[Federal Register Volume 67, Number 139 (Friday, July 19, 2002)]
[Proposed Rules]
[Pages 47480-47488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18112]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AE89


Small Business Size Standards; Forest Fire Suppression and Fuels 
Management Services

AGENCY: U. S. Small Business Administration (SBA).

ACTION: Proposed rule.

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SUMMARY: The Small Business Administration (SBA) proposes to establish 
a $15 million size standard for the Forest Fire Suppression and Fuels

[[Page 47481]]

Management activities classified within the ``Support Activities for 
Forestry'' industry (North American Industry Classification System 
(NAICS) 115310). The current size standard is $6 million. This action 
is warranted in light of increased emphasis by the Federal Government 
on removing biomass fuel from the nation's forests, the dramatic 
increase in funding for this effort, and the Government's growing 
reliance upon the private sector to perform fuels management tasks and 
to suppress forest fires.

DATES: Comments must be received on or before August 19, 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 E-mail to SIZESTANDARDS@sba.gov. Upon request, SBA will 
make all public comments available.

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

SUPPLEMENTARY INFORMATION: SBA has received requests from firms in the 
Forestry industry to either increase the $6 million size standard for 
the Support Activities for Forestry industry, or create a separate size 
standard under this industry for Forest Fire Suppression and Fuels 
Management Services. [Effective February 22, 2002, the size standard 
for NAICS 115310 increased from $5 million to $6 million as part of an 
inflation adjustment to SBA's monetary size standards (see 67 FR 3041, 
dated January 23, 2002)]. These firms believe that this action is 
warranted in light of increased emphasis by the Federal Government on 
removing biomass fuels from the nation's forests, the dramatic increase 
in funding for this effort, and the Government's growing reliance upon 
the private sector to perform fuels management tasks and to suppress 
forest fires. Funding for these requirements increased from $500 
million in fiscal year 1999 to $1.9 billion in fiscal year 2001. For 
fiscal year 2002, the funding level is proposed to increase to $2.2 
billion. To meet the various fire suppression and fuels management 
requirements issued by the United States Forest Service (USFS) and 
Bureau of Land Management (BLM), firms need to invest in new capital 
equipment, such as fire engines, helicopters, brush cutters, and 
yarders. In addition, the massive buildup of biomass fuels in the 
forest and severe droughts in the Southeastern and Western sections of 
the United States have resulted in devastating wildfires in these 
areas. USFS and BLM now rely heavily on contractors for fighting these 
fires. In fact, these agencies plan on expanding their use of private 
sector contractors by increasing their contract requirements and by 
moving toward a nationwide approach, especially in the area of fire 
suppression. These agencies require contractors to provide specialized 
long-term (five to seven years) certifiable training to fire-crew 
chiefs and to crews, as well as to obtain USFS certification for fire-
fighting equipment. In addition, because the contractors have fire-
fighting crews and equipment meeting USFS certification standards, USFS 
and BLM have begun to include ``prescribed burn'' services in their 
fuels management requirements. These factors caused company revenues to 
dramatically increase over the last three years to the point where many 
businesses involved in these activities exceed or may soon exceed the 
current $6 million size standard, causing the pool of eligible small 
businesses in this activity to seriously decline. If this continues, 
these firms argue, Federal agencies could be hampered in using 
Government procurement preference programs for small business. One 
organization representing this industry recommends a 500-employee size 
standard. It claims that an employee-based size standard would allow 
firms ``to better manage their resources and plan for capital 
expansion.'' It also states that the Logging industry, a related 
industry, currently has an employee-based size standard and the two 
industries should have the same size standard. This organization also 
recommends, as an alternative, a $27.5 million size standard. To 
support this recommended size standard, it estimates the amount of 
revenues generated by a firm that provides 20 fire crews (a crew 
consists of 20 people) for 90 days for forest fire suppression 
services. Revenues from that effort alone could amount to $10.8 
million.
    In recent years USFS and BLM have come to rely heavily on the 
private sector in the forestry industry to suppress forest fires and 
perform fuels management duties. As a result, the firms in the forest 
industry choosing to go into this industry need to invest in capital 
equipment and develop professional fire crews and fire chiefs 
certifiable by USFS. Since firms in this emerging industry utilize 
significantly more capital equipment and specially-trained personnel 
than for other forestry activities, SBA is proposing a size standard 
for Forest Fire Suppression and Fuels Management that is separate from 
other forestry activities.
    Because Forest Fire Suppression and Fuels Management activities 
generated significant private sector activity only recently, the U. S. 
Bureau of the Census has not published specific information on firms 
engaged in these activities. Also, currently available Census Bureau 
data on the Support Activities for Forestry industry do not capture the 
significant increases in Forest Fire Suppression and Fuels Management 
activities. For example, contract awards in these activities to firms 
in the state of Oregon alone, increased from $29 million in fiscal year 
1998 to $173 million in fiscal year 2000. Consequently, SBA cannot rely 
on the Census Bureau data to assess the size standard for the Support 
Activities for Forestry industry or for Forest Fire Suppression and 
Fuels Management. SBA conducted an extensive review of the Support 
Activities for Forestry industry and several other closely related 
forestry industries and concluded that the Census Bureau data could not 
support a change to the current $6 million size standard. Therefore, 
SBA collected data from firms in the industry and from USFS and BLM to 
assess the size standard for Forest Fire Suppression and Fuels 
Management. The information consisted of Federal funding for Federal, 
state, and local communities' initiatives, procurement statistics and 
procurement forecasts, company revenues and employees, and capital 
investments. If this rule is adopted, SBA will monitor U. S. Bureau of 
the Census data, as well as Federal procurement and other industry data 
to continue to assess the impact that this increased funding is having 
on the structure of small businesses in these activities.
    Since Forest Fire Suppression and Fuels Management is a segment of 
the Support Activities for Forestry industry, SBA is adding a footnote 
to the table of size standards defining the activities covered. It 
explains that firms in this industry provide services to fight forest 
fires and that these firms usually have fire-fighting crews and 
equipment. It also includes firms that provide services to clear land 
of hazardous materials that fuel forest fires and that the treatments 
used include prescribed fire, mechanical removal, establishing fuel 
breaks, thinning, pruning, and piling. SBA invites comment on this 
definition so that it is inclusive of all activities currently 
performed in these areas.
    Size Standards Methodology: Congress granted SBA discretion to 
establish detailed size standards. SBA's Standard Operating Procedure 
(SOP) 90 01 3, ``Size Determination Program'' (available on SBA's web 
site at http:/

