[Federal Register Volume 77, Number 185 (Monday, September 24, 2012)]
[Rules and Regulations]
[Pages 58739-58747]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-23373]
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Rules and Regulations
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Federal Register / Vol. 77, No. 185 / Monday, September 24, 2012 /
Rules and Regulations
[[Page 58739]]
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AG29
Small Business Size Standards: Educational Services
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
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SUMMARY: The United States Small Business Administration (SBA) is
increasing the small business size standards for nine industries in
North American Industry Classification System (NAICS) Sector 61,
Educational Services, and retaining the current size standards for the
remaining eight industries and one sub-industry (``exception'') in this
Sector. As part of its ongoing comprehensive review of all size
standards, SBA evaluated every industry in NAICS Sector 61 to determine
whether the existing size standards should be retained or revised.
DATES: This rule is effective October 24, 2012.
FOR FURTHER INFORMATION CONTACT: Jorge Laboy-Bruno, Economist, Size
Standards Division, by phone at (202) 205-6618 or by email at
[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 also 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 alternative net worth and net income size based standards.
At the start of the current comprehensive small business size standards
review, there were 41 different size levels, covering 1,141 NAICS
industries and 18 sub-industry activities (i.e., ``exceptions'' in
SBA's table of size standards). 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 the 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 were
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 every 18-month period
from the date of its enactment and review 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.
Rather than review all size standards at one time, SBA is reviewing
a group of related industries on a Sector by Sector basis.
As part of SBA's comprehensive review of size standards, the Agency
evaluated every industry in NAICS Sector 61, Educational Services, to
determine whether the existing size standards should be retained or
revised. On November 15, 2011, SBA published a proposed rule in the
Federal Register seeking public comment on its proposal to increase the
size standards for nine industries in NAICS Sector 61. The proposed
rule was one of the rules that will examine industries grouped by a
NAICS Sector.
SBA has recently developed a ``Size Standards Methodology'' for
establishing, reviewing and modifying size standards, where necessary.
SBA has 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 November 15, 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 61, mostly using a
special tabulation obtained from the U.S. Bureau of the Census from its
2007 Economic Census (the latest available). SBA also evaluated the
level and small business share of Federal contract dollars in each of
those industries using the data from the Federal Procurement Data
System--Next Generation (FPDS-NG) for fiscal years 2008 to 2010. To
evaluate the impact of changes to size standards on its loan programs,
SBA analyzed internal data on its guaranteed loan programs for fiscal
years 2008 to 2010.
SBA's ``Size Standards Methodology'' provides a detailed
description of its
[[Page 58740]]
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 61. 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 application 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.
SBA also sought comments on its proposal to increase the size
standards for nine industries and retain the existing size standard for
the remaining eight industries and one sub-industry (``exception'') in
NAICS Sector 61. 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 some industries in NAICS
Sector 61.
SBA's analyses supported lowering existing size standards for six
industries and one sub-industry (``exception'' to NAICS 611519, Job
Corps Centers). However, as SBA explained in the proposed rule,
lowering size standards would reduce the number of firms eligible to
participate in Federal small business assistance programs and would run
counter to what the Federal government and SBA are doing to help small
businesses and create jobs. 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 six industries
and one sub-industry for which its analyses might support lowering
them.
Summary of Comments
There were four comments from individuals and businesses on SBA's
proposed size standards changes for NAICS Sector 61. Two of the
comments were on its proposal to retain the current size standard for
NAICS 611512, Flight Training, while another was on the proposal to
retain the current size standard for Job Corps Centers, which is an
exception to NAICS 611519, Other Technical and Trade Schools. One was a
general comment supporting the SBA's methodology and proposed size
standards for NAICS Sector 61. These comments are summarized below.
