[Federal Register Volume 76, Number 197 (Wednesday, October 12, 2011)]
[Proposed Rules]
[Pages 63216-63229]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-26208]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG26


Small Business Size Standards: Information

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA) proposes to 
increase small business size standards for 15 industries in North 
American Industry Classification System (NAICS) Sector 51, Information. 
As part of its ongoing comprehensive review of all size standards, SBA 
has evaluated all receipts based size standards in NAICS Sector 51 to 
determine whether the existing size standards should be retained or 
revised. This proposed rule is one of a series of proposals that 
examines size standards of industries grouped by NAICS Sector. The SBA 
issued a White Paper entitled ``Size Standards Methodology'' and 
published a document in the October 21, 2009, issue of the Federal 
Register that ``Size Standards Methodology'' is available on its Web 
site at http://www.sba.gov/size for public review and comments. The 
``Size Standards Methodology'' White Paper explains how SBA 
establishes, reviews and modifies its receipts based and employee based 
small business size standards. In this proposed rule, SBA has applied 
its methodology that pertains to establishing, reviewing and modifying 
a receipts based size standard.

DATES: SBA must receive comments to this proposed rule on or before 
December 12, 2011.

ADDRESSES: You may submit comments, identified by RIN 3245-AF26, 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: Khem R. Sharma, PhD, Chief, Size 
Standards Division, 409 Third Street, SW, Mail Code 6530, Washington, 
DC 20416. The SBA will not accept comments submitted by e-mail.
    SBA will post all comments to this proposed rule on http://www.regulations.gov. If you wish to submit confidential business 
information (CBI) as defined in the User Notice at http://www.regulations.gov, you must submit such information to U.S. Small 
Business Administration, Khem R. Sharma, PhD, Chief, Size Standards 
Division, 409 Third Street, SW, Mail Code 6530, Washington, DC 20416, 
or send an e-mail to [email protected]. You should highlight the 
information that you consider to be CBI and explain why you believe SBA 
should hold this information as confidential. The SBA will review your 
information and determine whether it will make the information public 
or not.

FOR FURTHER INFORMATION CONTACT: Khem R. Sharma, PhD, Chief, Size 
Standards Division, (202) 205-6618 or [email protected].

[[Page 63217]]


SUPPLEMENTARY INFORMATION: To determine eligibility for Federal small 
business assistance, SBA establishes small business definitions 
(referred to as size standards) for private sector industries in the 
United States. The SBA uses two primary measures of business size--
average annual receipts and average number of employees. The SBA uses 
financial assets, electric output, and refining capacity to measure the 
size of a few specialized industries. In addition, SBA's Small Business 
Investment Company (SBIC), Certified Development Company (504) and 7(a) 
Loan Programs use either the industry based size standards or net worth 
and net income based alternative size standards to determine 
eligibility for those programs. At the start of the current 
comprehensive size standards review, there were 41 different size 
standards covering 1,141 NAICS industries and 18 sub-industry 
activities (``exceptions'' in SBA's Table of size standards). Thirty-
one of these size standards were based on average annual receipts, 
seven were based on average number of employees, and three were 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, in particular the changes 
in the Federal contracting marketplace and industry structure. The last 
time SBA conducted a comprehensive review of all size standards was 
during the late 1970s and early 1980s. Since then, most reviews of size 
standards were limited to in-depth analyses of specific industries in 
response to requests from the public and Federal agencies. The SBA also 
makes periodic inflation adjustments to its monetary based size 
standards. The SBA's latest inflation adjustment to size standards was 
published in the Federal Register on July 18, 2008 (73 FR 41237).
    Because of changes in the Federal marketplace and industry 
structure since the last overall review, SBA recognizes that current 
data may no longer support some of its existing size standards. 
Accordingly, in 2007, SBA began a comprehensive review of all size 
standards to determine if they are consistent with current data, and to 
adjust them when necessary. In addition, on September 27, 2010, the 
President of the United States signed the Small Business Jobs Act of 
2010 (Jobs Act). The Jobs Act directs SBA to conduct a detailed review 
of all size standards and to make appropriate adjustments to reflect 
market conditions. Specifically, the Jobs Act requires SBA to conduct a 
detailed review of at least one-third of all size standards during 
every 18-month period from the date of its enactment and do a complete 
review of all size standards not less frequently than once every 5 
years thereafter. Reviewing existing small business size standards and 
making appropriate adjustments based on current data are also 
consistent with Executive Order 13563 on improving regulation and 
regulatory review.
    Rather than review all size standards at one time, SBA has adopted 
a more manageable approach of reviewing a group of industries within an 
NAICS Sector. An NAICS Sector generally consists of 25 to 75 
industries, except for the manufacturing sector, which has considerably 
more. Once SBA completes its review of size standards for industries in 
an NAICS Sector, it will issue a proposed rule to revise size standards 
for those industries for which currently available data and other 
relevant factors support doing so.
    Below is a discussion of SBA's size standards methodology for 
establishing receipts based size standards, which SBA applied to this 
proposed rule, including analyses of industry structure, Federal 
procurement trends and other factors for industries reviewed in this 
proposed rule, the impact of the proposed revisions to size standards 
on Federal small business assistance, and the evaluation of whether a 
revised size standard would exclude dominant firms from being 
considered small.

Size Standards Methodology

    SBA has recently developed a ``Size Standards Methodology'' for 
establishing, reviewing and modifying size standards when necessary. 
The SBA has published this document on its Web site at http://www.sba.gov/size for public review and comments and included it, as a 
supporting document, in the electronic docket of this proposed rule at 
http://www.regulations.gov. The SBA does not apply every feature of its 
methodology to every size standard evaluation because not all features 
are appropriate for every industry. For example, since this proposed 
rule covers all industries with receipts based standards in NAICS 
Sector 51, the methodology described here applies to establishing 
receipts based standards. However, the methodology is made available in 
its entirety for parties who are interested in SBA's overall approach 
to establishing, evaluating, and modifying small business size 
standards. The SBA always explains its analysis in individual proposed 
and final rules relating to size standards for specific industries.
    The SBA welcomes comments from the public on a number of issues 
concerning its ``Size Standards Methodology,'' such as suggestions on 
alternative approaches to establishing and modifying size standards; 
whether there are alternative or additional factors that SBA should 
consider; whether SBA's approach to small business size standards makes 
sense in the current economic environment; whether SBA's use of anchor 
size standards is appropriate in the current economy; whether there are 
gaps in SBA's methodology because of the lack of comprehensive data; 
and whether there are other facts or issues that SBA should consider. 
Comments on the SBA's methodology should be submitted via (1) the 
Federal eRulemaking Portal: http://www.regulations.gov; the docket 
number is SBA-2009-0008; follow the instructions for submitting 
comments; or, (2) Mail/Hand Delivery/Courier: Khem R. Sharma, PhD, 
Chief, Size Standards Division, 409 Third Street, SW., Mail Code 6530, 
Washington, DC 20416. As with comments received to this and other 
proposed rules, SBA will post all comments on its methodology on http://www.regulations.gov. As of October 12, 2011, SBA has received seven 
comments to its ``Size Standards Methodology.'' The comments are 
available to the public at http://www.regulations.gov. The SBA 
continues to welcome comments on its methodology from interested 
parties.
    Congress granted discretion to SBA's Administrator to establish 
detailed small business size standards. 15 U.S.C. 632(a)(2). Section 
3(a)(3) of the Small Business Act (15 U.S.C. 632(a)(3)) requires that 
``* * * the [SBA] Administrator shall ensure that the size standard 
varies from industry to industry to the extent necessary to reflect the 
differing characteristics of the various industries and consider other 
factors deemed to be relevant by the Administrator.'' Accordingly, the 
economic structure of an industry serves as the underlying basis for 
developing and modifying small business size standards. The SBA 
identifies the small business segment of an industry by examining data 
on the economic characteristics defining the industry structure itself 
(as described below). In addition to the analysis of an industry's 
structure, SBA also considers current economic conditions, together 
with its own mission, program objectives, and the Administration's 
current policies, suggestions from industry groups and Federal 
agencies, and public comments

[[Page 63218]]

on the proposed rule, when it establishes small business size 
standards. The SBA also examines whether a size standard based on 
industry and other relevant data successfully exclude businesses that 
are dominant in the industry.
    This proposed rule includes information regarding the factors SBA 
evaluated and the criteria the Agency used to propose any adjustments 
to size standards in NAICS Sector 51. It also explains why SBA has 
proposed to adjust some size standards in NAICS Sector 51 but not 
others. This proposed rule affords the public an opportunity to review 
and comment on SBA's proposals to revise size standards in NAICS Sector 
51 as well as on the data and methodology it uses to evaluate and 
revise a size standard.

