[Federal Register Volume 74, Number 202 (Wednesday, October 21, 2009)]
[Proposed Rules]
[Pages 53940-53941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-25196]



13 CFR Part 121

Small Business Size Standards: Size Standards Methodology

AGENCY: U.S. Small Business Administration.

ACTION: Notice of Availability of White Paper on Size Standards 


SUMMARY: The U.S. Small Business Administration (SBA) is advising the 
public that it is making available a White Paper putting forth and 
explaining how it establishes, reviews and modifies (when appropriate) 
small business size standards. The document, entitled ``Size Standards 
Methodology,'' is available on SBA's Web site where any interested 
party can review and/or download it. Elsewhere in this issue of the 
Federal Register SBA has published three proposed rules that would, if 
adopted, modify a number of size standards in three North American 
Industry Classification System (NAICS) Sectors, namely: Sector 44-45, 
Retail Trade; Sector 72, Accommodation and Food Services; and Sector 
81, Other Services. SBA has applied ``Size Standards Methodology'' to 
those three proposed rules and will apply it to future regulatory 
actions that relate to establishing, reviewing and modifying size 
standards. The Agency welcomes comments on ``Size Standards 
Methodology'' and on the three proposed rules elsewhere in this issue 
of the Federal Register. ``Size Standards Methodology,'' is available 
electronically from the SBA's Web site at: http://www.sba.gov/size.

ADDRESSES: The size standards methodology white paper is available 
electronically on SBA's Web site at http://www.sba.gov/size. You may 
submit comments on ``Size Standards Methodology,'' identified by Docket 
number SBA-2009-0008 by one of the following methods: (1) Federal 
eRulemaking Portal: http://www.regulations.gov. Follow the instructions 
for submitting comments; or (2) Mail/Hand Delivery/Courier: U.S. Small 
Business Administration, Khem R. Sharma, Chief, Size Standards 
Division, 409 Third Street, SW., Mail Code 6530, Washington, DC 20416.
    SBA will post all comments on www.regulations.gov. If you wish to 
submit confidential business information (CBI) as defined in the User 
Notice at www.regulations.gov, please submit the information to Khem R. 
Sharma, Chief, Office of Size Standards, 409 Third Street, SW., Mail 
Code 6530, Washington, DC 20416, or send an e-mail to 
[email protected]. Highlight the information that you consider to 
be CBI and explain why you believe SBA should hold this information as 
confidential. SBA will review the information and make the final 
determination of whether it will publish the information or not.

FOR FURTHER INFORMATION CONTACT: Carl J. Jordan, Program Analyst, Size 
Standards Division, (202) 205-6618 or [email protected].

