[Federal Register Volume 67, Number 142 (Wednesday, July 24, 2002)]
[Proposed Rules]
[Pages 48419-48424]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18766]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register/Vol. 67, No. 142/Wednesday, July 24, 2002/Proposed 
Rules  

[[Page 48419]]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AE80


Small Business Size Standards; Information Technology Value Added 
Resellers

AGENCY: Small Business Administration (SBA).

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Small Business Administration (SBA) proposes to establish 
a new industry category and size standard of 500 employees for 
Information Technology Value Added Resellers under Other Computer 
Related Services, North American Industry Classification System (NAICS) 
541519. This industry category and size standard is being established 
to better apply small business eligibility requirements under Federal 
contracts that combine substantial services with the acquisition of 
computer hardware and software. SBA is requesting public comments on 
establishing this industry category and size standard.

DATES: Comments must be received on or before August 23, 2002.

ADDRESSES: Send comments to Linda G. Williams, Associate Administrator 
for Policy, Planning, and Liaison, Office of Government Contracting and 
Business Development, U.S. Small Business Administration, 409 Third 
St., SW, Mail Code 6510, Washington, DC 20416; or, via e-mail to 
[email protected]. Upon request, SBA will make all public comments 
available.

FOR FURTHER INFORMATION CONTACT: Gary Jackson, Assistant Administrator 
for Size Standards, at (202) 205-6464.

SUPPLEMENTARY INFORMATION: Information technology (IT) is one of the 
largest areas of Federal contracting today. The Federal government 
spent approximately $19 billion in contracting for computer hardware, 
software, programming, and other related services during fiscal year 
2000. Within this area of contracting, many Federal agencies, as well 
as private sector organizations, look for contractors that provide 
solutions to their IT needs. In this regard, they seek a contractor, 
such as a Value Added Reseller or Solution Provider, who can provide a 
range of services that assist and support the acquisition of computer 
hardware and software. These contractors provide services such as 
advising an organization on what types of computer equipment, systems, 
and technologies will fit its needs; designing and integrating systems; 
purchasing and installing IT equipment; customizing hardware and 
software configurations; and providing technical services, maintenance, 
warranty service, and user support. The customer benefits from these 
types of contracts by having a single contractor coordinate their IT 
acquisition needs. These value added services are vitally important in 
a rapidly changing environment where new products and technologies are 
continually being introduced.
    SBA's size standards and program eligibility requirements do not 
specifically address the classification of Federal contracts that 
combine services with the acquisition of supplies. As a result, Federal 
agencies have had difficulty using small business preference programs 
for these types of contracts, especially for IT. Under SBA's current 
policies, such contracts are almost always viewed as a manufacturing or 
supply contract since the dollar value of the largest component of the 
contract will be associated with the acquisition of supplies. For 
supply contracts that are set aside for small business or for SBA's 
8(a) and HUBZone programs, an eligible small business must be a small 
manufacturer of the end item being procured or, if not the actual 
manufacturer of the end item, must supply the product of a small 
business manufacturer (referred to as the ``nonmanufacturer rule'') 
unless SBA grants a waiver of the nonmanufacturer rule for that 
specific item (13 CFR 121.406). For most supply contracts, this 
distinction is workable: either a company has made the product or is 
supplying it along with distribution related value added services. SBA, 
however, has found that the manufacturer/nonmanufacturer distinction 
does not adequately address Federal IT contracting that combine 
supplies and services into a single contract.
    The acquisition of IT equipment has several aspects that lead SBA 
to believe that it should establish special small business eligibility 
requirements for IT Value Added Resellers that are similar to those for 
a service contractor. First, as discussed above, many Federal agencies 
prefer to go to a single source to obtain IT equipment and supporting 
services. In doing so, a contractor often provides advisory and other 
support services. Second, most acquisitions are for numerous IT 
products that make it unrealistic to expect one manufacturer to produce 
all of the required items. In many cases, the agency and contractor 
agree in advance to equipment prices and delivery timeframes. Third, IT 
contracts often require the contractor to customize computer hardware 
or install specialized software to meet an individual user's needs. 
Although these activities usually do not constitute manufacturing, they 
are beyond the traditional wholesale-distribution function.
    To address these types of IT contracts, SBA proposes establishing a 
category of IT Value Added Resellers under NAICS code 541519, Other 
Computer Related Services. An IT Value Added Resellers industry 
category will allow Federal IT contracts that combine supply and 
services activities to be classified in an industry that reflects the 
purpose and scope of the contract and for SBA to apply a reasonable 
size standard and other eligibility requirements to IT Value Added 
Resellers that generally perform these combined functions. This new 
industry category will enable Federal agencies to better utilize small 
business preference programs for their IT acquisitions.
    SBA recognizes that establishing a category of IT Value Added 
Resellers as a service activity is a departure from the North American 
Industry Classification System (NAICS). Under NAICS, Value Added 
Resellers are classified in the Wholesale Trade sector along with 
merchant wholesalers, distributors, drop shippers, brokers, and agents. 
These latter types of establishments arrange the delivery of 
manufactured products to their customers and provide value added 
services associated with distribution, such as billing or inventory 
management. While providing

