[Federal Register Volume 79, Number 175 (Wednesday, September 10, 2014)]
[Proposed Rules]
[Pages 53646-53667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-20838]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AG51
Small Business Size Standards: Industries With Employee Based
Size Standards Not Part of Manufacturing, Wholesale Trade, or Retail
Trade
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The U.S. Small Business Administration (SBA) proposes to
increase employee based small business
[[Page 53647]]
size standards for 30 industries and three sub-industries (i.e.,
exceptions in SBA's table of size standards) and decrease them for
three industries that are not part of North American Industry
Classification System (NAICS) Sector 31-33 (Manufacturing), Sector 42
(Wholesale Trade), or Sector 44-45 (Retail Trade). SBA also proposes to
eliminate the Information Technology Value Added Resellers sub-industry
or ``exception'' under NAICS 541519 (Other Computer Related Services)
and its 150-employee size standard. Similarly, SBA proposes to
eliminate the Offshore Marine Air Transportation Services sub-industry
or ``exception'' under NAICS 481211 and 481212 and Offshore Marine
Services sub-industry or ``exception'' under NAICS Subsector 483 and
their $28 million receipts based size standard. This proposed change
includes removing Footnote 15 and Footnote 18 from the table of size
standards. As part of its ongoing comprehensive size standards review,
SBA evaluated employee based size standards for 57 industries and five
sub-industries that are not in NAICS Sectors 31-33, 42, or 44-45 to
determine whether they should be retained or revised. This proposed
rule is one of a series of proposed rules that will review size
standards of industries grouped by NAICS Sector.
DATES: SBA must receive comments to this proposed rule on or before
November 10, 2014.
ADDRESSES: Identify your comments by RIN 3245-AG51 and submit them by
one of the following methods: (1) Federal eRulemaking Portal:
www.regulations.gov, following the instructions for submitting
comments; or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, Ph.D.,
Chief, Size Standards Division, 409 Third Street SW., Mail Code 6530,
Washington, DC 20416. SBA will not accept comments to this proposed
rule submitted by email.
SBA will post all comments to this proposed rule on
www.regulations.gov. If you wish to submit confidential business
information (CBI) as defined in the User Notice at www.regulations.gov,
you must submit such information to U.S. Small Business Administration,
Khem R. Sharma, Ph.D., Chief, Size Standards Division, 409 Third Street
SW., Mail Code 6530, Washington, DC 20416, or send an email to
[email protected]. Highlight the information that you consider to
be CBI and explain why you believe SBA should hold this information as
confidential. SBA will review your information and determine whether it
will make the information public.
FOR FURTHER INFORMATION CONTACT: Jorge Laboy-Bruno, Ph.D., Economist,
Size Standards Division, (202) 205-6618 or [email protected].
SUPPLEMENTARY INFORMATION:
Introduction
In an effort to remove possible public confusion, SBA would like to
explain the changes made to the title of this rule. When SBA initially
announced in the Fall 2012 Unified Agenda of Federal Regulatory and
Deregulatory Actions, 78 FR 1636 at 1639 (January 8, 2013) (Item
#393) that it intended to propose this rule, it was titled
``Small Business Size Standards for Other Industries With Employee
Based Size Standards not Part of Manufacturing or Wholesale Trade.''
under Regulatory Information Number (RIN) 3245-AG51. SBA later realized
that this proposed rule also does not address two industries with
employee based size standards in Retail Trade (NAICS Sector 44-45).
Those size standards will be addressed in a separate rule with
industries in Wholesale Trade (NAICS Sector 42) under RIN 3245-AG49. As
a result, the title of this proposed rule is changed to read ``Small
Business Size Standards: Industries with Employee Based Size Standards
Not Part of Manufacturing, Wholesale Trade, or Retail Trade.'' SBA
believes that the title change of the rule will make it easier for
affected parties to understand the scope of its coverage, and will
engender more public comment and involvement.
To determine eligibility for Federal small business assistance, SBA
establishes small business size definitions (referred to as size
standards) for private sector industries in the United States. SBA uses
two primary measures of business size--average annual receipts and
average number of employees. SBA uses financial assets, electric
output, and refining capacity to measure the size of a few specialized
industries. In addition, SBA's Small Business Investment Company
(SBIC), Certified Development Company (504), and 7(a) Loan Programs use
either the industry based size standards or net worth and net income
based alternative size standards to determine eligibility for those
programs. At the start of the SBA's current comprehensive size
standards review when the size standards were based on NAICS 2007,
there were 41 different size standards covering 1,141 NAICS industries
and 18 subindustry activities (``exceptions'' in SBA's table of size
standards). Thirty-one of these size levels were based on average
annual receipts, seven were based on average number of employees, and
three were based on other measures. Presently, under NAICS 2012, there
are 28 different size standards, covering 1,031 industries and 16
``exceptions''. Of these, 533 are based on average annual receipts, 509
on number of employees (one of which also includes barrels per day
total capacity), 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, in particular the changes
in the Federal contracting marketplace and industry structure. The last
time SBA conducted a comprehensive size standards review was during the
late 1970s and early 1980s. Since then, most reviews of size standards
were limited to a few specific industries, mostly with receipts based
size standards, in response to requests from the public and Federal
agencies. SBA reviews all monetary based size standards (except for
statutorily set size standards in NAICS Sector 11) for inflation at
least once every five years. SBA's latest inflation adjustment to size
standards was published in the Federal Register on June 12, 2014 (79 FR
33647). However, the vast majority of employee based size standards
have not been reviewed since they were first established.
Because of changes in the Federal marketplace and industry
structure since the last comprehensive size standards review, SBA
recognizes that current data may no longer support some of its existing
size standards. Accordingly, in 2007, SBA began a comprehensive review
of all size standards to determine if they are consistent with current
data, and to adjust them when necessary. In addition, on September 27,
2010, the President of the United States signed the Small Business Jobs
Act of 2010 (Jobs Act). The Jobs Act directs SBA to conduct a detailed
review of all size standards and to make appropriate adjustments to
reflect market conditions. Specifically, the Jobs Act requires SBA to
conduct a detailed review of at least one-third of all size standards
during every 18-month period from the date of its enactment. In
addition, the Jobs Act requires that SBA review all size standards not
less frequently than once every five years thereafter. Reviewing
existing small business size standards and making appropriate
adjustments based on the latest available data are also consistent with
Executive Order 13563 on improving regulation and regulatory review.
[[Page 53648]]
Rather than review all size standards at one time, SBA is reviewing
size standards on a Sector by Sector basis. A NAICS Sector generally
includes 25 to 75 industries, except for NAICS Sector 31-33,
Manufacturing, which has considerably more industries. As stated above,
this proposed rule covers industries with employee based size standards
that are not part of NAICS Sector 31-33 (Manufacturing), Sector 42
(Wholesale Trade), or Sector 44-45 (Retail Trade). These include one
industry each in NAICS Sector 11 (Agriculture, Forestry, Fishing and
Hunting), Sector 22 (Utilities) and Sector 52 (Finance and Insurance),
25 industries in Sector 21 (Mining, Quarrying, and Oil and Gas
Extraction), 15 industries in Sector 48-49 (Transportation and
Warehousing), 12 industries in Sector 51 (Information), two industries
and four sub-industries (``exceptions'') in Sector 54 (Professional,
Scientific and Technical Services), and one sub-industry
(``exception'') in Sector 56 (Administrative and Support, Waste
Management and Remediation Services) that currently have employee based
size standards. Once SBA completes its review of size standards for
industries in a NAICS Sector, it issues a proposed rule to revise size
standards for those industries based on latest industry and program
data available and other relevant factors, such as current economic
climate and SBA's and other government's programs and policies to help
small businesses.
Below is a discussion of SBA's size standards methodology for
establishing employee based size standards that the Agency applied to
this proposed rule, including analyses of industry structure, Federal
contracting factors, the impact of the proposed revisions to size
standards on SBA's financial assistance to small businesses, and the
evaluation of whether a revised size standard would exclude dominant
firms from being considered small.
Size Standards Methodology
In conjunction with the current comprehensive size standards
review, SBA developed a ``Size Standards Methodology'' (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 has also included it as a supporting
document in the electronic docket of this proposed rule at
www.regulations.gov. It should be noted that SBA does not apply all
features of its methodology to all industries because not all features
are appropriate for every industry. For example, since all industries
that are being reviewed in this proposed rule have employee based size
standards, the methodology described in this proposed rule relates only
to establishing employee based size standards. However, the methodology
is available in its entirety for parties who have an interest in SBA's
overall approach to establishing, evaluating, and modifying small
business size standards. SBA always explains its methodology and
analysis in individual proposed and final rules relating to size
standards for specific industries.
SBA welcomes comments from the public on a number of issues
concerning its ``Size Standards Methodology,'' that the Agency has
applied in this proposed rule, such as whether there are other
approaches to establishing and modifying size standards; whether there
are alternative or additional factors that SBA should consider; whether
SBA's approach to small business size standards makes sense in the
current economic environment; whether SBA's use of anchor size
standards is appropriate; whether there are gaps in SBA's methodology
because the data it uses are not current or sufficiently comprehensive;
and whether there are other data, facts, and/or issues that SBA should
consider. Comments on SBA's size standards methodology should be
submitted via: (1) The Federal eRulemaking Portal: www.regulations.gov,
following the instructions for submitting comments; the docket number
is SBA-2009-0008, or (2) Mail/Hand Delivery/Courier: Khem R. Sharma,
Ph.D., Chief, Size Standards Division, 409 Third Street SW., Mail Code
6530, Washington, DC 20416. As it will do with comments to this and
other proposed rules, SBA will post all comments on its methodology on
www.regulations.gov. As of April 30, 2014, SBA has received 17 comments
to its ``Size Standards Methodology.'' The comments are available to
the public at www.regulations.gov. SBA continues to welcome comments on
its methodology from interested parties. SBA will not accept comments
submitted by email.
Congress granted SBA's Administrator the discretion to establish
detailed small business size standards. 15 U.S.C. 632(a)(2).
Specifically, Section 3(a)(3) of the Small Business Act (15 U.S.C.
632(a)(3)) requires that ``. . . the [SBA] Administrator shall ensure
that the size standard varies from industry to industry to the extent
necessary to reflect the differing characteristics of the various
industries and consider other factors deemed to be relevant by the
Administrator.'' Accordingly, the economic structure of an industry is
the basis for developing and modifying small business size standards.
SBA identifies the small business segment of an industry by examining
the latest available data on the economic characteristics defining the
industry structure (as described below). In addition, SBA considers
current economic conditions, its mission and program objectives, the
Administration's current policies, suggestions from industry groups and
Federal agencies, and public comments on proposed rules. SBA also
examines whether a size standard based on industry and other relevant
data successfully excludes businesses that are dominant in the
industry.
This proposed rule includes information regarding the factors SBA
evaluated and the criteria it used to propose adjustments, where
necessary, to employee based size standards for 57 industries and five
sub-industries (``exceptions'') covered by this rule. This proposed
rule affords the public an opportunity to review and to comment on
SBA's proposal to revise size standards for certain industries, as well
as on the data and methodology it used to evaluate and revise the size
standards.
Industry Analysis
For the current comprehensive size standards review, SBA has
established three ``base'' or ``anchor'' size standards--$7.0 million
in average annual receipts for industries that have receipts based size
standards, 500 employees for manufacturing and other industries that
have employee based size standards in nonmanufacturing sectors (except
for Wholesale Trade and Retail Trade), and 100 employees for industries
in the Wholesale Trade Sector. SBA established 500 employees as the
anchor size standard for manufacturing industries at its inception in
1953. Shortly thereafter, SBA established $1 million in average annual
receipts as the anchor size standard for nonmanufacturing industries.
