[Federal Register Volume 77, Number 37 (Friday, February 24, 2012)]
[Rules and Regulations]
[Pages 10943-10950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-4330]



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  Federal Register / Vol. 77, No. 37 / Friday, February 24, 2012 / 
Rules and Regulations  

[[Page 10943]]



SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG08


Small Business Size Standards: Transportation and Warehousing

AGENCY: U.S. Small Business Administration.

ACTION: Final rule.

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

SUMMARY: The United States Small Business Administration (SBA) is 
increasing the small business size standards for 22 industries in North 
American Industry Classification System (NAICS) Sector 48-49, 
Transportation and Warehousing, and retaining the current standards for 
the remaining 37 industries in that Sector. As part of its ongoing 
comprehensive review of all size standards, SBA has evaluated all 
receipts based standards for industries in NAICS Sector 48-49 to 
determine whether they should be retained or revised. SBA did not 
review the employee based standards for industries in NAICS Sector 48-
49, but will do so at a later date with other employee based size 
standards.

DATES: This rule is effective March 26, 2012.

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

SUPPLEMENTARY INFORMATION: To determine eligibility for Federal small 
business assistance programs, SBA establishes small business size 
definitions (referred to as size standards) for private sector 
industries in the United States. SBA's existing size standards use two 
primary measures of business size--average annual receipts and number 
of employees. Financial assets, electric output and refining capacity 
are used as size measures for a few specialized industries. In 
addition, SBA's Small Business Investment Company (SBIC), 7(a), and 
Certified Development Company (CDC or 504) Loan Programs determine 
small business eligibility using either the industry based size 
standards or net worth and net income size based standards. At the 
start of the current comprehensive review of SBA's small business size 
standards, there were 41 different size standards levels, covering 
1,141 NAICS industries and 18 sub-industry activities. Of these, 31 
were based on average annual receipts, seven based on number of 
employees, and three based on other measures.
    Over the years, SBA has received comments that its size standards 
have not kept up with changes in the economy, in particular, that they 
do not reflect changes in the Federal contracting marketplace and 
industry structure. SBA last conducted a comprehensive review of size 
standards during the late 1970s and early 1980s. Since then, most 
reviews of size standards have been limited to a few specific 
industries in response to requests from the public and Federal 
agencies. SBA also makes periodic inflation adjustments to its monetary 
based size standards. The latest inflation adjustment to size standards 
was published in the Federal Register on July 18, 2008 (73 FR 41237).
    SBA recognizes that changes in industry structure and the Federal 
marketplace since the last overall review have rendered existing size 
standards for some industries no longer supportable by current data. 
Accordingly, in 2007, SBA began a comprehensive review of its size 
standards to determine whether existing size standards have supportable 
bases relative to the current data, and to revise them, where 
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 every18-month period 
from the date of its enactment and 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 is also consistent with Executive Order 13563 on 
improving regulation and regulatory review.
    SBA has chosen not to review all size standards at one time. 
Rather, it is reviewing groups of related industries on a Sector by 
Sector basis.
    As part of SBA's comprehensive review of size standards, the Agency 
reviewed all receipts based size standards in NAICS Sector 48-49, 
Transportation and Warehousing, to determine whether the existing size 
standards should be retained or revised. On May 13, 2011, SBA published 
a proposed rule in the Federal Register (76 FR 27935) seeking public 
comment on its proposal to increase the size standards for 22 
industries in NAICS Sector 48-49. The rule was one of a series of 
proposed rules that examines industries grouped by NAICS Sector.
    SBA developed a ``Size Standards Methodology'' for developing, 
reviewing, and modifying size standards, when necessary. SBA published 
the document on its Web site at www.sba.gov/size for public review and 
comment and also included it as a supporting document in the electronic 
docket of the May 13, 2011 proposed rule at www.regulations.gov.
    In evaluating an industry's size standard, SBA examines its 
characteristics (such as average firm size, startup costs, industry 
competition and distribution of firms by size) and the level and small 
business share of Federal contract dollars in that industry. SBA also 
examines the potential impact a size standard revision might have on 
its financial assistance programs and whether a business concern under 
a revised size standard would be dominant in its industry. SBA analyzed 
the characteristics of each industry in NAICS Sector 48-49 that has a 
receipts based size standard, mostly using a special tabulation 
obtained from the U.S. Bureau of the Census based on its 2007 Economic 
Census (the latest available). SBA also evaluated the level and small 
business share of Federal contracts in each of those industries using 
the data from the Federal Procurement Data System--Next Generation 
(FPDS-NG) for fiscal years 2007 to 2009. To evaluate the impact of 
changes to size standards on its loan programs, SBA analyzed internal 
data