Industry Analysis

    For the current comprehensive size standards review, SBA has 
established three ``base'' or ``anchor'' size standards--$7.0 million 
in average annual receipts for industries that have receipts based size 
standards, 500 employees for manufacturing and other industries that 
have employee based size standards (except for Wholesale Trade), and 
100 employees for industries in the Wholesale Trade Sector. The SBA 
established 500 employees as the anchor size standard for manufacturing 
industries at its inception in 1953. Shortly thereafter, SBA 
established $1 million in average annual receipts as the anchor size 
standard for nonmanufacturing industries. The SBA has periodically 
increased the receipts based anchor size standard for inflation, and it 
stands today at $7 million. Since 1986, SBA has set 100 employees as 
the size standard for all industries in the Wholesale Trade Sector for 
SBA financial assistance programs. However, NAICS codes for Wholesale 
Trade Industries (NAICS Sector 42) and their 100 employee size standard 
for the Wholesale Trade Sector do not apply to Federal procurement 
programs. Rather, for Federal procurement purposes the size standard is 
500 employees for all industries in Wholesale Trade (NAICS Sector 42), 
and for all industries in Retail Trade (NAICS Sector 44-45) under the 
SBA's nonmanufacturer rule (13 CFR 121.406(b)).
    These long-standing anchor size standards have stood the test of 
time and gained legitimacy through practice and general public 
acceptance. An anchor size standard is neither a minimum nor a maximum. 
It is a common size standard for a large number of industries that have 
similar economic characteristics and serves as a reference point in 
evaluating size standards for individual industries. The SBA uses the 
anchor in lieu of trying to establish precise small business size 
standards for each industry. Otherwise, theoretically, the number of 
size standards might be as high as the number of industries for which 
SBA establishes size standards (1,141). Furthermore, the data SBA 
analyzes are static, but the U.S. economy is not. Hence, absolute 
precision is impossible. Therefore, SBA presumes an anchor size 
standard is appropriate for a particular industry unless that industry 
displays economic characteristics that are considerably different from 
others with the same anchor size standard.
    When evaluating a size standard, SBA compares the economic 
characteristics of the specific industry under review to the average 
characteristics of industries with one of the three anchor size 
standards (referred to as the ``anchor comparison group''). This allows 
SBA to assess the industry structure and to determine whether the 
industry is appreciably different from the other industries in the 
anchor comparison group. If the characteristics of a specific industry 
under review are similar to the average characteristics of the anchor 
comparison group, the anchor size standard is considered appropriate 
for that industry. The SBA may consider adopting a size standard below 
the anchor when (1) all or most of the industry characteristics are 
significantly smaller than the average characteristics of the anchor 
comparison group, or (2) other industry considerations strongly suggest 
that the anchor size standard would be an unreasonably high size 
standard for the industry.
    If the specific industry's characteristics are significantly higher 
than those of the anchor comparison group, a size standard higher than 
the anchor size standard may be appropriate. The larger the differences 
are between the characteristics of the industry under review and those 
of the anchor comparison group, the larger will be the difference 
between the appropriate industry size standard and the anchor size 
standard. To determine a size standard above the anchor size standard, 
SBA analyzes the characteristics of a second comparison group. For 
industries with receipts based size standards, including those in NAICS 
Sector 51 that are reviewed in this proposed rule, SBA has developed a 
second comparison group consisting of industries with the highest 
levels of receipts based size standards. To determine the level of a 
size standard above the anchor size standard, SBA analyzes the 
characteristics of this second comparison group. The size standards for 
this group of industries range from $23 million to $35.5 million in 
average annual receipts, with the weighted average size standard for 
the group being $29 million. The SBA refers to this comparison group as 
the ``higher level receipts based size standard group.''
    The primary factors that SBA evaluates when analyzing the 
structural characteristics of an industry include average firm size, 
startup costs and entry barriers, industry competition, and 
distribution of firms by size. The SBA also evaluates, as an additional 
primary factor, the possible impact that revising size standards might 
have on Federal contracting assistance to small businesses. These are, 
generally, the five most important factors SBA examines when 
establishing or revising a size standard for an industry. However, SBA 
will also consider and evaluate other information that it believes is 
relevant to a particular industry (such as technological changes, 
growth trends, SBA financial assistance, other program factors, etc.). 
The SBA also considers possible impacts of size standard revisions on 
eligibility for Federal small business assistance, current economic 
conditions, the Administration's policies, and suggestions from 
industry groups and Federal agencies. Public comments on a proposed 
rule also provide important additional information. The SBA thoroughly 
reviews all public comments before making a final decision on its 
proposed size standard. Below are brief descriptions of each of the 
five primary factors that SBA has evaluated in each industry in NAICS 
Sector 51 being reviewed in this proposed rule. A more detailed 
description of this analysis is provided in the SBA's ``Size Standards 
Methodology,'' available at http://www.sba.gov/size.
    1. Average firm size. The SBA computes two measures of average firm 
size: Simple average and weighted average. For industries with receipts 
based size standards, the simple average is the total receipts of the 
industry divided by the total number of firms in the industry. The 
weighted average firm size is the sum of weighted simple averages in 
different receipts size classes, where weights are the shares of total 
industry receipts for respective size classes. The simple average 
weighs all firms within an industry equally, regardless of their size. 
The weighted average overcomes that limitation by giving more weight to 
larger firms.
    If the average firm size of an industry under review is 
significantly higher

[[Page 63219]]