SBA has periodically increased the receipts based anchor size standard
for inflation, and today it is $7 million. Since 1986, the size
standard for all industries in the Wholesale Trade Sector for SBA's
financial assistance and for most Federal programs has been 100
employees. Presently, SBA also has employee based size standards for
two industries in Retail Trade, namely NAICS 441110, New Car Dealers
(200 employees) and NAICS 454310, Fuel Dealers (50 employees). However,
NAICS codes for the Wholesale and Retail Trade Sectors and their size
[[Page 53649]]
standards do not apply to Federal procurement programs. Rather, for
Federal procurement the size standard for all industries in Wholesale
Trade (NAICS Sector 42) and for all industries in Retail Trade (NAICS
Sector 44-45) is 500 employees under the SBA's non-manufacturer rule
(13 CFR 121.406(b)).
These long-standing anchor size standards have stood the test of
time and gained legitimacy through practice and general public
acceptance. An anchor is neither a minimum nor a maximum size standard.
It is a common size standard for a large number of industries that have
similar economic characteristics and serves as a reference point in
evaluating size standards for individual industries. SBA uses the
anchor in lieu of trying to establish precise small business size
standards for each industry. Otherwise, theoretically, the number of
size standards might be as high as the number of industries for which
SBA establishes size standards (i.e., more than 1,000). Furthermore,
the data SBA analyzes are static, while the U.S. economy is not. Hence,
absolute precision is impossible. Similarly, because of the disclosure
problem in getting the distribution of firms by more granular size
classes, the 2007 Economic Census tabulation (the latest available when
this proposed rule was prepared) that SBA received from the U.S. Census
Bureau for current size standards review would not allow an accurate
regulatory impact analysis of size standards changes if precise,
separate size standards were established for each industry. SBA
presumes an anchor size standard is appropriate for a particular
industry unless that industry displays economic characteristics that
are considerably different from other industries with the same anchor
size standard.
When evaluating a size standard, SBA compares the economic
characteristics of the industry under review to the average
characteristics of industries with one of the three anchor size
standards (referred to as the ``anchor comparison group''). This allows
SBA to assess the industry structure and to determine whether the
industry is appreciably different from the other industries in the
anchor comparison group. If the characteristics of a specific industry
under review are similar to the average characteristics of the anchor
comparison group, the anchor size standard is generally appropriate for
that industry. SBA may consider adopting a size standard below the
anchor when: (1) All or most of the industry characteristics are
significantly smaller than the average characteristics of the anchor
comparison group; or (2) other industry considerations strongly suggest
that the anchor size standard would be an unreasonably high size
standard for the industry.
If the specific industry's characteristics are significantly higher
than those of the anchor comparison group, then a size standard higher
than the anchor size standard may be appropriate. The larger the
differences are between the characteristics of the industry under
review and those in the anchor comparison group, the larger will be the
difference between the appropriate industry size standard and the
anchor size standard. To determine a size standard above the anchor
size standard, SBA analyzes the characteristics of a second comparison
group.
For industries with employee based size standards reviewed in this
proposed rule, SBA has developed a second comparison group consisting
of industries that have the highest of employee based size standards.
To determine a size standard above the 500-employee anchor size
standard, SBA analyzes the characteristics of this second comparison
group. The industries in this group have size standards of either 1,000
employees or 1,500 employees; the weighted average size standard for
the group is 1,323 employees. SBA refers to this comparison group as
the ``higher level employee based size standard group.''
To examine industry structure, SBA evaluates average firm size,
startup costs and entry barriers, industry competition, and
distribution of firms by size. SBA also evaluates the level and small
business share of total Federal contracting dollars. These are,
generally, the five primary factors SBA examines when establishing or
revising a size standard for an industry. However, SBA will also
consider and evaluate other information that it believes is relevant to
a particular industry (such as technological changes, growth trends,
SBA financial assistance, other program factors, etc.). SBA also
considers possible impacts of size standard revisions on eligibility
for Federal small business assistance, current economic conditions, the
Administration's policies, and suggestions from industry groups and
Federal agencies. Public comments on a proposed rule also provide
important additional information. SBA thoroughly reviews all public
comments before making a final decision on its proposed size standards.
Below are brief descriptions of each of the five primary factors
that SBA has evaluated for each industry and sub-industry covered by
this proposed rule. A more detailed description of these factors is
provided in SBA's ``Size Standards Methodology,'' available at http://www.sba.gov/size.
1. Average firm size. SBA computes two measures of average firm
size: Simple average and weighted average. For industries with employee
based size standards, the simple average firm size is the total number
of employees in an industry divided by the total number of firms in
that industry. The weighted average firm size is the sum of weighted
simple average firm sizes in different employee size classes, where
weights are the shares of total industry employees for respective
employee size classes. The simple average firm size weighs all firms
within an industry equally regardless of their size. The weighted
average firm size overcomes that limitation by giving more weight to
larger firms.
If the average firm size of an industry is significantly higher
than the average firm size of industries in the anchor comparison
industry group, this will generally support a size standard higher than
the anchor size standard. Conversely, if the industry's average firm
size is similar to or significantly lower than that of the anchor
comparison industry group, it will be a basis to adopt the anchor size
standard, or, in rare cases, a standard lower than the anchor.
2. Startup costs and entry barriers. Startup costs reflect a firm's
initial size in an industry. New entrants to an industry must have
sufficient capital and other assets to start and maintain a viable
business. If new firms entering a particular industry have greater
capital requirements than firms in industries in the anchor comparison
group, this can be a basis for establishing a size standard higher than
the anchor size standard. In lieu of actual startup cost data, SBA uses
average assets as a proxy to measure the capital requirements for new
entrants to an industry.
To calculate average assets, SBA begins with the sales to total
assets ratio for an industry from the Risk Management Association's
Annual eStatement Studies. SBA then applies these ratios to the average
receipts of firms in that industry. An industry with average assets
that are significantly higher than those of the anchor comparison group
is likely to have higher startup costs; this in turn will support a
size standard higher than the anchor. Conversely, an industry with
average assets that are similar to or lower than those of the anchor
comparison group is likely to have lower startup costs; this will
support the anchor standard or one lower than the anchor.
[[Page 53650]]
3. Industry competition. Industry competition is generally measured
by the share of total industry receipts generated by the largest firms
in an industry. SBA generally evaluates the share of industry receipts
generated by the four largest firms in each industry. This is referred
to as the ``four-firm concentration ratio,'' a commonly used economic
measure of market competition. If a significant share of economic
activity within the industry is concentrated among a few relatively
large companies, all else being equal, SBA will establish a size
standard higher than the anchor size standard. SBA does not consider
the four-firm concentration ratio as an important factor in assessing a
size standard if its share of economic activity of the largest four
firms within the industry is less than 40 percent. For an industry with
a four-firm concentration ratio of 40 percent or more, SBA compares the
average employee size of the four largest firms in the industry with
the four largest firms' average employee size for the anchor and higher
level size comparison groups to determine an employee size standard for
that industry.
4. Distribution of firms by size. For employee based size
standards, SBA examines the shares of industry total receipts accounted
for by firms of various employment size classes in an industry. This is
an additional factor SBA examines in assessing industry competition. If
most of an industry's economic activity is attributable to smaller
firms, this generally indicates that small businesses are competitive
in that industry. This can, generally, support adopting the anchor size
standard. If most of an industry's economic activity is attributable to
larger firms, this indicates that small businesses are not competitive
in that industry. This can support adopting a size standard above the
anchor.
Concentration is a measure of inequality of distribution. To
determine the degree of inequality of distribution in an industry, SBA
computes the Gini coefficient by constructing the Lorenz curve. The
Lorenz curve presents the cumulative percentages of units (firms) in
various employee size classes along the horizontal axis and the
cumulative percentages of receipts (or other measures of size) in the
same employee size classes along the vertical axis. (For further
detail, please refer to SBA's ``Size Standards Methodology'' on its Web
site at www.sba.gov/size.) Gini coefficient values vary from zero to
one. If receipts are distributed equally among all the firms in an
industry, the value of the Gini coefficient will equal zero. If an
industry's total receipts are attributed to a single firm, the Gini
coefficient will equal one.
SBA compares the Gini coefficient value for an industry with that
for industries in the anchor comparison group. If the Gini coefficient
value for an industry is higher than it is for industries in the anchor
comparison industry group this may, all else being equal, warrant a
size standard higher than the anchor. Conversely, if an industry's Gini
coefficient is similar to or lower than that for the anchor group, the
anchor standard, or in some cases a standard lower than the anchor, may
be adopted.
5. Impact on Federal contracting and SBA loan programs. SBA
examines the possible impact a size standard change may have on Federal
small business assistance. This most often focuses on the level and
small business share of total Federal contracting dollars in the
industry in question. In general, if the small business share of total
Federal contracting dollars in an industry with significant Federal
contracting is appreciably less than the small business share of the
industry's total receipts, this could justify considering a size
standard higher than the existing size standard. If the small business
share of an industry's total Federal contracting dollars is similar to
or higher than the small business share of its total receipts, this
would support the existing size standard for that industry. By
comparing the small business share in the Federal market with the small
business share in the industry-wide market, SBA accounts for conditions
in the Federal market in its size standards analysis. The disparity
between the small business Federal market share and small business
industry-wide share may be due to various factors, such as extensive
administrative and compliance requirements associated with Federal
contracts, the different skill set required for Federal contracts as
compared to typical commercial contracting work, and the size of
Federal contracts. Data permitting, SBA will also examine these, as
well as other factors that are likely to influence the type of firms
within an industry that compete for Federal contracts.
SBA considers the Federal contracting factor in an industry's size
standards analysis only if the industry's total Federal contracting
dollars average $100 million or more annually during the latest three
fiscal years. SBA believes that this threshold reflects a significant
level of contracting where a revision to a size standard may have an
impact on contracting opportunities to small businesses. For industries
where total contracting dollars average $100 million or more annually,
SBA establishes a size standard higher than the existing size standard
if the small business share of total industry receipts is 10 percent or
higher than the small business share of total industry receipts. If
this difference is less than 10 percent, this would support the
existing size standard.
Besides the impact on small business Federal contracting, SBA also
evaluates the impact of a proposed size standard revision on SBA's loan
programs. For this, SBA examines the data on volume and number of its
guaranteed loans within an industry and the size of firms obtaining
those loans. This allows SBA to assess whether the existing, proposed,
or revised size standard for a particular industry may restrict the
level of financial assistance to small firms. If existing size
standards are found to have impeded financial assistance to small
businesses, higher size standards may be justified. However, if small
businesses under existing size standards have been receiving
significant amounts of financial assistance through SBA's loan
programs, or if the financial assistance has been provided mainly to
businesses that are much smaller than the existing size standards, SBA
does not consider this factor when determining the size standard.
Sources of Industry and Program Data
SBA's primary source of industry data used in this proposed rule is
a special tabulation of the 2007 Economic Census (see www.census.gov/econ/census07/) prepared by the U.S. Bureau of the Census (Census
Bureau) for SBA. The 2007 Economic Census data are the latest Economic
Census data available at the time of drafting this proposed rule. SBA
expects to receive the special tabulation from the 2012 Economic Census
in 2016 for the next round of comprehensive size standards review. The
special tabulation provides SBA with data on the number of firms,
number of establishments, number of employees, annual payroll, and
annual receipts of companies by Industry (6-digit level), Industry
Group (4-digit level), Subsector (3-digit level), and Sector (2-digit
level). These data are arrayed by various classes of firms' size based
on the overall number of employees and receipts of the entire
enterprise (all establishments and affiliated firms) from all
industries. The special tabulation enables SBA to evaluate average firm
size, the four-firm concentration ratio, and distribution of firms by
various receipts and employment size classes. It should be noted that
the Economic Census tabulation data on the number of firms,
[[Page 53651]]
number of establishments, number of employees, annual payroll, and
annual receipts for a particular NAICS Industry category relate to
establishments and firms that are primarily engaged in that Industry.