SUPPLEMENTARY INFORMATION: To determine eligibility for Federal small 
business assistance programs, SBA establishes small business 
definitions (referred to as size standards) for private sector 
industries in the United States. SBA's existing size standards use two 
primary measures of business size--receipts and number of employees. 
Financial assets, electric output, and refining capacity are used as 
size measures for a few specialized industries. In addition, SBA's 
Small Business Investment Company (SBIC) and the Certified Development 
Company (CDC) Programs determine small business eligibility using 
either the industry based size standards or net worth and net income 
size standards. Currently, SBA's size standards consist of 45 different 
size levels, covering 1,141 NAICS industries and 17 sub-industry 
activities. Of these size levels, 32 are based on average annual 
receipts, eight are based on number of employees, and five are based on 
other measures. In addition, SBA has established 11 other size 
standards for its financial and procurement programs.
    Over the years, SBA has received comments that its size standards 
have not kept up with changes in the economy and, in particular, that 
they do not reflect the changes in the Federal contracting marketplace. 
Therefore, SBA has undertaken a complete review of all small business 
size standards. The last overall review of size standards occurred 
during the late 1970s to early 1980s. Since then, most reviews of size 
standards have been limited to in-depth analyses of specific industries 
in response to requests from the public and Federal agencies. SBA also 
makes periodic inflation adjustments to its monetary based size 
standards. The latest inflation adjustment to size standards was 
published in the Federal Register on July 18, 2008 (73 FR 41237).
    SBA has, in the past, included its methodology for reviewing size 
standards in its proposed and final rules that related to the industry 
or industries under examination. In the course of its comprehensive 
review of all small business size standards SBA has now developed and 
formalized its small business size standards processes. ``Size 
Standards Methodology'' describes how SBA establishes, evaluates and 
adjusts its small business size standards pursuant to the Small 
Business Act (Act) and related legislative guidelines. Under the Act 
(Pub. L. 85-236, as amended), the SBA Administrator (Administrator) has 
authority to establish small business size standards for Federal 
government programs. Congress left to administrative discretion 
precisely how the Administrator should establish small business size 
standards or what they should be. ``Size Standards Methodology'' 
provides a brief review of the legal authority, early legislative 
history and regulatory history of small business size standards, a 
detailed description of the size standards methodology, and concludes 
with a discussion of numerous policy issues regarding the objectives 
and direction of size standards. An appendix at the end of the document 
summarizes the detailed analytical steps involved in the evaluation of 
size standard for an industry.
    In establishing size standards, the Act and its legislative history 
highlight two considerations. First, size standards should vary to 
account for differences among industries. Second, the policies of the 
Agency should assist small businesses as a means of encouraging and 
strengthening their competitiveness in the economy. These two 
considerations form the basis for the SBA current methodology for 
establishing small business size standards.
    SBA examines the structural characteristics of an industry as a way 
to assess industry differences and the overall degree of 
competitiveness of an industry and of firms within the industry. ``Size 
Standards Methodology'' describes more fully how SBA examines industry 
structure and analyzes five primary factors--average firm size, degree 
of competition within an industry, start up costs and entry barriers, 
distribution of firms by size, and small business share in Federal 
contracts. SBA also considers other secondary factors as they relate to 
the industries and the interests of small businesses, including 

[[Page 53941]]

change, competition among industries, industry growth trends, and 
impacts on SBA programs.
    SBA conducts a statistical analysis of data on the primary factors, 
and secondary factors as appropriate, to establish a size standard for 
a specific industry. As a starting point, SBA presumes $7.0 million as 
an appropriate size standard for the services, retail trade, 
construction, and other industries with receipts based size standards; 
500 employees for the manufacturing, mining and other industries with 
employee based size standards; and 100 employees for the wholesale 
trade industries. These three levels, referred to as ``anchor size 
standards,'' are not minimum size standards, but rather benchmarks or 
starting points. To the extent an industry displays ``differing 
industry characteristics,'' a size standard higher, or in some cases 
lower, than an anchor size standard is supportable. ``Size Standards 
Methodology'' includes an extensive discussion of the statistical 
analyses involved in size standards determination.
    SBA welcomes comments from the public on a number of issues. SBA is 
aware that different choices among size standards can involve complex 
tradeoffs among relevant variables; SBA invites comments on how to 
identify and weigh those variables. Suggestions are invited on 
alternative methodologies for determining small businesses; on how 
these size standards affect competition in general and within the 
specific industry; on alternative or additional factors that SBA should 
consider; on whether SBA's approach to small business size standards 
makes sense in the current economic environment; on whether SBA's using 
anchor size standards is appropriate in the current economy; on whether 
there are gaps in SBA's methodology because of the lack of 
comprehensive data; and on alternative datasets SBA should consider for 
a specific sector.
    The concluding section of ``Size Standards Methodology'' raises a 
number of policy questions that SBA has to address in developing a 
robust methodology for establishing, evaluating and revising its small 
business size standards. Examples include how high of a size standard 
is too high? Should there be a single basis for all size standards 
(i.e., employees or annual receipts)? Should there be a fixed number of 
``bands'' of size standards or separate standard for each industry? 
``Size Standards Methodology'' includes several other issues, including 
some that tend to be on-going questions.
    SBA encourages the public to review ``Size Standards Methodology'' 
and to comment on it either in whole or in part.

    Dated: October 9, 2009.
Karen G. Mills,
[FR Doc. E9-25196 Filed 10-20-09; 8:45 am]