[[Page 48420]]

manufactured products, IT Value Added Resellers also offer services 
beyond those associated with the distribution function. SBA believes 
that for Federal small business procurement preference programs in 
particular, IT Value Added Resellers need to be treated in a different 
manner than wholesale trade firms (or nonmanufacturers) on supply 
contracts. Specifically, the service activities performed by IT Value 
Added Resellers warrants greater consideration than NAICS affords other 
Value Added Resellers.

Definition of Information Technology Value Added Resellers

    An IT Value Added Reseller provides a total solution to IT 
acquisitions by providing multi-vendor hardware and software along with 
significant pre-sale and post-sale services. Significant value added 
services consist of, but are not limited to, configuration consulting 
and design, systems integration, installation of multi-vendor computer 
equipment, customization of hardware or software, training, product 
technical support, maintenance, and end user support.
    This proposed rule requires that a Federal IT procurement be 
classified under this industry category if it consists of at least 15 
percent but not more than 50 percent of value added services as 
measured by the total price less the cost of IT hardware, computer 
software, and profit. This requirement ensures that the contractor 
provides a meaningful amount of substantive computer-related services. 
For example, if a procurement consists of $750,000 for personal 
computers, printers, and application software; $250,000 for 
installation of hardware, maintenance, and technical support; and 
$50,000 profit, then it satisfies the criteria to be classified as an 
IT Value Added Resellers procurement. In this example, 23.8 percent of 
the value of the procurement is for value added computer services. 
(Percent of value added services = value of computer services / total 
price. 23.8% = $250,000 / $1,050,000.)
    However, an IT procurement consisting of value added services less 
than 15 percent or greater than 50 percent must be classified under a 
different NAICS industry. If a Federal procurement is comprised of less 
than 15 percent of value added services, then it must be classified 
under a manufacturing industry and incorporate the applicable 
manufacturer size standard and nonmanufacturer size standard. For 
example, on a procurement to provide 100 personal computers without any 
additional services or with only incidental services is classified 
under NAICS 334111, Electronic Computer Manufacturing. For this type of 
procurement reserved for small businesses or under the 8(a) and HUBZone 
Programs, the nonmanufacturer rule requires that a small business 
nonmanufacturer supply personal computers manufactured by a small 
manufacturer. In limited cases, SBA may waive this nonmanufacturer rule 
for a specific procurement or class of products allowing the 
nonmanufacturer to supply the product of any domestic manufacturer. 
(See 13 CFR 121.406.)
    Conversely, if the IT procurement consists of more than 50 percent 
of value added computer-related services, it must be classified under 
the computer services industry that best describes the predominate 
service of the procurement. For example, a procurement to write a 
custom computer program that includes providing several personal 
computers and printers accounting for 25 percent of the value of the 
procurement is classified under NAICS 541511, Custom Computer 
Programming Services, since 75 percent of the work is for computer 
programming services. The size standard applicable to this procurement 
is $21 million in average annual receipts.