[[Page 47482]]

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, including the impact on other agencies' 
programs, 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, 15 U.S.C. 632 (a)(3), 
requires that size standards vary by industry to the extent necessary 
to reflect differing industry characteristic. 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 was 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 the ``typical industry.''
    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 examines the 
possible impact of a size standard revision on SBA's programs as an 
evaluation factor. 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 is 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, SBA is comparing the size of firms within an industry to the 
size of firms in the comparison group at which predetermined 
percentages of receipts are generated by firms smaller than a 
particular size firm. For example, assume for the industry under review 
that 50 percent of total industry receipts are generated by firms of 
$7.5 million in receipts and less 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 percent of total industry receipts. Viewed in 
isolation, this higher figure of the industry under review suggests 
that a size standard higher than the nonmanufacturing anchor size 
standard may be warranted. Other size distribution comparisons in the 
industry analysis include 40 percent, 60 percent, and 70 percent, as 
well as the 50 percent comparison discussed above. Usually, SBA uses 
information based on the most recent economic census conducted by the 
Department of Commerce's Bureau of the Census. In this particular case, 
the change in Federal policy, the massive infusion of Federal monies, 
and the increased reliance upon the private sector for these services 
occurred since 1997, the date of the last economic census. This 
information, along with information specific to Forest Fire Suppression 
and Fuels Management segment under NAICS Code 115310 is not reflected 
in the latest census data. Therefore, SBA gathered the pertinent data 
from the various firms in this industry, which it will use along with 
the Census data.
    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 one industry 
have greater financial requirements than firms do in other industries, 
SBA is justified in considering a higher size standard. In lieu of 
direct data on start-up costs, SBA uses a proxy measure to assess the 
financial burden for entry-level firms. SBA uses 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

[[Page 47483]]