NAICS 611512, Flight Training
Two commenters opposed SBA's proposal to maintain the current $25.5
million receipts based size standard for NAICS 611512, Flight Training,
and recommended a higher size standard. One recommended $33 million,
while the other recommended at least $35.5 million, preferably $50
million. The second commenter also proposed an alternative employee
based size standard of 1,000 employees. Except for information on a few
recent solicitations and a general description of types of services to
be performed for Federal contracts within this NAICS code, the
commenters offered no alternative industry data or analyses to support
their recommendations.
To support the argument for a higher size standard, the first
commenter argued that large flight training contracts, previously
reserved for full and open competition, are being set aside for small
businesses. This has caused, according to the commenter, small
incumbent firms to exceed the current size standard with a few contract
awards. The commenter added that, with revenues from two small business
set aside contracts the commenter's firm is currently performing and
one new set aside contract it has recently competed, the firm will
exceed the current size standard, thereby making it ineligible to
compete as a small business for future set aside contracts in NAICS
611512, unless the size standard is increased. The commenter maintained
that this will also cause significant turmoil for the Federal
government because the incumbent small businesses will never be able to
compete on subsequent bidding opportunities. The commenter stated that
the current size standard for NAICS 611512 is counter to the idea of
promoting small businesses through set aside contracts. The commenter
concluded that given the increased size and scope of small business set
aside contracts in NAICS 611512 the current size standard should be
increased, not decreased, as shown by SBA's analysis.
In response to the above comment, SBA evaluated the FPDS-NG and
Central Contractors Registration (CCR) data for fiscal years 2008 to
2010. The data showed that 60 percent of firms receiving new Federal
contracts annually within NAICS 611512 were small businesses.
Similarly, about 37 percent of all new contracts and 21 percent of
total contract dollars in NAICS 611512 were awarded to small
businesses. These statistics demonstrate substantial small business
participation in the Federal market under the current size standard.
The data also suggest that there already exists a sufficient pool of
small businesses from which the Federal government can draw for new set
aside contracts, even if some small incumbent businesses outgrow the
size standard. Moreover, it should be noted that more than 97 percent
of all firms in NAICS 611512 are small under the current $25.5 million
size standard. Based on these data and SBA's evaluation of industry and
Federal procurement factors as discussed in the proposed rule, the
Agency believes that the current $25.5 million is an appropriate size
standard for NAICS 611512. In fact, SBA's analyses of the latest
industry and Federal procurement data available would have supported a
lower $19 million size standard for NAICS 611512. However, in light of
current economic conditions as explained in the proposed rule, SBA
proposed to retain it at the current level. If the size standard were
increased to $33 million from the current $25.5 million, as recommended
by the commenter, the 2007 Economic Census data for NAICS 611512 show
that only a few relatively large firms would benefit, likely at the
expense of many smaller and startup businesses that need the Federal
assistance the most. This result was also confirmed using the data on
firms that were awarded Federal contracts within this industry during
fiscal years 2008 to 2010. Thus, SBA is not adopting the commenter's
recommendation for a $33 million size standard for NAICS 611512.
The second commenter supported the size standards review for NAICS
Sector 61, but similarly disagreed with SBA's proposal not to increase
the size standard for NAICS 611512. The commenter stated that SBA's
proposal not to increase the size standard for this industry is at odds
with economic characteristics of the military training services,
mission crew training, aircrew training, and courseware development
industries. The commenter contended that the traditional definition of
NAICS 611512 does not reflect several activities typically required for
flight training contracts, including simulator based training,
instructional training, simulator maintenance, courseware development
and application, enhanced
[[Page 58741]]
learning through Learning Management Systems (LMS), and information
technology (IT) and facilities support. The commenter claimed that
these contracts may also include modification to the aircraft platforms
and simulators. The commenter argued that the size standard for NAICS
611512 is complex and it, therefore, requires additional review to
provide a more favorable competitive environment for small businesses
to grow and win Federal contracts within this industry. Besides
referring to several solicitations assigned NAICS 611512 and NAICS
336413, the commenter did not offer alternative industry data or
analyses to support his arguments. The commenter recommended that SBA
revise its proposal to address the complexity and economic
characteristics of this industry through one or more of the following:
1. Convert the NAICS 611512 size standard from annual receipts to
at least 1,000 employees; or
2. Increase the existing size threshold from $25.5 million to $35.5
million, which is the highest proposed level for NAICS Sector 61; or
3. Create a new NAICS code ``Aircrew Training and Support'' in
NAICS Sector 61 with a size threshold of at least $50 million in
average annual receipts; or
4. Create a new NAICS code ``Aircrew Training and Support'' in
NAICS Sector 61 with a size standard of at least 1,000 employees; or
5. Create an exception ``Aircrew Training and Support'' within
NAICS 611512 for Federal procurement with a size standard of at least
$35.5 million in annual receipts or 1,000 employees.