Size Standard and Eligibility Requirement for IT Value Added Resellers

    SBA proposes to adopt the nonmanufacturer size standard of 500-
employees, but is also seeking comments on alternatives to this size 
standard. A large proportion of the value of a contract will be for 
hardware and software with 20 percent to 30 percent generally for value 
added services. In addition, IT Value Added Resellers have obtained 
Federal supply contracts as nonmanufacturers under a 500-employee size 
standard. Applying that size standard to IT Value Added Resellers would 
maintain the same size standard under which many of these businesses 
currently qualify as small. In recognition that a substantial amount of 
the dollar value of the contract will be for hardware and software 
sales, an employee size standard is considered an appropriate size 
standard to measure the magnitude of operations of IT Value Added 
Resellers. To ensure consistent size eligibility requirements for other 
SBA programs outside of Federal procurement, the 500-employee size 
standard would be applicable to businesses whose primary activities 
match the IT Value Added Resellers description.
    SBA considered three other size standards for IT Valued Added 
Resellers. These alternative size standards relate to existing size 
standards for computer services and wholesale trade.
    First, SBA considered proposing the same $21 million size standard 
that applies to the computer services industries (NAICS codes 541510 -
541519). If IT Value Added Resellers are viewed as part of computer 
services, then the same size standard may be appropriate. As mentioned 
above, SBA believes an employee size standard is a better measure of 
the operations of an IT Value Added Reseller and decided not to propose 
this or another receipts size standard.
    Second, SBA considered a 150-employee size standard that represents 
the employee-equivalent of the $21 million computer services size 
standard. On average, computer services businesses generate $142,500 
sales per employee. Sales in the amount of $21 million translate to 
approximately 150-employees ($21,000,000 / $142,500 = 147.4). This 150-
employee size standard results in a size standard consistent with that 
of the computer services receipts size standard without being skewed by 
the value of hardware and software products provided by an IT Value 
Added Reseller. SBA did not propose this size standard since it is 
lower than the size standard that now applies to nonmanufacturers. 
Without specific industry data by which to assess the impact of a 150-
employee size standard on small businesses, SBA is reluctant to adopt 
that size standard without first seeking comments.
    Third, SBA also considered applying the 100-employee size standard 
for wholesale trade industries to IT Value Added Resellers. SBA adopted 
a 500-employee size standard for nonmanufacturers in part because of 
the competition among both distributors and manufacturers on Federal 
supply contracts. Federal customers seeking IT value added services 
will almost always find computer services firms and distributors with 
services capabilities competing for those contracts. With a limited 
presence of manufacturer competitors, the need for a 500-employee size 
standard for IT Value Added Services may not exist. For the same 
reasons as not proposing a 150 employee size standard, SBA has decided 
to seek comment on this alternative before considering it for adoption.
    SBA invites comments on these three alternative size standards, or 
other alternatives that may more appropriately define a small IT Value 
Added Reseller. The comments should explain why the alternative is a 
more

[[Page 48421]]

