[Federal Register Volume 67, Number 58 (Tuesday, March 26, 2002)]
[Rules and Regulations]
[Pages 13714-13716]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-7152]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AE42


Small Business Size Regulations; Size Standards for Programs of 
Other Agencies

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: The Small Business Administration (SBA) is revising the 
procedural regulations that Federal agencies must follow to obtain 
approval of the SBA Administrator for establishing size standards for 
use in their programs. This revision will simplify SBA's regulations by 
requiring agencies to consult with SBA before proposing a size 
standard. It requires them to obtain the SBA Administrator's approval 
before publishing a final rule.

DATES: This rule is effective on April 25, 2002.

FOR FURTHER INFORMATION CONTACT: Carl Jordan, Office of Size Standards, 
at (202) 205-6618.

SUPPLEMENTARY INFORMATION:

Introduction

    The Small Business Act (sec. 3(a) & (b), 15 U.S.C. 632) (the Act) 
provides for the establishment of small business size standards. The 
Act authorizes the Administrator of SBA to ``specify detailed 
definitions or standards by which a business concern may be determined 
to be a small business concern for the purposes of this Act or any 
other Act'' (emphasis added). The Act gives the SBA Administrator 
exclusive authority to establish small business size standards for all 
Federal agencies, in the absence of other specific statutory authority. 
Unless a statute specifies size standards for an agency's program or 
gives an agency direct authority to establish size standards, the 
agency must use the applicable size standards established by SBA. 
However, the Act allows an agency to ``prescribe a size standard for 
categorizing a business concern as a small business concern'' (sec. 
3(a)(2)(C) of the Act) provided the contemplated size standard meets 
certain criteria and the agency obtains approval of the SBA 
Administrator.
    Currently, SBA's Small Business Size Regulations in 13 CFR 121.902 
describe procedures that agencies must follow before they prescribe 
size standards for their own use. These regulations require an agency, 
contemplating the use of size standards different from those 
established by SBA, to obtain the SBA Administrator's approval to do so 
before it proposes them for comment as part of its rulemaking process. 
If an agency believes that size standards different from those 
established by SBA are appropriate for its purposes, it must propose 
specific size standards, explain why it believes they are appropriate 
for their purposes and why SBA's size standards are not, and seek 
public comment on them. The proposed size standards must be specific 
and must meet the criteria set forth in the Act and SBA's regulations. 
Before an agency issues a final rule, it must notify SBA of the size 
standards it is adopting and provide SBA with copies of public comments 
received on the proposed size standards.

Reasons for the Change in the Regulation

    Based on its experience in evaluating agencies' requests for 
special size standards, SBA proposed revisions to its Small Business 
Size Regulations by modifying what information agencies need to provide 
to SBA and when formal approval is required (65 FR 4176, dated January 
26, 2000). SBA explained in the proposed rule that the purpose of the 
revision is to: (1) Streamline the rulemaking process; (2) eliminate a 
step in the approval process in cases where an agency contemplates 
adopting a size standard different from a proposed size standard 
approved by the SBA's Administrator; (3) give an agency SBA's advisory 
input before the agency issues its proposed size standard; and (4) 
allow SBA to consider in its decision-making process the requesting 
agency's proposed rule, its explanation and justification for the size 
standards it intends to adopt, copies of the public comments to the 
proposed size standards, and a draft copy of the agency's intended 
final rule.

Summary of New Procedures

    This final rule adopts the proposed changes of January 26, 2000. 
The comments received on the proposed rule generally supported the 
proposed revisions (see discussion of comments below). The adopted 
procedures establish a consultation requirement with SBA's Office of 
Size Standards before publishing a proposed rule and require agencies 
to obtain the SBA Administrator's formal approval before adopting the 
size standards in a final rule.
    Consultation with SBA's Office of Size Standards must be in writing 
and take place at least fourteen (14) calendar days before issuing the 
proposed rule. It must include what size standard the agency is 
proposing, to what program it will apply, how the agency arrived at the 
particular size standard, and why SBA's existing size standards do not 
satisfy the agency's program requirements. This consultation will allow 
SBA to review the proposed size standards and advise the agency as soon 
as practicable of issues that could prevent the SBA Administrator's 
approval, such as those in conflict with the Act or SBA Small Business 
Size Regulations. The agency will then have the opportunity to address 
those issues in either the proposed rule or final rule.
    Prior to publishing a final rule, the agency must request and 
obtain the SBA's Administrator's approval to establish its own size 
standard. The agency must provide SBA with copies of

[[Page 13715]]

public comments on the proposed rule; a justification for the intended 
size standards; a copy of the intended final rule; and any additional 
information the SBA may request as part of its review.
    These procedures are more practical for the agencies to follow than 
the current procedures in two ways. First, they only require the SBA 
Administrator's approval before the agency issues its final rule 
adopting the contemplated size standards, rather than before it 
proposes them. Agencies have found submitting formal requests during 
the formulation of the proposed rule difficult since size standard 
decisions are often made shortly before publication of the rule. 
Second, by consulting with SBA prior to publishing a proposed rule it 
makes SBA aware of an agency's proposal and gives it an opportunity to 
advise the agency if the contemplated size standards could not be 
approved. An agency will be able to consider SBA's comments before 
publishing a proposed rule, if possible, and well in advance of a final 
rule.