The commenter provided several reasons for his recommendations.
First, the commenter contended that NAICS 611512, Flight Training, is
similar to NAICS 336413, Other Aircraft Part and Auxiliary Equipment
Manufacturing and should have the same 1,000-employee size standard as
that for NAICS 336413. To support the argument, the commenter added
that due to a low size standard for NAICS 611512, many contracting
officers have used NAICS 336413 and its 1,000-employee size standard
for Federal contracts involving aircrew training and related logistic
and support services. Second, the commenter maintained that the value
of Federal contracts has created unintended ceilings for competition.
Third, the commenter purported that SBA's methodology does not consider
relevant Federal contracting factors. Fourth, the commenter argued that
SBA has not considered the complexity of multiple services required by
the military to support a ``Flight Training'' contract.
SBA addresses each of the commenter's recommendations above, as
follows:
1. Providing Flight Training Services is a service function, not
manufacturing, and SBA does not apply employee based size standards to
NAICS codes that represent services industries. SBA's experience and
analyses generally support receipts based size standards for services
industries. See SBA's Methodology, cited elsewhere in this rule.
2. SBA's analysis of this industry does not support a size standard
over $25.5 million, as detailed in the proposed rule (see 76 FR 70667
(November 15, 2011)). Additional information that the commenter
supplied did not support anything higher than that either.
3. & 4. SBA does not establish NAICS codes. Rather, only the U.S.
Office of Management and Budget together with the U.S. Bureau of the
Census defines what is and what is not included within any NAICS
Industry. Recommendations regarding NAICS industry definitions should
be directed to the Office of Management and Budget, which is
responsible for establishing, modifying, or updating an NAICS code.
5. As stated above, the data do not support increasing the size
standard for this industry beyond the current $25.5 million, and an
employee based size standard is not appropriate. SBA has in the past
established exceptions for a limited number of NAICS codes. However,
that is not applicable to this industry because SBA believes the
current size standard is already appropriate.
SBA disagrees with the commenter's contention that NAICS 611512 is
similar to NAICS 336413. NAICS 611512 includes establishments primarily
engaged in offering aviation and flight training, while NAICS 336413
comprises establishments primarily engaged in (1) manufacturing
aircraft parts or auxiliary equipment (except engines and aircraft
fluid power subassemblies), and/or (2) developing and making prototypes
of aircraft parts and auxiliary equipment (such as crop dusting
apparatus, armament racks, inflight refueling equipment, and external
fuel tanks) (see www.census.gov/naics). Accordingly, the activities
that are required for flight training contracts, including, according
to the commenter, simulator based training, instructional training,
courseware development and application, enhanced learning through LMS,
and IT and facilities support fall under NAICS 611512, not NAICS
336413. The industry data also demonstrates that these two industries
are significantly different. For example, based on the 2007 Economic
Census, firms in NAICS 336413 average about $39 million in receipts and
145 employees, as compared to $2.6 million and 18 employees for NAICS
611512.
