[Federal Register Volume 78, Number 246 (Monday, December 23, 2013)]
[Rules and Regulations]
[Pages 77334-77343]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-30314]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG37


Small Business Size Standards: Construction

AGENCY: U.S. Small Business Administration.

ACTION: Final rule.

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SUMMARY: The United States Small Business Administration (SBA) is 
increasing two small business size standards in North American Industry 
Classification System (NAICS) Sector 23, Construction, and retaining 
the current standards for the 30 remaining industries in that Sector. 
Specifically, SBA is increasing the size standards for NAICS 237210, 
Land Subdivision, from $7 million in average annual receipts to $25.5 
million, and for Dredging and Surface Cleanup Activities, a sub-
industry category (or an ``exception'') under NAICS 237990, Other Heavy 
and Civil Engineering Construction, from $20 million to $25.5 million. 
As part of its ongoing comprehensive size standards review, SBA 
evaluated all size standards in NAICS Sector 23 to determine whether 
they should be retained or revised.

DATES: This rule is effective January 22, 2014.

FOR FURTHER INFORMATION CONTACT: Carl Jordan, Program Analyst, Office 
of Size Standards, (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. The 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 alternative net worth and net income size based standards. 
At the start of the current comprehensive review of 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

[[Page 77335]]

three based on other measures. Presently, there are a total of 1,047 
size standards, 533 of which are based on average annual receipts, 499 
on number of employees, 10 on megawatt hours, and five on average 
assets.
    Over the years, SBA has received comments that its size standards 
have not kept up with changes in the economy, and in particular, that 
they do not reflect changes in the Federal contracting marketplace and 
industry structure. The last comprehensive review of size standards was 
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 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 are also consistent with Executive Order 13563, 
``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, grouped by 
NAICS Sector, the Agency reviewed all size standards in NAICS Sector 
23, Construction, to determine whether the existing size standards 
should be retained or revised. After its review, SBA published in the 
July 18, 2012 issue of the Federal Register (77 FR 42197) a proposed 
rule to increase two standards in NAICS Sector 23. SBA proposed to 
increase the size standards for Land Subdivision (NAICS 237210) from $7 
million to $25.5 million and for Dredging and Surface Cleanup 
Activities, an ``exception'' under Other Heavy and Civil Engineering 
Construction (NAICS 238910) from $20 million to $30 million.
    SBA recently 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 comments, and included it as a supporting document in 
the electronic docket of the 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 small business 
level and 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 23, 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 
small business level and 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 2008-2010. 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-
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 establish and 
revise size standards. In the proposed rule itself, SBA detailed how it 
applied its ``Size Standards Methodology'' to review and modify where 
necessary, the existing size standards for industries in NAICS Sector 
23. 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 sought comments on its proposal to increase the two size 
standards in NAICS Sector 23: Land Subdivision (NAICS 237210), from $7 
million to $25.5 million, and Dredging and Surface Cleanup Activities, 
an ``exception'' under Other Heavy and Civil Engineering Construction 
(NAICS 238910), from $20 million to $30 million. Specifically, SBA 
requested comments on whether the size standards should be increased 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 Industry Groups in NAICS Sector 23. Although SBA 
proposed to increase only two size standards, the public was welcome to 
comment on any other size standards in NAICS Sector 23 that the Agency 
proposed to retain.
    The SBA's analyses supported lowering existing size standards for a 
number of industries in NAICS Sector 23. 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 be counter to what the Federal government and SBA 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 which its analyses 
might support lowering them.

Summary of Comments

    There were 25 unique commenters to the proposed rule, including 
four construction companies, two construction industries associations, 
16 dredging companies, one dredging consulting company, one academic, 
and one telecommunications company. The comments are available at 
www.regulations.gov (RIN 3245-AG28) and are summarized below.