than the average firm size of industries in the anchor comparison 
industry group, this will generally support 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 anchor 
comparison industry group, it will be a basis to adopt the anchor size 
standard, or, in rare cases, a standard lower than the anchor.
    2. Startup costs and entry barriers. Startup costs reflect a firm's 
initial size in an industry. New entrants to an industry must have 
sufficient capital and other assets to start and maintain a viable 
business. If new firms entering a particular industry have greater 
capital requirements than firms in industries in the anchor comparison 
group, this can be a basis for establishing a size standard higher than 
the anchor standard. In lieu of data on actual startup costs, SBA uses 
average assets as a proxy measure to assess the levels of capital 
requirements for new entrants to an industry.
    To calculate average assets, SBA begins with the sales to total 
assets ratio for an industry from the Risk Management Association's 
Annual Statement Studies. The SBA then applies these ratios to the 
average receipts of firms in that industry. An industry with a 
significantly higher level of average assets than that of the anchor 
comparison group is likely to have higher startup costs; this in turn 
will support a size standard higher than the anchor. Conversely, if the 
industry has a significantly smaller average assets compared to the 
anchor comparison group, the anchor size standard, or, in rare cases, 
one lower than the anchor, may be appropriate.
    3. Industry competition. Industry competition is generally measured 
by the share of total industry receipts generated by the largest firms 
in an industry. The SBA generally evaluates the share of industry 
receipts generated by the four largest firms in each industry. This is 
referred to as the ``four-firm concentration ratio,'' a commonly used 
economic measure of market competition. The SBA compares the four-firm 
concentration ratio for an industry under review to the average four-
firm concentration ratio for industries in the anchor comparison group. 
If a significant share of economic activity within the industry is 
concentrated among a few relatively large companies, all else being 
equal, SBA will establish a size standard higher than the anchor size 
standard. The SBA does not consider the four-firm concentration ratio 
as an important factor in assessing a size standard if its value for an 
industry under review is less than 40 percent. For industries in which 
the four-firm concentration ratio is 40 percent or more, SBA examines 
the average size of the four largest firms in determining a size 
standard.
    4. Distribution of firms by size. The SBA examines the shares of 
industry total receipts accounted for by firms of different receipts 
and employment size classes in an industry. This is an additional 
factor that SBA evaluates in assessing competition within an industry. 
If most of an industry's economic activity is attributable to smaller 
firms, this would indicate that small businesses are competitive in 
that industry. This supports adopting the anchor size standard. If most 
of an industry's economic activity is attributable to larger firms, 
this would indicate that small businesses are not competitive in that 
industry. This would support adopting a size standard above the anchor.
    Concentration among firms is a measure of inequality of 
distribution. To evaluate the degree of inequality of distribution 
within an industry, SBA computes the Gini coefficient by constructing 
the Lorenz curve. The Lorenz curve presents the cumulative percentages 
of units (firms) along the horizontal axis and the cumulative 
percentages of receipts (or other measures of size) along the vertical 
axis. (For further detail, please refer to SBA's ``Size Standards 
Methodology'' on its Web site at http://www.sba.gov/size.) Gini 
coefficient values vary from zero to one. If an industry's total 
receipts reflect equal distribution among the industries, the Gini 
coefficient will equal zero. If a single firm accounts for an 
industry's total receipts, the Gini coefficient will equal one.
    SBA compares the Gini coefficient value for an industry under 
review with that for industries in the anchor comparison group. If an 
industry shows a higher Gini coefficient value than industries in the 
anchor comparison industry group this may, all else being equal, 
warrant a higher size standard than the anchor. Conversely, if an 
industry shows a similar or lower Gini coefficient than industries in 
the anchor group, the anchor standard, or, in some cases, a standard 
lower than the anchor, may be adopted.
    5. Impact on Federal contracting and SBA loan programs. The SBA 
examines the possible impact a size standard change may have on Federal 
small business assistance. This most often focuses on the share of 
Federal contracting dollars awarded to small businesses in the industry 
in question. In general, if the small business share of Federal 
contracting in an industry with significant Federal contracting is 
appreciably less than the small business share of the industry's total 
receipts, there is justification for considering a size standard higher 
than the existing size standard. The disparity between the small 
business Federal market share and industry-wide small business share 
may be due to various factors, such as extensive administrative and 
compliance requirements associated with Federal contracts, different 
skill sets required for Federal contracts as compared to typical 
commercial contracting work, and the size of Federal contracts. These, 
and other factors, will likely influence the type of firms that compete 
for Federal contracts. By comparing the Federal contracting small 
business share with the industry-wide small business share, SBA 
includes in its size standards analysis the latest Federal contracting 
trends. This analysis may indicate a size standard larger than the 
current standard.
    SBA considers Federal contracting trends in the size standards 
analysis only if (1) the small business share of Federal contracting 
dollars is at least 10 percent lower than the small business share of 
total industry receipts, and (2) the amount of total Federal 
contracting averages $100 million or more during the latest three 
fiscal years. These thresholds reflect a significant level of 
contracting where a revision to a size standard may have an impact on 
contracting opportunities to small businesses.
    Besides the impact on small business Federal contracting, SBA also 
evaluates the influence of a proposed size standard on SBA's loan 
programs. For this, SBA examines the volume and number of SBA 
guaranteed loans within an industry and the size of firms obtaining 
those loans. This allows SBA to assess whether the existing or proposed 
size standard for a particular industry may restrict the level of 
financial assistance to small firms. If the analysis shows that current 
size standards have impeded financial assistance to small businesses, 
this can support higher size standards. However, if small businesses 
under current size standards have been receiving significant amounts of 
financial assistance through SBA's loan programs, or if the businesses 
receiving SBA's financial assistance are much smaller than the existing 
size standards, this factor may not be considered in determining the 
size standards.

[[Page 63220]]

Sources of Industry and Program Data

    The SBA's primary source of industry data used in this proposed 
rule is a special tabulation of the data from 2007 Economic Census (see 
http://www.census.gov/econ/census07/) prepared by the U.S. Bureau of 
the Census (Census Bureau) for the Agency. The special tabulation 
provides SBA with industry-specific data on the number of firms, number 
of establishments, number of employees, annual payroll, and annual 
receipts of companies by the size of firm based on the 2007 Economic 
Census. The data reflect the size classes of the company's overall 
enterprise size; however, the data by NAICS industry within a 
particular size class represents the company's total values for a 
specific industry only. The special tabulation enables SBA to evaluate 
average firm size, the four-firm concentration ratio, and distribution 
of firms by various receipts and employment size classes.
    In some cases, where data were not available due to disclosure 
prohibitions in the Census Bureau's tabulation, SBA either estimated 
missing values using available relevant data or examined data at a 
higher level of industry aggregation, such as at the NAICS 2-digit 
(Sector), 3-digit (Subsector) or 4-digit (Industry Group) level. In 
some instances, SBA had to base its analysis only on those factors for 
which data were available or estimates of missing values were possible.
    To calculate average assets SBA used sales to total assets ratios 
from the Risk Management Association's Annual Statement Studies, 2007-
2009.
    To evaluate Federal contracting trends, SBA examined data on 
Federal contract awards for fiscal years 2007-2009. The data are 
available from the U.S. General Service Administration's Federal 
Procurement Data System--Next Generation (FPDS-NG).
    To assess the impact on financial assistance to small businesses, 
SBA examined data on its own guaranteed loan programs for fiscal years 
2008-2010.
    Data sources and estimation procedures SBA uses in its size 
standards analysis are documented in detail in the SBA's ``Size 
Standards Methodology'' White Paper, which is available at http://www.sba.gov/size.

Dominance in Field of Operation

    Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a 
small business concern as one that is (1) independently owned and 
operated, (2) not dominant in its field of operation, and (3) within a 
specific small business definition or size standard established by the 
SBA Administrator. The SBA considers as part of its evaluation whether 
a business concern at a proposed size standard would be dominant in its 
field of operation. For this, SBA generally examines the industry's 
market share of firms at the proposed standard. Market share and other 
factors may indicate whether a firm can exercise a major controlling 
influence on a national basis in an industry where a significant number 
of business concerns are engaged. If a contemplated size standard would 
include a dominant firm, SBA would consider a lower size standard to 
exclude the dominant firm from being defined as small.

Selection of Size Standards

    To simplify size standards for the ongoing comprehensive review of 
receipts based size standards, SBA has proposed to select size 
standards for industries from a limited number of levels. For many 
years, SBA has been concerned about the complexity of determining small 
business status caused by a large number of varying receipts based size 
standards (see 69 FR 13130 (March 4, 2004) and 57 FR 62515 (December 
31, 1992)). At the start of current comprehensive size standards 
review, there were 31 different levels of receipts based size 
standards. They ranged from $0.75 million to $35.5 million, and many of 
them applied to one or only a few industries. The SBA believes that to 
have so many different size standards with small variations among them 
is unnecessary and difficult to justify analytically. To simplify 
managing and using size standards, SBA proposes that there be fewer 
size standard levels. This will produce more common size standards for 
businesses operating in related industries. This will also result in 
greater consistency among the size standards for industries that have 
similar economic characteristics.
    The SBA proposes, therefore, to apply one of eight receipts based 
size standards to each industry in NAICS Sector 51 that has a receipts 
based standard. In NAICS Sector 51, 20 industries have size standards 
based on annual receipts, and 12 have size standards based on the 
number of employees. In this proposed rule, SBA has not reviewed 
employee based size standards for those 12 industries and the current 
standards will remain in effect until SBA reviews industries with 
employee based size standards. The eight ``fixed'' receipts based size 
standard levels are $5 million, $7 million, $10 million, $14 million, 
$19 million, $25.5 million, $30 million, and $35.5 million. To 
establish these eight receipts based size standard levels, SBA 
considered the current minimum, the current maximum, and the most 
commonly used current receipts based size standards. Currently, the 
most commonly used receipts based size standards cluster around the 
following: $2.5 million to $4.5 million, $7 million, $9 million to $10 
million, $12.5 million to $14.0 million, $25.0 million to $25.5 
million, and $33.5 million to $35.5 million. The SBA selected $7 
million as one of eight fixed levels of receipts based size standards 
because it is also an anchor standard for receipts based standards. The 
lowest or minimum receipts based size level will be $5 million. Other 
than the standards for agriculture and those based on commissions (such 
as real estate brokers and travel agents), $5 million include those 
industries with the lowest receipts based standards, which ranged from 
$2 million to $4.5 million at the start of the current comprehensive 
size standards review. Among the higher level size clusters, SBA has 
set four fixed levels: Namely, $10 million, $14 million, $25.5 million, 
and $35.5 million. Because there are large intervals between some of 
the fixed levels, SBA also established two intermediate levels: Namely, 
$19 million between $14 million and $25.5 million, and $30 million 
between $25.5 million and $35.5 million. These two intermediate levels 
reflect roughly the same proportional differences as between the other 
two successive levels.