The Small Business Size Regulations require Federal agencies to
designate the proper NAICS code and size standard in a solicitation,
selecting the NAICS code which best describes the principal purpose of
the product or service being acquired. Primary consideration is given
to the industry descriptions in the NAICS United States Manual, the
product or service description in the solicitation and any attachments
to it, the relative value and importance of the components of the
procurement making up the end item being procured, and the function of
the goods or services being purchased. A procurement is usually
classified according to the component which accounts for the greatest
percentage of contract value. See 13 CFR 121.402(b). Therefore, if the
principal purpose of the procurement is ``flight training,'' then NAICS
611512 is the code that the contracting officer must apply. Similarly,
if a solicitation involves the acquisition of aircraft parts,
auxiliary, or other equipment, the contracting officer must apply an
appropriate manufacturing NAICS code and the corresponding size
standard. SBA's regulations also provide that any interested party
adversely affected by a NAICS code designation for a specific Federal
procurement may appeal the designation to SBA's Office of Hearings and
Appeals. See 13 CFR 121.1102-1103.
The commenter argued that contract values have created unintended
ceilings for small business participation in the Federal market for
flight training services. On the contrary, size standards are intended
to provide ceilings; they determine the maximum size of a business that
can compete as a small business, but do not affect the size of the
contracts themselves. The commenter added that increased complexity and
scope of services required for flight training contracts have rendered
many small businesses unable to compete under the current size
standard. To accurately reflect increased complexity and scope of
multiple services required for flight training contracts, the commenter
recommended a new ``Aircrew Training and Support'' NAICS code and a
separate size standard. SBA believes most of the services required for
flight training contracts, as cited above by the commenter, are not
necessarily new activities warranting a new NAICS code or an exception
under NAICS 611512; rather they are new
[[Page 58742]]
tools and methods for delivering flight training services as defined
under NAICS 611512.
In response to the commenter's argument that small businesses under
the current $25.5 million are not able to compete for Federal contracts
in NAICS 611512, SBA evaluated recent data from FPDS-NG and CCR. The
data showed that small business account for 60 percent of all firms
winning Federal contracts, 37 percent of all new contracts, and 21
percent of total contract dollars in NAICS 611512. Thus, small
businesses have been quite successful in receiving Federal contracts
under the current size standard. The commenter's firm itself appeared
to be very successful in getting several small business set aside
contracts under the current size standard.
SBA disagrees with the commenter's allegation that the methodology
it used to evaluate size standards for NAICS Sector 61 does not
consider relevant Federal contracting factors. As explained in the
proposed rule as well as in SBA's ``Size Standards Methodology'' White
Paper, Federal contracting is one of the five primary factors SBA
evaluates when reviewing a size standard. Specifically, for each of the
industries averaging $100 million or more in Federal contracts
annually, SBA compares the small business share of total Federal
contracts with the small business share of total industry receipts. If
the difference between the former and latter is between 10 percent and
30 percent, SBA designates a size standard one fixed level higher than
the current one. If that difference is more than 30 percent, SBA
designates a size standard two levels above the current size standard.
Accordingly, the Federal contracting factor supported a higher $30
million size standard for NAICS 611512, as compared to the current
$25.5 million. Based on all factors combined, the calculated size
standard was $19 million. However, in light of current economic
conditions, SBA proposed to retain the current size standard.
The commenter argued that SBA did not consider the complexity of
multiple services required to support ``Flight Training'' contracts.
SBA disagrees. As noted above, most of activities that are required for
flight training contracts, including, according to the commenter,
simulator based training, instructional training, courseware
development and application, and enhanced learning through LMS are part
of NAICS 611512. SBA believes the industry data from the Economic
Census and procurement data from FPDS-NG that it evaluated to examine
this industry already reflect those activities. Moreover, the current
size standard, which is one of the highest in NAICS Sector 61, also
reflects the characteristics of the flight training industry.