Comments on Proposed Changes to Construction Size Standards

    A construction company commented that increasing size standards 
helps 8(a) and Women Owned Small Businesses keep their contracts. 
However, at the same time, the commenter stated,

[[Page 77336]]

increasing size standards takes away the ability for new start-up firms 
to get any traction and reducing size standards across the board ``is 
the key to success for small business.'' The commenter contended that 
SBA's proposal is ``an attempt to limit the ability of the U.S. 
Department of Veteran Affairs' SDVOSB program which is competing for 
contracts against the 8(a) firms.''
    Another construction company similarly opposed any increase in size 
standards, stating that there are too many types of small businesses 
competing for government construction dollars.
    SBA proposed to increase only two of the 32 size standards in NAICS 
Sector 23, namely Land Subdivision (NAICS 237210), and Dredging and 
Surface Cleanup Activities, an exception under Other Heavy and Civil 
Engineering Construction (NAICS 238910) and retain the current size 
standards for the 30 remaining industries in that Sector. Furthermore, 
SBA's size standards apply equally to all programs for which a business 
must qualify as a small business concern. The Federal government has a 
number of business development programs, and qualifying as small for 
one is the same as qualifying for the others, because SBA has 
established only set of size standards for all Federal procurement 
programs. SBA's proposed increases to size standards, as stated above, 
would not have affected the two commenters above, as they did not refer 
to size standards for a specific industries and therefore, SBA 
acknowledges their comments as supportive of retaining the current size 
standards for most industries that the Agency proposed.
    Another commenter expressed concern about the size of construction 
contracts set aside for small businesses under the current $33.5 
million size standard. According to the commenter, many companies that 
are over the current size standards cannot qualify to bid on larger 
contracts. The commenter further stated that contracts over $10 million 
should not be set aside for small businesses. There would remain, it 
seems, contracts for which businesses over the $33.5 million size 
standard could bid without competition from larger businesses.
    SBA establishes small business size standards to determine 
eligibility for small business set aside contracts, but it does not 
determine the size of contracts that Federal agencies set aside for 
small businesses. SBA takes into consideration the size of contracts in 
establishing small business size standards by analyzing the data from 
FPDS-NG.
    Another commenter that supported SBA's proposed increases suggested 
that SBA establish a $30 million size standard for government projects 
involving three or more specialty trade services.
    SBA has a common $14 million size standard for contracts involving 
three or more specialty trades industries. Specifically, Footnote 13 to 
SBA's table of size standards states the following: ``NAICS code 
238990--Building and Property Specialty Trade Services: If a 
procurement requires the use of multiple specialty trade contractors 
(i.e., plumbing, painting, plastering, carpentry, etc.), and no 
specialty trade accounts for 50% or more of the value of the 
procurement, all such specialty trade contractors activities are 
considered a single activity and classified as Building and Property 
Specialty Trade Services.'' However, as stated in Footnote 12(b), if 
the contracts involve three or more activities in the areas of services 
or specialty trades trade industries, with no single industry 
accounting for more than 50 percent of the total values of procurement, 
firms may qualify under the $35.5 million size standard NAICS 561210, 
Facilities Support Services. SBA is concerned that establishing a 
higher size standard for a group of industries than for each industry 
in the group, as the commenter suggested, may encourage agencies to 
bundle contracts to include services from multiple industries and use 
the higher size standard. This may adversely affect the ability of 
small businesses that specialize on a specific specialty trade service 
to compete for Federal opportunities.
    A national association expressed its concern for a lack of 
construction contracts awarded to women owned small businesses. The 
association argued that small business size standards for construction 
industries should be based on number of full time equivalent (FTE) 
employees, rather than on average annual receipts. The association 
claimed that because size standards are based on receipts rather than 
number of employees, businesses in the construction industries are 
being held back. The association contended that a construction 
company's receipts are a ``misleading indicator'' for its size from one 
year to the next due to ``doubling and tripling in recent years'' of 
material costs. In addition, the association stated that a company's 
gross receipts are inflated relative to the size standard because of 
subcontracting and material costs that could account for as much as 85 
percent of work being performed.
    A local chapter of the same association supported and expanded on 
the above view. It stated that costs vary across the country, being 
higher in urban areas than in rural areas, resulting in considerably 
larger construction companies in urban areas than in rural areas. The 
association added that it is more difficult for small urban contractors 
to compete with larger ones and cited certain trades that have 
considerably higher start-up capital and labor costs as well. The 
commenter recommended 75 FTE employees for Specialty Trades Industries 
and 150 FTE employees for General Construction. The association went on 
to state that ``if SBA opts to continue with the receipts based size 
standard for the construction industry, [commenter] would recommend 
that these specialty trades be grouped and placed in the higher $25 
million size standard level.''
    SBA disagrees that receipts based standards do not properly reflect 
the size of companies in the construction industry. Receipts, 
representative of the value of a company's entire portfolio of 
completed work in a given period of time, is a better measure of the 
size of a construction company to determine its eligibility for Federal 
contracts set aside for small businesses than the number of employees. 
Annual receipts measure the total work that a company has completed for 
which it was responsible. Under SBA's prime contractor performance 
requirements (see 13 CFR 125.6, limitations on subcontracting), a 
general construction company need to perform as little as 15 percent of 
value of work with its own resources, and a specialty trade contractor 
can perform as little as 25 percent of work with its own resources. SBA 
is concerned that employee based size standards for construction 
industries could encourage a construction company near the size 
standard to subcontract more work to others to bypass the limitations 
on subcontracting and remain technically a small business. Regardless 
of the amount a company subcontracts, it is part of its annual revenue, 
because the company is responsible for the entire project. In other 
words, under a receipts based size standard, the company is not allowed 
to deduct subcontracting costs from the average annual receipts 
calculation. Under the employee based size standard, companies would 
not count their subcontractors' employees to calculate their total 
number of employees. A company that subcontracts a great deal can have 
a considerably fewer employees than one that performs more of its work 
in-house.
    Furthermore, in 2004, SBA proposed to replace annual receipts with 
number