Evaluation of Industry Structure

    SBA evaluated the structure of the 20 industries in NAICS Sector 
51, Information, to assess the appropriateness of the current receipts 
based size standards. As described above, SBA compared data on the 
economic characteristics of each of the 20 industries in NAICS Sector 
51 to the average characteristics of industries in two comparison 
groups. The first comparison group consists of all industries with $7.0 
million size standards and is referred to as the ``receipts based 
anchor comparison group.'' Because the goal of SBA's size standards 
review is to assess whether a specific industry's size standard should 
be the same as or different from the anchor size standard, this is the 
most logical group of industries to analyze. In addition, this group 
includes a sufficient number of firms to provide a meaningful 
assessment and comparison of industry characteristics.
    If the characteristics of an industry under review are similar to 
the average characteristics of industries in the anchor comparison 
group, the anchor

[[Page 63221]]

size standard is generally considered appropriate for that industry. If 
an industry's structure is significantly different from industries in 
the anchor group, a size standard lower or higher than the anchor size 
standard might be appropriate. The level of the new size standard is 
based on the difference between the characteristics of the anchor 
comparison group and a second industry comparison group. As described 
above, the second comparison group for receipts based standards 
consists of industries with the highest receipts based size standards, 
ranging from $23 million to $35.5 million. The average size standard 
for this group is $29 million. The SBA refers to this group of 
industries as the ``higher level receipts based size standard 
comparison group.'' The SBA determines differences in industry 
structure between an industry under review and the industries in the 
two comparison groups by comparing data on each of the industry 
factors, including average firm size, average assets size, the four-
firm concentration ratio, and the Gini coefficient of distribution of 
firms by size. Table 1 shows two measures of the average firm size 
(simple and weighted), the average assets size, the four-firm 
concentration ratio, the average receipts of the four largest firms, 
and the Gini coefficient for both anchor level and higher level 
comparison groups for receipts based size standards.

                                          Table 1--Average Characteristics of Receipts Based Comparison Groups
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Avg. firm size ($ million)                                            Avg. receipts
                                             ------------------------------------ Avg. assets size   Four[dash]firm   of four  largest        Gini
       Receipts based comparison group                              Weighted         ($ million)      concentration       firms  ($        coefficient
                                               Simple average        average                            ratio (%)        million) *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Anchor Level................................              1.32             19.63              0.84              16.6             196.4             0.693
Higher Level................................              5.07            116.84              3.20              32.1           1,376.0             0.830
--------------------------------------------------------------------------------------------------------------------------------------------------------
* To be used for industries with a four-firm concentration ratio of 40% or greater.

Derivation of Size Standards Based on Industry Factors

    For each industry factor in Table 1, SBA derives a separate size 
standard based on the differences between the values for the industry 
under review and the values for the two comparison groups. If the 
industry value for a particular factor is near the corresponding factor 
for the anchor comparison group, SBA will consider the $7.0 million 
anchor size standard appropriate for that factor.
    An industry factor with a value significantly above or below the 
anchor comparison group will generally warrant a size standard above or 
below the $7.0 million anchor. The new size standard in these cases is 
based on the proportional difference between the industry value and the 
values for the two comparison groups.
    For example, if an industry's simple average receipts are $3.3 
million, that would support a $19 million size standard. The $3.3 
million level is 52.8 percent between the average firm size of $1.32 
million for the anchor comparison group and $5.07 million for the 
higher level comparison group (($3.30 million - $1.32 million) / ($5.07 
million - $1.32 million) = 0.528 or 52.8%). This proportional 
difference is applied to the difference between the $7.0 million anchor 
size standard and average size standard of $29 million for the higher 
level size standard group and then added to $7.0 million to estimate a 
size standard of $18.616 million ([{$29.0 million - $7.0 million{time}  
* 0.528] + $7.0 million = $18.616 million). The final step is to round 
the estimated $18.616 million size standard to the nearest fixed size 
standard level, which in this example is $19 million.
    SBA applies the above calculation to derive a size standard for 
each industry factor. Detailed formulas involved in these calculations 
are presented in the SBA's ``Size Standards Methodology,'' available on 
SBA's Web site at http://www.sba.gov/size. (However, note that figures 
in the ``Size Standards Methodology'' White Paper are based on 2002 
Economic Census data and are different from those presented in this 
proposed rule. That is because when SBA prepared its ``Size Standards 
Methodology,'' the 2007 Economic Census data were not yet available.) 
Table 2 (below) shows ranges of values for each industry factor and the 
levels of size standards supported by those values.

                        Table 2--Values of Industry Factors and Supported Size Standards
----------------------------------------------------------------------------------------------------------------
                                                                      Or if avg.
                                Or if weighted      Or if avg.       receipts of                      Then size
 If simple avg. receipts size    avg. receipts    assets size  ($    largest four      Or if Gini    standard is
         ($ million)               size  ($          million)         firms  ($       coefficient    ($ million)
                                   million)                            million)
----------------------------------------------------------------------------------------------------------------
< 1.15.......................  < 15.22.........  < 0.73..........  < 142.8........  < 0.686........          5.0
1.15 to 1.57.................  15.22 to 26.26..  0.73 to 1.00....  142.8 to 276.9.  0.686 to 0.702.          7.0
1.58 to 2.17.................  26.27 to 41.73..  1.01 to 1.37....  277.0 to 464.5.  0.703 to 0.724.         10.0
2.18 to 2.94.................  41.74 to 61.61..  1.38 to 1.86....  464.6 to 705.8.  0.725 to 0.752.         14.0
2.95 to 3.92.................  61.62 to 87.02..  1.87 to 2.48....  705.9 to         0.753 to 0.788.         19.0
                                                                    1,014.1.
3.93 to 4.86.................  87.03 to 111.32.  2.49 to 3.07....  1,014.2 to       0.789 to 0.822.         25.5
                                                                    1,309.0.
4.87 to 5.71.................  111.33 to 133.41  3.08 to 3.61....  1,309.1 to       0.823 to 0.853.         30.0
                                                                    1,577.1.
> 5.71.......................  > 133.41........  > 3.61..........  > 1,577.1......  > 0.853........         35.5
----------------------------------------------------------------------------------------------------------------

Derivation of Size Standard Based on Federal Contracting Factor

    Besides industry structure, SBA also evaluates Federal contracting 
data to assess how successful small businesses are at obtaining Federal 
contracts under current size standards. For the current comprehensive 
size standards review, SBA has decided to designate a size standard at 
one level higher than the current size standard for industries where 
the small business share of total Federal contracting dollars is 10 to 
30 percentage points lower than the small business share of total 
industry receipts

[[Page 63222]]

and at two levels higher than the current size standard where the 
difference is more than 30 percentage points.
    Because of the complex relationships among several variables 
affecting small business participation in the Federal marketplace, SBA 
has chosen not to designate a size standard for the Federal contracting 
factor alone that is higher than two levels above the current size 
standard. The SBA believes that a larger adjustment to size standards 
based on Federal contracting activity should be based on a more 
detailed analysis of the impact of any subsequent revision to the 
current size standard. In limited situations, however, SBA may conduct 
a more extensive examination of Federal contracting experience. This 
may enable SBA to support a different size standard than indicated by 
this general rule and take into consideration significant and unique 
aspects of small business competitiveness in the Federal contract 
market. The SBA welcomes comments on its methodology of incorporating 
the Federal contracting factor in the size standard analysis and 
suggestions for alternative methods and other relevant information on 
small business experience in the Federal contract market.
    Of the 20 industries reviewed in this proposed rule, five 
industries averaged $100 million or more annually in Federal 
contracting during fiscal years 2007-2009. However, the Federal 
contracting factor was not significant and no size standard was 
calculated for this factor for any of these five industries. The small 
business share of total Federal contracting dollars was already higher 
than the small business share of the total industry receipts for four 
of these five industries. In the one industry, the small business share 
of total Federal contracting dollars was less than the small business 
share of total industry receipts, but the difference was less than 10 
percent. Thus, the latest data show that Federal contracting activity 
is insignificant for most of the industries in NAICS Sector 51, and for 
the majority of those industries where it is significant, small 
businesses seem to be doing well in terms of their share of the Federal 
marketplace relative to their share of the industry's total sales.