To mitigate this limitation of the Economic Census tabulation data, SBA
also examines the data from the System of Award Management (SAM)
(formerly Central Contractor Registration (CCR)) and FPDS-NG which
provides more recent data on Federal contract awards by NAICS code and
the actual size of the concerns receiving the contract awards.
In some cases, where data are not available at the 6-digit industry
level due to disclosure prohibitions in the Census Bureau's tabulation,
SBA either estimates missing values using available relevant data or
examines data at a higher level of industry aggregation, such as at the
NAICS 2-digit (Sector), 3-digit (Subsector), or 4-digit (Industry
Group) level. In some instances, SBA's analysis is based only on those
factors for which data are available or estimates of missing values are
possible.
The data from the Census Bureau's tabulation are limited to the 6-
digit NAICS industry level and hence do not provide economic
characteristics at the sub-industry level. Thus, when establishing,
reviewing, or modifying size standards at the sub-industry level (that
is, one of the ``exceptions'' in SBA's table of size standards), SBA
evaluates the data from the U.S. General Service Administration's (GSA)
Federal Procurement Data System--Next Generation (FPDS-NG) and SAM
(CCR) databases, following a two-step procedure. First, using FPDS-NG,
SBA identifies product service codes (PSCs) that correspond to specific
sub-industry activities or ``exceptions'' within the applicable NAICS
code and then identifies firms that received Federal contracts in those
PSCs. Then SBA obtains those firms' revenue and employment data from
the SAM/CCR database. SBA uses that data to evaluate the
characteristics of businesses that FPDS-NG identifies for those
procurements. In this proposed rule, SBA applied this approach to
determine industry and Federal contracting factors for ``Information
Technology Value Added Resellers,'' which is an exception under NAICS
541519, Other Computer Related Services, and for ``Environmental
Remediation Services,'' which is an exception under NAICS 562910,
Remediation Services.
Certain industries are not covered by Economic Census and not shown
in the special tabulation. For those industries, SBA first identifies
companies that are registered in SAM/CCR under those industry NAICS
codes and then evaluates their employment and revenue data obtained
from their SAM/CCR profiles. SBA applied this approach to evaluate
industry factors for two industries in NAICS Sector 48-49 that are not
covered by Economic Census, namely Line-Haul Railroads (NAICS 482111),
and Short Line Railroads (NAICS 482112).
To calculate average assets, SBA used sales to total assets ratios
from the Risk Management Association's Annual eStatement Studies, 2009-
2011, available at http://www.statementstudies.org.
To evaluate the Federal contracting factor, SBA examined the data
from FPDS-NG for fiscal years 2009-2011, available at https://www.fpds.gov and 2007 Economic Census tabulation, which is the latest
available as stated elsewhere in the rule.
To assess the impact on financial assistance to small businesses,
SBA examined its internal data on 7(a) and 504 loan programs for fiscal
years 2010-2012.
Data sources and estimation procedures SBA uses in its size
standards analysis are documented in detail in SBA's ``Size Standards
Methodology'' White Paper, which is available at www.sba.gov/size.
Dominance in Field of Operation
Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a
small business concern as one that: (1) Is independently owned and
operated; (2) is not dominant in its field of operation; and (3) meets
a specific small business definition or size standard established by
SBA's Administrator. SBA considers as part of its evaluation whether a
business concern at a proposed or revised size standard would be
dominant in its field of operation. For this, SBA generally examines
the industry's market share of firms at the proposed or revised
standard. SBA also examines distribution of firms by size to ensure
that a contemplated size standard derived from its size standards
analysis excludes the largest firms within an industry. Market share,
the size distribution and other factors may indicate whether a firm can
exercise a major controlling influence on a national basis in an
industry where a significant number of business concerns are engaged.
If a contemplated size standard includes dominant or the largest firms
in an industry, SBA will consider a lower size standard than the one
suggested by the analytical results to exclude the dominant and largest
firms from being defined as small.
Selection of Size Standards
Among the industries with employee based size standards not in
NAICS Sector 31-33 (Manufacturing), Sector 42 (Wholesale Trade), or
Sector 44-45 (Retail Trade), currently there are four size standards
clusters: 500 employees, 750 employees, 1,000 employees, and 1,500
employees. In this proposed rule, SBA has applied its ``Size Standards
Methodology'' for employee based size standards with two modifications.
First, to be consistent with its policy of not lowering any size
standards in all recent proposed and final rules on receipts based size
standards, SBA is retaining the current 500-employee minimum and 1,500-
employee maximum size standards for all industries in the Manufacturing
Sector and other industries not in the Wholesale and Retail Trade
Sectors that have employee based size standards. In its ``Size
Standards Methodology,'' SBA had proposed setting the minimum employee
based size standard for these industries at 250 employees and the
maximum size standard at 1,000 employees. However, doing so would mean
lowering existing size standards, thereby making currently small
businesses ineligible to continue their participation in Federal small
business programs. This would run counter to what SBA and the
Administration are doing to help small businesses to create jobs and
boost economic growth. Second, SBA is proposing a new 1,250-employee
size standard between 1,000 employees and 1,500 employees. This new
size standard level maintains the same 250-employee increment between
the two successive levels that SBA has below 1,000 employees (500, 750,
1,000). SBA proposes, therefore, to apply one of these five employee
based size standards to the analysis of employee based size standards
for industries in the Manufacturing Sector and other industries not in
the Wholesale and Retail Trade Sectors: 500 employees, 750 employees,
1,000 employees, 1,250 employees, and 1,500 employees.
To simplify size standards and for other reasons, SBA may propose a
common size standard for closely related industries. Although the size
standard analysis may support a separate size standard for each
industry, SBA believes that establishing different size standards for
closely related industries may not always be appropriate. For example,
in cases where many of the same businesses operate in the same multiple
industries, a common size standard for those industries might better
reflect the
[[Page 53652]]
Federal marketplace. This might also make size standards among related
industries more consistent than separate size standards for each of
those industries. Whenever SBA proposes a common size standard for
closely related industries it will provide its justification.
Evaluation of Industry Structure
In this proposed rule, SBA evaluated 57 industries and five sub-
industries (``exceptions'') with employee based size standards that are
not in NAICS Sectors 31-33, 42, or 44-45 to assess the appropriateness
of their current size standards. As described above, SBA compared data
on the economic characteristics of each of those industries and sub-
industries to the average characteristics of industries in two
comparison groups. The first comparison group consists of all
industries in Manufacturing and industries not in Wholesale Trade or
Retail Trade with 500-employee size standards. SBA refers this group of
industries to as the ``employee based anchor comparison group.''
Because the goal of SBA's review is to assess whether a specific
industry's size standard should be the same as or different from the
anchor size standard, this is the most logical group of industries to
analyze. In addition, this group includes a sufficient number of firms
to provide a meaningful assessment and comparison of industry
characteristics.
As stated previously, if the characteristics of an industry are
similar to the average characteristics of industries in the anchor
comparison group, the anchor size standard is generally appropriate for
that industry. If an industry's structure is significantly different
from industries in the anchor group, a size standard lower or higher
than the anchor size standard might be appropriate. The proposed new
size standard is based on the difference between the characteristics of
the anchor comparison group and a second industry comparison group. As
described above, the second comparison group for employee based
standards consists of industries with either 1,000-employee or 1,500-
employee size standards. The weighted average size standard for this
group is 1,323 employees. SBA refers this group of industries to as the
``higher level employee based size standard comparison group.'' SBA
determines differences in industry structure between an industry under
review and the industries in the two comparison groups by comparing
data on each of the industry factors, including average firm size,
average assets size, the four-firm concentration ratio, and the Gini
coefficient of distribution of firms by size. Table 1, Average
Characteristics of Employee Based Comparison Groups, shows the average
firm size (both simple and weighted), average assets size, four-firm
concentration ratio, average employees of the four largest firms, and
the Gini coefficient for both anchor level and higher level comparison
groups for employee based size standards.
Table 1--Average Characteristics of Employee Based Comparison Groups
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average firm size (number of Average
employees) Average assets Four[dash]firm employees of
Employee based comparison group ------------------------------------ size ($ concentration four largest Gini coefficient
Simple average Weighted average million) ratio (%) firms \*\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Anchor Level................................ 51 322 $6.4 35.9 1,267 0.765
Higher Level................................ 136 602 37.0 64.3 2,033 0.808
--------------------------------------------------------------------------------------------------------------------------------------------------------
* To be used for industries with a four-firm concentration ratio of 40% or greater.
Derivation of Size Standards Based on Industry Factors
For each industry factor in Table 1, Average Characteristics of
Employee Based Comparison Groups, SBA derives a separate size standard
based on the differences between the values for an industry under
review and the values for the two comparison groups. If the industry
value for a particular factor is near the corresponding factor for the
anchor comparison group, the 500-employee anchor size standard is
appropriate for that factor.
An industry factor significantly above or below the anchor
comparison group will generally imply a size standard for that industry
above or below the 500-employee anchor. The new size standard in these
cases is based on the proportional difference between the industry
value and the values for the two comparison groups.
For example, an industry's simple average firm size of 75 employees
will support a 750-employee size standard. The 75-employee level is
28.2 percent between 51 employees for the anchor comparison group and
136 employees for the higher level comparison group ((75 employees - 51
employees) / (136 employees - 51 employees) = 0.282 or 28.2%). This
proportional difference is applied to the difference between the size
standard of 500 employees for the anchor level size standard group and
average size standard of 1,323 employees for the higher level size
standard group and then added to 500 employees to estimate a size
standard of 733 employees ([{1,323 employees - 500 employees{time} *
0.282] + 500 employees = 733 employees). The final step is to round the
estimated 733-employee size standard to the nearest size standard
level, which in this example is 750 employees.
SBA applies the above calculation to derive a size standard for
each industry factor. Detailed formulas involved in these calculations
are presented in SBA's ``Size Standards Methodology'' which is
available on its Web site at www.sba.gov/size. As stated above, SBA has
also included its ``Size Standards Methodology'' as a supporting
document in the electronic docket of this proposed rule at
www.regulations.gov. (However, it should be noted that figures in the
``Size Standards Methodology'' White Paper are based on 2002 Economic
Census data and are different from those presented in this proposed
rule. That is because when SBA prepared its ``Size Standards
Methodology,'' the 2007 Economic Census data were not yet available).
Table 2, Values of Industry Factors and Supported Size Standards,
below, shows ranges of values for each industry factor and the levels
of size standards supported by those values.
[[Page 53653]]
Table 2--Values of Industry Factors and Supported Size Standards
----------------------------------------------------------------------------------------------------------------
Or if average
Or if weighted Or if average number Then implied
If simple average firm size average firm assets size ($ employees of Or if Gini size standard
(number of employees) size (number million) largest four coefficient is (number of
of employees) firms employees)
----------------------------------------------------------------------------------------------------------------
< 63.9...................... < 364.5........ < 11.1......... < 1,383.3...... < 0.772........ 500
63.9 to < 89.7.............. 364.5 to < 11.1 to < 20.3. 1,383.3 to < 0.772 to < 750
449.6. 1,616.0. 0.785.
89.7 to < 115.6............. 449.6 to < 20.3 to < 29.6. 1,616.0 to < 0.785 to < 1,000
534.6. 1,848.7. 0.798.
115.6 to < 141.4............ 534.6 to < 29.6 to < 38.9. 1,848.7 to < 0.798 to < 1,250
619.7. 2,081.4. 0.811.