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 a 
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 compares 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 to 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 percent for an industry under review, while its comparison 
groups also average less than 40 percent.
    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 is 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 Size Standard for the Forest Fire Suppression and 
Fuels Management and Sub-Industry: The U.S. Bureau of the Census has 
not published specific data on firms engaged in Forest Fire Suppression 
and Fuels Management since these activities have historically been a 
small segment of the Support Activities for Forestry industry. 
Consequently, the analysis of data collected on businesses engaged in 
Forest Fire Suppression and Fuels Management cannot be fully evaluated 
in terms of the methodology described above.
    To assess a size standard for Forest Fire Suppression and Fuels 
Management, SBA collected data from firms in the northwestern part of 
the United States. Changes in contracting for these forestry services 
are impacting the entire industry, especially in the northwestern part 
of the country. Because the Government owns a vast proportion of the 
lands in the northwest, and because of the increased emphasis on Forest 
Fire Suppression and Fuels Management on Federal lands, the problem of 
small businesses rapidly outgrowing the size standard arose in these 
states. This issue is not limited to the Northwest, as the Federal 
Government has begun expanding it emphasis on contracting for these 
services to the remainder of the country. USFS and BLM expect similar 
situations to develop nationwide where small businesses may rapidly 
outgrow the current size standard.
    The issue of increased contracting began in the northwestern part 
of the country. Although these firms represent a limited segment of the 
industry, the Federal Government currently expends a large proportion 
its forestry contract dollars in this part of the country. In fiscal 
year 2000, 41 percent of award dollars for Support Activities for 
Forestry were awarded to firms in the state of Oregon. SBA believes 
that the firms in the northwest represent the types of firms that will 
engage in Fuels Management and Fire Suppression throughout the country 
as USFS and BLM expand their contracting for these activities to other 
parts of the country.
    SBA obtained size data on 15 firms. The average firm performing 
Forest Fire Suppression and Fuels Management have yearly revenues of $6 
million and 164 employees. These levels are significantly greater than 
the $950,000 average revenue size and 11 employee average size of the 
nonmanufacturing anchor group. These data, although limited, indicate 
that firms engaged in these activities tend to be greater in size than 
the typical nonmanufacturing industry and a size standard well above $6 
million is supportable.
    In addition, SBA found that start up costs for Forest Fire 
Suppression and Fuels Management firms are much higher than those in 
the nonmanufacturing anchor group. These firms must invest in a variety 
of equipment, purchase specialized tools and safety gear, and provide 
specialized training to forest firefighters. The capital equipment 
includes yarders, earth moving equipment, custom fire trucks, 
helicopters, and communication equipment and mobile units. Fire hoses, 
fire-retardant clothing for their crews, and other fire-fighting 
equipment usually last no more than 18 months and often must be 
replaced two or three times a year, depending on the intensity of the 
fire season. Furthermore, each year at the start of the fire season and 
again at the time of a forest fire these firms must meet USFS 
certification requirement for their equipment and fire crews. Because 
of the dangers and risks associated with fighting forest fires and 
performing prescribed burns, these firms also incur higher insurance 
costs than firms in the nonmanufacturing anchor group. These equipment 
costs, training costs, and certification requirements influence the 
size of firms that engage in Fire Suppression and Fuels Management 
activities and support a size standard much higher than $6 million.
    Federal procurement trends also support an increase to the current 
size standard and the creation of a specific size standard for Forest 
Fire Suppression and Fuels Management. Most Federal procurement actions 
reported in the Support Activities for Forestry industry are for Forest 
Fire Suppression and Fuels Management. Award dollars to small 
businesses in these industries have decreased 20 percent from fiscal 
year 1998 to fiscal year 2000. In addition, awards to small businesses 
in the Forest Fire Suppression and Fuels Management industry have 
decreased from 89 percent in fiscal year 1998 to approximately 50 
percent in fiscal year

[[Page 47484]]