[[Page 10944]]

on its guaranteed loan programs for fiscal years 2008 to 2010.
    SBA's ``Size Standards Methodology'' provides a detailed 
description of its analyses of various industry and program factors and 
data sources, and how the Agency uses the results to derive size 
standards. In the proposed rule, SBA detailed how it applied its ``Size 
Standards Methodology'' to review and modify, where necessary, the 
existing standards for industries in NAICS Sector 48-49. SBA sought 
comments from the public on a number of issues about its ``Size 
Standards Methodology,'' such as whether there are alternative 
methodologies that SBA should consider; whether there are alternative 
or additional factors or data sources that SBA should evaluate; whether 
SBA's approach to establishing small business size standards makes 
sense in the current economic environment; whether SBA's applications 
of anchor size standards are 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.
    SBA sought comments on its proposal to increase receipts based size 
standards for 22 industries in NAICS Sector 48-49 (Transportation and 
Warehousing) and retain the existing size standards for remaining 
industries in that Sector. Specifically, SBA requested comments on 
whether the size standards should be revised as proposed and whether 
the proposed revisions are appropriate. SBA also invited comments on 
whether its proposed eight fixed size standard levels are appropriate 
and whether it should adopt common size standards for several 
Subsectors and Industry Groups in NAICS Sector 48-49.
    SBA's analyses supported lowering existing receipts based standards 
for 18 industries. However, as SBA pointed out in the proposed rule, 
lowering size standards would reduce the number of firms eligible to 
participate in Federal small business assistance programs and this is 
contrary to what the Federal government and the Agency are doing to 
help small businesses. Therefore, SBA proposed to retain the current 
size standards for those industries and requested comments on whether 
the Agency should lower size standards for those industries for which 
its analyses might support lowering them.
    In addition, because of lack of relevant industry data, SBA 
proposed no changes to current size standards for the following: 
Offshore Marine Air Transportation Services (sub-industries or 
``exceptions'' to both NAICS Codes 481211 and NAICS 481212); Offshore 
Marine Water Transportation Services (exception to NAICS Subsector 
483); Non-Vessel Owning Common Carriers and Household Goods Forwarders 
(exception to NAICS Code 488510); and Postal Services (NAICS Code 
491110). SBA sought comments on this proposal as well as supporting 
information if different size standards appeared more appropriate for 
these industries or sub-industries.