Summary and Discussion of Comments to the Proposed Rule

    SBA received six comments to its proposal. Four Federal agencies 
commented on the rule, one association, and one office within SBA. All, 
but one commenter, were supportive of the proposed changes to the 
current procedures. The comments raised several noteworthy issues. 
These issues are discussed below, and they lead to minor wording 
changes to the final rule.
    A comment from a United States Commission supported the proposed 
regulatory revision. The Commission stated that such a change would 
help conserve the resources of SBA as well as those of agencies that 
seek approval for special size standards under this regulation. SBA can 
then focus on the comments the agency receives to its proposed size 
standards, rather than on the agency's pre-comment estimates of their 
appropriateness for the stated purpose. The Commission further 
commented that the requirement for consultation at least 14 days prior 
to publishing the proposed size standards should cause no undue burden 
on agencies in complying with this regulation.
    The Commission also commented that the requirement in the proposed 
Sec. 121.903(a)(6), that the requesting agency certify its compliance 
with the Small Business Act, is unnecessary. We agree with the 
Commission's observation, and we have not included that requirement in 
the final rule. As part of SBA's review, it will ensure that an 
agency's size standard complies with the Small Business Act.
    The Commission also suggested reversing the order of 
Sec. 121.903(a)(5) and Sec. 121.903(a)(6). These sections discuss the 
requirement to obtain the SBA Administrator's approval and what 
information an agency must submit. SBA recognizes that these sections 
are closely related and can be considered as one. Therefore, SBA has 
combined the requirements of the proposed Sec. 121.903(a)(6) with 
Sec. 121.903(a)(5).
    A Federal agency opposed the proposed regulatory change for three 
reasons. First, it claimed that the change will not reduce the 
regulatory burden on agencies, and for some it may be more burdensome. 
The agency stated that the proposed revision requires more information 
than the existing regulation. We disagree. The new procedures 
essentially ask for the same information that we require under the 
existing regulation. The only difference is in the timing of the 
submission. In fact, based on past experience, we strongly believe that 
the existing regulation, if we do not revise it, is more burdensome on 
an agency than these revisions. The current regulation requires SBA to 
review the submitted information without the benefit of the public 
comments on the proposed size standard. The new procedures require only 
that the agency consult with SBA before it proposes the size standards, 
and provide SBA minimal information at that time. The agency does not 
have to obtain SBA approval to propose size standards. Documentation to 
support an agency's request for alternative size standards would be 
more comprehensive and logically related if the agency submits it to 
SBA after it has had the benefit of public comments on its proposal.
    Second, the objecting agency requested that SBA clarify whether 
``consultation'' associated with a Regulatory Flexibility Analysis in 
Sec. 121.903(c) is an ``informal'' consultation or a formal 
consultation as described in the proposed Sec. 121.903(a)(2). Section 
121.903(c) refers only to the use of size standards for performing a 
Regulatory Flexibility Analysis (RFA). Under section 601(3) of the 
Regulatory Flexibility Act, an agency must use SBA's size standards for 
an RFA, or after consultation with the SBA's Office of Advocacy and 
after an opportunity for public comment, it may use different size 
standards. The procedures of Sec. 121.903(a) do not apply to 
alternative size standards established for RFA purposes.
    Third, the agency recommended that the final rule require SBA 
action within a reasonable time. The agency pointed out that the 
proposed rule contained no timeframe within which SBA must respond, and 
expressed concern that SBA could ``prevent indefinitely an agency from 
issuing a final rule.'' Another agency also raised this point and 
recommended a 21-day period for SBA to review a final rule. Under this 
final rule, an agency requests approval for alternate size standards 
only after it has gone through the proposal and comment stage at least 
once. SBA cannot anticipate how much time an agency will allow between 
the time it requests approval and when it intends to publish its final 
rule. Further, SBA cannot know the nature or the extent of the comments 
the agency will receive, or how long it may take for SBA and the agency 
to resolve any outstanding issues. With these unknowns, we cannot 
specify in a rule how long SBA will take to respond to the agency's 
request. Furthermore, not approving an agency's request within a stated 
time cannot bestow de facto approval by SBA, because the Act 
specifically requires the Administrator's approval before an agency can 
prescribe its own size standards. It goes without saying that SBA 
remains committed to giving priority to agency requests for approval 
for alternative size standards and will strive to complete its review 
within 30 days, if practicable, and will work with an agency to resolve 
issues that may prevent timely approval of size standards.
    An office within SBA concurred in the proposed changes. The office 
noted that in the proposed Sec. 121.903(a)(1)(ii) that SBA referred to 
``gross'' receipts as the size standard measure for services concerns. 
The office expressed concern that this might confuse the meaning of 13 
CFR 121.104, ``How Does SBA Calculate Receipts,'' which does not use 
the term ``gross,'' except ``in the case of a sole proprietorship'' 
(Sec. 121.121.104a(a)(1)). We agree, and have removed ``gross'' from 
the final version of Sec. 121.903(a)(1)(ii).