appropriate size standard than 500 employees. These comments should 
also discuss the impact of the 500 employee size standard and 
alternative size standard on small businesses and how they effectively 
assists small businesses. In addition, commenters are requested to 
identify data sources on IT Value Added Resellers that SBA may be able 
to use to more definitely evaluate the size standard.
    The classification of Federal contracts under the proposed IT Value 
Added Resellers industry would alter how two other SBA regulations are 
applied when such contracts are set aside for small businesses or under 
the 8(a) and HUBZone Programs. First, an IT Value Added Reseller would 
be required to meet performance requirements (or limitations on 
subcontracting) as required on other service contracts. Under 13 CFR 
125.6, a service contractor is required to perform at least 50 percent 
of the cost of the contract incurred for personnel with its own 
employees. Second, IT Value Added Resellers would not be subject to the 
nonmanufacturer rule (13 CFR 121.406). As discussed above, SBA views an 
IT Value Added Resellers contract as a service rather than a supply 
contract since its purpose is to assist and provide supporting services 
to an agency in the acquisition of information technology equipment.
    SBA seeks the public's comment on this proposed rule. In addition 
to comments on alternative size standards, SBA specifically desires 
comments on the following issues:
    (1) To what extent do Federal agencies expect contractors providing 
information technology equipment to also provide value added services?
    (2) Are the activities included in the definition of IT Value Added 
Reseller appropriate?
    (3) Should SBA require a different minimum and maximum percentage 
of total contract value for services? If so, state what percentages and 
describe the basis for those percentages?
    (4) Should SBA calculate the percent of services on IT Value Added 
Reseller contracts based on total price or some other baseline?

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. 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 reasons for establishing an industry category and size 
standard for IT Value Added Resellers.

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. 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 awarded through full and open competition 
after application of the HUBZone or small disadvantaged business price 
evaluation preference or adjustment.
    Through the assistance of these programs, small businesses may 
benefit by becoming more knowledgeable, stable, and competitive 
businesses. The benefits of a new industry category and size standard 
would accrue to 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 
financial programs, in particular its 7(a) Guaranteed Loan Program. IT 
Value Added Resellers qualify for these loans if they have 100 or fewer 
employees. Since over the last two years only one loan was guaranteed 
to a firm with more than 50 employees, it is unlikely that this rule 
would expand the use of the 7(a) Program.
    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.
    In the absence of specific data on IT Value Added Resellers, there 
is no definitive estimate of the number of additional businesses that 
would become qualified as small businesses for Federal small business 
procurement preference programs. The benefits of the rule in Federal 
contracting will be more in terms of clarifying requirements on Federal 
contracts combining IT supplies and services than increasing the actual 
number of new small businesses. This rule is likely to increase 
opportunities for small businesses, but it is uncertain how many 
Federal contracts may be affected.
    Federal agencies may benefit from the new industry category and 
size standard if more small businesses compete for 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 active small businesses may create an incentive for Federal 
agencies to set aside more procurements, thus creating greater 
opportunities for all small businesses. 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.
    This rule is not expected to increase 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. If the number of businesses seeking SBA 
assistance increases, 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 a more appropriate contract 
requirement for IT value added service, Federal

[[Page 48422]]

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 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 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 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 distributional 
impacts of these transfers cannot be estimated with any degree of 
precision since the data on the size of businesses receiving a Federal 
contract are limited to identifying small or other-than-small 
businesses.
    The creation of an IT Value Added Resellers industry category and 
size standard 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. 
Immediately below, SBA sets forth an initial regulatory flexibility 
analysis (IRFA) of this proposed rule addressing the reasons and 
objectives of the rule; SBA's description and estimate of the number of 
small entities to which the rule will apply; the projected reporting, 
record keeping, and other compliance requirements of the rule; the 
relevant Federal rules which may duplicate overlap or conflict with the 
proposed rule; and alternatives considered by SBA.

(1) What Is Reason for This Action?

    As discussed in the supplemental information, the purpose of this 
proposal is to establish more reasonable size standard and eligibility 
requirements for Federal information technology contracts that combine 
the acquisition of computer equipment and services. The proposed 
changes will better assist small IT Value Added Resellers in obtaining 
Federal contracts.

(2) What Is the Objective and Legal Basis for the Rule?

    Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) gives SBA 
the authority to establish and change size standards. Size standards 
are developed on an industry basis and vary by industry to reflect 
differing characteristics of firms in an industry or other appropriate 
factors regarding an industry. This rule proposes to establish an 
industry category of IT Value Added Resellers that SBA believes is 
necessary to appropriately apply its small business assistance program 
to small businesses in this category.