New Size Standards Based on Industry and Federal Contracting Factors

    Table 3 shows the results of analyses of industry and Federal 
contracting factors for each industry covered by this proposed rule. 
Many of the NAICS industries in columns 2, 3, 4, 6, and 7 show two 
numbers. The upper number is the value for the industry factor shown on 
the top of the column and the lower number is the size standard 
supported by that factor. For the four-firm concentration ratio, SBA 
estimates a size standard if its value is 40 percent or more. If the 
four-firm concentration ratio for an industry is less than 40 percent, 
there is no estimated size standard for that factor. If the four-firm 
concentration ratio is more than 40 percent, SBA indicates in column 6 
the average size of the industry's top four firms together with a size 
standard based on that average. As mentioned earlier, no size standard 
is derived for the Federal contracting factor as that factor was 
significant in none of the industries in NAICS Sector 51 reviewed in 
this proposed rule. Column 9 shows a calculated new size standard for 
each industry. This is the average of the size standards supported by 
each factor and rounded to the nearest fixed size level. Analytical 
details involved in the averaging procedure are described in the SBA's 
``Size Standard Methodology.'' For comparison with the new standards, 
the current size standards are in column 10 of Table 3.

                                           Table 3--Size Standards Supported by Each Factor for Each Industry
                                                                  [Millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Simple      Weighted     Average                  Four-firm                              Calculated    Current
                                       average      average    assets size   Four-firm     average        Gini       Federal      new size       size
     NAICS code/industry title        firm size    firm size        ($       ratio (%)     size  ($   coefficient    contract     standard     standard
                                     ($ million)  ($ million)    million)                  million)                 factor (%)  ($ million)  ($ million)
(1)                                          (2)          (3)          (4)          (5)          (6)          (7)          (8)          (9)         (10)
--------------------------------------------------------------------------------------------------------------------------------------------------------
511210 Software Publishers.........        $22.9       $358.8        $16.0         38.9    $13,171.0        0.903         31.0        $35.5        $25.0
                                            35.5         35.5         35.5                                  $35.5
512110 Motion Picture and Video              5.1        591.5          2.4         52.7      7,893.3        0.932  ...........         30.0         29.5
 Production........................         30.0         35.5         19.0                      35.5        $35.5
512120 Motion Picture and Video              4.1         34.9  ...........         30.6        157.2        0.814  ...........         25.5         29.5
 Distribution......................         25.5         10.0                                               $25.5
512131 Motion Picture Theaters               6.2        304.1          7.4         53.9      1,699.2        0.909  ...........         35.5          7.0
 (except Drive[dash]Ins)...........         35.5         35.5         35.5                      35.5        $35.5
512132 Drive[dash]In Motion Picture          0.4          1.8  ...........         23.0          5.5        0.322  ...........          5.0          7.0
 Theaters..........................          5.0          5.0                                                $5.0
512191 Teleproduction and Other              2.2         46.5          1.4         27.1        296.6        0.817  ...........         19.0         29.5
 Postproduction Services...........         14.0         14.0         10.0                                  $25.5
512199 Other Motion Picture and              3.2         78.8          1.7         75.7        151.8        0.866  ...........         19.0          7.0
 Video Industries..................         19.0         19.0         14.0                       7.0        $35.5
512210 Record Production...........          1.0         26.2          0.5         46.7         39.5        0.711  ...........          7.0          7.0
                                             5.0          7.0          5.0                       5.0        $10.0
512240 Sound Recording Studios.....          0.5          4.6          0.2          9.8         21.0        0.520  ...........          5.0          7.0
                                             5.0          5.0          5.0                                   $5.0
512290 Other Sound Recording                 1.1         19.7  ...........         30.9         34.6        0.718  ...........         10.0          7.0
 Industries........................          5.0          7.0                                               $10.0
515111 Radio Networks..............          7.9        112.1  ...........         61.4        633.4        0.889  ...........         30.0          7.0
                                            35.5         30.0                                   14.0        $35.5
515112 Radio Stations..............          4.7        149.1          6.6         42.2      1,569.4        0.885  ...........         35.5          7.0
                                            25.5         35.5         35.5                      30.0        $35.5

[[Page 63223]]

 
515120 Television Broadcasting.....         39.8        367.3         56.8         43.3      3,893.7        0.878  ...........         35.5         14.0
                                            35.5         35.5         35.5                      35.5        $35.5
515210 Cable and Other Subscription        101.2      1,186.4         82.0         62.0      6,964.8        0.911  ...........         35.5         15.0
 Programming.......................         35.5         35.5         35.5                      35.5        $35.5
517410 Satellite Telecommunications          6.2        111.8  ...........         42.4        471.1        0.894          9.2         30.0         15.0
                                            35.5         30.0                                   14.0        $35.5
517919 All Other Telecommunications          4.0        184.3  ...........         46.8      1,572.9        0.908    [dash]2.3         30.0         25.0
                                            25.5         35.5                                   30.0        $35.5
518210 Data Processing, Hosting,             7.3         74.4          5.9         25.8      4,301.8        0.854         18.0         30.0         25.0
 and Related Services..............         35.5         19.0         35.5                                  $35.5
519110 News Syndicates.............          8.1        105.5  ...........         68.8        368.0        0.894  ...........         25.5          7.0
                                            35.5         25.5                                   10.0        $35.5
519120 Libraries and Archives......          0.9         24.7  ...........         27.3        126.7        0.754  ...........         14.0          7.0
                                             5.0          7.0                                               $19.0
519190 All Other Information                 5.1        141.6  ...........         54.5        320.2        0.916          8.8         25.5          7.0
 Services..........................         30.0         35.5                                   10.0        $35.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

Special Considerations

Employee Based Size Standards

    In this proposed rule, SBA has not reviewed 12 industries in NAICS 
Sector 51 that currently have employee based size standards. The SBA 
will review those industries when it reviews the Manufacturing Sector 
(NAICS Sector 31-33) and other industries that have employee based size 
standards. The SBA proposes, therefore, to leave the size standards for 
those 12 industries at their current levels until it reviews the 
employee based size standards.

Evaluation of SBA Loan Data

    Before deciding on an industry's size standard, SBA also considers 
the impact of new or revised standards on SBA's loan programs. 
Accordingly, SBA examined its 7(a) and 504 Loan Program data for fiscal 
years 2008-2010 to assess whether the existing or proposed size 
standards need further adjustments to ensure credit opportunities for 
small businesses through those programs. For the industries reviewed in 
this rule, the data show that it is mostly small businesses much 
smaller than the current size standards that use the SBA's 7(a) and 504 
loans. Therefore, no size standard in NAICS Sector 51, Information, 
needs an adjustment based on this factor.

Proposed Changes to Size Standards

    Table 4, below, summarizes the results of SBA analyses of size 
standards from Table 3. The results support increases in size standards 
in 15 industries, decreases in four industries, and no change in one 
industry.

                                   Table 4--Summary of Size Standards Analysis
----------------------------------------------------------------------------------------------------------------
                                                                                  Calculated new   Current size
                  NAICS code                          NAICS industry title         size standard   standard  ($
                                                                                    ($ million)      million)
----------------------------------------------------------------------------------------------------------------
511210........................................  Software Publishers.............           $35.5           $25.0
512110........................................  Motion Picture and Video                    30.0            29.5
                                                 Production.
512120........................................  Motion Picture and Video                    25.5            29.5
                                                 Distribution.
512131........................................  Motion Picture Theaters (except             35.5             7.0
                                                 Drive[dash]Ins).
512132........................................  Drive[dash]In Motion Picture                 5.0             7.0
                                                 Theaters.
512191........................................  Teleproduction and Other                    19.0            29.5
                                                 Postproduction Services.
512199........................................  Other Motion Picture and Video              19.0             7.0
                                                 Industries.
512210........................................  Record Production...............             7.0             7.0
512240........................................  Sound Recording Studios.........             5.0             7.0
512290........................................  Other Sound Recording Industries            10.0             7.0
515111........................................  Radio Networks..................            30.0             7.0
515112........................................  Radio Stations..................            35.5             7.0
515120........................................  Television Broadcasting.........            35.5            14.0
515210........................................  Cable and Other Subscription                35.5            15.0
                                                 Programming.
517410........................................  Satellite Telecommunications....            30.0            15.0
517919........................................  All Other Telecommunications....            30.0            25.0
518210........................................  Data Processing, Hosting, and               30.0            25.0
                                                 Related Services.
519110........................................  News Syndicates.................            25.5             7.0
519120........................................  Libraries and Archives..........            14.0             7.0

[[Page 63224]]

 
519190........................................  All Other Information Services..            25.5             7.0
----------------------------------------------------------------------------------------------------------------