SBA recognizes that, as in most other industries, small businesses
in NAICS 611512 face challenges in the Federal marketplace when they
outgrow the size standard. As stated above, more than 97 percent of
firms already qualify as small under the current $25.5 million size
standard. SBA is concerned that ``smaller'' small and startup companies
would not be able to compete effectively with ``larger'' small
businesses for Federal small business contracts if the size standards
were too high, such as $35.5 million or $50 million in average annual
receipts, or 1,000 employees, as recommended by the commenter. At these
levels, only a few larger firms are likely to benefit, mostly at the
expense of many smaller businesses. For example, based on the 2007
Economic Census tabulation, only three firms would benefit if SBA
increased the size standard to $35.5 million and three more firms would
benefit if it increased to $50 million. At 1,000 employees, the 2007
Economic Census data show that all but 12 of the largest firms,
possibly including some of the dominant firms with annual receipts of
several hundred million dollars, would qualify as small. The data on
firms receiving Federal contracts within NAICS 611512 during the fiscal
years 2008 to 2010 also confirmed that only a few large firms would
benefit if the size standard were increased to those levels. The
commenter argued that those higher size standards would help small
businesses to compete for Federal contracts for several years and allow
them to grow and develop necessary expertise. However, given that 97
percent of firms in NAICS 611512 have less than $25.5 million in
receipts and fewer than 100 employees, SBA believes that such high size
standards would adversely affect the ability of many small businesses
to compete for Federal opportunities in that industry.
This commenter also recommended that SBA impose a temporary
moratorium on calculation of average annual receipts based on 2008,
2009, and 2010. In other words, the commenter recommended excluding
year 2011 from the calculation, although he did not justify why. SBA
does not adopt this recommendation. For SBA's size standards, annual
receipts of a concern means the average annual receipts over its most
recently completed three fiscal years (see 13 CFR 121.104(c)).
Accordingly, average annual receipts for 2012 must be an average over
2011, 2010, and 2009. Selectively excluding the most recent year or any
other year from the calculation for one or few industries, as suggested
by the commenter, will cause widespread inconsistency in how businesses
calculate their average annual receipts to determine if they are small.
In addition, this would more likely benefit successful small businesses
that have exceeded the size standard by allowing them to prolong their
small business eligibility, thereby reducing opportunities for other
small and startup businesses.
For the above reasons, SBA is not adopting any of the alternatives
recommended by the commenter. Instead the Agency is adopting $25.5
million as proposed. SBA has also retained the current method of
calculating average annual receipts based on the firm's most recently
completed three fiscal years.
Job Corps Centers
SBA received one comment on its proposal to retain the current size
standard for Job Corps Centers, which is an exception to NAICS 611519,
Other Technical and Trade Schools. Citing its success in getting
Federal contracts as a small business prime contractor over the years,
the commenter argued that the commenter's firm will exceed the current
$35.5 million size standard for Job Corps Centers within the next 2-3
year period, making it no longer eligible to recompete for any of the
four Job Corps Centers it now operates. The commenter added that there
is no ``graduation plan or process'' in place allowing small businesses
to compete as an incumbent contractors for Centers they operate when
they exceed the current size standard. The commenter recommended that
the size standard should be increased to $50 million. However, the
commenter offered no alternative data on or analyses of the Job Crops
Centers industry segment supporting his recommendation. While SBA
recognizes the challenges small businesses face when they exceed the
size standard for their industries, the agency is not adopting the
commenter's recommendation for two reasons. First, only one firm would
benefit if the size standard were increased from $35.5 million to $50
million. Second, this will also cause adverse competitive impact on
firms operating Job Corps Centers as small business under the current
size standard. SBA's regulation has no ``graduation plan'' for any
industry for Government contracting purposes, when a firm exceeds the
size standard. Thus, SBA is adopting $35.5 million, as proposed.
[[Page 58743]]
The fourth commenter fully supported the SBA's size standards
methodology used to derive the proposed size standards for NAICS Sector
61. The commenter also fully endorsed the adoption of all size
standards, as proposed. The commenter recommended October 1, 2012 as
the effective date, so that the Federal Government and industry will
have enough time to prepare for the change. SBA will publish the final
rule as soon as the necessary review and clearance as required under
the rulemaking process is complete. The revised size standards will
become effective after 30 days from the date of publication.
