[Federal Register Volume 68, Number 22 (Monday, February 3, 2003)]
[Proposed Rules]
[Pages 5234-5241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-2455]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AF03


Small Business Size Standards; Facilities Support Services 
(Including Base Maintenance)

AGENCY: Small Business Administration (SBA).

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA) proposes to 
increase the size standard for the Facilities Support Services industry 
(North American Industry Classification System (NAICS) code 561210) 
from $6 million in average annual receipts to $30 million and the size 
standard for the sub-category of Base Maintenance from $23 million to 
$30 million. This proposed revision is being made to better define the 
size of businesses in this industry that the SBA believes should be 
eligible for Federal small business assistance programs.

DATES: Comments must be received on or before April 4, 2003.

ADDRESSES: Send written comments to Gary M. Jackson, Assistant 
Administrator for Size Standards, 409 Third Street, SW, Mail Code 6530, 
Washington DC 20416; by email to [email protected]; or by facsimile 
at (202) 205-6390. Upon request, SBA will make all public comments 
available to any person or entity.

FOR FURTHER INFORMATION CONTACT: Diane Heal, Office of Size Standards, 
Office of Government Contracting and Business Development, (202) 205-
6618.

SUPPLEMENTARY INFORMATION: SBA has received requests from firms in the 
Facilities Support Services industry to review its $6 million size 
standard for this industry and the $23 million size standard for Base 
Maintenance, a sub-category of the industry. These size standards are 
based on annual receipts of the business, as described in 13 CFR 
121.104. These firms argue that a size standard increase is warranted 
to reflect the size of Federal contracts issued in this area. These 
contracts include a broad spectrum of services involving administrative 
support, custodial services, facilities repair and maintenance, and 
technical services, which often are $10 million per year or more in 
value. A small business can lose its small businesses status with only 
one or two contracts. Costs on these types of contracts have increased 
greater than the general inflation rate, especially due to changes in 
the mandated labor rates under the Service Contract Act and increased 
health insurance costs. The requestors believe that to help develop 
small businesses to be competitive with large businesses in this 
industry, the size standard should be increased to the $25 million to 
$30 million range.
    Based on a review of these issues and data on the Facilities 
Support Services industry, SBA concludes that a higher size standard 
for activities in this industry is supportable. This rule

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proposes a $30 million size standard for all activities in the 
Facilities Support Services industry. As explained below, SBA believes 
that the activities comprising this industry and the characteristics of 
firms in the industry no longer support the need for separate size 
standards for Base Maintenance and for all other facilities support 
activities. SBA solicits comments on all aspects of this proposed rule, 
including its methodology and analysis. Below is a discussion of the 
SBA's size standards methodology and the analysis leading to the 
proposed $30 million size standard.
    Size Standards Methodology: Congress granted SBA discretion to 
establish detailed size standards (15 U.S.C. 632(a)(2)). SBA's Standard 
Operating Procedure (SOP) 90 01 3, ``Size Determination Program'' 
(available on SBA's Web site at http:/www.sba.gov/library/soproom.html) 
sets out four categories for establishing and evaluating size 
standards: (1) The structure of the industry and its various economic 
characteristics, (2) SBA program objectives and the impact of different 
size standards on these programs, (3) whether a size standard 
successfully excludes those businesses which are dominant in the 
industry, and (4) other factors if applicable. Other factors, 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: Section 3(a)(2) of 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 characteristics. SBA 
has two ``base'' or ``anchor'' size standards that apply to most 
industries--500 employees for manufacturing industries and $6 million 
in average annual receipts 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 average annual receipts size 
standard for the nonmanufacturing industries. The receipts-based anchor 
size standard for the nonmanufacturing industries was adjusted 
periodically for inflation so that, currently, the anchor size standard 
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's characteristics, the larger 
the difference between the appropriate industry size standard and the 
anchor size standard. SBA will consider adopting a size standard below 
the anchor size standard only when (1) all or most of the industry 
characteristics are significantly smaller than the average 
characteristics of the comparison group, or (2) other industry 
considerations strongly suggest that the anchor size standard would be 
an unreasonably high size standard for the industry under review.
    The primary evaluation factors that SBA considers in analyzing the 
structural characteristics of an industry are listed in 13 CFR 121.102 
(a) and (b). Those factors include 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 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. ``Distribution of firms by size'' is 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. A size standard higher than the 
anchor size standard is supported 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 $28.5 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 and less in receipts generated 50 percent of total 
industry receipts. Viewed in isolation, the higher figure for 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.
    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. For this analysis, SBA has 
calculated