    However, lowering small business size standards is not in the best 
interest of small businesses in the current economic environment. The 
U.S. economy was in recession from December 2007 to June 2009, the 
longest and deepest of any recessions since World War II. The economy 
lost more than eight million non-farm jobs during 2008-2009. In 
response, Congress passed and the President signed into law the 
American Recovery and Reinvestment Act of 2009 (Recovery Act) to 
promote economic recovery and to preserve and create jobs. Although the 
recession officially ended in June 2009, the unemployment rate was 9.4 
percent or higher from May 2009 to December 2010. It moderated to 8.8 
percent in March 2011, but it increased to 9.2 percent in June 2011. 
The unemployment rate is forecast to remain around this elevated level 
at least through the end of 2011. More recently, Congress passed and 
the President signed the Small Business Jobs Act of 2010 (Jobs Act) to 
promote small business job creation. The Jobs Act puts more capital 
into the hands of entrepreneurs and small business owners; strengthens 
small businesses' ability to compete for contracts; includes 
recommendations from the President's Task Force on Federal Contracting 
Opportunities for Small Business; creates a better playing field for 
small businesses; promotes small business exporting, building on the 
President's National Export Initiative; expands training and 
counseling; and provides $12 billion in tax relief to help small 
businesses invest in their firms and create jobs.
    Reducing size standards based solely on analytical results would 
decrease the number of firms that could participate in Federal 
financial and procurement assistance for small businesses. That would 
run counter to what SBA and the Federal government are doing to help 
small businesses. Reducing size eligibility for Federal procurement 
opportunities, especially under current economic conditions, would not 
preserve or create more jobs; rather, it would have the opposite 
effect. Therefore, in this proposed rule, SBA has decided not to 
propose to reduce the size standards for any industries. For industries 
where analyses might seem to support lowering size standards, SBA 
proposes to retain the current size standards. As stated previously, 
the Small Business Act requires the Administrator to ``* * * consider 
other factors deemed to be relevant * * *'' to establishing small 
business size standards. The current economic conditions and the impact 
on job creation are quite relevant to establishing small business size 
standards. The SBA nevertheless invites comments and suggestions on 
whether it should lower size standards as suggested by analyses of 
industry and program data or retain the current standards for those 
industries in view of current economic conditions.
    As discussed above, SBA has decided that lowering small business 
size standards would be inconsistent with what the Federal government 
is doing to stimulate the economy and encourage job growth through the 
Recovery Act and the Jobs Act. Therefore, for those industries for 
which analyses suggested decreasing their size standards, SBA proposes 
to retain the current size standards. Thus, of the 20 industries in 
NAICS Sector 51 that were reviewed in this proposed rule, SBA proposes 
to increase size standards for 15 industries and retain the current 
standards for five industries. Industries for which SBA has proposed to 
increase their size standards and proposed standards are in Table 5.
    In addition, not lowering size standards is consistent with SBA's 
prior actions for NAICS Sector 44-45 (Retail Trade), NAICS Sector 72 
(Accommodation and Food Services), and NAICS Sector 81 (Other 
Services), which the Agency proposed (74 FR 53924, 74 FR 53913, and 74 
FR 53941, October 21, 2009) and adopted in its final rules (75 FR 
61597, 75 FR 61604, and 75 FR 61591, October 6, 2010). It is also 
consistent with the Agency's recently proposed rules for NAICS Sector 
54 (Professional, Technical, and Scientific Services) (76 FR 14323, 
March 16, 2011), NAICS Sector 48-49 (Transportation and Warehousing) 
(76 FR 27935, May 13, 2011), and NAICS Sector 56 (Administrative and 
Support, Waste Management and Remediation Services) that is being 
published elsewhere in this issue of the Federal Register. In each of 
those final and proposed rules, SBA opted not to reduce small business 
size standards for the same reasons it has provided above in this 
proposed rule.

                              Table 5--Summary of Proposed Size Standard Revisions
----------------------------------------------------------------------------------------------------------------
                                                                                   Proposed size   Current size
                  NAICS code                          NAICS industry title         standard  ($    standard  ($
                                                                                     million)        million)
----------------------------------------------------------------------------------------------------------------
511210........................................  Software Publishers.............           $35.5           $25.0
512110........................................  Motion Picture and Video                    30.0            29.5
                                                 Production.
512131........................................  Motion Picture Theaters (except             35.5             7.0
                                                 Drive[dash]Ins).
512199........................................  Other Motion Picture and Video              19.0             7.0
                                                 Industries.
512290........................................  Other Sound Recording Industries            10.0             7.0
515111........................................  Radio Networks..................            30.0             7.0
515112........................................  Radio Stations..................            35.5             7.0
515120........................................  Television Broadcasting.........            35.5            14.0
515210........................................  Cable and Other Subscription                35.5            15.0
                                                 Programming.
517410........................................  Satellite Telecommunications....            30.0            15.0
517919........................................  All Other Telecommunications....            30.0            25.0
518210........................................  Data Processing, Hosting, and               30.0            25.0
                                                 Related Services.

[[Page 63225]]

 
519110........................................  News Syndicates.................            25.5             7.0
519120........................................  Libraries and Archives..........            14.0             7.0
519190........................................  All Other Information Services..            25.5             7.0
----------------------------------------------------------------------------------------------------------------

Evaluation of Dominance in Field of Operation

    The SBA has determined that for the industries in NAICS Sector 51, 
Information, for which it has proposed to increase size standards, no 
firm at or below the proposed size standard is large enough to dominate 
its field of operation. At the proposed size standards, if adopted, the 
small business shares of total industry receipts among those industries 
vary from less than 0.1 percent to 2.4 percent, with an average of 0.8 
percent. These levels of market share effectively preclude a firm at or 
below the proposed size standards from exerting control on its 
industry.

Request for Comments

    The SBA invites public comments on the proposed rule, especially on 
the following issues.
    1. To simplify size standards, SBA proposes eight fixed size levels 
for receipts based size standards: $5.0 million, $7.0 million, $10.0 
million, $14.0 million, $19.0 million, $25.5 million, $30.0 million, 
and $35.5 million. The SBA invites comments on whether simplification 
of size standards in this way is necessary and if these proposed fixed 
size levels are appropriate. The SBA welcomes suggestions on 
alternative approaches to simplifying small business size standards.
    2. The SBA seeks feedback on whether the proposed levels of size 
standards are appropriate given the economic characteristics of each 
industry. The SBA also seeks feedback and suggestions on alternative 
standards, if they would be more appropriate, including whether an 
employee based standard for certain industries or exceptions is a more 
suitable measure of size, and if so, what that employee level should 
be.
    3. The SBA's proposed size standards are based on its evaluation of 
five primary factors: Average firm size, average assets size (a proxy 
for startup costs and entry barriers), four-firm concentration ratio, 
distribution of firms by size, and the level and small business share 
of Federal contracting dollars. The SBA welcomes comments on these 
factors and/or suggestions on other factors that it should consider in 
assessing industry characteristics when evaluating or revising size 
standards. The SBA also seeks information on relevant data sources, if 
available.
    4. The SBA gives equal weight to each of the five primary factors 
in all industries. The SBA seeks feedback on whether it should continue 
to give equal weight to each factor or whether it should give more 
weight to one or more factors for certain industries. Recommendations 
to weigh some factors more than others should include suggestions on 
specific weights for each factor for those industries along with 
supporting information.
    5. For some industries, SBA proposes to increase the existing size 
standards by a large amount (such as NAICS 512131, 515111, and 515112), 
while for others the proposed increases are modest. The SBA seeks 
feedback on whether it should, as a policy, limit the increase to a 
size standard and/or whether it should, as a policy, establish minimum 
or maximum values for its size standards. The SBA seeks suggestions on 
appropriate levels of changes to size standards and on their minimum or 
maximum levels.
    6. To simplify size standards, SBA has established or proposed 
common size standards for closely related industries in other NAICS 
Sectors. Based on SBA's analysis of the industry data, too much 
variation exists among the industries in NAICS Sector 51 to propose a 
common size standard for most industries. Therefore, for industries 
reviewed in this proposed rule, SBA has proposed size standards based 
on an analysis of each specific industry. SBA welcomes comments on 
whether it should adopt common size standards for certain industries in 
NAICS Sector 51, and if so, how are those industries related in a way 
to require a common size standard.
    7. For analytical simplicity and efficiency, in this proposed rule, 
SBA has refined its size standard methodology to obtain a single value 
as a proposed size standard instead of a range of values, as seen in 
its past size regulations. The SBA welcomes any comments on this 
procedure and suggestions on alternative methods.
    Public comments on the above issues are very valuable to SBA for 
validating its size standard methodology and its proposed revisions to 
size standards in this proposed rule. This will help SBA to move 
forward with its review of size standards for other NAICS Sectors. 
Commenters addressing size standards for a specific industry or a group 
of industries should include relevant data and/or other information 
supporting their comments. If comments relate to using size standards 
for Federal procurement programs, SBA suggests that commenters provide 
information on the size of contracts awarded, the size of businesses 
that can undertake the contracts, start-up costs, equipment and other 
asset requirements, the amount of subcontracting, other direct and 
indirect costs associated with the contracts, the use of mandatory 
sources of supply for products and services, and the degree to which 
contractors can mark up those costs.