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

    SBA estimates that approximately 1,100 small businesses could 
receive assistance as a result of this proposed rule. In SBA's PRO-Net 
data base, 1,100 small businesses indicated that they are wholesalers 
of IT equipment and are capable of providing some other services. It 
cannot be determined how many could actually meet the requirements of 
the proposed IT Value Added Resellers definition. Thus, the actual 
number of affected businesses is likely to be smaller. A few small 
computer manufacturers could be adversely affected by this rule since 
small business set-aside, 8(a), or HUBZone contracts classified under 
the IT Value Added Resellers industry would not apply the 
nonmanufacturer rule. However, SBA believes the impact would be minimal 
since the IT Value Added Reseller contracts are most likely not 
currently being awarded to small manufacturers under these programs.
    Description of Potential Benefits of the Rule: The most significant 
benefit to businesses obtaining small business status as a result of 
this rule is their eligibility for Federal small business assistance 
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 (HUBZones).
    SBA estimates that approximately $118 million of additional Federal 
contracts could be awarded to small firms under the proposed IT Value 
Added Resellers size standard. In FY 2000, $2 billion were awarded for 
ADPE systems configuration supply contracts. Only 3.3 percent of 
computer supply contracts were awarded as small business set aside and 
8(a) contracts. SBA assumes that Federal agencies will be able to 
increase their small business set-aside and 8(a) awards for ADPE 
systems configuration to the same level as for computer services 
contracts. In FY 2000, 9.2 percent of the computer services contracts 
were awarded as a small business set-aside or 8(a) contract. If SBA's 
assumption is correct, an additional 5.9 percent, or $118 million, in 
small business contract awards for ADPE systems configuration could 
result. Most of these contracts would consist of a potential transfer 
from large businesses to small IT Value Added Resellers. This does not 
represent the creation of new contracting activity by the Federal 
government, merely a possible reallocation or transfer to different 
sized firms.
    SBA does not believe any additional loans would be made under its 
7(a) Guaranteed Loan Program and Certified Development Company (504) 
Program as a result of changes the SBA is proposing in this rulemaking. 
IT Value Added Resellers are currently eligible for these programs if 
they have 100 or fewer employees. In the last two years, only one 7(a) 
loan was made to a small business with more than 50 employees.

[[Page 48423]]

In the 504 Program, the alternative size standards of $2 million net 
income and $6 million net worth most likely already qualify IT Value 
Added Resellers with 100 to 500 employees.
    Description of Potential Costs of the Rule: The changes in size 
standards as they affect Federal procurement are not expected to add 
any significant costs to the Federal Government. 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 
reasonable prices. Similarly, the rule should not result in any added 
costs associated with the 7(a) and 504 loan programs. The amount of 
lending authority SBA can make or guarantee is established by 
appropriation.
    The competitive effects of size standard revisions differ from 
those normally associated with other regulations which typically burden 
smaller firms to a greater degree than larger firms in areas such as 
prices, costs, profits, growth, innovation and mergers. A change to a 
size standard is not anticipated to have any appreciable effect on any 
of these factors, although small businesses, 8(a) firms, or small 
disadvantaged businesses much smaller than the size standard for their 
industry may be less successful in competing for some Federal 
procurement opportunities due to the presence of larger, newly defined 
small businesses. On the other hand, with more larger small businesses 
competing for small business set-aside and 8(a) procurements, Federal 
agencies are likely to increase the overall number of contracting 
opportunities available under these programs, and this could result in 
greater opportunities for businesses much smaller than the size 
standard.

(4) Will This Rule Impose Any Additional Reporting or Record Keeping 
Requirements on Small Businesses?

    This proposed rule does not impose any new information collection 
requirements which require OMB approval under the Paperwork Reduction 
Act of 1980, 44 U.S.C. 3501-3520. 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.

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

    This proposed rule overlaps rules of other Federal agencies that 
use
    SBA's size standards to define a small business. Under 
Sec. 3(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 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.

(6) What Alternatives Did SBA Consider?