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

    The Office of Management and Budget reviewed this rule as a 
``significant'' regulatory action under Executive Order 12866.
    For purposes of the Regulatory Flexibility Act, SBA has determined 
that this rule does not have a significant economic effect on a 
substantial number of small entities. SBA has made this determination 
for the following reasons: (1) The change is procedural, not

[[Page 13716]]

substantive, in nature; (2) the change applies to Federal agencies 
only; and (3) the change applies only when a Federal agency 
contemplates categorizing an entity as a small business concern for its 
programs using standards other than those established by SBA. SBA has 
also made this determination based on the nature, number and complexity 
of requests from Federal agencies that have made such requests. SBA 
believes that this amendment will not increase the nature, number or 
frequency of these requests.
    For purposes of Executive Order 12988, SBA has determined that this 
rule is drafted, to the extent possible under standards in section 3 of 
the Order.
    For purposes of Executive Order 13132, SBA has determined that this 
rule does not have any federalism implications warranting the 
preparation of a Federalism Assessment.
    For purposes of the Paperwork Reduction Act, 44, U.S.C. Ch. 35, SBA 
has determined that this rule does not impose any new reporting or 
recordkeeping requirements.

List of Subjects in 13 CFR Part 121

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


    For reasons stated in the preamble, SBA is amending 13 CFR part 121 
as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

    1. The authority citation for 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. Section 121.902 is revised to read as follows:


Sec. 121.902  What size standards are applicable to programs of other 
agencies?

    SBA size standards. The size standards for compliance with programs 
of other agencies are those for SBA programs which are most comparable 
to the programs of such other agencies, unless the agency and SBA agree 
otherwise.

    3. Section 121.903 is revised to read as follows:


Sec. 121.903  How may an agency use size standards for its programs 
that are different than those established by SBA?

    (a) Federal agencies or departments promulgating regulations 
relating to small businesses usually use SBA size criteria. In limited 
circumstances, if they decide the SBA size standard is not suitable for 
their programs, then agency heads may establish a more appropriate 
small business definition for the exclusive use in such programs, but 
only when:
    (1) The size standard will determine:
    (i) The size of a manufacturing concern by its average number of 
employees based on the preceding twelve calendar months, determined 
according to Sec. 121.106;
    (ii) The size of a services concern by its average annual receipts 
over a period of at least three years, determined according to 
Sec. 121.104;
    (iii) The size of other concerns on data over a period of at least 
three years; or,
    (iv) Other factors approved by SBA;
    (2) The agency has consulted in writing with SBA's Assistant 
Administrator for Size Standards at least fourteen (14) calendar days 
before publishing the proposed rule which is part of the rulemaking 
process. The written consultation will include:
    (i) What size standard the agency contemplates using;
    (ii) To what agency program it will apply;
    (iii) How the agency arrived at this particular size standard for 
this program; and,
    (iv) Why SBA's existing size standards do not satisfy the program 
requirements;
    (3) The agency proposes the size standard for public comment 
pursuant to the Administrative Procedure Act, 5 U.S.C. 553;
    (4) The agency provides a copy of the proposed rule, when it 
publishes it for public comment as part of the rulemaking process, to 
SBA's Assistant Administrator for Size Standards; and
    (5) SBA's Administrator approves the size standard before the 
agency adopts a final rule or otherwise prescribes the size standard 
for its use. The agency's request for the SBA Administrator's approval 
must include:
    (i) Copies of all comments on the proposed size standard received 
in response to the proposed rule;
    (ii) A separate written justification for the intended size 
standard;
    (iii) A copy of the intended final rule if available at that time, 
or a copy of the intended final rule and preamble prior to its 
publication; and
    (iv) Other information SBA may request in connection with the 
request.
    (b) When approving any size standard established pursuant to this 
section, SBA's Administrator will ensure that the size standard varies 
from industry to industry to the extent necessary to reflect the 
differing characteristics of the various industries, and consider other 
relevant factors.
    (c) Where the agency head is developing a size standard for the 
sole purpose of performing a Regulatory Flexibility Analysis pursuant 
to section 601(3) of the Regulatory Flexibility Act, the department or 
agency may, after consultation with the SBA Office of Advocacy, 
establish a size standard different from SBA's which is more 
appropriate for such analysis.

    4. Section 121.904 is added to read as follows:


Sec. 121.904  When does SBA determine the size status of a business 
concern?

    For compliance with programs of other agencies, SBA will base its 
size determination on the size of the concern as of the date set forth 
in the request of the other agency.

    Dated: October 16, 2001.
Hector V. Barreto,
Administrator.
[FR Doc. 02-7152 Filed 3-25-02; 8:45 am]
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