2000. As mentioned above, Federal funding in this area has drastically 
increased from $500 million in fiscal year 1999 to $1.9 billion in 
fiscal year 2001. For fiscal year 2002, funding is expected to top $2.2 
billion. The rapid drop in small business awards has alarmed Federal 
agencies.
    BLM and the USFS are extremely concerned that the increased Federal 
emphasis on forest management with its massive monetary infusion into 
their agencies, plus their growing reliance on private industry, caused 
many small businesses to outgrow the current size standard of $6 
million. These two Federal agencies do not have the personnel to meet 
the increasing requirements placed upon them. They have begun to rely 
on the private sector and have increased the amount of contracting for 
all forestry activities, mostly for Fire Suppression and Fuels 
Management. Historically, the contractors that performed on these 
contracts have been small businesses. As these small business 
contractors take on significant amounts of new work over a relatively 
short period of time, several contractors exceeded the $6 million size 
standard and more will likely exceed the size standard over the next 
two years.
    In addition, these Federal agencies, along with several firms, 
expressed concern over the fact that the Forest Fire Suppression and 
Fuels Management industry is relatively small (200 to 300 firms), 
unique, and most of this industry's revenues are derived from Federal 
contracts. Firms in the northwestern part of the United States point 
out that the Federal Government owns most of the land in the western 
part of the country, and that USFS and BLM manage this land. For most 
of these firms, their industry's economic viability relies heavily upon 
the actions of the Federal Government.
    These circumstances strongly reinforce the industry structure 
factors in arguing for a separate size standard for Forest Fire 
Suppression and Fuels Management for a higher size standard higher than 
$6 million.
    The considerations described above support a higher size standard 
for Fuels Management and Fire Suppression but do not provide sufficient 
information to indicate what range of size standards would be 
appropriate for these activities. Therefore, SBA decided to select a 
size standard for Forest Fire Suppression and Fuels Management that is 
similar to the size standard for industries that perform similar 
activities with equipment used in Forest Fires Suppression and Fuels 
Management.
    SBA recognizes that firms performing Forest Fire Suppression and 
Fuels Management activities have higher capital costs because of the 
equipment and personnel training investments. In many ways, they are 
similar to firms in the construction industry, i.e., firms in NAICS 
Subsector 234, Heavy Construction, having a $28.5 million size 
standard, and firms under NAICS 235930, Excavation Contractors, having 
a $12 million size standard. Firms in these industries have large 
investments in capital equipment like firms in Forest Fire Suppression 
and Fuels Management. SBA believes that adopting a $12 million size 
standard similar to that of Excavation Contractors is too low because 
of the additional mandated training investments for fire crews and fire 
crew chiefs. However, the $28.5 million size standard is extremely high 
for Forest Fire Suppression and Fuels Management, as it would make 
nearly all firms in this industry small. Given the uncertainty of 
industry data provided and the fact that firms performing Forest Fire 
Suppression and Fuels Management have rapidly increasing revenues that 
exceed or will soon exceed $12 million, SBA is proposing a $15 million 
size standard. This size standard is about one-half the Heavy 
Construction size standard, but sufficiently above the Excavation 
Contractor's size standard to account for additional training and 
certification costs to businesses engaged in Forest Fire Suppression 
and Fuels Management.
    SBA recognizes how this industry is developing. The structure of 
this industry is Federally dependent and the increased Government 
contracting for these services has caused rapid growth in these firms. 
Therefore, SBA considers that at the proposed $15.0 million size 
standard firms will be able to grow to an appropriate level without 
losing their small business status, but not to a level where a few 
firms would be able to control a significant portion of Federal 
contracts at the expense of other small businesses.
    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 controlling influence on a national basis in 
which significant numbers of business concerns are engaged.
    The SBA has determined that no firm below the proposed size 
standard in the Forest Fire Suppression and Fuels Management Activities 
would be of a sufficient size to dominate its field of operation. For 
Forest Fire Suppression and Fuels Management Services, a firm with a 
$15 million size standard would generate approximately 2 percent of 
receipts based on fiscal year 2000 funding levels. These levels of 
market share effectively preclude any ability for a firm at or below 
the proposed size standards to exert a controlling effect on these 
industries.
    Alternative Size Standards: SBA considered several alternative size 
standards. One of the Fuels Management industry groups recommends a 
$27.5 million size standard for Forest Fire Suppression and Fuels 
Management. The $27.5 million size standard equates to the previous 
size standard for the General Construction and Heavy Construction 
subsectors. [Effective February 22, 2002, the $27.5 size standard 
increased to $28.5 million as part of an inflation adjustment to SBA's 
monetary size standards (see 67 FR 3041, dated January 23, 2002)]. 
Firms in these subsectors usually have major capital equipment 
investments, similar to those in the Fire Suppression and Fuels 
Management industry. Firms involved in the General and Heavy 
Construction subsectors are primarily responsible for an entire 
construction project. These construction projects tend to be large in 
dollar value and, because of the nature of construction industry, lend 
themselves to a substantial amount of subcontracting. The regulation at 
13 CFR 125.6, as implemented under the Federal Acquisition Regulations, 
52-219-14, Limitation in Subcontracting Clause, qualifying small firms 
are permitted to subcontract out up to 85 percent of the cost of the 
contract. Unlike these types of construction firms, companies involved 
in Fire Suppression and Fuels Management must perform greater than 50 
percent of the contract costs with its own employees. These types of 
contracts do not lend themselves to much subcontracting and normally 
have a lower dollar award threshold than general construction awards. 
In addition, by adopting a $27.5 million size standard, SBA would be 
making all but approximately 20 firms in the entire Support Activities 
for Forestry industry small. Therefore, SBA decided that a $27.5 
million size