Summary of Comments

    SBA received six comments to the proposed rule. However, three of 
them were related to the proposed rule for NAICS Sector 54 
(Professional, Technical, and Scientific Services), which was published 
for comments separately about the same time. One of those three 
comments was submitted within the comment period for the NAICS Sector 
54 proposed rule, and therefore SBA considered it along with the other 
comments in drafting a final rule for that Sector. However, the other 
two comments were submitted after the closing date for the comment 
period for Sector 54 (June 15, 2011), and thus were not considered for 
NAICS Sector 54 (because they were untimely) or for this rule (because 
they were not relevant). Therefore, SBA received and considered three 
valid comments to the proposed rule on NAICS Sector 48-49. Each of 
these comments is discussed below.
    SBA received one comment on NAICS 484230 (Specialized Freight 
(except Used Goods) Trucking, Long-Distance). For the reasons provided 
in the proposed rule, SBA proposed to retain the current $25.5 million 
size standard for that NAICS code, although its analyses of industry 
data related to all industries within NAICS Subsector 484 and to NAICS 
Code 484230 individually supported a lower $19 million size standard. 
The commenter stated that the size standard for NAICS Code 484230 
should not be lowered to $19 million based on SBA's analyses, but 
instead should be increased to $30 million from the current $25.5 
million. However, the comment provided no specific data or analysis 
justifying why the $30 million size standard is a more appropriate size 
standard than $25.5 million for that industry. Rather, the commenter 
simply pointed out SBA's results on certain industry and Federal 
procurement factors to justify the $30 million size standard. Although 
the four-firm concentration ratio was only 8 percent (i.e., much lower 
than 40 percent for this to factor in the calculated size standard), 
the commenter suggested that the size standard be increased to $30 
million based on that factor. Similarly, although the Gini coefficient 
value reflecting the size distribution of firms in that industry 
supported the current $25.5 million size standard, the commenter argued 
that the size standard should be $30 million instead. Finally, the 
commenter contended that the size standard for NAICS Code 484230 should 
be $30 million because the Federal contracting factor, based on the 
2007-2009 FPDS-NG data, supported that level. As explained in the SBA's 
size standards methodology as well as in the proposed rule, SBA 
calculates an industry's size standard based on the average of size 
standards supported by each of industry and Federal factors, not based 
on one or several factors that support a higher size standard. Although 
SBA sought comments on whether it should weigh some factors more 
heavily than others for specific industries, the commenter provided no 
feedback on this issue.
    In response to the comment, SBA analyzed updated 2008-2010 Federal 
procurement data and industry data from an updated tabulation of the 
2007 Economic Census. The updated data produced a Gini coefficient 
value that supported a higher $30 million size standard, and the 
Federal contracting factor based on the updated data supported a higher 
$35.5 million size standard than the previous analyses. However, SBA's 
analysis based on all factors continued to support the current $25.5 
million size standard for NAICS Code 484230 because the remaining 
industry factors supported a standard much lower than the current $25.5 
million size standard. Because all industries within NAICS Subsector 
484 currently share a common size standard, SBA also used the updated 
data to recalculate the appropriate common size standard for NAICS 
Subsector 484 and found it to be $19 million. Since SBA received no 
comments opposing its proposal to retain a common size standard for all 
industries in NAICS Subsector 484, the Agency is maintaining a common 
size standard for these industries. However, continuing its policy of 
not lowering any size standards under the current economic environment, 
SBA is adopting the current $25.5 million size standard for all 
industries in NAICS Subsector 484, including NAICS Code 484230. In 
other words, SBA has not adopted the commenter's recommendation to 
increase the size standard for NAICS Code 484230 to $30 million.
    Additionally, the commenter suggested that fuel surcharges should 
be excluded from the calculation of receipts when determining if a 
company meets the size standard. SBA's

[[Page 10945]]