[[Page 77337]]

of employees as the basis for size standards for most industries, 
including construction (see 69 FR 11129, dated March 19, 2004). 
Commenters in the construction industry generally opposed SBA's 
proposal for a number of reasons, such as those SBA provides above. In 
addition, because employee based size standards represent the average 
number of employees per pay period for the firm's immediately preceding 
12 calendar months, businesses would have to recalculate their size on 
a monthly basis. Receipts, on the other hand, are calculated over last 
three fiscal years. This allows for changes in the construction 
industry as well as fluctuations in sales due to economic conditions.
    Employment data by industry from Economic Census and County 
Business Patterns and Federal statistical agencies (such Bureaus of 
Economic Analysis and Labor Statistics) that SBA uses in its size 
standards analysis are based on total head counts of part-time, 
temporary and full-time employees, not based on FTEs. In other words, 
part-time employees are counted the same as full-time employees. In 
addition, using FTEs as a basis of size measure may increase reporting 
and record keeping requirements for small businesses to qualify for 
Federal programs.
    Thus, SBA is, for all these reasons above, retaining annual 
receipts as the measure of small business size standards for all 
industries in NAICS Sector 23, Construction.

Comments on Proposed Change to Size Standard for Dredging

    SBA received a total of 17 comments on its proposal to increase the 
size standard for Dredging and Surface Cleanup Activities from $20 
million in average annual receipts to $30 million. Commenters included 
16 dredging companies (10 small and 6 large businesses under the 
current size standard) and one small dredging consulting company. Ten 
commenters (53 percent) either supported the proposed increase to $30 
million or suggested smaller increases than the one proposed by SBA. 
Seven commenters (47 percent) either opposed the proposed increase, or 
suggested lowering it.
    Of the ten companies that supported an increase in size standard 
for dredging, six were small businesses under the current size 
standard, and four were large businesses. Four of these ten commenters 
fully supported the proposed increase to $30 million, five suggested 
smaller increases, and one suggested a larger increase but did not 
provide a specific value. Of the five commenters suggesting smaller 
increases, one suggested increasing it to $25.5 million, another, a 
large dredger, suggested increasing it by 10 percent, and three, one 
small and two large dredging companies, suggested that the increase 
should be in line with the rate of inflation. Most of these commenters 
cited increased cost of doing business, contract bundling, high capital 
and resource requirements, and ability to maintain small business 
status as the reasons for supporting the increase.
    Of the seven commenters who opposed the SBA's proposal, five were 
small businesses under the current size standard and two were large 
businesses. Four of these commenters, one large and three small, 
opposed the proposed $30 million in support of the current $20 million, 
two commenters, one large and one small, proposed reducing it to $10 
million, and one commenter, small, also proposed lowering it but did 
not provide a specific value. Commenters opposing the SBA's proposal 
raised a number of issues as follows: current economic conditions do 
not justify a 50 percent increase; it would be inconsistent with the 
interests of small dredging companies; the dredging market contracted 
because of a lack of funding, with small dredging companies struggling 
to find work; larger small companies would dominate the small business 
market, making an already very competitive industry even more so and 
thus more difficult for small dredging contractors to survive; it would 
foster predatory pricing, and the data SBA used to develop its proposal 
do not reflect the current state of the dredging market. Most of these 
commenters felt that the proposed size standard under the current 
environment would only benefit larger small businesses in the $20 
million to $30 million revenue range by reducing opportunities for 
small businesses below $20 million.
    Larger dredging contractors, generally opposed to the proposed 
increase, stated that this is the largest increase in the size standard 
for dredging contractors since 1984, when SBA first established it. 
They argued that the proposed $30 million is not supported by 
marketplace or other available data. They reasoned that the higher 
standard would induce the U.S. Army Corps of Engineers (the Corps) to 
set aside a larger share of contracts for the newly eligible companies. 
This would reduce the unrestricted contracts available to large 
businesses that have invested heavily in equipment and resources to 
meet the Corps' program requirements. This in turn could result in 
higher costs to the government, lead to underuse of dredging equipment, 
and cause companies to contain their costs by laying off their 
employees.
    Several commenters, especially those in favor of raising the 
dredging size standard, expressed concerns about the impact of 
increasing costs of fuel, labor and other costs in the dredging market 
and argued that an increase in the size standard is warranted. One 
commenter, a small dredging company, stated that costs of diesel fuel 
increased more than 30 percent over the last five years; labor costs 
increased by over 25 percent, and costs of insurance, health benefits 
and supplies increased by over 50 percent.
    SBA's current review of the dredging size standard focuses on the 
analysis of industry structure and Federal market. Although this 
analysis may capture some of the inflationary factors the commenters 
identified above, inflation is not considered as a factor in this 
review. SBA will look at the impact of inflation on all monetary-based 
size standards, including that for dredging, and adjust them as 
necessary, in a separate rule in the near future.
    Three commenters expressed concerns about the data SBA used to 
review the dredging industry size standard. One commenter argued that 
the data from the Central Contractor Registration (CCR) (now System for 
Award Management (SAM)) that SBA used in conjunction with dredging 
contracting data from the U.S. Army Corps of Engineers' Navigation Data 
Center (NDC) are incomplete and inaccurate. The commenter recommended 
using the data from the Dredging Contractors of America (DCA) annual 
contract summary reports prepared using the NDC data. The second 
commenter, contrary to the first one, strongly recommended using the 
NDC data to analyze the dredging industry. Finally, the third commenter 
expressed concerns that the NDC data do not include enough information 
about small businesses' contracts for dredging, but did not suggest any 
alternative data sources to look at. None of these commenters expressed 
concerns about the Federal contracts data on dredging from the FPDS-NG 
that SBA used to calculate industry and Federal contracting factors 
(see 77 FR 42197). Similarly, although both NDC data and DCA reports 
only contain information on revenues received from Federal contracts 
and no information on firms' total revenues, commenters suggested no 
alternative sources providing total revenues that SBA evaluates when 
reviewing a receipts based size standard.
    In response to these comments, SBA evaluated the impact of data 
sources on industry and Federal contracting factors