[[Page 47485]]

standard was too high for Fire Suppression and Fuels Management.
    Like firms in Fire Suppression and Fuels Management, Excavation 
Contractors, which have an $12 million size standard, are engaged in 
clearing land and making substantial investments in capital equipment. 
However, firms involved in Fire Suppression and Fuels Management also 
have the added costs of intensive training and certification for crew 
chiefs and crews, and certification costs for their equipment at the 
time of contract award and at the time of each fire. Because of these 
training and certification costs, SBA decided that a $12 million size 
standard was too low.
    The Fuels Management group also recommends the 500-employee Logging 
industry size standard for Forest Fire Suppression and Fuels 
Management. SBA did not accept this recommendation for two reasons. 
First, businesses engaged in Forest Fire and Fuels Management are not 
primarily logging firms. A search of logging firms registered in SBA's 
PRO-Net data base lists only 25 businesses out of 126 that are involved 
in Forest Fire Suppression or Fuels Management Services. Of these 25, 
none had more than 100 employees. Second, almost all firms engaged in 
Forest Fires Suppression and Fuels Management employ much fewer than 
500 employees. SBA's PRO-Net data base lists only 7 businesses that has 
more than 100 employees engaged in Forest Fire Suppression and Fuels 
Management Services. SBA is concerned that a 500-employee size standard 
may have the effect of allowing a few firms to grow into well-
established mid-sized firms at the expense of much smaller firms.
    SBA welcomes public comments on its proposed size standard for the 
Forest Fire Suppression and Fuels Management industry. SBA is concerned 
with how the proposed size standards may negatively impact those 
qualified under the current size standards. Comments supporting an 
alternative to the proposal, including the option of retaining the size 
standards at $6 million, $27.5 million or 500-employees size standards 
discussed above, should explain why the alternative would be preferable 
to the proposed size standard, and how the alternative impacts current 
small businesses.

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. For the purpose of the 
Paperwork Reduction Act, 44 U.S.C. Ch.35, 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, 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, SBA has determined that this rule is 
drafted, to the extent practicable, in accordance with the standards 
set forth in that order. Our Regulatory Impact Analysis follows.

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 
size standard for Forest Fire Suppression and Fuels Management is 
needed to better define small businesses engaged in these activities.

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, approximately 50 to 60 
additional firms will 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, and small businesses located in 
Historically Underutilized Business Zones (HUBZone), as well as those 
for contracts awarded through full and open competition after 
application of the HUBZone or small disadvantaged business price 
evaluation preference or 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 sufficient to evaluate 
the impact of size standards changes. 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 accrue to three groups: (1) Businesses that benefit by 
gaining small business status from the proposed size standards and use 
small business assistance programs, (2) 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, and (3) 
Federal agencies that award contracts under procurement programs that 
require small business status.
    Newly defined small businesses would benefit from SBA's financial 
programs, in particular its 7(a) Guaranteed Loan Program. Under this 
program SBA estimates that $100,000 in new Federal loan guarantees 
could be made to the newly defined small businesses. 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 to 
include 50 to 60 additional businesses will likely result in only one 
or two small business guaranteed loans to businesses in this industry.
    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.
    Awards to small businesses for Forest Fire Suppression and Fuels 
Management have decreased 27 percent over the last three fiscal years. 
Small business award dollars to firms in the Forestry Services 
Activities, most of which were for Forest Fire Suppression and Fuels 
Management, amounted to

[[Page 47486]]