definition of receipts states the following: ``Receipts means `total 
income' (or in the case of a sole proprietorship, `gross income') plus 
`cost of goods sold' as these terms are defined and reported on 
Internal Revenue Service (IRS) tax return forms * * *.'' 13 CFR 
121.104. The definition of receipts provides for a limited number of 
specific exclusions, none of which relates to fuel surcharges or other 
fuel related costs. Fuel surcharges are part of the usual and customary 
costs of doing business. In addition, fuel surcharges that businesses 
collect are subject to taxation and therefore are part of a firm's 
revenues. Further, SBA uses data from the Economic Census, and the 
revenue data that firms report under law to the Economic Census include 
those costs. Accordingly, SBA does not exclude fuel surcharges from the 
calculation of receipts for small business size determination purposes. 
SBA acknowledges that firms in the transportation industries may have 
substantial fuel surcharges or other fuel related costs, and, as such, 
the Agency may consider such costs as a secondary factor in addition to 
the primary industry and Federal procurement factors that SBA evaluates 
when establishing small business size standards.
    Another commenter felt that most of the revenues generated from the 
commenter's firm's contracts are passed through to its many 
subcontractors, which were tied to its costs and thus should not be 
included as part of its revenues. The commenter pointed out that on 
average the subcontractors are paid 82 percent of the total contract 
value, and including these pass-throughs overstates the firm's 
revenues. The commenter stated that the requirement to include 
subcontracting costs in revenues had an adverse impact on its business' 
size determination because it caused its total revenues to exceed the 
size standard. The commenter suggested that costs of goods sold be 
removed from the definition of receipts and that actual profit be the 
determining factor on whether a firm qualifies as small.
    This is not a new suggestion, nor is it unique to transportation 
industries. As explained above, SBA's definition of receipts states 
that ``receipts means `total income' * * * plus `cost of goods sold' * 
* *'' and provides for a limited number of specific exclusions. 13 CFR 
121.104. None of the enumerated exclusions relates to subcontracting 
costs.
    Similar to fuel surcharges mentioned above, SBA does not allow for 
the exclusion of subcontracting costs (commonly known as ``pass-
throughs'') from the calculation of revenues because they are part of 
the usual and customary costs of doing business. Additionally, SBA uses 
data from the U.S. Bureau of the Census' 2007 Economic Census, and the 
revenue data that firms report under law to the Economic Census include 
subcontracting and other costs of goods sold. If the Agency were to 
exclude the value of ``pass-through'' revenues, SBA would also have to 
establish a lower size standard to reflect the size of the industry 
without them.
    SBA has always included all revenues, including pass-throughs or 
subcontracting costs, for size standards purposes for several reasons. 
First, as stated above, the revenue data SBA receives from the Economic 
Census includes those costs. Second, this practice is consistent with 
the Small Business Act, which refers to SBA's establishing size 
standards based on ``* * * annual average gross receipts of the 
business concern * * *'' Sec.  3(a)(2)(C)(ii)(II) [emphasis added]. 
Third, SBA's existing definitions of receipts and employees provide a 
consistent approach to establishing eligibility for small business 
programs for all industries. Fourth, if SBA were to exclude certain 
costs for one or a few industries, other industries could raise the 
same questions, creating a ``slippery slope'' leading toward widespread 
inconsistency in how businesses calculate their receipts to determine 
if they qualify as small.
    The third commenter supported the increase in the size standard for 
NAICS Code 485113 (Bus and Motor Vehicles Transit Systems) from $7.0 
million in average annual receipts to $14.0 million in average annual 
receipts because the higher size standard better reflected current 
operations of the commenter's business, where a large portion of small 
business set-aside contracts had to be subcontracted to other 
businesses. The commenter stated that subcontractors are paid on 
average 85 percent of the total contract value, while the commenter's 
business receives the remaining 15 percent.
    SBA acknowledges that some industries may have substantially higher 
subcontracting costs than others. SBA considers subcontracting costs as 
a secondary factor, in addition to the primary industry and Federal 
procurement factors, when it reviews size standards for those 
industries. In other words, SBA may make further adjustments to small 
business size standards, if necessary, for industries for which 
subcontracting costs are substantially higher than for other 
industries.
    SBA notes that two of the three comments indicated that 
subcontracting costs accounted for more than 80 percent of the total 
value of work in their industries. It is important to point out that 
SBA's regulations on Government Contracting Programs provide that 
``[i]n order to be awarded a full or partial small business set-aside 
contract, an 8(a) contract, a WOSB or EDWOSB contract pursuant to part 
127 of this chapter, * * * a small business concern must agree that: 
(1) In the case of a contract for services (except construction), the 
concern will perform at least 50 percent of the cost of the contract 
incurred for personnel with its own employees. * * *'' 13 CFR 125.6. A 
firm undertaking such contracts must comply with these ``limitations on 
subcontracting,'' even if it otherwise appears to meet the small 
business size standard for a particular procurement. It cannot qualify 
as small for award under any of the aforementioned programs if it 
subcontracts more than 50 percent of the contract.
    SBA received no comments opposing its proposal to retain the 
current size standards where analyses suggested lowering them. The 
Agency also received no comments opposing SBA's proposal to retain the 
current standards where relevant data were not available.
    All comments to the proposed rule are available for public review 
at http://www.regulations.gov.