Compliance With Executive Orders 12866, 13563, 12988 and 13132, the 
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory 
Flexibility Act (5 U.S.C. 601-612)

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
proposed rule is a ``significant'' regulatory action for purposes of 
Executive Order 12866. Accordingly, the next section contains SBA's 
Regulatory Impact Analysis. This is not a ``major rule,'' however, 
under the Congressional Review Act, (5 U.S.C. 800).

Regulatory Impact Analysis

1. Is there a need for the regulatory action?

    The SBA believes that the proposed size standards revisions for a 
number of industries in NAICS Sector 51, Information, will better 
reflect the economic characteristics of small businesses and the 
Federal government marketplace. The SBA's mission is to aid and assist 
small businesses through a variety of financial, procurement, business 
development, and advocacy programs. To assist the intended

[[Page 63226]]

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 SBA's Administrator the 
responsibility for establishing small business definitions. The Act 
also requires that small business definitions vary to reflect industry 
differences. The recently enacted Small Business Jobs Act also requires 
SBA to review all size standards and make necessary adjustments to 
reflect market conditions. The supplementary information section of 
this proposed rule explains SBA's methodology for analyzing a size 
standard for a particular industry.

2. What are the potential benefits and costs of this regulatory action?

    The most significant benefit to businesses obtaining small business 
status because of this rule is gaining eligibility for Federal small 
business assistance programs. These include SBA's financial assistance 
programs, economic injury disaster loans, and Federal procurement 
programs intended for small businesses. Federal procurement programs 
provide targeted opportunities for small businesses under SBA's 
business development programs, such as 8(a), Small Disadvantaged 
Businesses (SDB), small businesses located in Historically 
Underutilized Business Zones (HUBZone), women-owned small businesses 
(WOSB), and service-disabled veteran-owned small business concerns 
(SDVO SBC). Federal agencies may also use SBA size standards for a 
variety of other regulatory and program purposes. These programs assist 
small businesses to become more knowledgeable, stable, and competitive. 
In the 15 industries for which SBA has proposed increasing size 
standards, SBA estimates that more than 500 additional firms will 
obtain small business status and become eligible for these programs. 
That number is 1.2 percent of the total number of firms that are 
classified as small under the current standards in all 20 industries in 
NAICS Sector 51 covered by this proposed rule. If adopted as proposed, 
this would increase the small business share of total industry receipts 
in those industries from about 13 percent under the current size 
standards to 15 percent.
    Three groups will benefit from these proposed size standards, if 
they are adopted as proposed: (1) Some businesses that are above the 
current size standards will gain small business status under the higher 
size standards, thereby enabling them to participate in Federal small 
business assistance programs; (2) growing small businesses that are 
close to exceeding the current size standards will be able to retain 
their small business status under the higher size standards, thereby 
enabling them to continue their participation in the programs; and (3) 
Federal agencies will have a larger pool of small businesses from which 
to draw for their small business procurement programs.
    During fiscal years 2007-2009, nearly 98 percent of Federal 
contracting dollars spent in industries reviewed in this proposed rule 
were accounted for by the 15 industries for which SBA has proposed to 
increase size standards. The SBA estimates that additional firms 
gaining small business status under the proposed size standards could 
potentially obtain Federal contracts totaling up to $15 million to $20 
million annually under SBA's small business, 8(a), SDB, HUBZone, WOSB, 
and SDVO SBC Programs, and other unrestricted procurements. The added 
competition for many of these procurements could also result in lower 
prices to the Government for procurements reserved for small 
businesses, although SBA cannot quantify this benefit.
    Under SBA's 7(a) Business Loan and 504 Programs, based on the 2008-
2010 data, SBA estimates that about 5 to 10 additional loans totaling 
about $1.0 million to $2.0 million in Federal loan guarantees could be 
made to these newly defined small businesses under the proposed 
standards. Increasing the size standards will likely result in more 
small business guaranteed loans to businesses in these industries, but 
it would be impractical to try to estimate their exact number and total 
amount loaned. Under the Jobs Act, SBA can now guarantee substantially 
larger loans than in the past. In addition, the Jobs Act established an 
alternative size standard ($15 million in tangible net worth and $5 
million in net income after income taxes) for business concerns that do 
not meet the size standards for their industry. Therefore, SBA finds it 
similarly difficult to quantify the exact impact of these proposed 
standards on its 7(a) and 504 Loan Programs.
    Newly defined small businesses will also benefit from SBA's 
Economic Injury Disaster Loan (EIDL) Program. Since this program is 
contingent on the occurrence and severity of a disaster, SBA cannot 
make a meaningful estimate of benefits for future disasters.
    To the extent that 500 newly defined additional small firms could 
become active in Federal procurement programs, the proposed changes, if 
adopted, may entail some additional administrative costs to the Federal 
Government associated with additional bidders for Federal small 
business procurement opportunities; additional firms seeking SBA 
guaranteed lending programs; additional firms eligible for enrollment 
in the Central Contractor Registration's (CCR) Dynamic Small Business 
Search database; and additional firms seeking certification as 8(a) or 
HUBZone firms or qualifying for small business, WOSB, SDVO SBC, or SDB 
status. Among those newly defined small businesses seeking SBA 
assistance, there could be some additional costs associated with 
compliance and verification of small business status and protests of 
small business status. These added costs will be minimal because 
mechanisms are already in place to handle these administrative 
requirements.
    Additionally, the costs to the Federal Government may be higher on 
some Federal contracts. With a 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 small business set-aside 
contracting might result in competition among fewer total bidders, 
although there will be more small businesses eligible to submit offers. 
However, the additional costs associated with fewer bidders are 
expected to be minor since, as a matter of law, procurements may be set 
aside for small businesses or reserved for the 8(a), HUBZone, WOSB, or 
SDVO SBC Programs only if awards are expected to be made at fair and 
reasonable prices. In addition, higher costs may result when more full 
and open contracts are awarded to HUBZone and SDB businesses that 
receive price evaluation preferences.
    The proposed size standards may have distributional effects among 
large and small businesses. Although SBA cannot estimate with certainty 
the actual outcome of the gains and losses among small and large 
businesses, it can identify several probable impacts. There may 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 
contracts for small businesses. In addition, some Federal contracts may 
be awarded to HUBZone or SDB concerns instead of large businesses since 
those two categories of small businesses may be eligible for an 
evaluation adjustment for contracts when they compete on a full and 
open basis. Similarly, currently defined small businesses may obtain 
fewer Federal

[[Page 63227]]

contracts 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 number of newly 
defined and expanding small businesses that are willing and able to 
sell to the Federal Government will limit the number of contracts 
transferred from large and from currently defined small businesses. The 
SBA cannot estimate the potential distributional impacts of these 
transfers with any degree of precision because FPDS-NG data only 
identify the size of businesses receiving Federal contracts as either 
``small business'' or ``other than small business''; FPDS-NG does not 
provide the exact size of the business.
    The proposed revisions to the existing size standards for 
Industries in NAICS Sector 51, Information, are consistent with SBA's 
statutory mandate to assist small business. 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 the small business programs 
designed to assist them.