$185 million. If this rule becomes final, small business status would 
be restored to several firms that have lost small business status 
because of the rapid growth in federal funding and contracting in this 
industry. SBA estimates that firms gaining small business status could 
potentially obtain Federal contracts worth $50 million per year ($185 
million  x  27 percent) under the small business set-aside program, the 
8(a) and HUBZone Programs, or unrestricted contracts.
    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 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, thus creating greater opportunities for 
all small businesses. Other than small 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 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 approximately 50 to 60 additional firms could 
become active in Government programs, this may entail some additional 
administrative costs to the Federal Government associated with 
additional bidders for Federal small business 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 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 as a result of this rule. With greater numbers 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. However, the additional costs associated with fewer bidders 
are likely to be minor since, as a matter of policy, procurements may 
be set aside for small businesses or under the 8(a), and 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 losses 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 HUBZone or 
small disadvantaged businesses instead of large businesses since those 
two categories of small businesses are eligible for price evaluation 
preferences 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 potential transfer of contracts 
away from large and currently defined small businesses would be limited 
by the number of newly defined and expanding small businesses that were 
willing and able to sell to the Federal Government. The potential 
distributional impacts of these transfers cannot 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 standard Forest Fire Suppression and 
Fuels Management 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 engaged in 
Forest Fire Suppression and Fuels Management Services. As described in 
the above Regulatory Impact Analysis, this rule may impact small 
entities in two ways. First, small businesses engaged in Forest Fire 
Suppression and Fuels Management competing for Federal Government 
procurements reserved for small business, and small disadvantaged 
businesses and HUBZone businesses eligible for price preferences, may 
face greater competition from newly eligible small businesses. Second, 
additional Federal procurements for Forest Fire Suppression and Fuels 
Management services may be set aside for small business as the pool of 
eligible small businesses expands. As discussed in the preamble, SBA 
estimates that firms gaining small business status could potentially 
obtain Federal contracts worth $50 million.
    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 
USFS and BLM regarding a possible increase to the Forest Fire 
Suppression and Fuels Management 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 (13 CFR 121.902(b)(4)).
    Immediately below, SBA sets forth an initial regulatory flexibility 
analysis (IRFA) of this proposed rule on the Forest Fire Suppression 
and Fuels Management Services industry 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

[[Page 47487]]

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?

    A separate size standard for the Forest Fire Suppression and Fuels 
Management industry more appropriately defines the size of businesses 
in this industry activity that SBA believes should be eligible for 
Federal small business assistance programs. The significant increase in 
Federal funding and the Federal Government's increased use of 
contractors to perform these services have caused small businesses to 
grow beyond the current size standard. Other small businesses are 
likely to outgrow the current size standard within the next two years. 
A review of the latest available industry data and information on 
recent trends in the Forestry industry provided by businesses and 
associations in the Forestry industries, USFS, and BLM indicate that 
these growing businesses are relatively small and should continue to be 
eligible for small business programs. SBA welcomes additional data and 
information on the Forest Fire Suppression and Fuels Management 
Services industry that may be useful in assessing the size standard and 
the impact of the proposed size standard on small businesses.

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

    SBA estimates that 200 to 300 businesses are engaged in Forest Fire 
Suppression and Fuels Management activities. These businesses come from 
the Forestry and Logging Subsector, and Support Activities for Forestry 
(NAICS codes 113110, 113210, 113310, and 115310). As this is an 
emerging industry, SBA developed its estimate from discussions with, 
and information provided by the USFS, BLM, and industry groups. From 
these discussions, SBA estimates approximately 50% of these firms are 
small businesses, many of which may be currently at or just below the 
$6.0 million threshold. If this rule were adopted, 50 to 60 additional 
businesses would be considered small as a result of this rule. Although 
this may not represent a substantial number of small businesses, SBA is 
preparing an IRFA to ensure that the impact on small businesses of 
higher size standards are known and being considered. These businesses 
would be eligible to seek available SBA assistance provided that they 
meet other program requirements.
    Based on the relative size of these firms and SBA's knowledge of 
contracting in these areas, SBA estimates that small business coverage 
could increase by 12 percent of total revenues in this activity. These 
revenue estimates were calculated from the size distributions of the 
parent industries in which Forest Fire Suppression and Fuels Management 
service firms are presently classified.
    In lieu of survey data on Forest Fire Suppression and Fuels 
Management businesses, SBA welcomes additional data and comments on the 
impact of the proposed size standard on small businesses in this sub-
industry.