Conclusion

    Based on SBA's analyses of relevant industry and program data and 
the public comments it received on the proposed rule, SBA has decided 
to increase the small business size standards for the 22 industries in 
NAICS Sector 48-49 to the levels it proposed. Those industries and 
their revised size standards are shown in the following Table 1, 
Summary of Revise Size Standards in NAICS Sector 48-49.

[[Page 10946]]



                        Table 1--Summary of Revised Size Standards in NAICS Sector 48-49
----------------------------------------------------------------------------------------------------------------
                                                                                   Current size      New size
                NAICS codes                          NAICS industry title            standard        standard
                                                                                    (millions)      (millions)
----------------------------------------------------------------------------------------------------------------
481219.....................................  Other Nonscheduled Air                         $7.0           $14.0
                                              Transportation.
485111.....................................  Mixed Mode Transit Systems.........             7.0            14.0
485112.....................................  Commuter Rail Systems..............             7.0            14.0
485113.....................................  Bus and Other Motor Vehicle Transit             7.0            14.0
                                              Systems.
485119.....................................  Other Urban Transit Systems........             7.0            14.0
485210.....................................  Interurban and Rural Bus                        7.0            14.0
                                              Transportation.
485310.....................................  Taxi Service.......................             7.0            14.0
485320.....................................  Limousine Service..................             7.0            14.0
485410.....................................  School and Employee Bus                         7.0            14.0
                                              Transportation.
485510.....................................  Charter Bus Industry...............             7.0            14.0
485991.....................................  Special Needs Transportation.......             7.0            14.0
485999.....................................  All Other Transit and Ground                    7.0            14.0
                                              Passenger Transportation.
486210.....................................  Pipeline Transportation of Natural              7.0            25.5
                                              Gas.
488111.....................................  Air Traffic Control................             7.0            30.0
488119.....................................  Other Airport Operations...........             7.0            30.0
488190.....................................  Other Support Activities for Air                7.0            30.0
                                              Transportation.
488210.....................................  Support Activities for Rail                     7.0            14.0
                                              Transportation.
488310.....................................  Port and Harbor Operations.........            25.5            35.5
488320.....................................  Marine Cargo Handling..............            25.5            35.5
488330.....................................  Navigational Services to Shipping..             7.0            35.5
488390.....................................  Other Support Activities for Water              7.0            35.5
                                              Transportation.
488510.....................................  Freight Transportation Arrangement         \10\ 7.0            14.0
                                              \10\.
----------------------------------------------------------------------------------------------------------------

    For the reasons stated above in this rule and in the proposed rule, 
SBA has decided to retain the current receipts based size standards for 
18 industries for which analytical results suggested lower size 
standards. Not lowering size standards in NAICS Sector 48-49 is 
consistent with SBA's recent final rules on NAICS Sector 44-45, Retail 
Trade (75 FR 61597, October 6, 2010); NAICS Sector 72, Accommodation 
and Food Services (75 FR 61604, October 6, 2010); and NAICS Sector 81, 
Other Services (75 FR 61591, October 6, 2010). In each of those final 
rules, SBA adopted its proposal not to reduce small business size 
standards for the same reasons. SBA is also retaining the existing 
receipts based size standards for two industries for which the results 
supported them at their current levels. Accordingly, SBA has retained 
the existing receipts based size standards for all industries in NAICS 
Subsector 484 (Truck Transportation), Subsector 487 (Scenic and 
Sightseeing Transportation), Subsector 492 (Couriers and Messengers), 
and Subsector 493 (Warehousing and Storage).
    SBA has also retained current receipts based size standards for 
Offshore Marine Air Transportation Services (exceptions to NAICS Code 
481211 and NAICS Code 481212), Offshore Marine Water Transportation 
Services (exception to NAICS Subsector 483, Water Transportation), Non-
Vessel Owning Common Carriers and Household Goods Forwarders (exception 
to NAICS Code 488510), and Postal Services (NAICS Code 491110).
    SBA did not review the 15 industries in NAICS Sector 48-49 that 
have employee based size standards. Therefore, SBA has retained the 
size standards for those industries at their current levels until the 
Agency reviews employee based size standards at a later date.