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nonpayroll costs per establishment for each industry. This is derived 
by first calculating the percent of receipts in an industry that are 
either retained or expended on costs other than payroll costs. (The 
figure comprising the numerator of this percentage is mostly composed 
of capitalization costs, overhead costs, materials costs, and the costs 
of goods sold or inventoried.) This percentage is then applied to 
average establishment receipts to arrive at nonpayroll costs per 
establishment (an establishment is a business entity operating at a 
single location). An industry with a significantly higher level of 
nonpayroll costs per establishment than that of the comparison group is 
likely to have higher start-up costs, which 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 in order 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.
    5. ``Impact of size standard revisions on SBA programs'' refers to 
the possible impact a size standard change may have on the level of 
small businesses 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.
    Another factor to evaluate the impact of a proposed size standard 
on SBA programs is the volume of guaranteed loans within an industry 
and the size of firms obtaining those loans. This factor is sometimes 
examined to assess whether the current size standard may be restricting 
the level of financial assistance to firms in that industry. If small 
businesses receive significant amounts of 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 necessary.
    Elimination of Base Maintenance size standard: Currently, there are 
two size standards for activities in the Facilities Support Services 
industry--$23 million for Base Maintenance and $6 million for all other 
facilities support activities. In 1966, when SBA established a size 
standard for Base Maintenance, no facilities support related industry 
existed. Base Maintenance and other Facilities Support Services were 
classified under a general industry titled ``Business Services, Not 
Elsewhere Classified,'' along with airplane rental, drafting services, 
lecture bureaus, and many other miscellaneous business services. The 
revisions to the 1972 Standard Industrial Classification (SIC) System 
moved facilities support activities to a new industry titled 
``Personnel Supply Services, Not Elsewhere Classified,'' which also 
consisted of temporary help services. The 1987 revisions to the SIC 
System eliminated this industry and established two new industries--
``Facilities Support Management Services'' and ``Help Supply 
Services.'' In the absence of data on the new Facilities Support 
Management industry, SBA retained its $13.5 million size standard for 
Base Maintenance and applied its $3.5 million ``nonmanufacturing anchor 
size standard'' in effect at that time to all other industry 
activities.
    The current NAICS industry description of Facilities Support 
Services is very similar to SBA's description of Base Maintenance (see 
footnotes 12 and 13 of 13 CFR 121.201). Facilities Support Services 
comprises establishments providing staff to perform a range of support 
services within a client's facilities. They do not provide staff to 
perform the core responsibilities of the client. SBA defines Base 
Maintenance in a similar manner, but limits the sub-industry to 
services and special trade activities related to supporting a specific 
base operation. SBA believes that firms performing Base Maintenance 
services also perform, or have the capability to perform, most other 
facilities support activities. Given the close similarity of the 
descriptions of Facilities Support Services and Base Maintenance, SBA 
believes a single size standard is appropriate for all activities 
within the Facilities Support Services industry.
    Evaluation of Industry Size Standard: The two tables below show the 
characteristics for the Facilities Support Services industry and for 
the two comparison groups. The first comparison group is comprised of 
all industries with a $6 million receipts-based size standard, referred 
to as the nonmanufacturing anchor group. Since SBA assumes that the $6 
million anchor size standard is appropriate for a nonmanufacturing 
industry, this is the most logical set of industries to group together 
for the industry analysis to assess whether a size standard at the 
anchor size standard or higher is appropriate. The second comparison 
group consists of nonmanufacturing industries which have the highest 
levels of receipt-based size standards established by SBA, referred to 
as the nonmanufacturing higher-level size standard group. Size 
standards for these industries range from $21 million to $29 million. 
If an industry's characteristics are significantly larger than those of 
the nonmanufacturing anchor group, SBA will compare them to the 
characteristics of the higher-level size standards group. By doing so, 
SBA can assess if a size standard among its highest receipts-based size 
standards is appropriate or whether an intermediate size standard 
between the anchor size standard and the higher size standards should 
be selected.
    SBA examined economic data on the Facilities Support Services 
industry and the comparison group industries taken from a special 
tabulation of the 1997 Economic Census prepared under contract by the 
U.S. Bureau of the Census (Census), Federal contract award data for 
fiscal years 1999-2001 from the U.S. General Services Administration's 
Federal Procurement Data Center, and loan data from SBA's internal data 
base for SBA guaranteed loans.
    Industry Structure Consideration: Table 1 below examines the size 
distribution of firms. For this factor, SBA is evaluating the size of 
firm that accounts for predetermined percentages of total industry 
receipts (40 percent, 50 percent, 60 percent, and 70 percent). The 
table shows firms up to a specific size that, along with smaller firms, 
account for a specific percentage of total industry receipts.
BILLING CODE 8025-01-P