>= 141.4.................... >= 619.7....... >= 38.9........ >= 2,081.4..... >= 0.811....... 1,500
----------------------------------------------------------------------------------------------------------------
Derivation of Size Standard Based on Federal Contracting Factor
Besides industry structure, SBA also evaluates Federal contracting
data to assess the success of small businesses in getting Federal
contracts under the existing size standards. For industries where
Federal contract dollars average $100 million or more annually and the
small business share of total Federal contracting dollars is 10 to 30
percent lower than the small business share of total industry receipts,
SBA has designated a size standard one level higher than their current
size standard. For industries where the small business share of total
Federal contracting dollars is more than 30 percent lower than the
small business share of total industry receipts, SBA has designated a
size standard two levels higher than the current size standard. For
industries, where this difference is less than 10 percent, SBA applies
the existing size standard for the Federal contracting factor.
Because of the complex relationships among several variables
affecting small business participation in the Federal marketplace, SBA
has chosen not to designate a size standard for the Federal contracting
factor alone that is more than two levels above the current size
standard. SBA believes that a larger adjustment to size standards based
on Federal contracting activity should be based on a more detailed
analysis of the impact of any subsequent revision to the current size
standard. In limited situations, however, SBA may conduct a more
extensive examination of Federal contracting experience. This may
support a different size standard than indicated by this general rule
and take into consideration significant and unique aspects of small
business competitiveness in the Federal contract market. SBA welcomes
comments on its methodology for incorporating the Federal contracting
factor in its size standard analysis and suggestions for alternative
methods and other relevant information on small business experience in
the Federal contract market that SBA should consider.
Of the 57 industries reviewed in this proposed rule, 14 averaged
$100 million or more annually in Federal contracting during fiscal
years 2009-2011 and thus, the Federal contracting factor for those
industries was significant. Of the 14 industries, the difference
between the small business share of total industry receipts and small
business share of Federal contracting dollars was less than 10 percent
for seven industries and, in this proposed rule, SBA applied the
existing size standard to each. The difference was between 10 and 30
percent for three industries for which a size standard one level higher
than the existing size standard was applied. Finally, in four
industries, this difference was more than 30 percent and a size
standard that was two levels higher than the existing size standard was
applied.
New Size Standards Based on Industry and Federal Contracting Factors
Table 3, Size Standards Supported by Each Factor for Each Industry
(No. of Employees), below, shows the results of analyses of industry
and Federal contracting factors for each industry covered by this
proposed rule. Many NAICS industries in columns 2, 3, 4, 6, and 7 show
two numbers. The upper number is the value for the industry factor
shown on the top of the column and the lower number is the size
standard supported by that factor. For the four-firm concentration
ratio, SBA estimates a size standard only if its value is 40 percent or
more. If the four-firm concentration ratio for an industry is less than
40 percent, SBA does not estimate a size standard for that factor. If
the four-firm concentration ratio is 40 percent or more, SBA indicates
in column 6 the average size of the industry's four largest firms
together with a size standard based on that average. Column 9 shows a
calculated new size standard for each industry. This is the average of
the size standards supported by each factor, rounded to the nearest
fixed size level. However, the size standards for the simple average
and weighted average firm size are averaged together, and therefore
receive a single weight. Analytical details involved in the averaging
procedure are described in SBA's ``Size Standards Methodology.'' For
comparison with the new standards, the current size standards are in
column 10 of Table 3.
Table 3--Size Standards Supported by Each Factor for Each Industry (No. of Employees)
[Upper Value = Calculated Factor, Lower Value = Size Standard Supported]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Four-firm Calculated
Simple Weighted Average average Federal size Current
average average assets Four-firm size Gini contract standard size
NAICS Code NAICS industry title firm size firm size size ($ ratio % (number of coefficient factor (number of standard
(number of (number of million) (%) (number of
employees) employees) employees) employees) employees)
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
--------------------------------------------------------------------------------------------------------------------------------------------------------
113310 Logging............................. 6 31 $0.5 .......... .......... 0.332 .......... .......... ..........
500 500 500 .......... .......... 500 .......... 500 500
211111 Crude Petroleum and Natural Gas 28 790 $70.5 31.1 .......... 0.910 -3.3 .......... ..........
Extraction................................ 500 1,500 1,500 .......... .......... 1,500 500 1,250 500
211112 Natural Gas Liquid Extraction....... 65 175 $234.1 50.7 588 0.702 .......... .......... ..........
750 500 1,500 .......... 500 500 .......... 750 500
[[Page 53654]]
212111 Bituminous Coal and Lignite Surface 99 712 $34.6 36.5 .......... 0.844 .......... .......... ..........
Mining.................................... 1,000 1,500 1,250 .......... .......... 1,500 .......... 1,250 500
212112 Bituminous Coal Underground Mining.. 163 1,062 $40.3 42.5 3,490 0.853 .......... .......... ..........
1,500 1,500 1,500 .......... 1,500 1,500 .......... 1,500 500
212113 Anthracite Mining................... 12 29 $4.5 54.2 46 0.429 .......... .......... ..........
500 500 500 .......... 500 500 .......... 500 500
212210 Iron Ore Mining..................... 356 2,352 .......... 99.1 1,220 0.716 .......... .......... ..........
1,500 1,500 .......... .......... 500 500 .......... 750 500
212221 Gold Ore Mining..................... 114 2,207 .......... .......... .......... 0.896 .......... .......... ..........
1,000 1,500 .......... .......... .......... 1,500 .......... 1,500 500
212222 Silver Ore Mining................... 69 124 .......... .......... .......... 0.368 .......... .......... ..........
750 500 .......... .......... .......... 500 .......... 750 500
212231 Lead Ore and Zinc Ore Mining........ 251 457 .......... 89.6 436 0.457 .......... .......... ..........
1,500 1,000 .......... .......... 500 500 .......... 750 500
212234 Copper Ore and Nickel Ore Mining.... 472 2,215 .......... 93.0 2,369 0.818 .......... .......... ..........
1,500 1,500 .......... .......... 1,500 1,500 .......... 1,500 500
212291 Uranium-Radium-Vanadium Ore Mining.. 20 62 .......... 92.7 85 0.603 .......... .......... ..........
500 500 .......... 500 500 .......... 500 500
212299 All Other Metal Ore Mining.......... 218 569 .......... 91.8 913 0.680 .......... .......... ..........
1,500 1,250 .......... .......... 500 500 .......... 750 500
212311 Dimension Stone Mining and Quarrying 15 44 .......... 12.3 .......... 0.463 .......... .......... ..........
500 500 .......... .......... .......... 500 .......... 500 500
212312 Crushed and Broken Limestone Mining 53 398 $15.7 37.1 .......... 0.789 .......... .......... ..........
and Quarrying............................. 500 750 750 .......... .......... 1,000 .......... 750 500
212313 Crushed and Broken Granite Mining 50 361 .......... 62.1 1,026 0.822 .......... .......... ..........
and Quarrying............................. 500 500 .......... .......... 500 1,500 .......... 750 500
212319 Other Crushed and Broken Stone 24 94 $6.1 28.5 .......... 0.693 .......... .......... ..........
Mining and Quarrying...................... 500 500 500 .......... .......... 500 .......... 500 500
212321 Construction Sand and Gravel Mining. 19 96 $4.1 25.5 .......... 0.683 .......... .......... ..........
500 500 500 .......... .......... 500 .......... 500 500
212322 Industrial Sand Mining.............. 36 183 .......... 66.5 425 0.652 .......... .......... ..........
500 500 .......... .......... 500 500 .......... 500 500
212324 Kaolin and Ball Clay Mining......... 126 258 .......... 80.5 499 0.435 .......... .......... ..........
1,250 500 .......... .......... 500 500 .......... 750 500
212325 Clay and Ceramic and Refractory 34 218 .......... 48.2 286 0.637 .......... .......... ..........
Minerals Mining........................... 500 500 .......... .......... 500 500 .......... 500 500
212391 Potash, Soda, and Borate Mineral 245 410 .......... 76.0 537 0.295 .......... .......... ..........
Mining.................................... 1,500 750 .......... .......... 500 500 .......... 750 500
212392 Phosphate Rock Mining............... 283 389 .......... .......... .......... 0.370 .......... .......... ..........
1,500 750 .......... .......... .......... 500 .......... 1,000 500
212393 Other Chemical and Fertilizer 47 170 .......... .......... .......... 0.721 .......... .......... ..........
Mineral Mining............................ 500 500 .......... .......... .......... 500 .......... .......... 500
212399 All Other Nonmetallic Mineral Mining 21 59 .......... 29.0 .......... 0.558 .......... .......... ..........
500 500 .......... .......... .......... 500 .......... 500 500
213111 Drilling Oil and Gas Wells.......... 59 1,559 $9.6 28.4 .......... 0.883 .......... .......... ..........
500 1,500 500 .......... .......... 1,500 .......... 1,000 500
221210 Natural Gas Distribution............ 187 1,260 $192.6 24.6 .......... 0.771 -0.1 .......... ..........
1,500 1,500 1,500 .......... .......... 500 500 1,000 500
481111 Scheduled Passenger Air 1,197 18,348 $188.6 52.3 51,290 0.923 .......... .......... ..........
Transportation............................ 1,500 1,500 1,500 .......... 1,500 1,500 .......... 1,500 1,500
481112 Scheduled Freight Air Transportation 43 311 .......... 53.2 671 0.778 -50.3 .......... ..........
500 500 .......... .......... 500 750 1,500 750 1,500
481211 Nonscheduled Chartered Passenger Air 18 130 $4.0 38.9 .......... 0.731 -52.2 .......... ..........
Transportation............................ 500 500 500 .......... .......... 500 1,500 750 1,500
481212 Nonscheduled Chartered Freight Air 25 535 .......... 49.7 568 0.820 -81.8 .......... ..........
Transportation............................ 500 1,000 .......... 500 1,500 1,500 1,000 1,500
482111 Line-Haul Railroads................. 2,046 36,622 .......... 54.4 111,250 0.898 .......... .......... ..........
1,500 1,500 .......... .......... 1,500 1,500 .......... 1,500 1,500
[[Page 53655]]
482112 Short Line Railroads................ 1,777 38,435 .......... 49.6 102,744 0.850 .......... .......... ..........
1,500 1,500 .......... .......... 1,500 1,500 .......... 1,500 500
483111 Deep Sea Freight Transportation..... 55 270 .......... 40.0 654 0.738 -14.8 .......... ..........
500 500 .......... .......... 500 500 750 500 500
483112 Deep Sea Passenger Transportation... 379 3,322 .......... 92.8 4,276 0.869 .......... .......... ..........
1,500 1,500 .......... .......... 1,500 1,500 .......... 1,500 500
483113 Coastal and Great Lakes Freight 58 302 $42.1 28.3 .......... 0.750 .......... .......... ..........
Transportation............................ 500 500 1,500 .......... .......... 500 .......... 750 500
483114 Coastal and Great Lakes Passenger 20 140 .......... 39.6 .......... 0.679 .......... .......... ..........
Transportation............................ 500 500 .......... .......... .......... 500 .......... 500 500
483211 Inland Water Freight Transportation. 53 284 $17.6 46.1 1,187 0.815 .......... .......... ..........
500 500 750 .......... 500 1,500 .......... 750 500
483212 Inland Water Passenger 12 57 .......... 28.1 .......... 0.604 .......... .......... ..........
Transportation............................ 500 500 .......... .......... .......... 500 .......... 500 500
486110 Pipeline Transportation of Crude Oil 146 324 $41.9 55.1 917 0.360 .......... .......... ..........
1,500 500 1,500 .......... 500 500 .......... 1,000 1,500
486910 Pipeline Transportation of Refined 113 292 .......... 53.3 764 0.198 .......... .......... ..........
Petroleum Products........................ 1,000 500 .......... .......... 500 500 .......... 500 1,500