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 
final 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?
    SBA believes that the revised changes to small business size 
standards for 22 industries in NAICS Sector 48-49, Transportation and 
Warehousing, reflect changes in economic characteristics of small 
businesses in those industries and the Federal procurement market. 
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 beneficiaries of these programs effectively, SBA 
establishes distinct definitions to determine 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 
definitions for small business. The Act also requires that small 
business definitions vary to reflect industry differences. The Jobs Act 
requires the Administrator to review one-third of all size standards 
within each 18-month period from the date of its enactment and to 
review all size standards at least every five years thereafter. The 
supplementary information section of the May 13, 2011 proposed rule and 
this rule explained in detail 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 as a result of this rule is gaining eligibility for Federal 
small business assistance programs, including SBA's financial 
assistance programs, economic injury disaster loans, and Federal 
procurement opportunities intended for small businesses. Federal small 
business programs provide targeted opportunities for small businesses 
under SBA's various business development and contracting programs. 
These include the 8(a) Business Development program and programs 
benefiting small businesses located in Historically Underutilized 
Business Zones (HUBZone), women owned small businesses (WOSB), and 
service-disabled veteran-owned small businesses (SDVOSB). Other Federal 
agencies also may use SBA's size

[[Page 10947]]

standards for a variety of regulatory and program purposes. These 
programs help small businesses become more knowledgeable, stable, and 
competitive. In the 22 industries in NAICS Sector 48-49 for which SBA 
has decided to increase size standards, SBA estimates that about 1,200 
additional firms will gain small business status and become eligible 
for these programs. That number is 0.7 percent of the total number of 
firms in industries in NAICS Sector 48-49 that have receipts based size 
standards. SBA estimates that this would increase the small business 
share of total industry receipts in those industries from 36 percent 
under the current size standards to 39 percent.
    The benefits of increasing size standards to a more appropriate 
level will accrue to three groups in the following ways: (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.
    Based on the data for fiscal years 2007 to 2009, more than two-
thirds of total Federal contracting dollars spent in industries 
reviewed in this proposed rule were accounted for by the 22 industries 
for which SBA is increasing size standards. SBA estimates that 
additional firms gaining small business status in those industries 
under the revised size standards could potentially obtain Federal 
contracts totaling up to $25 million per year through the 8(a), 
HUBZone, WOSB, and SDVOSB programs and through other, unrestricted 
procurements. The added competition for many of these procurements may 
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 
to 2010 data, SBA estimates that approximately 10 additional loans 
totaling $4 million to $5 million in new Federal loan guarantees could 
be made to the newly defined small businesses under the revised size 
standards. 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 for SBA's 7(a) and 504 Loan Programs for 
those applicants that do not meet the size standards for their 
industries. That is, under the Jobs Act, if a firm applies for a 7(a) 
or 504 loan but does not meet the size standard for its industry, it 
might still qualify if, including its affiliates, it has a tangible net 
worth that does not exceed $15 million and also has an average net 
income after Federal income taxes (excluding any carry-over losses) for 
its preceding two completed fiscal years that does not exceed $5.0 
million. Thus, increasing the size standards may result in an increase 
in small business guaranteed loans to small businesses in these 
industries, but it would be impractical to try to estimate the extent 
of their number and the total amount loaned.
    Newly defined small businesses will also benefit from SBA's 
Economic Injury Disaster Loan 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 all 1,200 newly defined small firms under the 
revised size standards could become active in Federal procurement 
programs, this 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 Dynamic Small Business Search 
database and additional firms seeking certification as 8(a) or HUBZone 
firms or those qualifying for small business, WOSB, SDVOSB, and SDB 
status. Among businesses in this group 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 are likely to be minimal because mechanisms 
are already in place to handle these administrative requirements.
    The costs to the Federal Government may be higher on some Federal 
contracts under the higher revised size standards. 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 
set-aside contracting will likely result in competition among fewer 
total bidders, although there will be more small businesses eligible to 
submit offers. In addition, higher costs may result when additional 
full and open contracts are awarded to HUBZone businesses because of a 
price evaluation preference. The additional costs associated with fewer 
bidders, however, will likely 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 SDVOSB Programs only if awards are expected to 
be made at fair and reasonable prices.
    The revised size standards may have some distributional effects 
among large and small businesses. Although SBA cannot estimate with 
certainty the actual outcome of gains and losses among small and large 
businesses, there are several likely impacts. There may be a transfer 
of some Federal contracts from large businesses to small 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 agencies may award more Federal contracts 
to HUBZone concerns instead of large businesses since HUBZone concerns 
may be eligible for price evaluation adjustments when they compete on 
full and open bidding opportunities. Similarly, currently defined small 
businesses may obtain fewer Federal contracts due to the increased 
competition from more businesses defined as small under the revised 
size standards. This transfer may be offset by more 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 potential transfer of 
contracts away from large and small businesses under the existing size 
standards. The SBA cannot estimate with precision the potential 
distributional impacts of these transfers.
    The revisions to the existing size standards for Transportation and 
Warehousing industries 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 small business programs designed 
to assist them.