Executive Order 13563

    A description of the need for this regulatory action and benefits 
and costs associated with this action including possible distributions 
impacts that relate to Executive Order 13563 is included above in the 
Regulatory Impact Analysis under Executive Order 12866.
    In an effort to engage interested parties in this action, SBA has 
presented its methodology (discussed above under Supplementary 
Information) to various industry associations and trade groups. The SBA 
also met with various industry groups to obtain their feedback on its 
methodology and other size standards issues. The SBA also presented its 
size standards methodology to businesses in 13 cities in the U.S. and 
sought their input as part of the Jobs Act tours. The presentation also 
included information on latest status of the comprehensive size 
standards review and on how interested parties can provide SBA with 
input and feedback on size standards review.
    Additionally, SBA sent letters to the Directors of the Offices of 
Small and Disadvantaged Business Utilization (OSDBU) at several Federal 
agencies with considerable procurement responsibilities requesting 
their feedback on how the agencies use SBA size standards and whether 
current standards meet their programmatic needs (both procurement and 
non-procurement). The SBA gave appropriate consideration to all input, 
suggestions, recommendations, and relevant information obtained from 
industry groups, individual businesses, and Federal agencies in 
preparing this proposed rule.
    The review of size standards in NAICS Sector 51, Information, is 
consistent with EO 13563, section 6 calling for retrospective analyses 
of existing rules. As discussed previously, the last overall review of 
size standards occurred during the late 1970s and early 1980s. Since 
then, except for periodic adjustments for monetary based size 
standards, most reviews of size standards were limited to a few 
specific industries in response to requests from the public and Federal 
agencies. The SBA recognizes that changes in industry structure and the 
Federal marketplace over time have rendered existing size standards for 
some industries no longer supportable by current data. Accordingly, SBA 
has begun a comprehensive review of its size standards to ensure that 
existing size standards have supportable bases and to revise them when 
necessary. In addition, on September 27, 2010, the President of the 
United States signed the Small Business Jobs Act of 2010 (Jobs Act). 
The Jobs Act directs SBA to conduct a detailed review of all size 
standards and to make appropriate adjustments to reflect market 
conditions. Specifically, the Jobs Act requires SBA to conduct a 
detailed review of at least one-third of all size standards during 
every 18 month period from the date of its enactment and do a complete 
review of all size standards not less frequently than once every 5 
years thereafter.

Executive Order 12988

    This action meets applicable standards set forth in Sections 3(a) 
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden. The action does not 
have retroactive or preemptive effect.

Executive Order 13132

    For purposes of Executive Order 13132, SBA has determined that this 
proposed rule 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 responsibilities among the various 
levels of government. Therefore, SBA has determined that this proposed 
rule has no federalism implications warranting preparation of a 
federalism assessment.

Paperwork Reduction Act

    For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, 
SBA has determined that this rule would not impose any new reporting or 
record keeping requirements.

Initial Regulatory Flexibility Analysis

    Under the Regulatory Flexibility Act (RFA), this rule, if 
finalized, may have a significant impact on a substantial number of 
small businesses in NAICS Sector 51, Information. As described above, 
this rule may affect small businesses seeking Federal contracts; loans 
under SBA's 7(a), 504 Guaranteed Loan and Economic Injury Disaster Loan 
Programs, as well as assistance under other Federal small business 
programs.
    Immediately below, SBA sets forth an initial regulatory flexibility 
analysis (IRFA) of this proposed rule addressing the following 
questions: (1) What are 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 are the projected reporting, 
recordkeeping, and other compliance requirements of the rule?; (4) What 
are the relevant Federal rules that may duplicate, overlap, or conflict 
with the rule?; and (5) What alternatives will allow the Agency to 
accomplish its regulatory objectives while minimizing the impact on 
small entities?

1. What are the need for and objective of the rule?

    Most of the size standards in NAICS Sector 51, Information, have 
not been reviewed since the early 1980s. Technology, productivity 
growth, international competition, mergers and acquisitions, and 
updated industry definitions may have changed the structure of many 
industries in that Sector. Such changes can be sufficient to support 
revisions to current size standards for some industries. Based on its 
analysis of the latest data available, SBA believes that the revised 
standards in this proposed rule more appropriately reflect the size of 
businesses in those industries that need Federal assistance. The 
recently enacted Small Business Jobs Act also requires SBA to review 
all size standards and make necessary adjustments to reflect market 
conditions.

[[Page 63228]]

2. What is SBA's description and estimate of the number of small 
entities to which the rule will apply?

    If the proposed rule is adopted in its present form, SBA estimates 
that about 500 additional firms will become small because of increases 
in size standards in 15 industries. That represents 1.2 percent of the 
total number of firms that are classified as small under the current 
standards in all 20 industries in NAICS Sector 51 covered by this 
proposed rule. This will result in an increase in the small business 
share of total industry receipts for this Sector from about 13 percent 
under the current size standards to 15 percent under the proposed 
standards. The proposed standards, if adopted, will enable more small 
businesses to retain their small business status for a longer period. 
Many firms have lost their small business eligibility and find it 
difficult to compete at such low levels with companies that are 
significantly larger than they are. The SBA believes the competitive 
impact will be positive for existing small businesses and for those 
that exceed the current size standards but are on the very low end of 
those that are not small. They might otherwise be called or referred to 
as mid sized businesses, although SBA only defines what is small; other 
entities are other than small.

3. What are the projected reporting, record keeping and other 
compliance requirements of the rule and an estimate of the classes of 
small entities, which will be subject to the requirements?

    Proposed size standards changes do not impose any additional 
reporting or record keeping requirements on small entities. However, 
qualifying for Federal procurement and a number of other programs 
requires that entities register in the Central Contractor Registration 
(CCR) database and certify at least annually that they are small in the 
Online Representations and Certifications Application (ORCA). 
Therefore, businesses opting to participate in those programs must 
comply with CCR and ORCA requirements. There are no costs associated 
with either CCR registration or ORCA certification. Changing size 
standards alters the 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 rule?

    Under section 3(a)(2)(C) of the Small Business Act, 15 U.S.C. 
632(a)(2)(c), Federal agencies must use SBA's size standards to define 
a small business, unless specifically authorized by statute to do 
otherwise. 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, November 24, 1995). The SBA is not aware of any 
Federal rule that would duplicate or conflict with establishing size 
standards.
    However, the Small Business Act and SBA's regulations allow Federal 
agencies to develop different size standards if they believe that SBA's 
size standards are not appropriate for their programs, with the 
approval of SBA's Administrator (13 CFR 121.903). The Regulatory 
Flexibility Act authorizes an agency to establish an alternative small 
business definition after consultation with the Office of Advocacy of 
the U.S. Small Business Administration (5 U.S.C. 601(3)).

5. What alternatives will allow the Agency to accomplish its regulatory 
objectives while minimizing the impact on small entities?

    By law, SBA is required to develop numerical size standards for 
establishing eligibility for Federal small business assistance 
programs. Other than varying size standards by industry and changing 
the size measures, no practical alternative exists to the systems of 
numerical size standards.

List of Subjects in 13 CFR Part 121

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

    For the reasons set forth in the preamble, SBA proposes to amend 
part 13 CFR part 121 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

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

    Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 637(a), 644 and 
662(5); and Pub. L. 105-135, sec. 401 et seq., 111 Stat. 2592.

    2. In Sec.  121.201, in the table, revise the entries for 
``511210'', ``512110'', ``512131'', ``512199'', ``512290'', ``515111'', 
``515112'', ``515120'', ''515210'', ``517410'', ``517919'', ``518210'', 
``519110'', ``519120'', and ``519190'' to read as follows:


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

* * * * *

----------------------------------------------------------------------------------------------------------------
                                                                                  Size standards  Size standards
                  NAICS codes                       NAICS U.S. industry title     in millions of   in number of
                                                                                      dollars        employees
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
511210........................................  Software Publishers.............           $35.5
 
                                                  * * * * * * *
512110........................................  Motion Picture and Video                    30.0
                                                 Production.
 
                                                  * * * * * * *
512131........................................  Motion Picture Theaters (except             35.5
                                                 Drive[dash]Ins).
 
                                                  * * * * * * *
512199........................................  Other Motion Picture and Video              19.0
                                                 Industries.
 
                                                  * * * * * * *
512290........................................  Other Sound Recording Industries            10.0
 
                                                  * * * * * * *
515111........................................  Radio Networks..................            30.0

[[Page 63229]]

 
515112........................................  Radio Stations..................            35.5
515120........................................  Television Broadcasting.........            35.5
515210........................................  Cable and Other Subscription                35.5
                                                 Programming.
 
                                                  * * * * * * *
517410........................................  Satellite Telecommunications....            30.0
 
                                                  * * * * * * *
517919........................................  All Other Telecommunications....            30.0
 
                                                  * * * * * * *
518210........................................  Data Processing, Hosting, and               30.0
                                                 Related Services.
 
                                                  * * * * * * *
519110........................................  News Syndicates.................            25.5
519120........................................  Libraries and Archives..........            14.0
 
                                                  * * * * * * *
519190........................................  All Other Information Services..            25.5
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------


    Dated: July 22, 2011.
Karen G. Mills,
Administrator.
[FR Doc. 2011-26208 Filed 10-7-11; 8:45 am]
BILLING CODE 8025-01-P