492110 Couriers and Express Delivery 149 63,035 $4.5 94.0 119,867 0.973 7.8 .......... ..........
Services.................................. 1,500 1,500 500 .......... 1,500 1,500 1,500 1,250 1,500
511110 Newspaper Publishers................ 67 3,938 $5.5 29.4 .......... 0.929 .......... .......... ..........
750 1,500 500 .......... .......... 1,500 .......... 1,000 500
511120 Periodical Publishers............... 25 373 $3.7 26.7 .......... 0.861 -14.0 .......... ..........
500 750 500 .......... .......... 1,500 750 1,000 500
511130 Book Publishers..................... 37 1,230 $6.6 33.4 .......... 0.898 .......... .......... ..........
500 1,500 500 .......... .......... 1,500 .......... 1,000 500
511140 Directory and Mailing List 55 1,583 $7.0 73.8 8,777 0.915 .......... .......... ..........
Publishers................................ 500 1,500 500 .......... 1,500 1,500 .......... 1,250 500
511191 Greeting Card Publishers............ 138 2,981 .......... 90.9 2,512 0.947 .......... .......... ..........
1,250 1,500 .......... .......... 1,500 1,500 .......... 1,500 500
511199 All Other Publishers................ 15 254 $1.3 33.7 .......... 0.726 -5.2 .......... ..........
500 500 500 .......... .......... 500 500 500 500
512220 Integrated Record Production/ 25 1,451 .......... 90.4 1,888 0.947 .......... .......... ..........
Distribution.............................. 500 1,500 .......... .......... 1,250 1,500 .......... 1,250 750
512230 Music Publishers.................... 9 135 .......... 57.1 386 0.862 .......... .......... ..........
500 500 .......... .......... 500 1,500 .......... 750 500
517110 Wired Telecommunications Carriers... 255 16,436 $69.8 56.8 137,817 0.961 20.2 .......... ..........
1,500 1,500 1,500 .......... 1,500 1,500 1,500 1,500 1,500
517210 Wireless Telecommunications Carriers 172 10,785 $50.9 80.2 55,047 0.976 10.0 .......... ..........
(except Satellite)........................ 1,500 1,500 1,500 .......... 1,500 1,500 1,500 1,500 1,500
517911 Telecommunications Resellers........ 14 117 $2.4 30.2 .......... 0.731 -69.5 .......... ..........
500 500 500 .......... .......... 500 1,500 750 1,500
519130 Internet Publishing and Broadcasting 23 375 $4.0 51.6 5,407 0.889 .......... .......... ..........
and Web Search Portals.................... 500 750 500 .......... 1,500 1,500 .......... 1,000 500
524126 Direct Property and Casualty 241 5,593 $358.1 31.9 .......... 0.934 .......... .......... ..........
Insurance Carriers........................ 1,500 1,500 1,500 .......... .......... 1,500 .......... 1,500 1,500
541711 Research and Development in 43 413 .......... 35.8 .......... 0.802 -16.4 .......... ..........
Biotechnology............................. 500 750 .......... .......... .......... 1,250 750 1,000 500
541712 Research and Development in the 61 942 $4.4 21.5 .......... 0.814 -2.2 .......... ..........
Physical, Engineering, and Life Sciences 500 1,500 500 .......... .......... 1,500 500 1,000 500
(except Biotechnology)....................
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 53656]]
Special Considerations
The Information Technology Value Added Resellers Sub-Industry
(``Exception'') Under NAICS 541519, Other Computer Related Services
For Federal contracts that combine substantial services with the
acquisition of computer hardware and software, in 2002, SBA proposed to
establish a new industry category ``Information Technology Value Added
Resellers (ITVAR)'' under NAICS 541519, Other Computer Related
Services, with a size standard of 500 employees (67 FR 48419 (July 24,
2002)). In the final rule, SBA adopted the ITVAR industry category, as
proposed, with a size standard of 150 employees (68 FR 74833 (December
29, 2003)). Presently, the size standard for rest of NAICS 541519 and
other industries in NAICS Industry Group 5415, Computer Systems Design
and Related Services, is $25.5 million in average annual receipts.
As stated in Footnote 18 to SBA's table of size standards, for a
Federal contract to be classified under the ITVAR sub-industry or
``exception'' and its 150-employee size standard, it must consist of at
least 15 percent but not more than 50 percent of value added services
as measured by the total price less cost of computer hardware and
software, and profit. If the contract consists of less than 15 percent
of value added services, it must be classified under the appropriate
manufacturing industry. If the contract consists of more than 50
percent of value added services, it must be classified under the NAICS
industry that best describes the principal nature of service being
procured.
SBA is proposing to eliminate the ITVAR 150-employee size standard
exception under NAICS 541519 because it has created some
inconsistencies, confusion, and misuse. First, contracting officers are
not able to identify size standard exceptions in the FPDS-NG. Thus, the
public often believes that a firm that received a contract as a small
business under NAICS 541519 and has revenue in excess of the $25.5
million receipts based size standard was not eligible for the award,
when in fact the firm may have been eligible if the contracting officer
used the 150-employee size standard of the ITVAR exception. This leads
to misunderstandings and questions concerning the small business
goaling report that SBA must issue every year. Second, SBA's evaluation
of FPDS-NG data and solicitations shows many cases where Federal
agencies have applied the 150-employee size standard, instead of the
receipts based size standard, for contracts that were predominantly for
services. This may have benefited more successful, mid-size companies
at the expense of those below the receipts based size standard.
Additionally, as stated elsewhere in this proposed rule, the data from
the Census Bureau's tabulation are limited to the 6-digit NAICS
industry level and hence do not provide economic characteristics of
firms that are involved in the ITVAR activities. Furthermore, data are
not available on Federal ITVAR contracts, as there is no ITVAR PSC in
FPDS-NG. The lack of data on characteristics of firms involved in ITVAR
activities to evaluate the current 150-employee size standard also
justifies SBA's proposal to eliminate the ITVAR sub-industry category.
Moreover, the use of the ITVAR exception size standard is also
purely discretionary. Under the terms of the exception as stated in
Footnote 18 in SBA's table of size standards, it is clear that the
majority of the cost of the contract that qualify under the ITVAR 150-
employee size standard will be incurred for supplies. Thus, instead of
using the ITVAR 150-employee size standard under NAICS 541519, a
contracting officer could use a manufacturing NAICS code and size
standard, such as NAICS 334111 (Electronic Computer Manufacturing) with
1,000-employee size standard, to which the non-manufacturer size
standard of 500 employees would also apply. Thus, firms may or may not
be eligible as a small business for the exact same purchase simply
based on the contracting officer's selection of the NAICS code and size
standard. This is inconsistent with SBA's small business regulations
that the contracting officer must select the NAICS code that best
describes the principal purpose of the acquisition (see 13 CFR
121.402(b)). The selection of a NAICS code should never be based on the
contracting officer's desire for a particular size standard or firm
size.
In addition, the combination of services and supplies in an
acquisition is not unique to the information technology industry.
Acquisitions across many industries combine supplies and services, yet
SBA has not created exceptions to the size standards for these
industries. The general principle is that agencies classify
procurements based on the principal purpose of the acquisition. Based
on the analysis of available industry and Federal contracting data for
NAICS Industry Group 5415 and comments to the proposed rule (76 FR
14323 (March 16, 2011)), in 2012, SBA established the appropriate size
standard for that industry group, including NAICS 541519, at $25.5
million in average annual receipts (77 FR 7490 (February 10, 2012)).
Moreover, it is also unclear from the terms of exception itself whether
a contract using the ITVAR 150-employee size standard should be
classified as a service contract or a supply contract. This is
important because if the contract is a service contract, the offeror
must perform at least 50 percent of the cost of the contract incurred
for personnel with its own employees, whereas if it is a supply
contract the firm must perform at least 50 percent of the cost of
manufacturing the supplies, or supply the product of a small
manufacturer, unless a waiver is granted under the non-manufacturer
rule.
For these reasons, SBA proposes to eliminate the ITVAR sub-industry
category (``exception'') under NAICS 541519 and its 150-employee size
standard and apply only the $25.5 million receipts based size standard
to NAICS 541519. Elimination of the exception will provide clarity to
small businesses, contracting officers and the public. If a procuring
agency seeks to acquire computer integration, maintenance and other
computer related services as well as some computer hardware and it
determines that the principal nature of procurement is for services,
the agency can classify the contract as a service contract under an
appropriate service NAICS code. Similarly, if an agency seeks to
procure computer hardware as well as computer integration, maintenance
and other computer related services and it determines that the
principal nature of procurement is for supplies, the agency can
classify the contract as a supply contract under an appropriate
manufacturing NAICS code, and the non-manufacturer rule will apply.
SBA's analysis of 2007 Economic Census data shows that 150
employees is more or less equivalent to $25.5 million receipts in NAICS
541519 and that more than 99 percent of firms below the 150-employee
level will continue to qualify as small under the $25.5 million
receipts based size standard. Thus, the proposed elimination of the
ITVAR sub-industry category and its 150-employee size standard, if
adopted, will have very minimal impact on businesses below 150
employees. Moreover, these firms would continue to qualify as small
businesses for supply contracts for computer hardware and equipment
under the manufacturing size standard or under the 500-employee size
standard under the non-manufacturer rule.
[[Page 53657]]
In view of the proposed elimination of the ITVAR exception under
NAICS 541519, SBA also proposes to eliminate Footnote 18 in its
entirety from SBA's table of size standards.
Exceptions Under NAICS 541712, Research and Development in the
Physical, Engineering, and Life Sciences (except Biotechnology)
NAICS 541712, Research and Development in the Physical,
Engineering, and Life Sciences (except Biotechnology), has three sub-
industries or ``exceptions''. As stated in Footnote 11 to SBA's table
of size standards, for research and development (R&D) contracts
requiring the delivery of a manufactured product, the appropriate size
standard is that of the corresponding manufacturing industry. The three
``exceptions'' under NAICS 541712 and their corresponding manufacturing
industry counterparts and their size standards are shown in Table 4,
NAICS 541712 Exceptions and Corresponding Manufacturing Industries and
Size Standards, below.
Table 4--NAICS 541712 Exceptions and Corresponding Manufacturing Industries and Size Standards
----------------------------------------------------------------------------------------------------------------
Calculated size
Current size standard (number
Exception NAICS code and industry title standard (number of employees)
of employees) \1\
----------------------------------------------------------------------------------------------------------------
Aircraft.................................... 336411 Aircraft Manufacturing. 1,500 1,500
Aircraft Parts and Auxiliary Equipment, and 336412 Aircraft Engine and 1,000 1,500
Aircraft Engine Parts. Engine Parts Manufacturing.
336413 Other Aircraft Part and 1,000 1,250
Auxiliary Equipment.
Space Vehicles and Guided Missiles, Their 336414 Guided Missile and 1,000 1,250
Propulsion Units Parts, and Their Auxiliary Space Vehicle Manufacturing.
Equipment and Parts.
336415 Guided Missile and 1,000 1,250
Space Vehicle Propulsion Unit
and Propulsion Parts
Manufacturing.
336419 Other Guided Missile 1,000 1,000
and Space Vehicle Parts and
Auxiliary Equipment
Manufacturing.
----------------------------------------------------------------------------------------------------------------
\1\ From Table 3 of the proposed rule ``Small Business Size Standards for Manufacturing'' (RIN 3245-AG50),
published concurrently in the current issue of the Federal Register.
To better match the exceptions to the corresponding calculated
industry specific size standards in manufacturing, SBA proposes to
modify the three exceptions as shown in Table 5, Modified Exceptions
and Their Proposed Size Standards, below.
Table 5--Modified Exceptions and Their Proposed Size Standards
----------------------------------------------------------------------------------------------------------------
Current Proposed
----------------------------------------------------------------------------------------------------------------
Size standard Size standard
Exception (number of Exception (number of
employees) employees)
----------------------------------------------------------------------------------------------------------------
Aircraft.................................... 1,500 Aircraft, Aircraft Engine, and 1,500
Engine Parts.