[[Page 5237]]

[GRAPHIC] [TIFF OMITTED] TP03FE03.012

    The Facilities Support Services industry is comprised of firms 
significantly larger than firms in the nonmanufacturing anchor group. 
Facilities Support Services firms of $55 million and less in receipts 
account for 40 percent of total industry receipts while firms of $3.2 
million and less in receipts in the nonmanufacuturing anchor group 
received 40 percent of total industry receipts. For the remaining 
percentages of industry receipts, firms in the Facilities Support 
Services industry range between 11 to 47 times larger than the size of 
firms in the nonmanufacturing anchor group. In relation to the higher-
level size standards group, Facilities Support Services firms are two 
to three times larger at every percentage level. These data indicate 
that a size standard at least comparable to SBA's highest receipts-
based size standard of $29 million is appropriate for the Facilities 
Support Services industry.
    Table 2 lists the other three evaluation factors for the Facilities 
Support Services industry and the comparison groups. These include 
comparisons of average firm size, the measurement of start-up costs as 
measured by nonpayroll receipts per establishment, and the four-firm 
concentration ratio.
[GRAPHIC] [TIFF OMITTED] TP03FE03.013

BILLING CODE 8025-01-C
    The Facilities Support Services industry's average firm size in 
receipts is over six times larger than the average firm size in the 
nonmanufacturing anchor group and one-third higher than the higher-
level size standard group. Moreover, its average firm size in employees 
is four to nine times the average sizes of these two comparison groups. 
The average size of firms in the Facilities Support Services industry 
is substantially higher than the comparison groups and also supports a 
size standard at least comparable to SBA's highest receipts-based size 
standard of $29 million.
    As a measure of industry start-up costs, the nonpayroll receipts 
per establishment indicator for Facilities Support Services is twice 
that of the anchor comparison group, and at about the same as the 
higher-level size standard group. This factor suggests a Facilities 
Support Services size standard within the $21 million to $29 million 
range of size standards of the higher-level size standards group.
    The Facilities Support Services four-firm concentration ratio is 
appreciably higher than the average of industries in the 
nonmanufacturer anchor group, but moderately below the level of the 
higher-level size standard. This factor shows the Facilities Support 
Services industry to be a relatively competitive industry where a size 
standard is between the $6 million nonmanufacturer anchor size standard 
and $21 million (the lowest size standard of the higher level size 
standard).
    SBA Program Considerations: SBA also reviews its size standards in 
relationship to its programs. Since the