[[Page 10948]]

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. SBA 
also met with various industry groups to obtain their feedback on its 
methodology and other size standards issues. 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 the 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). 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 48-49, Transportation 
and Warehousing, is consistent with EO 13563 Sec.  6 calling for 
retrospective analyses of existing rules. 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. 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, in 
2007, SBA began a comprehensive review of all size standards to ensure 
that existing size standards have supportable bases and to revise them 
when necessary. In addition, 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 
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 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.

Final Regulatory Flexibility Analysis

    Under the Regulatory Flexibility Act (RFA), this rule may have a 
significant impact on a substantial number of small entities in NAICS 
Sector 48-49, Transportation and Warehousing. As described above, this 
rule may affect small entities seeking Federal contracts, SBA's 7(a) 
and 504 Guaranteed Loans, SBA's Economic Injury Disaster Loans, and 
various small business benefits under other Federal programs.
    Immediately below, SBA sets forth a final regulatory flexibility 
analysis of this final rule addressing the following questions: (1) 
What are the need for and objective of the rule? (2) What are SBA's 
description and estimate of the number of small entities to which the 
rule will apply? (3) What are the projected reporting, record keeping, 
and other compliance requirements of the rule? (4) What are the 
relevant Federal rules which 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 SBA's size standards for the Transportation and Warehousing 
industries had not been reviewed since the 1980s. Technological 
changes, 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 a revision to size standards for some industries. 
Based on the analysis of the latest industry and program data 
available, SBA believes that the revised standards in this rule more 
appropriately reflect the size of businesses in those industries that 
need Federal assistance. Additionally, the Jobs Act requires SBA to 
review all size standards and make appropriate adjustments to reflect 
current data and market conditions.
    (2) What are SBA's description and estimate of the number of small 
entities to which the rule will apply?
    SBA estimates that approximately 1,200 additional firms will become 
small because of increases in size standards in 22 industries in NAICS 
Sector 48-49. That represents 0.7 percent of total firms in industries 
in that Sector that have receipts based size standards. This will 
result in an increase in the small business share of total industry 
receipts in those industries from about 36 percent under the current 
size standards to nearly 39 percent under the proposed standards. SBA 
does not anticipate a significant competitive impact on smaller 
businesses in these industries. The revised size standards will enable 
more small businesses to retain their small business status for a 
longer period. Under current size standards, many small businesses may 
have lost their eligibility or found it difficult to compete with 
companies that are significantly larger than they are, and this final 
rule attempts to correct that impact. SBA believes these changes will 
have a positive impact for existing small businesses and for those that 
have either exceeded or are about to exceed current size standards.
    (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?
    Revising size standards does not impose any additional reporting or 
record keeping requirements on small entities. However, qualifying for 
Federal procurement and a number of other Federal programs requires 
that entities register in the Central Contractor Registration (CCR) 
database and certify