Aircraft Parts and Auxiliary Equipment, and 1,000 Other Aircraft Parts and 1,250
Aircraft Engine Parts. Auxiliary Equipment.
Space Vehicles and Guided Missiles, Their 1,000 Guided Missiles and Space 1,250
Propulsion Units Parts, and Their Auxiliary Vehicles, Their Propulsion
Equipment and Parts. Units and Propulsion Parts.
----------------------------------------------------------------------------------------------------------------
Other Guided Missile and Space Vehicle Parts and Auxiliary
Equipment category has been dropped from the third exception because
the proposed size standard for the corresponding manufacturing industry
(NAICS 336419) is the same as the calculated size standard for rest of
NAICS 541712.
Footnote 11 to SBA's table of size standards concerning NAICS codes
541711and 541712 consists of an introductory paragraph and three sub-
paragraphs numbered as (a), (b), and (c). The introductory paragraph
states that for research and development contracts requiring the
delivery of a manufactured product, the appropriate size standard is
that of the manufacturing industry. Sub-paragraph (a) concerns with
what SBA generally means by ``Research and Development'' (R&D) under
NAICS codes 541712 and 541712, while sub-paragraph (b) and (c) relate
to the R&D definitions for Small Business Innovation Research program
and ``guided missiles and space vehicles'', respectively. SBA has
received some public inquiries on whether the requirement under the
introductory paragraph is independent or it also applies to the three
sub-paragraphs. While the introductory paragraph only applies to R&D
contracts requiring the delivery of a manufactured product, the three
sub-paragraphs can include R&D contracts that do not require the
delivery of the manufactured product. However, to eliminate possible
confusion and provide more clarity, SBA proposes to amend Footnote 11
by converting the introductory paragraph to a new sub-paragraph (b) and
renaming existing sub-paragraphs (b) and (c) to sub-paragraphs (c) and
(d), respectively, as follows:
\11\ NAICS code 541711 and 541712:
(a) ``Research and Development'' means laboratory or other physical
research and development. It does not include economic, educational,
[[Page 53658]]
engineering, operations, systems, or other nonphysical research; or
computer programming, data processing, commercial and/or medical
laboratory testing.
(b) For research and development contracts requiring the delivery
of a manufactured product, the appropriate size standard is that of the
manufacturing industry.
(c) For purposes of the Small Business Innovation Research (SBIR)
program only, a different definition has been established by law. See
Sec. 121.701 of these regulations.
(d) ``Research and Development'' for guided missiles and space
vehicles includes evaluations and simulation, and other services
requiring thorough knowledge of complete missiles and spacecraft.
The Environmental Remediation Services Sub-Industry (``Exception'')
Under NAICS 562910, Remediation Services
In 1994, SBA established a 500-employee based size standard for
Environmental Remediation Services (ERS) for Federal procurements
involving three or more services related to restoring a contaminated
environment, such as preliminary assessment, site inspection, testing,
remedial investigation, remedial action, containment, and removal and
storage of contaminated materials (FR 59 47236 (September 15, 1994)).
At that time, ERS was designated as a sub-industry category or
``exception'' under the Standard Industrial Classification (SIC) code
8744, Facilities Support Management Services. Currently, it is a sub-
industry or ``exception'' under NAICS code 562910, Remediation
Services. The requirements that apply to the ERS exception and its 500-
employee size standard for Federal procurement and SBA's assistance are
defined in Footnote 14 to SBA's table of size standards (13 CFR
121.201).
As explained previously in the Sources of Industry and Program Data
section, the data from the Census Bureau's tabulation are limited to
the 6-digit NAICS industry level and hence do not provide economic
characteristics for the ERS sub-industry. Thus, SBA evaluated the data
from FPDS-NG and the SAM/CCR databases. First, using FPDS-NG data for
fiscal years 2009 to 2011, SBA identified product service codes (PSCs)
within NAICS 562910 that correspond to the ERS activity or exception
and firms that participated in Federal contracts under those PSCs.
Then, SBA obtained those firms' revenue and employment data from the
SAM/CCR database.
The ERS contracts were predominantly classified under the three
PSCs as shown in Table 6, PSCs for ERS Contracts, below.
Table 6--PSCs for ERS Contracts
------------------------------------------------------------------------
PSC PSC Description
------------------------------------------------------------------------
F108................... Environmental Systems Protection--Environmental
Remediation Includes: Toxic and Hazardous
Substance Removal, Cleanup, and Disposal;
Asbestos and Lead Abatement.
Excludes: Remediation of Oil Spills (PSC F112).
F112................... Environmental Systems Protection--Oil Spill
Response Includes: Cleanup, Removal, Disposal
and Operational Support.
F999................... Other Environmental Services.
------------------------------------------------------------------------
Among these three PSCs, F108 and F999 accounted for about 98
percent of nearly $1.9 billion in total contracts dollars awarded
annually under these three PSCs during fiscal years 2009-2011. Thus,
for this proposed rule, SBA's analysis focused only on firms that
received contracts in PSCs F108 and F999. Based on FPDS-NG data for
fiscal years 2009-2011, SBA identified 783 businesses receiving Federal
contracts under those two PSCs. Of these, 18 identified themselves as
manufacturers in SAM/CCR and were excluded from the analysis. Of the
remainder, SBA was able to match about 670 firms in SAM/CCR database
and obtain the data on their annual receipts and employees. The matched
firms accounted for 96 percent of total contract dollars awarded in the
two PSCs. The data on those firms were analyzed to evaluate industry
and Federal contracting factors of the ERS sub-industry. These results
and size standards supported by each of those factors are shown in
Table 7, Size Standards Supported by Each Factor for the ERS Sub-
industry (No. of Employees), below.
Table 7--Size Standards Supported by Each Factor for the ERS Sub-Industry (No. of Employees)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple Weighted Four-firm Calculated
average average Average average Federal size
firm size firm size assets Four-firm size Gini coeffi- contract standard
(number of (number of size ($ ratio % (number of cient factor (%) (number of
employees) employees) million) employees) employees)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Factor................................................ 832 20,583 NA 47 48,022 0.9298 37.5 ..........
Size standard......................................... 1,500 1,500 .......... .......... 1,500 1,500 500 1,250
--------------------------------------------------------------------------------------------------------------------------------------------------------
NA = data not available.
Based on the above results, SBA is proposing to increase the size
standard for the ERS sub-industry or exception under NAICS 562910 from
the current 500 employees to 1,250 employees.
Offshore Marine Air Transportation Services and Offshore Marine
Services
Offshore Marine Air Transportation Services is a sub-industry or
``exception'' under both NAICS 481211, Nonscheduled Chartered Passenger
Air Transportation and NAICS 481212, Nonscheduled Chartered Freight Air
Transportation. The size standards are 1,500 employees for both NAICS
codes 481211 and 481212 and $28 million in average annual receipts for
the Offshore Marine Air Transportation Services sub-industry or
``exception. Similarly, as
[[Page 53659]]
indicated in Footnote 15 to SBA's table of size standards, Offshore
Marine Services is a sub-industry or ``exception'' to all industries
under NAICS Subsector 483, Water Transportation, with the size standard
of $28 million in average annual receipts. All industries within
Subsector 483 currently have a 500-employee size standard. SBA did not
review the $28 million receipts exception size standard when it
reviewed receipts based size standards in NAICS Sector 48-49.
As mentioned earlier, the data from the Census Bureau's tabulation
are limited to the 6-digit NAICS industry level and do not provide
economic characteristics of firms at the sub-industry level. For sub-
industry or exception size standards, SBA generally evaluates the
characteristics of firms receiving Federal contracts under product
service codes (PSCs) that correspond to specific sub-industry
activities or ``exceptions'' within the applicable NAICS code. However,
the review of data from FPDS-NG shows no specific PSC associated with
either the Offshore Marine Air Transportation Services or Offshore
Marine Services sub-industries. Therefore, SBA cannot review the $28
million revenue size standard for these sub-industries to determine
whether it should be retained at the current level or adjusted.
The sub-industry or ``exception'' size standards are primarily used
for Federal government procurements of very specific products or
services within a 6-digit NAICS industry and many of them account for a
significant share of contract dollars within the industry. However,
evaluations of data from FPDS-NG and a sample of solicitations from the
Federal Business Opportunities Web site at www.fbo.gov show almost no
federal contract awards to small businesses under the $28 million size
standard exception to NAICS 481211 and 481212 and NAICS Subsector 483.
SBA believes that contracting officers strongly favor a relatively much
larger 1,500- or 500-employee size standard instead of the $28 million
receipts based size standard.
For the above reasons, SBA proposes to eliminate these sub-
industries or ``exceptions'' and their $28 million receipts based size
standard under NAICS 481211 and 481212 and NAICS Subsector 483. SBA
proposes to apply the applicable employee based size standard. SBA also
proposes to eliminate Footnote 15 from SBA's table of size standards.
This will not affect the eligibility of firms that are small under the
$28 million receipts based size standard because they will continue to
be eligible under the employee based size standard.
Proposed Changes to Size Standards
Table 8, Summary of Size Standards Analysis, below, summarizes the
results of SBA's analyses from Table 3, Size Standards Supported by
Each Factor for Each Industry (No. of employees). The results might
support increases in size standards for 31 industries, decreases for
seven industries and no change for 19 industries.
Table 8--Summary of Size Standards Analysis
----------------------------------------------------------------------------------------------------------------
Current size Calculated
standard size standard
NAICS Code NAICS Industry title (number of (number of
employees) employees)
----------------------------------------------------------------------------------------------------------------
113310..................................... Logging............................ 500 500
211111..................................... Crude Petroleum and Natural Gas 500 1,250
Extraction.
211112..................................... Natural Gas Liquid Extraction...... 500 750
212111..................................... Bituminous Coal and Lignite Surface 500 1,250
Mining.
212112..................................... Bituminous Coal Underground Mining. 500 1,500
212113..................................... Anthracite Mining.................. 500 500
212210..................................... Iron Ore Mining.................... 500 750
212221..................................... Gold Ore Mining.................... 500 1,500
212222..................................... Silver Ore Mining.................. 500 750
212231..................................... Lead Ore and Zinc Ore Mining....... 500 750
212234..................................... Copper Ore and Nickel Ore Mining... 500 1,500
212291..................................... Uranium-Radium-Vanadium Ore Mining. 500 500
212299..................................... All Other Metal Ore Mining......... 500 750
212311..................................... Dimension Stone Mining and 500 500
Quarrying.
212312..................................... Crushed and Broken Limestone Mining 500 750
and Quarrying.
212313..................................... Crushed and Broken Granite Mining 500 750
and Quarrying.
212319..................................... Other Crushed and Broken Stone 500 500
Mining and Quarrying.
212321..................................... Construction Sand and Gravel Mining 500 500
212322..................................... Industrial Sand Mining............. 500 500
212324..................................... Kaolin and Ball Clay Mining........ 500 750
212325..................................... Clay and Ceramic and Refractory 500 500
Minerals Mining.
212391..................................... Potash, Soda, and Borate Mineral 500 750
Mining.
212392..................................... Phosphate Rock Mining.............. 500 1,000
212393..................................... Other Chemical and Fertilizer 500 500
Mineral Mining.
212399..................................... All Other Nonmetallic Mineral 500 500
Mining.
213111..................................... Drilling Oil and Gas Wells......... 500 1,000
221210..................................... Natural Gas Distribution........... 500 1,000
481111..................................... Scheduled Passenger Air 1,500 1,500
Transportation.
481112..................................... Scheduled Freight Air 1,500 750
Transportation.
481211..................................... Nonscheduled Chartered Passenger 1,500 750
Air Transportation.
481212..................................... Nonscheduled Chartered Freight Air 1,500 1,000
Transportation.