[[Page 77338]]

and the calculated size standard for dredging using the data from NDC 
for fiscal years 2011-2012, DCA's annual report for fiscal years 2010-
2011, and FPDS-NG for fiscal years 2011-2012. SBA combined each of 
these data with the data from CCR/SAM to obtain total revenues of 
dredging firms participating in the Federal market, as described in the 
proposed rule. The results based on each of these data sources were 
very similar, as expected, because the Federal Acquisition Regulation 
(FAR subpart 4.6) requires all Federal agencies, including U.S. Army 
Corps of Engineers, to enter information on all contract actions 
exceeding the micro-purchase threshold in FPDS-NG. Accordingly, 
information in the NDC database and hence in DCA's reports has to be 
fundamentally the same as that in FPDS-NG. Given the lack of a better 
source for total revenue data on dredging firms, SBA believes that 
information in CCR/SAM is accurate enough for evaluating the dredging 
size standard, because, to bid on Federal contracts, all businesses, 
including dredging firms, are required to provide accurate information 
on their business size when they register in CCR/SAM (FAR subpart 
4.11).
    Several commenters, mostly those opposing the SBA's proposal, 
expressed concerns about raising the size standard in view of the 
current state of the dredging industry and the impact the American 
Recovery and Reinvestment Act (ARRA) had on the Federal market for 
dredging. These commenters characterized dredging as a reduced market, 
principally because of a lack of funding, with ARRA phasing-out. They 
argued that, because ARRA caused a temporary surge in government 
spending during fiscal years 2009-2011 and now the ARRA funds are 
phasing-out, any analysis of the Federal market using the data for 
those years could be distorted. The commenters argued that increasing 
the size standards under the current conditions would have an adverse 
impact on the pool of funds available for both small and large dredging 
companies. They added that, with a higher size standard, small 
businesses, especially the truly small businesses, would face increased 
competition for set-aside contracts, and large businesses would face a 
reduction of funds available for the unrestricted market were they 
compete. Some commenters added that increasing the size standard in 
this environment will benefit only larger small businesses.
    In response to the above comments, SBA re-evaluated the dredging 
industry using the data on Federal contracts awarded to dredging 
companies from FPDS-NG for fiscal years 2005 to 2012 and total revenue 
information from CCR/SAM for fiscal year 2012. The analysis of FPDS-NG 
data showed that the ARRA resulted in a surge in Federal contract 
dollars awarded to dredging companies during fiscal years 2009-2011. 
The average annual dollars obligated for dredging was about $775 
million for fiscal years 2005-2008 and 2012, as compared to $1.1 
billion per year during fiscal years 2009-2011. In addition, the data 
showed that the average share of dollars awarded to small businesses 
decreased from 23.3 percent during 2007-2008 to 15 percent during 2009-
2011. Data for fiscal year 2012 showed that the small businesses' share 
was recovering but was still below the level seen during 2007-2008. 
Based on these results, SBA agrees with the commenters that the ARRA 
impacted the dredging market during fiscal years 2009-2011. SBA also 
agrees that availability of funds is important to the dredging market, 
but it does not agree that the increased availability of funds alone 
would provide more opportunities to small businesses. As shown by the 
data above, although total dollars obligated to the dredging market 
substantially increased during fiscal years 2009-2011 following the 