[[Page 5238]]

SBA is reviewing the Facilities Support Services industry's size 
standard because of concerns regarding the application of the size 
standard to Federal procurement, this proposed rule gives more 
consideration to the pattern of Federal contract awards than to the 
level of financial assistance to small businesses to assess whether its 
size standard should be revised. SBA provides a relatively small amount 
of financial assistance to Facilities Support Services firms. In fiscal 
years 2000 and 2001, an average of 19 loans for $4.5 million were 
guaranteed to firms in the Facilities Support Services industry. Most 
of these loans were to firms with less than $2 million in receipts. 
It's unlikely that an increase to the size standard will have a 
significant impact on the amount of new loans in SBA's financial 
programs or will crowd-out other small businesses from obtaining SBA 
guaranteed loans. Consequently, this factor is not part of the 
assessment of the size standard.
    In the case of Federal procurements to Facilities Support Service 
firms, the share of Federal contracts awarded to small businesses 
supports an increase to the current size standard. Small Facilities 
Support Service firms account for 30.5 percent of total industry 
receipts but have received only 12 percent of the dollar value of 
Federal contracts awarded during fiscal years 1999 to 2001. Moreover, 
two-thirds of small business awards are made though programs reserved 
for small businesses or 8(a) firms. This disproportional share of 
Federal contract dollars relative to industry receipts generated by 
small Facilities Support Service firms indicates that contract 
requirements make it difficult for smaller firms to perform on Federal 
Facilities Support Services contracts. An increase to the size standard 
would be beneficial to small businesses in this industry by allowing 
them to grow in size to better perform the contract requirements.
    Overview: Based on the analysis of each evaluation factor, SBA is 
proposing a $30 million size standard for Facilities Support Services. 
Two evaluation factors support a size standard of $29 million or 
higher, one factor supports a size standard within the range of SBA's 
higher-level size standards ($21 to $29 million), and one factor 
supports an intermediate range size standard between $6 million and $21 
million. The assessment of small business participation in Federal 
procurements supports a size standard higher than the current Base 
Maintenance size standard of $23 million. The low amount of 
participation of small businesses in Federal government procurement is 
of special concern and suggests that contract requirements may indeed 
influence the size of Facilities Support Services firms that can 
perform the requirements of Federal contracts. The SBA believes that a 
size standard of $30 million, significantly higher than the current 
size standard of $23 million, is well supported by the analysis of 
industry data and will help small businesses in this industry compete 
for Federal contracts without including businesses that are so large 
that they could harm the ability of much smaller-sized small businesses 
to compete successfully for Federal contracts.
    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. The SBA considers as part of its evaluation of a size 
standard whether a business concern at or below a proposed size 
standard would be considered dominant in its field of operation. This 
assessment generally considers the market share of firms at the 
proposed or final size standard or other factors that may show whether 
a firm can exercise a major controlling influence on a national basis 
in which significant numbers of business concerns are engaged.
    The SBA has determined that no firm at or below the proposed size 
standard for the Facilities Support Services industry would be of a 
sufficient size to dominate its field of operation. The largest firm at 
the proposed size standard level generates less than 0.4 percent of 
total industry receipts. This level of market share effectively 
precludes any ability for a firm at or below the proposed size standard 
to exert a controlling effect on this industry.
    Alternative Size Standards: SBA considered an alternative size 
standard $35 million. As the industry evaluation showed, some of the 
factors might support a size standard at this level, but other factors 
supported a size standard within the range of its highest size 
standards ($21 million to $29 million). The industry data also show 
that firms earning $35 million in receipts tend to have more 
establishments than firms between $10 million to $30 million in size. 
This finding suggests that firms with $35 million in receipts have 
developed competitive capabilities that enable them to successfully 
expand operations.
    SBA welcomes public comments on its proposed $30 million size 
standard for the Facilities Support Services industry. Comments on 
alternatives to the proposal, including the option of retaining the 
current size standards at $6 million and $23 million discussed above, 
should present the reasons that would make them preferable to the 
proposed size standard.