All comments to the proposed rule are available for public review
at http://www.regulations.gov, using RIN 3245-AG29 or docket number
SBA-2011-0021.
Conclusion
Based on the analyses of relevant industry and program data and
public comments it received on the proposed rule, SBA has decided to
increase the small business size standards for the nine industries in
NAICS Sectors 61 to the levels it proposed. Those industries and their
revised size standards are shown in Table 1, Summary of Revised Size
Standards in NAICS Sector 61, below.
Table 1--Summary of Revised Size Standards in NAICS Sector 61
----------------------------------------------------------------------------------------------------------------
Current size Revised size
NAICS Code NAICS Industry title standard ($ standard ($
million) million)
----------------------------------------------------------------------------------------------------------------
611110................................... Elementary and Secondary Schools..... 7.0 10.0
611210................................... Junior Colleges...................... 7.0 19.0
611310................................... Colleges, Universities and 7.0 25.5
Professional Schools.
611420................................... Computer Training.................... 7.0 10.0
611430................................... Professional and Management 7.0 10.0
Development Training.
611519................................... Other Technical and Trade Schools.... 7.0 14.0
611630................................... Language Schools..................... 7.0 10.0
611699................................... All Other Miscellaneous Schools and 7.0 10.0
Instruction.
611710................................... Educational Support Services......... 7.0 14.0
----------------------------------------------------------------------------------------------------------------
For the reasons as stated above in this rule and in the proposed
rule, SBA has decided to retain the current size standards for six
industries and one sub-industry for which analytical results suggested
lower size standards. Not lowering size standards in NAICS Sector 61 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)), NAICS Sector 81,
Other Services (75 FR 61591 (October 6, 2010)), NAICS Sector 54,
Professional, Scientific and Technical Services (77 FR 7490 (February
10, 2012)), and NAICS Sector 48-49, Transportation and Warehousing (77
FR 10943 (February 24, 2012)). 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 size standards for
two industries for which the results supported them at their current
levels.
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 not a ``significant regulatory action'' for purposes of
Executive Order 12866. In order to help explain the need for this rule
and the rule's potential benefits and costs, SBA is providing a Cost
Benefit Analysis in this section of the rule. This is also not a
``major rule'' under the Congressional Review Act (5 U.S.C. 800).
Cost Benefit Analysis
1. Is there a need for the regulatory action?
SBA believes that the revised changes to small business size
standards for nine industries in NAICS Sector 61, Educational Services,
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.
The Small Business Act delegated to SBA's Administrator the
responsibility for establishing small businesses definitions (15 U.S.C.
632(a)). The Act also requires that small business definitions vary to
reflect industry differences. The Jobs Act requires the Administrator
to review at least one-third of all size standards within each 18-month
period from the date of its enactment, and review all size standards at
least every five years thereafter. The supplementary information
sections of the November 15, 2011 proposed rule and this final 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 final rule is gaining eligibility for
Federal small business assistance programs, including SBA's financial
assistance programs and Federal procurement opportunities reserved for
small businesses. Federal small business programs provide targeted
opportunities for small businesses under various SBA's business
development programs, such as the 8(a) Business Development program and
programs benefitting 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 size standards for a variety of
regulatory and program purposes. These programs help small businesses
become more knowledgeable, stable and competitive. In the nine
industries in NAICS Sector 61 for which SBA has decided to increase
size standards, SBA estimates that about 1,500 firms exceeding the
current size standards will gain small business status and become
eligible for these programs. That number is 2.1 percent of the total
number of firms that
[[Page 58744]]
are currently classified as small in all industries in NAICS Sector 61.
SBA estimates that this would increase the small business share of
total industry receipts in those industries from about 18 percent under
the current size standards to 23 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.