(3) What Are the Projected Reporting, Recordkeeping, 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.

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

    As discussed in the preamble, SBA considered several alternative 
size standards and their implications on small businesses. First, SBA 
considered retaining a single size standard for the Support Activities 
for the Forestry industry. In researching firms engaged in Forest Fire 
Suppression and Fuels Management Services, SBA concluded that no single 
size standard could adequately define small business in the whole 
industry. The size standard would be either too low for Forest Fire 
Suppression and Fuels Management Services or too high for other 
industry activities, such as forestry consulting, timber valuation, and 
timber pest control. Establishing two size standards for this industry 
would enable SBA to determine the most appropriate size standard for 
disparate segments of the industry.
    SBA considered maintaining the $6 million size standard for Forest 
Fire Suppression and Fuels Management, however as discussed in the 
preamble, circumstances strongly reinforce the industry structure 
factors in arguing for a size standard higher than $6 million.
    For the Forest Fire Suppression and Fuels Management sub-industry, 
SBA assessed the higher size standards of $27.5 million and 500 
employees, as requested by several organizations. Both size standards 
were viewed as too high for these activities and the types of firms 
performing Forest Fire Suppression and Fuels Management services. 
Almost all firms currently providing these services to USFS and BLM are 
significantly smaller than $27.5 million and 500 employees. Adopting 
size standards at either of these levels may result in Federal 
contracting being concentrated among a few firms, and therefore, 
diminish opportunities for currently defined small businesses.
    SBA also considered establishing a $12 million size standard for 
this sub-industry, and believed that adopting this size standard, 
similar to that of Excavation Contractors, is too low because of the 
additional mandated training investments for fire crews and fire crew 
chiefs. SBA found that firms performing Forest Fire Suppression and 
Fuels Management services have rapidly increasing revenues due to these 
requirements that in many cases will soon force them to exceed the $12 
million size standard.
    By establishing the size standard at $15 million, SBA will minimize 
the impact on the small businesses in this emerging industry. Increased 
Federal funding and requirements have caused many firms to outgrow the 
$6 million size standard, thus reducing small business competition for 
these services. On the other hand, if SBA established the size standard 
at $28.5 million or 500 employees, almost all firms in this sub-
industry would be considered small businesses.

[[Page 47488]]

    SBA welcomes comments on other alternatives that minimize the 
impact of this rule on small businesses and achieve the objectives of 
this rule. Those comments should describe the alternative and explain 
why it is preferable to the proposed rule.

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 the 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--[AMENDED]

    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, amend the table ``Small Business Size Standards 
by NAICS Industry'' as follows:
    a. In the middle column, revise the heading ``Description 
(N.E.C.=Not Elsewhere Classified)'' to read ``NAICS industry 
descriptions'';
    b. Under the heading ``Subsector 115--Support Activities for 
Agriculture and Forestry,'' revise the entry for 115310; and
    c. Add footnote 16 to the end of the table.
    The revisions and additions 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 of
               NAICS codes                            NAICS industry descriptions                 employees or
                                                                                                   million of
                                                                                                    dollars
----------------------------------------------------------------------------------------------------------------
 
*                  *                  *                  *                  *                  *
                                                        *
                         Subsector 115--Support Activities for Agriculture and Forestry
 
*                  *                  *                  *                  *                  *
                                                        *
115310..................................  Support Activities for Forestry....................               $6.0
EXCEPT..................................  Forest Fire Suppression and Fuels Management \16\..               15.0
 
*                  *                  *                  *                  *                  *
                                                        *
----------------------------------------------------------------------------------------------------------------
Footnotes
* * * *
\16\ NAICS code 115310 (support Activities for Forestry)--Forest Fire Suppression and Fuels Management, a
  component of Support Activities for Forestry, includes establishments which provide services to fight forest
  fires. These firms usually have fire-fighting crews and equipment. This component also includes Fuels
  Management firms that provide services to clear land of hazardous materials that would fuel forest fires. The
  treatments used by these firms may include prescribed fire, mechanical removal, establishing fuel breaks,
  thinning, pruning, and piling.


    Dated: April 29, 2002.
Hector V. Barreto,
Administrator.
[FR Doc. 02-18112 Filed 7-18-02; 8:45 am]
BILLING CODE 8025-01-P