ARRA, the average share of dollars awarded to small businesses actually 
decreased in that period.
    In response to a claim from some commenters that an increase in 
size standard would only benefit currently large businesses that will 
become small under the proposed $30 million size standard, SBA 
evaluated a distribution of dollars obligated by the receipts size of 
the dredging companies receiving the Federal contracts using the data 
from FPDS-NG and CCR/SAM for fiscal year 2012. The results showed that 
more than 85 percent of the dredging companies that received the 
contracts were below the current $20 million size standard, and they 
received about 22 percent of the total dollars awarded on new or 
modified dredging contracts. About 32 percent of the firms below the 
current size standard had average annual receipts between $10 million 
and $20 million, and they received 11.2 percent of dollars obligated 
for dredging projects. Moreover, the data showed that only 2 to 4 firms 
that are large under the current size standard would become small under 
the proposed $30 million size standard, if adopted, and those firms 
accounted for only 2.4 percent of total dollars awarded to dredging 
projects in 2012. The data also showed that 21 small dredging companies 
received contracts under full and open competition in fiscal year 2012, 
suggesting that set-aside contracts are not the only opportunities for 
small businesses in the Federal dredging market. All these results 
suggest that an increase in size standard will not cause a significant 
adverse impact on small businesses below the current size standard. 
Rather a higher size standard will benefit a large number of businesses 
below the current size standard by providing them with more opportunity 
for growth while maintaining their small business status for a longer 
period.
    In response to the comments on its proposal to increase the size 
standard for dredging from $20 million to $30 million, especially the 
comment that the data for fiscal years 2008-2010 used in developing the 
proposed size standard do not represent the current state of the 
Federal dredging market, SBA re-evaluated industry and federal 
contracting factors of the dredging industry using the data from FPDS-
NG and CCR/SAM in conjunction with the data from NDC for fiscal year 
2012. The results of this analysis supported a lower increase of the 
dredging size standard to $25.5 million, instead of $30 million that 
SBA originally proposed based on the 2008-2010 data.
    With only two firms above the current $20 million size standard 
qualifying as small under $25.5 million, SBA believes that this 
increase will not have an adverse impact on both small businesses below 
the current $20 million size standard and large businesses above $25.5 
million. Instead, as pointed out above, a higher size standard will 
benefit a larger number of small businesses below the current size 
standard by providing them with more opportunity to grow while 
maintaining their small business status.
    Thus, after the careful evaluation of all comments SBA received, 
re-evaluation of industry and Federal contracting factors for the 
dredging industry using the more recent data from various sources (such 
as NDC, DCA's annual reports, FPDS-NG, and CCR/SAM), SBA has decided to 
increase the size standard for the Dredging and Surface Cleanup Sub-
Industry within NAICS Industry 237990 from the current $20 million to 
$25.5 million in average annual receipts. With this increase, only two 
firms that are large under the current $20 million size standard will 
gain small business status and SBA believes that this will not have an 
adverse impact on small businesses below the current size standard.