482111..................................... Line-Haul Railroads................ 1,500 1,500
482112..................................... Short Line Railroads............... 500 1,500
483111..................................... Deep Sea Freight Transportation.... 500 500
483112..................................... Deep Sea Passenger Transportation.. 500 1,500
483113..................................... Coastal and Great Lakes Freight 500 750
Transportation.
483114..................................... Coastal and Great Lakes Passenger 500 500
Transportation.
483211..................................... Inland Water Freight Transportation 500 750
[[Page 53660]]
483212..................................... Inland Water Passenger 500 500
Transportation.
486110..................................... Pipeline Transportation of Crude 1,500 1,000
Oil.
486910..................................... Pipeline Transportation of Refined 1,500 500
Petroleum Products.
492110..................................... Couriers and Express Delivery 1,500 1,250
Services.
511110..................................... Newspaper Publishers............... 500 1,000
511120..................................... Periodical Publishers.............. 500 1,000
511130..................................... Book Publishers.................... 500 1,000
511140..................................... Directory and Mailing List 500 1,250
Publishers.
511191..................................... Greeting Card Publishers........... 500 1,500
511199..................................... All Other Publishers............... 500 500
512220..................................... Integrated Record Production/ 750 1,250
Distribution.
512230..................................... Music Publishers................... 500 750
517110..................................... Wired Telecommunications Carriers.. 1,500 1,500
517210..................................... Wireless Telecommunications 1,500 1,500
Carriers (except Satellite).
517911..................................... Telecommunications Resellers....... 1,500 750
519130..................................... Internet Publishing and 500 1,000
Broadcasting and Web Search
Portals.
524126..................................... Direct Property and Casualty 1,500 1,500
Insurance Carriers.
541711..................................... Research and Development in 500 1,000
Biotechnology.
541712..................................... Research and Development in the 500 1,000
Physical, Engineering, and Life
Sciences (except Biotechnology).
----------------------------------------------------------------------------------------------------------------
Similarly, the results discussed under the Special Considerations
section, above, support increasing the size standard for the second and
third exceptions and retaining it for the first exception under NAICS
541712 and increasing the Environmental Remediation Services exception
under NAICS 562910. SBA is proposing to eliminate the Information
Technology Value Added Resellers exception and its 150-employee size
standard under NAICS 541519. SBA is also proposing to eliminate the
Offshore Marine Air Transportation Services sub-industry or
``exception'' under NAICS 481211 and 481212 and Offshore Marine
Services sub-industry or ``exception'' under NAICS Subsector 483 and
their $28 million receipts based size standard.
To ensure that neither an existing nor a calculated size standard
includes the largest or dominant firms in any industry, besides the
calculation of the Gini coefficient, SBA further assessed the
distribution of firms in each industry by employee size. The analytical
results in Table 3 might appear to support retaining the existing size
standard of 500 employees for NAICS codes 212113 and 212291 and
increasing it to 750 employees for NAICS 212222. However, the firm size
distribution showed that these levels would include all firms,
including the largest and possibly dominant ones, as small in each of
those industries. Moreover, these levels are almost the same as or
higher than the total employees for the entire industry. Accordingly,
SBA is proposing to set the size standard for each of these three NAICS
codes at 250 employees. This would affect only the one or two largest
firms in each of those industries.
Except for lowering size standards to exclude the dominant firms,
SBA believes that lowering size standards is not in the best interest
of small businesses in the current economic environment. The U.S.
economy was in recession from December 2007 to June 2009, the longest
and deepest of any recessions since before World War II. The economy
lost more than eight million non-farm jobs during 2008-2009. In
response, Congress passed and the President signed into law the
American Recovery and Reinvestment Act of 2009 (Recovery Act) to
promote economic recovery and to preserve and create jobs. Although the
recession officially ended in June 2009, the unemployment rate is still
high at 6.2 percent in July 2014 (www.bls.gov) and is forecast to
remain around this level at least through the end of 2014 (http://www.federalreserve.gov/monetarypolicy/mpr_20140211_part3.htm).
In 2010, Congress passed and the President signed the Jobs Act to
promote small business job creation. The Jobs Act puts more capital
into the hands of entrepreneurs and small business owners; strengthens
small businesses' ability to compete for contracts; includes
recommendations from the President's Task Force on Federal Contracting
Opportunities for Small Business; creates a better playing field for
small businesses; promotes small business exporting, building on the
President's National Export Initiative; expands training and
counseling; and provides $12 billion in tax relief to help small
businesses invest in their firms and create jobs. A proposal to reduce
size standards will have an immediate impact on jobs, and it would be
contrary to the expressed will of the President and the Congress.
Lowering size standards would decrease the number of firms that
participate in Federal financial and procurement assistance programs
for small businesses. It would also affect small businesses that are
now exempt or receive some form of relief from other Federal
regulations that use SBA's size standards. That impact could take the
form of increased fees, paperwork, or other compliance requirements for
small businesses. Furthermore, size standards based solely on
analytical results without any other considerations can cut off
currently eligible small firms from those programs and benefits. In the
seven industries for which analytical results might have supported
lowering their size standards, about 40 businesses would lose their
small business eligibility if their size standards were lowered based
solely on the analytical results. That would run counter to what SBA
and the Federal government are doing to help small businesses and
create jobs. Reducing size eligibility for Federal procurement
opportunities, especially under current economic conditions, would not
preserve or create more jobs; rather, it would have the opposite
effect. Therefore, in this proposed rule, except for three industries
for which SBA is proposing to lower their size standards to exclude
[[Page 53661]]
the largest and possibly the dominant firms from being small, SBA does
not intend to reduce size standards for any industries. Accordingly,
for seven industries where analyses might seem to support lowering size
standards, SBA proposes to retain the current size standards.
Furthermore, as stated previously, the Small Business Act requires
the SBA's Administrator to ``. . . consider other factors deemed to be
relevant . . .'' to establishing small business size standards. The
current economic conditions and the impact on job creation are quite
relevant factors when establishing small business size standards. SBA
nevertheless invites comments and suggestions on whether it should
lower size standards as suggested by analyses of industry and program
data or retain the current standards for those industries in view of
current economic conditions.
As discussed above, except to exclude the largest or dominant
firms, lowering size standards is inconsistent with what the Federal
government is doing to stimulate the economy and would discourage job
growth for which Congress established the Recovery Act and Jobs Act. In
addition, it would be inconsistent with the Small Business Act
requiring the Administrator to establish size standards based on
industry analysis and other relevant factors such as current economic
conditions. Thus, of the 57 industries and five sub-industries reviewed
in this rule, SBA proposes to increase size standards for 30 industries
and three sub-industries, retain the current size standards for 24
industries and one sub-industry and lower size standards for three
industries to exclude the largest or dominant firms from being
considered small. SBA also proposes to eliminate the Information
Technology Value Added Resellers sub-industry or exception under NAICS
541519 (Other Computer Related Services) and its 150-employee size
standard. SBA also proposes to eliminate the Offshore Marine Air
Transportation Services sub-industry or ``exception'' under NAICS
481211 and 481212 and Offshore Marine Services sub-industry or
``exception'' under NAICS Subsector 483 and their $28 million receipts
based size standard. The SBA's proposed changes are in Table 9, Summary
of Proposed Size Standards Revisions, below.
Table 9--Summary of Proposed Size Standards Revisions
----------------------------------------------------------------------------------------------------------------
Current size Current size
standard standard Proposed size
NAICS Code NAICS Industry title (millions of (number of standard (number of
dollars) employees) employees)
----------------------------------------------------------------------------------------------------------------
211111.......................... Crude Petroleum and .............. 500 1,250
Natural Gas Extraction.
211112.......................... Natural Gas Liquid .............. 500 750
Extraction.
212111.......................... Bituminous Coal and .............. 500 1,250
Lignite Surface Mining.
212112.......................... Bituminous Coal .............. 500 1,500
Underground Mining.
212113.......................... Anthracite Mining....... .............. 500 250
212210.......................... Iron Ore Mining......... .............. 500 750
212221.......................... Gold Ore Mining......... .............. 500 1,500
212222.......................... Silver Ore Mining....... .............. 500 250
212231.......................... Lead Ore and Zinc Ore .............. 500 750
Mining.
212234.......................... Copper Ore and Nickel .............. 500 1,500
Ore Mining.
212291.......................... Uranium-Radium-Vanadium .............. 500 250
Ore Mining.
212299.......................... All Other Metal Ore .............. 500 750
Mining.
212312.......................... Crushed and Broken .............. 500 750
Limestone Mining and
Quarrying.
212313.......................... Crushed and Broken .............. 500 750
Granite Mining and
Quarrying.
212324.......................... Kaolin and Ball Clay .............. 500 750
Mining.
212391.......................... Potash, Soda, and Borate .............. 500 750
Mineral Mining.
212392.......................... Phosphate Rock Mining... .............. 500 1,000
213111.......................... Drilling Oil and Gas .............. 500 1,000
Wells.
221210.......................... Natural Gas Distribution .............. 500 1,000
481211 Except................... ........................ $30.5 .............. Eliminate
481212 Except................... ........................ $30.5 .............. Eliminate
482112.......................... Short Line Railroads.... .............. 500 1,500
483112.......................... Deep Sea Passenger .............. 500 1,500
Transportation.
483113.......................... Coastal and Great Lakes .............. 500 750
Freight Transportation.
483211.......................... Inland Water Freight .............. 500 750
Transportation.
511110.......................... Newspaper Publishers.... .............. 500 1,000
511120.......................... Periodical Publishers... .............. 500 1,000
511130.......................... Book Publishers......... .............. 500 1,000
511140.......................... Directory and Mailing .............. 500 1,250
List Publishers.
511191.......................... Greeting Card Publishers .............. 500 1,500
512220.......................... Integrated Record .............. 750 1,250
Production/Distribution.
512230.......................... Music Publishers........ .............. 500 750
519130.......................... Internet Publishing and .............. 500 1,000
Broadcasting and Web
Search Portals.
541519 Except................... Information Value Added .............. 150 Eliminate
Resellers.
541711.......................... Research and Development .............. 500 1,000
in Biotechnology.
541712.......................... Research and Development .............. 500 1,000
in the Physical,
Engineering, and Life
Sciences (except
Biotechnology).
Except.......................... Aircraft Engine and .............. 1,000 1,500
Engine Parts.
Except.......................... Other Aircraft Parts and .............. 1,000 1,250
Auxiliary Equipment.
Except.......................... Guided Missiles and .............. 1,000 1,250
Space Vehicles, Their
Propulsion Units and
Propulsion Parts.
562910 Except................... Environmental .............. 500 1,250
Remediation Services.
----------------------------------------------------------------------------------------------------------------
[[Page 53662]]
Maintaining current size standards when the analytical results
suggested lowering them 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 51, Information (77 FR 72702 (December 6, 2012)); NAICS Sector
53, Real Estate and Rental and Leasing (77 FR 88747 (September 24,
2012)); NAICS Sector 56, Administrative and Support, Waste Management
and Remediation Services (77 FR 72691 (December 6, 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 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)); NAICS Sector 71, Arts, Entertainment and
Recreation (78 FR 37417 (June 20, 2013)), and NAICS Sector 23,
Construction (78 FR 77334 (December 23, 2013)). In each of those final
rules, SBA retained the existing size standards for those that it could
have reduced.
Evaluation of Dominance in Field of Operation
SBA has determined that for the industries for which it has
proposed revising size standards in this rule, no individual firm at or
below the proposed size standard will be large enough to dominate its
field of operation. At the proposed size standards, if adopted, the
small business share of total industry receipts among those industries
is, in average, 3.4 percent, with an interval showing a minimum of less
than 0.01 percent to a maximum of 20.0 percent. These market shares
effectively preclude a firm at or below the proposed size standards
from exerting control over any of the industries.