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

    The Office of Management and Budget (OMB) has determined that this 
rule is a ``significant'' regulatory action for purposes of Executive 
Order 12866 because 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. 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. 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

1. Need for This 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 the 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. The Act also requires that small business 
definitions vary to reflect industry differences. The supplementary 
information to this proposed rule explains the approach SBA follows 
when analyzing a size standard for a particular industry. Based on that 
analysis, SBA believes that a change in the Facilities Support Services 
size standard is needed to better reflect small businesses in this 
industry.

[[Page 5239]]

2. 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 will be eligibility for Federal small 
business assistance programs. Under this rule, 177 additional firms may 
obtain small business status and become eligible for these programs. Of 
these 177, 19 are between the current $23 million Base Maintenance size 
standards and the $30 million proposed size standard. Federal small 
business assistance programs include SBA's financial assistance 
programs and Federal procurement preference programs for small 
businesses, 8(a) firms, small disadvantaged businesses (SDB), 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 SDB price evaluation adjustment. 
Other Federal agencies use SBA size standards for a variety of 
regulatory and program purposes. SBA does not have information on each 
of these uses to evaluate the impact of size standards changes. In 
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 121.902). Through the assistance of these 
programs, small businesses may benefit by becoming more knowledgeable, 
stable, and competitive businesses.
    The benefits of a size standard increase to a more appropriate 
level would affect three groups: (1) Businesses that benefit by gaining 
small business status from the proposed size standard and use small 
business assistance programs; (2) growing small businesses that may 
exceed the current size standard in the near future and who will retain 
small business status under the proposed size standard; and (3) Federal 
agencies that award contracts under procurement programs that require 
small business status.
    Newly defined small businesses would benefit from the SBA's 7(a) 
Guaranteed Loan Program. SBA estimates that approximately $2.5 million 
to $5.5 million in new Federal loan guarantees could be made to these 
newly defined small businesses. Because of the $2 million maximum size 
of SBA 7(a) loan guarantees, most loans are made to small businesses 
well below the size standard. Thus increasing the size standard will 
likely result in a smaller increase in guaranteed loans to small 
businesses than the estimated range. These additional loan guarantees, 
because of their limited magnitude, will have virtually no impact on 
the overall availability of loans for SBA's loan programs, which have 
averaged about 40,000 loans totaling about $10 billion per year in 
recent years.
    The newly defined small businesses would also benefit from SBA's 
economic injury disaster loan program. Since this program is contingent 
upon the occurrence and severity of a disaster, no meaningful estimate 
of benefits can be projected.
    SBA estimates that firms gaining small business status could 
potentially obtain Federal contracts worth $65 million to $95 million 
under the small business set-aside program, the 8(a), Small 
Disadvantaged Business, and HUBZone programs, or unrestricted 
contracts. This estimate is based on an analysis of small business 
participation in Federal contracting and the industry market share of 
businesses between the current and proposed size standards. During 
fiscal years 1999-2001, small businesses obtained 11.8 percent of 