For the November 15, 2011 proposed rule, SBA analyzed FPDS-NG data
for fiscal years 2007 to 2009 and found that 88 percent of Federal
contracting dollars in Sector 61 were accounted for by those nine
industries for which SBA has increased size standards. This also held
true in SBA's updated analysis using the FY 2008-2010 FPDS-NG data. SBA
estimates that additional firms gaining small business status in those
industries under the revised size standards could potentially obtain
Federal contracts totaling between $20 million and $25 million annually
through the 8(a), HUBZone, WOSB and SDVOSB programs, and 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) and 504 Loan Programs, based on the data for
fiscal years 2008 to 2010, SBA estimates that around 16 to 20
additional loans totaling between $3 million and $4 million in new
Federal loan guarantees will be made for 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 SBA's 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 average net income after Federal income taxes
(excluding any carry-over losses) for its preceding two completed
fiscal years that do not exceed $5 million. Thus, increasing the size
standards will likely result in an increase in small business
guaranteed loans to small businesses in these industries, but it is
impractical to try to estimate the extent of their number and the total
amount loaned.
The 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 disasters, SBA cannot make
a meaningful estimate of future EIDL benefits.
To the extent that all 1,500 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's 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
small business, 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 Sector 61,
Educational Services, 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.
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
Cost Benefit Analysis.
In an effort to engage interested parties in this action, SBA has
presented
[[Page 58745]]
its methodology (discussed under Supplementary Information in the
proposed rule and this final rule) 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
presentations also included information on the latest status of the
comprehensive size standards review and how interested parties can
provide SBA with input and feedback on the 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 the proposed rule and this final rule for Sector 61.
Furthermore, when SBA issued the proposed rule, it provided notice
of its publication to individuals and companies that had in recent
years exhibited an interest by letter, email, or phone, in size
standards for NAICS Sector 61 so they could comment.
The review of size standards in NAICS Sector 61, Educational
Services, is consistent with Section 6 of Executive Order 13563 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
final 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 final 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 final rule would not impose any new
reporting or record keeping requirements.
Final Regulatory Flexibility Analysis
Under the Regulatory Flexibility Act (RFA), this final rule may
have a significant impact on a substantial number of small entities in
NAICS Sector 61, Educational Services. As described above, this final
rule may affect small entities seeking Federal contracts, SBA's 7(a),
504 and 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 in NAICS Sector 61, Educational
Services, 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 1,500 additional firms will become
small because of increases in size standards in nine industries in
NAICS Sector 61. That number is 2.1 percent of the total number of
firms that are currently classified as small in all industries in NAICS
Sector 61. This will result in an increase in the small business share
of total industry receipts in those industries from about 18 percent
under the current size standards to 23 percent under the revised size
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?
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
[[Page 58746]]
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. Revising
size standards alters the access to Federal 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 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. 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 industries within NAICS Sector
61 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 ``611110,''
``611210,'' ``611310,'' ``611420,'' ``611430,'' ``611519,'' ``611630,''
``611699,'' and ``611710,'' 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
----------------------------------------------------------------------------------------------------------------
* * * * * * *
611110................................... Elementary and Secondary Schools..... 10.0 ..............
611210................................... Junior Colleges...................... 19.0 ..............
611310................................... Colleges, Universities and 25.5 ..............
Professional Schools.
* * * * * * *
611420................................... Computer Training.................... 10.0 ..............
611430................................... Professional and Management 10.0 ..............
Development Training.
* * * * * * *
611519................................... Other Technical and Trade Schools.... 14.0 ..............
* * * * * * *
611630................................... Language Schools..................... 10.0 ..............
* * * * * * *
611699................................... All Other Miscellaneous Schools and 10.0 ..............
Instruction.
611710................................... Educational Support Services......... 14.0 ..............
* * * * * * *
----------------------------------------------------------------------------------------------------------------
[[Page 58747]]
Dated: June 22, 2012.
Karen G. Mills,
Administrator.
[FR Doc. 2012-23373 Filed 9-21-12; 8:45 am]
BILLING CODE 8025-01-P