[[Page 10949]]

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. Revising size standards alters the 
access to SBA programs that are designed to 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 Sec.  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. 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). SBA is not aware of any Federal rule that 
would duplicate or conflict with establishing or revising 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 existing 
system of numerical size standards. The possible alternative size 
standards considered for the individual NAICS Code industries within 
NAICS Sector 48-49 are discussed in the supplementary information to 
the proposed rule and this final rule.

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 reasons set forth in the preamble, SBA amends 13 CFR part 121 
as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

0
1. The authority citation for part 121 continues to read as follows:

    Authority:  15 U.S.C. 632, 634(b)(6), 636(b), 662, 694a(9).


0
2. In Sec.  121.201, in the table, revise the entries for ``481219'', 
``485111'', ``485112'', ``485113'', ``485119'', ``485210'', ``485310'', 
``485320'', ``485410'', ``485510'', ``485991'', ``485999'', ``486210'', 
``488111'', ``488119'', ``488190'', ``488210'', ``488310'', ``488320'', 
``488330'', ``488390'', and ``488510'' to read as follows:


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

* * * * *

                                 Small Business Size Standards by NAICS Industry
----------------------------------------------------------------------------------------------------------------
                                                                               Size standards    Size standards
               NAICS codes                     NAICS U.S. industry title       in millions of     in number of
                                                                                   dollars          employees
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
                                  Sector 48-49--Transportation and Warehousing
 
                                                  * * * * * * *
481219..................................  Other Nonscheduled Air                         $14.0  ................
                                           Transportation.
 
                                                  * * * * * * *
485111..................................  Mixed Mode Transit Systems........              14.0  ................
485112..................................  Commuter Rail Systems.............              14.0  ................
485113..................................  Bus and Other Motor Vehicle                     14.0  ................
                                           Transit Systems.
485119..................................  Other Urban Transit Systems.......              14.0  ................
485210..................................  Interurban and Rural Bus                        14.0  ................
                                           Transportation.
485310..................................  Taxi Service......................              14.0  ................
485320..................................  Limousine Service.................              14.0  ................
485410..................................  School and Employee Bus                         14.0  ................
                                           Transportation.
485510..................................  Charter Bus Industry..............              14.0  ................
485991..................................  Special Needs Transportation......              14.0  ................
485999..................................  All Other Transit and Ground                    14.0  ................
                                           Passenger Transportation.
 
                                                  * * * * * * *
486210..................................  Pipeline Transportation of Natural              25.5  ................
                                           Gas.
 
                                                  * * * * * * *
488111..................................  Air Traffic Control...............              30.0  ................
488119..................................  Other Airport Operations..........              30.0  ................
488190..................................  Other Support Activities for Air                30.0  ................
                                           Transportation.
488210..................................  Support Activities for Rail                     14.0  ................
                                           Transportation.
488310..................................  Port and Harbor Operations........              35.5  ................
488320..................................  Marine Cargo Handling.............              35.5  ................
488330..................................  Navigational Services to Shipping.              35.5  ................
488390..................................  Other Support Activities for Water              35.5  ................
                                           Transportation.

[[Page 10950]]

 
 
                                                  * * * * * * *
488510..................................  Freight Transportation Arrangement         \10\ 14.0  ................
                                           \10\.
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------


Footnotes
* * * * *
    10. NAICS codes 488510 (part) 531210, 541810, 561510, 561520, and 
561920--As measured by total revenues, but excluding funds received in 
trust for an unaffiliated third party, such as bookings or sales 
subject to commissions. The commissions received are included as 
revenues.
* * * * *

    Dated: December 21, 2011.
Karen G. Mills,
Administrator.
[FR Doc. 2012-4330 Filed 2-23-12; 8:45 am]
BILLING CODE 8025-01-P