below the anchor size standard 
is appropriate for this industry. As discussed, above, SBA believes the 
Travel Agencies characteristics support a size standard higher than the 
$1 million but lower than the nonmanufacturing size standard.
    For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch.35, 
the SBA has determined that this rule would not impose new reporting or 
record keeping requirements, other than those required of SBA. For 
purposes of Executive Order 13132, the SBA has determined that this 
rule does not have any federalism implications warranting the 
preparation of a Federalism Assessment. For purposes of Executive Order 
12988, the SBA has determined that this rule is drafted, to the extent 
practicable, in accordance with the standards set forth in that order.

List of Subjects in 13 CFR Part 121

    Administrative practice and procedure, Government procurement, 
Government property, Grant programs--business, Loan programs--business, 
Small businesses.

    For reasons set forth in the preamble, SBA proposes to amend part 
121 of title 13 of the Code of Federal Regulations as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

    1. The authority citation of part 121 continues to read as follows:

    Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a), 644(c) and 
662(5) and Sec. 304, Pub. L. 103-403, 108 Stat. 4175, 4188.

    2. In Sec. 121.201, the table ``Small Business Size Standards by 
NAICS Industry'', under the heading NAICS Subsector 561--Administrative 
and Support Services, revise the entry for 561510 to read as follows:


Sec. 121.201  What size standards has SBA identified by North American 
Industry Classification System codes?

* * * * *

             Small Business Size Standards by NAICS Industry
------------------------------------------------------------------------
                                                                 Size
                                                              standards
                                                              in number
           NAICS Codes             Description  (N.E.C.=Not       of
                                     Elsewhere Classified)    employees
                                                              or million
                                                              of dollars
------------------------------------------------------------------------
 
*                  *                  *                  *
                  *                  *                  *
           Subsector 561--Administrative and Support Services
 

[[Page 11888]]

 
*                  *                  *                  *
                  *                  *                  *
561510...........................  Travel Agencies.........      \10\ $3
 
*                  *                  *                  *
                  *                  *                  *
------------------------------------------------------------------------
Footnotes
*                  *                  *                  *
     *                  *                  *
10. NAICS codes 488510 (part), 531210, 541810, 561510 and 561920--As
  measured by total revenues, but excluding funds received in trust for
  an unaffiliated third party, such as bookings or sales subject to
  commissions. The commissions received are included as revenue.

* * * * *

    Dated: March 8, 2002.
Hector V. Barreto,
Administrator.
[FR Doc. 02-6195 Filed 3-14-02; 8:45 am]
BILLING CODE 8025-01-P