[[Page 77339]]

Comments on Footnote 2

    In the July 18, 2012 proposed rule, SBA also sought comments on 
footnote 2 to SBA's table of size standards. Footnote 2 states that 
``[t]o be considered small for purposes of Government procurement, a 
firm must perform at least 40 percent of the volume dredged with its 
own equipment or equipment owned by another small dredging concern.'' 
SBA received 16 comments on this issue, all of which supported 
retaining the footnote. Two commenters recommended raising the 40 
percent requirement, one of which recommended increasing it to 50 
percent and the other to 80 percent. Generally, commenters were 
concerned that the elimination of the 40 percent requirement could 
defeat the purpose of set-asides, by permitting small businesses to 
``front'' for larger businesses by brokering set-aside contracts to 
them. Commenters saw no practical reasons to remove the requirement, 
and a number of commenters stated clearly that it has worked well for 
this industry in assuring that only small businesses benefit from set-
aside projects. Therefore, SBA is retaining footnote 2 in its present 
form.

Conclusion

    Based on the evaluation of public comments it received on the 
proposed rule and reevaluation of, industry and Federal contracting 
factors using the more recent data, SBA is increasing the size 
standards for NAICS 237210, Land Subdivision, from $7 million in 
average annual receipts to $25.5 million, as proposed, and for Dredging 
and Surface Cleanup Activities, a sub-industry category (or an 
``exception'') under NAICS 237990, Other Heavy and Civil Engineering 
Construction, from $20 million to $25.5 million. In the proposed rule, 
SBA had proposed to increase the dredging size standard to $30 million. 
Those industries and their revised size standards are shown in Table 1, 
Summary of Size Standards Revisions, below.