    SBA considered revising its definition of a manufacturer. On April 
1, 1999, SBA published in the Federal Register a ``Request for 
Comments'' asking for comments on a modern definition of the term 
manufacturer and a new definition for ``Remanufacturer'' (64 FR 15708, 
dated April 1, 1999). SBA received only six comments on this issue, 
none of which provided sufficient information to support a revision to 
SBA's current manufacturer definition. After further review, SBA now 
believes that establishing an IT Value Added Resellers industry 
category is a more effective approach to addressing the size 
eligibility requirements of nonmanufacturers providing substantial 
services along with IT products on Federal contracts.
    For purposes of Executive Order 12988, SBA has determined that this 
proposed rule is drafted, to the extent practicable, in accordance with 
the standards set forth in section 3 of that Order.
    This regulation will not have substantial direct effects on the 
States, on the relationship between the national government and the 
States, or on the distribution of power and responsibility among the 
various levels of government. Therefore, under Executive Order 13132, 
SBA determines that this proposed rule does not have sufficient 
federalism implications warranting the preparation of a Federalism 
Assessment.
    This proposed rule does not impose any new information collection 
requirements from SBA which require the approval by OMB under the 
Paperwork Reduction Act of 1980, 44 U.S.C. 3501-3520.

List of Subjects in 13 CFR Part 121

    Administrative practice and procedure, Government procurement, 
Government property, Grant programs--business. Loan programs--business, 
Small businesses.
    Accordingly, for the reasons stated in the preamble, part 121 of 13 
CFR is proposed to be amended as follows:

PART 121--[AMENDED]

Subpart A--Size Eligibility Provisions and Standards

    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.


Sec. 121.201  [Amended]

    2. In Sec. 121.201, in the table ``Small Business Size Standards by 
NAICS Industry,'' under the heading Subsector 541-Professional, 
Scientific, and Technical Services, revise the entry for 541519 to read 
as follows:


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

[[Page 48424]]

* * * * *

             Small Business Size Standards by NAICS Industry
------------------------------------------------------------------------
                                                       Size standards in
                                                           number of
        NAICS codes               NAICS industry          employees or
                                   descriptions           millions of
                                                            dollars
------------------------------------------------------------------------
 
*                  *                  *                  *
                  *                  *                  *
      Subsector 54--Professional, Scientific and Technical Services
 
*                  *                  *                  *
                  *                  *                  *
541519....................  Other Computer Related                 $18.0
                             Services.
EXCEPT....................  Information Technology               \16\500
                             Value Added Resellers.
 
*                  *                  *                  *
                  *                  *                  *
------------------------------------------------------------------------

    3. In Sec. 121.201, add footnote 16 at the end of the footnote 
section, under the table to read as follows:

Footnotes

* * * * *
    16. NAICS code 541519--An Information Technology Value Added 
Reseller provides a total solution to information technology 
acquisitions by providing multi-vendor hardware and software along 
with significant services. Significant value added services consist 
of, but are not limited to, configuration consulting and design, 
systems integration, installation of multi-vendor computer 
equipment, customization of hardware or software, training, product 
technical support, maintenance, and end user support. For purposes 
of Government procurement, an information technology procurement 
classified under this industry category must consist of at least 15 
percent and not more than 50 percent of value added services as 
measured by the total price less the cost of information technology 
hardware, computer software, and profit. If less than 15 percent of 
value added services, then it must be classified under a NAICS 
manufacturing industry. If the contract consists of more than 50 
percent of value added services, it must be classified under the 
NAICS industry that best describes the predominate service of the 
procurement. For SBA assistance as a small business concern as an 
Information Technology Value Added Reseller, other than for 
Government procurement, a concern must be primarily engaged in 
providing information technology equipment and computer software and 
provides value added services which account for at least 15 percent 
of its receipts but not more than 50 percent of its receipts.

    Dated: May 7, 2002.
Hector V. Barreto,
Administrator.
[FR Doc. 02-18766 Filed 7-23-02; 8:45 am]
BILLING CODE 8025-01-P