Facilities Support Services contract dollars out of approximately $12 
billion in total Federal Facilities Support Services contracts. About 
two-thirds of small business awards were made as small business set-
aside or 8(a) contracts. Most facilities support contracts are for Base 
Maintenance services, which has a $23 million size standard. Businesses 
between $23 million and $30 million account for 3.6 percent of industry 
sales.
    Federal agencies may benefit from the higher size standards if the 
newly defined and expanding small businesses compete for more set-aside 
procurements. The larger base of small businesses would likely increase 
competition and would lower the prices on set-aside procurements. A 
large base of small businesses may create an incentive for Federal 
agencies to set aside more procurements creating greater opportunities 
for all small businesses. Small business opportunities will be enhanced 
in open procurements as they gain experience in Federal contracting 
through the set-aside and other small business procurement preference 
programs. Large businesses with small business subcontracting goals may 
also benefit from a larger pool of small businesses by enabling them to 
better achieve their subcontracting goals and at lower prices. No 
estimate of cost savings from these contracting decisions can be made 
since data are not available to directly measure price or competitive 
trends on Federal contracts.
    To the extent that 177 additional firms become active in Government 
programs, this may entail some additional administrative costs to the 
Federal government associated with additional bidders for Federal small 
business procurement programs, additional firms seeking SBA guaranteed 
lending programs, and additional firms eligible for enrollment in SBA's 
PRO-Net data base program. Among businesses in this group seeking SBA 
assistance, there will be some additional costs associated with 
compliance and verification associated with certification of small 
business status and protests of small business status. These costs are 
likely to generate minimal incremental costs since mechanisms are 
currently in place to handle these administrative requirements.
    The costs to the Federal Government may be higher on some Federal 
contracts. With greater number of businesses defined as small, Federal 
agencies may choose to set-aside more contracts for competition among 
small businesses rather than using full and open competition. The 
movement from unrestricted to set-aside contracting is likely to result 
in competition among fewer bidders. Also, higher costs may result if 
additional full and open contracts are awarded to HUBZone and SDB 
businesses as a result of a price evaluation preference. The additional 
costs associated with fewer bidders, however, are likely to be minor 
since, as a matter of policy, procurements may be set aside for small 
businesses or reserved for the 8(a), HUBZone Programs only if awards 
are expected to be made at fair and reasonable prices.
    The proposed size standard may have distributional effects among 
large and small businesses. Although the actual outcome of the gains 
and losses among small and large businesses cannot be estimated with 
certainty, several trends are likely to emerge. First, there will 
likely be a transfer of some Federal contracts to small businesses from 
large businesses. Large businesses may have fewer Federal contract 
opportunities as Federal agencies decide to set aside more Federal 
procurements for small businesses. Also, some Federal contracts may be 
awarded to HUZone or SDB concerns instead of large businesses since 
those two categories of small businesses may be eligible for a price 
evaluation adjustment for contracts competed on a full and open basis. 
Similarly, currently defined small businesses may obtain fewer Federal 
contacts due to the increased competition from more businesses defined 
as small. This transfer may be offset by a greater number of Federal 
procurements set aside for all small