                                  Table 1--Summary of Size Standards Revisions
----------------------------------------------------------------------------------------------------------------
                                                                   Current size    Proposed size   Adopted size
          NAICS codes                 NAICS industry title         standard  ($    standard  ($    standard  ($
                                                                     million)        million)        million)
----------------------------------------------------------------------------------------------------------------
237210........................  Land Subdivision................             7.0            25.5            25.5
237990, Except................  Dredging and Surface Cleanup                20.0            30.0            25.5
                                 Activities \2\.
----------------------------------------------------------------------------------------------------------------

    For the reasons as stated above in this rule and in the proposed 
rule, SBA has decided to retain the current receipts based size 
standards for a number of industries in NAICS Sector 23 for which 
analytical results suggested lower size standards. Not lowering size 
standards in NAICS Sector 23 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)), NAICS Sector 48-
49, Transportation and Warehousing (77 FR 10943 (February 24, 2012)), 
NAICS Sector 53, Real Estate and Rental and Leasing (77 FR 58747 
(September 24, 2012)), NAICS Sector 61, Educational Services (77 FR 
58739 (September 24, 2012)), NAICS Sector 62, Health Care and Social 
Assistance (77 FR 58755 (September 24, 2012)), NAICS Sector 51, 
Information (77 FR 72702 (December 6, 2012)), and NAICS Sector 56, 
Administrative and Support, Waste Management and Remediation Services 
(77 FR 72691 (December 6, 2012)); NAICS Sector 11, Agriculture, 
Forestry, Fishing and Hunting (78 FR 37398 (June 20, 2013)); NAICS 
Subsector 213, Support Activities for Mining (78 FR 37404 (June 20, 
2013)); NAICS Sector 52, Finance and Insurance and Sector 55, 
Management of Companies and Enterprises (78 FR 37409 (June 20, 2013)); 
and NAICS Sector 71, Arts, Entertainment and Recreation (78 FR 37417 
(June 20, 2013)). 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 the 
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. To help explain the need of this rule and the 
rule's potential benefits and costs, SBA is providing below a Cost 
Benefit Analysis. This is also not a ``major'' rule, under the 
Congressional Review Act, 5 U.S.C. 801, et. seq.

Cost Benefit Analysis

1. Is there a need for the regulatory action?
    SBA believes that the revised changes to small business size 
standards for one industry and one sub-industry in NAICS Sector 23, 
Construction, reflect changes in economic characteristics of small 
businesses in those industries and the Federal procurement market since 
the last size standards review. 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)) delegated to the SBA's 
Administrator the responsibility for establishing definitions for small 
business. The Act also requires that small business size 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 section of the July 18, 2012 proposed rule and this rule 
explained the 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

[[Page 77340]]

for small businesses under SBA's various business development and 
contracting programs. These include the 8(a), small disadvantaged 
businesses (SDB), small businesses located in Historically 
Underutilized Business Zones (HUBZone), women owned small businesses 
(WOSB), and the service disabled veteran owned small business (SDVOSB) 
Programs. These programs help small businesses become more 
knowledgeable, stable, and competitive. Other Federal agencies also may 
use SBA's size standards for a variety of regulatory and program 
purposes. In the one industry and one sub-industry in NAICS Sector 23 
for which SBA has decided to increase size standards, SBA estimates 
that about 480 additional firms (including two dredging companies), not 
small under the current size standards, will gain small business status 
and become eligible for these programs. That number is 0.1 percent of 
the total number of total firms classified as small under the current 
size standards in all industries in NAICS Sector 23. SBA estimates that 
this will increase the small business share of total industry receipts 
in that Sector from 49.7 percent under the current size standards to 50 
percent under the revised size standards.
    The benefits of increasing size standards to a more appropriate 
level will accrue to three groups: (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 2008-2010, SBA estimates that 
additional firms gaining small business status in those industries 
under the revised size standards could potentially obtain Federal 
contracts totaling between $5 million to $10 million per year under the 
small business, 8(a), SDB, 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 2008-2010 
data, SBA estimates that approximately up to five additional loans 
totaling about $0.5 million to $1.0 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 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, SBA finds it difficult to quantify the actual impact of the 
revised size standards on its 7(a) and 504 Loan Programs.
    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 this impact.
    To the extent that all 480 newly defined additional 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 there being more 
bidders for Federal small business procurement opportunities. In 
addition, there will be more firms seeking SBA's financial assistance, 
more firms eligible for enrollment in the System of Award Management's 
(SAM) Dynamic Small Business Search database, and more firms seeking 
certification as 8(a) or HUBZone firms or those qualifying for small 
business, WOSB, SDVOSB, and SDB status. Among those newly defined small 
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. SBA believes 
that these added administrative costs will be minimal because 
mechanisms are already in place to handle these requirements.
    Additionally, 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 might 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. However, these additional 
costs associated with fewer bidders are expected be minor since, by 
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, it can identify several probable 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 one industry and 
one sub-industry in NAICS Sector 23, Construction, 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