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businesses. The number of newly defined and expanding small businesses 
that are willing and able to sell to the Federal Government will limit 
the potential transfer of contracts away from large and currently 
defined small businesses. The potential distributional impacts of these 
transfers may not be estimated with any degree of precision because the 
data on the size of business receiving a Federal contract are limited 
to identifying small or other-than-small businesses.
    The revision to current size standards for Facilities Support 
Services is consistent with SBA's statutory mandate to assist small 
businesses. This regulatory action promotes the Administration's 
objectives. One of SBA's goals in support of the Administration's 
objectives is to help individual small businesses succeed through fair 
and equitable access to capital and credit, government contracts, and 
management and technical assistance. Reviewing and modifying size 
standards when appropriate ensures that intended beneficiaries have 
access to small business programs designed to assist them. Size 
standards do not interfere with state, local, and tribal governments in 
the exercise of their government functions. In a few cases, state and 
local governments have voluntarily adopted SBA's size standards for 
their programs to eliminate the need to establish an administrative 
mechanism for developing their own size standards.

Initial Regulatory Flexibility Analysis

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

1. What Is the Need for and Objective of the Rule?

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

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

    Within the Facilities Support Services industry, 896 out of 1,219 
businesses are small. SBA estimates that 177 additional businesses out 
of 1,219 firms in the Facilities Support Services industry would be 
considered small as a result of this rule, if adopted. Of these 177, 19 
are between the current $23 million Base Maintenance size standards and 
the $30 million proposed size standard. These businesses would be 
eligible to seek available SBA assistance provided that they meet other 
program requirements. Businesses becoming eligible for SBA assistance 
as a result of this rule, if finalized, cumulatively generate 
approximately $25.8 billion out of a total of $75.8 billion in 
receipts, or 34.1 percent of industry receipts. The small business 
coverage in the Facilities Support Services industry would increase by 
3.6 percent of total receipts. SBA estimates that $2.5 million to $5.5 
million additional loans may be guaranteed by SBA and $65 million to 
$95 million in additional Federal contracts may be awarded to the newly 
eligible small businesses.

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

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

4. What Are the Relevant Federal Rules Which May Duplicate, Overlap or 
Conflict With the Proposed Rule?

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

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

    SBA considered two alternative size standards. First, it considered 
adopting the current $23 million Base Maintenance size standard to all 
activities in the Facilities Support Services industry. SBA believes 
this size standard level is inadequate given that most Federal 
contracts obtained by small businesses have been awarded through 
reserved contracting methods. This indicates that small businesses at

[[Page 5241]]

the current size standard have not developed to a size to be 
competitive for most Facilities Support Services contracts. Thus, a 
size standard higher than $23 million will help small businesses to 
grow to a more competitive level.
    Second, SBA considered proposing a $35 million standard for the 
Facilities Support Services industry. As discussed in the supplementary 
analysis, some industry factors support a size standard at this level. 
Businesses at that size and larger tend to have more establishments 
than those between $10 million to $35 million. This indicates that 
businesses of $35 million have developed more competitively than 
currently defined small businesses.

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 stated in the preamble, SBA proposes to amend part 
121 of title 13 Code of Federal Regulations as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

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

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

    2. Amend Sec.  121.201 as follows:
    a. In the table ``Small Business Size Standards by NAICS 
Industry,'' under the heading NAICS Subsector 561, ``Administrative and 
Support Services,'' revise the entry for 561210 to read as follows; 
and,
    b. Revise footnotes 12 and 13 to read as follows:


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

* * * * *

                                 Small Business Size Standards by NAICS Industry
----------------------------------------------------------------------------------------------------------------
                                                          Size standards in millions   Size standards in number
     NAICS codes           NAICS U.S. industry title              of dollars                 of employees
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
---------------------
                               Subsector 561--Administrative and Support Services
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
561210..............  Facilities Support Services \12\..  ..........................  $30.0\12\
 
                                                 * * * * * * *
----------------------------------------------------------------------------------------------------------------
Footnotes
* * * * * *
\12\ NAICS code 562120--Facilities Support Services:
(a) If one or more activities of Facilities Support Services as defined in paragraph (b) (below in this
  footnote) can be identified with a specific industry and that industry accounts for 50 percent or more of the
  value of an entire procurement, then the proper classification of the procurement is that of the specific
  industry, not Facilities Support Services.
(b) ``Facilities Support Services'' requires the performance of three or more separate activities in the areas
  of services or specialty trade construction industries. If services are performed, these service activities
  must each be in a separate NAICS industry. If the procurement requires the use of specialty trade contractors
  (plumbing, painting, plastering, carpentry, etc.), all such specialty trade construction activities are
  considered a single activity and classified as Base Housing Maintenance. Since Base Housing Maintenance is
  only one activity, two additional activities of separate NAICS industries are required for a procurement to be
  classified as ``Facilities Support Services.''
\13\ NAICS code 238990 `` Base Housing Maintenance: If a procurement requires the use of multiple specialty
  trade contractors (i.e., plumbing, painting, plastering, carpentry, etc.), and no specialty trade accounts for
  50 percent or more of the value of the procurement, all such specialty trade construction activities are
  considered a single activity and classified as Base Housing Maintenance.

* * * * *

    Dated: November 15, 2002.
Hector V. Barreto,
Administrator.
[FR Doc. 03-2455 Filed 1-31-03; 8:45 am]
BILLING CODE 8025-01-P