[[Page 77341]]

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 distributional 
impacts that relate to Executive Order 13563 are included above in the 
Cost Benefit Analysis.
    In an effort to engage interested parties in this regulatory 
action, SBA presented 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. In addition, 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. Moreover, SBA presented the 
same information to Department of Defense (DoD) contracting personnel 
at their annual training session. It included updates on what size 
standards rules SBA was currently reviewing and plans to review in the 
future. This is important because DoD contracting provides the greatest 
opportunities for and awards to small businesses.
    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's 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 for Sector 23.
    Furthermore, when SBA issued the proposed rule, it provided notice 
of its publication directly to individuals and companies that had in 
recent years exhibited an interest by letter, email, or phone, in size 
standards for NAICS Sector 23 so they could comment.
    The review of size standards in NAICS Sector 23, Construction, 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 rule may have a 
significant impact on a substantial number of small entities in NAICS 
Sector 23, Construction. 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 Construction 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 revisions 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 480 additional firms will become 
small because of increases in size standards in one industry and one 
sub-industry in NAICS Sector 23. That represents 0.1 percent of total 
firms that are small under the current size standards in all industries 
in NAICS Sector 23. This will result in an increase in the small 
business share of total industry receipts in that Sector from about 
49.7 percent under the current size standards to nearly 50 percent 
under the revised size standards. SBA does not anticipate a significant 
competitive impact on

[[Page 77342]]

smaller businesses under the revised size standards. 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 System of Award Management (SAM) 
(formerly, the Central Contractor Registration) database and certify at 
least annually that they are small in the Representations and 
Certifications section of SAM. Therefore, businesses opting to 
participate in those programs must comply with the SAM requirements. 
There are no costs associated with SAM registration and certification. 
Revising size standards alters the access to SBA's and other 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 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 to do 
otherwise. In 1995, SBA published in the Federal Register a list of 
statutory and regulatory size standards that identified the application 
of SBA's size standards as well as other size standards used by Federal 
agencies (60 FR 57988 (November 24, 1995)). 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 establish different size standards if they believe that 
SBA's size standards are not appropriate for their programs, with the 
approval of SBA's Administrator (see 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.

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), 662, and 694a(9).


0
2. In Sec.  121.201, in the table, ``Small Business Size Standards by 
NAICS Industry,'' revise the entry for ``237210'' and subentry 
``Except'' under entry ``237990'' 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
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
237210..........................  Land Subdivision..........................             $25.5  ................
 
                                                  * * * * * * *
237990..........................  * * *.....................................  ................  ................
Except..........................  Dredging and Surface Cleanup Activities                 25.5  ................
                                   \2\.
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------
Footnotes
 * * * * * * *
\2\ NAICS code 237990--Dredging: To be considered small for purposes of Government procurement, a firm must
  perform at least 40 percent of the volume dredged with its own equipment or equipment owned by another small
  dredging concern.
 * * * * * * *



[[Page 77343]]

    Dated: August 12, 2013.
Karen G. Mills,
Administrator.
[FR Doc. 2013-30314 Filed 12-20-13; 8:45 am]
BILLING CODE 8025-01-P