Request for Comments
SBA invites public comments on this proposed rule, especially on
the following issues:
1. SBA proposes five levels of employee based size standards for
industries in Manufacturing and industries in other Sectors except for
Wholesale Trade and Retail Trade that have employee based size
standards: 500 employees, 750 employees, 1,000 employees, 1,250
employees, and 1,500 employees. SBA invites comments on whether these
proposed size levels are appropriate and suggestions on alternative
levels, if they would be more appropriate.
2. To be consistent with its policy of not lowering any size
standards in all recent proposed and final rules on receipts based size
standards in view of current economic conditions, SBA is retaining the
current 500-employee minimum and 1,500-employee maximum size standards
for all industries in the Manufacturing Sector and other industries not
in the Wholesale and Retail Trade Sectors that have employee based size
standards. In its ``Size Standards Methodology,'' available at
www.sba.gov/size, SBA had proposed setting the minimum size standard
for these industries at 250 employees and the maximum size standard at
1,000 employees. This would have resulted in lowering the existing
employee based size standards for some industries. SBA invites comments
on whether should SBA maintain the minimum employee based size standard
at 500 employees and the maximum at 1,500 employees or should it lower
them to 250 employees and 1,000 employees, respectively, as proposed in
``Size Standards Methodology'', and suggestions on alternative minimum
and maximum levels, if they would be more appropriate. SBA also seeks
feedback on whether it should adjust employee based size standards for
labor productivity growth.
3. SBA seeks feedback on whether SBA's proposal to increase size
standards for 30 industries and three sub-industries, reduce size
standards for three industries to exclude the largest firms, and retain
current size standards for 24 industries and one sub-industry is
appropriate, given the economic characteristics of each industry and
sub-industry reviewed in this proposed rule. SBA also seeks feedback
and suggestions on alternative size standards, if they would be more
appropriate, including whether the average annual revenue is a more
suitable measure of size for certain industries and what that revenue
level should be.
4. SBA invites comments on its proposal to eliminate the
Information Technology Value Added Resellers sub-industry or exception
under NAICS 541519 (Other Computer Related Services) and its 150-
employee size standard and apply the $25.5 million receipts based size
standard that is current in place for the rest of the industry.
5. SBA invites comments on its proposal to eliminate the Offshore
Marine Air Transportation Services sub-industry or exception under
NAICS 481211 (Nonscheduled Chartered Passenger Air Transportation) and
under NAICS 481212 (Nonscheduled Chartered Freight Air Transportation)
and its $28 million receipts size standard and apply the same 1,500
employee size standard that is current in place for each of those
industry. Similarly, SBA seeks comments on its proposal to eliminate
the Offshore Marine Services sub-industry or ``exception'' under NAICS
Subsector 483, and its $28 million receipts size standard and apply the
applicable employee size standard that for each industry within that
Subsector. If those exceptions are to be retained, SBA invites comments
on whether the current $28 million revenue size standard is
appropriate, and suggestions on an alternative level with supporting
data and analysis.
6. SBA has proposed to retain the current size standards for seven
industries for which its analysis would support lowering them. SBA
seeks comments on whether SBA should lower them solely based on its
analysis or retain them at their current levels in view of current
economic conditions.
7. SBA's proposed size standards are based on five primary
factors--average firm size, average assets size (as a proxy of startup
costs and entry barriers), four-firm concentration ratio, distribution
of firms by size and, the level and small business share of Federal
contracting dollars of the evaluated industries and sub-industries. SBA
welcomes comments on these factors and/or suggestions on other factors
that it should consider when evaluating or revising employee based size
standards. SBA also seeks information on relevant data sources, other
than what it uses, if available.
8. SBA gives equal weight to each of the five primary factors in
all industries. SBA seeks feedback on whether it should continue giving
equal weight to each factor or whether it should give more or less
weight to one or more factors for certain industries. Recommendations
to weigh some factors more than others should include suggested weights
for each factor along with supporting information.
[[Page 53663]]
9. For analytical simplicity and efficiency, in this proposed rule,
SBA has refined its size standard methodology to obtain a single value
as a proposed size standard instead of a range of values, as in its
past size regulations. SBA welcomes any comments on this procedure and
suggestions on alternative methods.
Public comments on the above issues are very valuable to SBA for
validating its size standard methodology and its proposed size
standards revisions in this proposed rule. This will help SBA to ensure
that size standards reflect industry structure and Federal market
conditions. Commenters addressing SBA's proposed size standard
revisions for a specific industry or a group of industries should
include relevant data and/or other information supporting their
comments. If comments relate to using size standards for Federal
procurement programs, SBA suggests that commenters provide information
on the size of contracts in their industries, the size of businesses
that can undertake the contracts, startup costs, equipment and other
asset requirements, the amount of subcontracting, other direct and
indirect costs associated with the contracts, the use of mandatory
sources of supply for products and services, and the degree to which
contractors can mark up those costs.
Compliance With Executive Orders 12866, 13563, 12988 and 13132, the
Paperwork Reduction Act (44 U.S.C. Ch. 35) and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
proposed rule is a significant regulatory action for purposes of
Executive Order 12866. Accordingly, in the next section, SBA provides a
Regulatory Impact Analysis of this proposed rule. However, this rule is
not a ``major rule'' under the Congressional Review Act, 5 U.S.C. 800.
Regulatory Impact Analysis
1. Is there a need for the regulatory action?
SBA believes that proposed size standards revisions in this
proposed rule will better reflect the economic characteristics of small
businesses in the affected industries and the Federal government
marketplace. SBA's mission is to aid and assist small businesses
through a variety of financial, procurement, business development, and
advocacy programs. To determine the intended beneficiaries of these
programs, SBA establishes distinct definitions of which businesses are
deemed small businesses. The Small Business Act (15 U.S.C. 632(a))
delegates to SBA's Administrator the responsibility for establishing
small business definitions. The Act also requires that small business
definitions vary to reflect industry differences. The Jobs Act also
requires SBA to review all size standards and make necessary
adjustments to reflect market conditions. The supplementary information
section of this proposed rule explains SBA's methodology for analyzing
a size standard for a particular industry.
2. What are the potential benefits and costs of this regulatory
action?
The most significant benefit to businesses obtaining small business
status because of this proposed rule is gaining or retaining
eligibility for Federal small business assistance programs. These
include SBA's financial assistance programs, economic injury disaster
loans, and Federal procurement programs intended for small businesses.
Federal procurement programs provide targeted opportunities for small
businesses under SBA's business development programs, such as 8(a),
Small Disadvantaged Businesses (SDB), small businesses located in
Historically Underutilized Business Zones (HUBZone), women-owned small
businesses (WOSB), economically disadvantaged women-owned small
businesses (EDWOSB), and service-disabled veteran-owned small
businesses (SDVOSB). Federal agencies may also use SBA's size standards
for a variety of other regulatory and program purposes. These programs
assist small businesses to become more knowledgeable, stable, and
competitive. SBA estimates that in 30 industries and three sub-
industries (``exceptions'') for which it has proposed to increase size
standards more than 380 firms, not small under the existing size
standards, will become small under the proposed size standards, if
adopted, and therefore become eligible for these programs. That is
about 0.6 percent of all firms classified as small under the current
size standards in all industries and sub-industries reviewed in this
proposed rule. If adopted as proposed, this will increase the small
business share of total receipts in those industries from 18.3 percent
to 21.3 percent. In three industries for which SBA has proposed to
reduce their size standards, only the one or two largest firms will be
impacted in each of those industries.
Three groups will benefit from the proposed size standards
revisions in this rule, if they are adopted as proposed: (1) Some
businesses that are above the current size standards may 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.
SBA estimates that firms gaining small business status under the
proposed size standards could receive Federal contracts totaling $165
million to $175 million annually under SBA's small business, 8(a), SDB,
HUBZone, WOSB, EDWOSB, and SDVOSB Programs, and other unrestricted
procurements. The added competition for many of these procurements can
also result in lower prices to the Government for procurements reserved
for small businesses, but SBA cannot quantify this benefit.
Under SBA's 7(a) and 504 Loan Programs, based on the fiscal years
2010-2012 data, SBA estimates up to about five SBA's 7(a) and 504 loans
totaling about $1.0 million could be made to these newly defined small
businesses under the proposed size standards. Increasing the size
standards will likely result in more small business guaranteed loans to
businesses in these industries, but it is be impractical to try to
estimate exactly the number and total amount of loans. There are two
reasons for this: (1) Under the Jobs Act, SBA can now guarantee
substantially larger loans than in the past; and (2) as described
above, the Jobs Act established a higher alternative size standard ($15
million in tangible net worth and $5 million in net income after income
taxes) for business concerns that do not meet the size standards for
their industry. Therefore, SBA finds it difficult to quantify the
actual impact of these proposed size standards on its 7(a) and 504 Loan
Programs.
Newly defined small businesses will also benefit from SBA's
Economic Injury Disaster Loan (EIDL) Program. Since this program is
contingent on the occurrence and severity of a disaster in the future,
SBA cannot make a meaningful estimate of this impact.
In addition, newly defined small businesses will also benefit
through reduced fees, less paperwork, and fewer compliance requirements
that are available to small businesses through Federal government.
[[Page 53664]]
To the extent that those 380 newly defined additional small firms
could become active in Federal procurement programs, the proposed
changes to size standards, if adopted, may entail some additional
administrative costs to the government as a result of more businesses
being eligible for Federal small business programs. For example, there
will be more firms seeking SBA's guaranteed loans, more firms eligible
for enrollment in the System of Award Management (SAM) database, and
more firms seeking certification as 8(a) or HUBZone firms or qualifying
for small business, WOSB, EDWOSB, SDVOSB, and SDB status. Among those
newly defined small businesses 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. However,
SBA believes that these added administrative costs will be minimal
because mechanisms are already in place to handle these requirements.
Additionally, Federal government contracts may have higher costs.
With a greater number of businesses defined as small, Federal agencies
may choose to set aside more contracts for competition among small
businesses only rather than using full and open competition. The
movement from unrestricted to small business set-aside contracting
might result in competition among fewer total bidders, although there
will be more small businesses eligible to submit offers. However, the
additional costs associated with fewer bidders are expected to be minor
since, by law, procurements may be set aside for small businesses or
reserved for the 8(a), HUBZone, WOSB, EDWOSB, or SDVOSB Programs only
if awards are expected to be made at fair and reasonable prices. In
addition, there may be higher costs when more full and open contracts
are awarded to HUBZone businesses that receive price evaluation
preferences.
The proposed size standards revisions, if adopted, may have some
distributional effects among large and small businesses. Although SBA
cannot estimate with certainty the actual outcome of the gains and
losses among small and large businesses, it can identify several
probable impacts. There may be a transfer of some Federal contracts to
small businesses from large businesses. Large businesses may have fewer
Federal contract opportunities as Federal agencies decide to set aside
more contracts for small businesses. In addition, some Federal
contracts may be awarded to HUBZone concerns instead of large
businesses since these firms may be eligible for a price evaluation
preference for contracts when they compete on a full and open basis.
Similarly, some businesses defined small under the current size
standards may obtain fewer Federal contracts due to the increased
competition from more businesses defined as small under the proposed
size standards. This transfer may be offset by a greater number of
Federal procurements set aside for all small businesses. The number of
newly defined and expanding small businesses that are willing and able
to sell to the Federal Government will limit the potential transfer of
contracts from large and currently defined small businesses. SBA cannot
estimate the potential distributional impacts of these transfers with
any degree of precision.
The proposed revisions to the existing employee based size
standards for 33 industries and three sub-industries are consistent
with SBA's statutory mandate to assist small business. This regulatory
action promotes the Administration's objectives. One of SBA's goals in
support of the Administration's objectives is to help individual small
businesses succeed through fair and equitable access to capital and
credit, Government contracts, and management and technical assistance.
Reviewing and modifying size standards, when appropriate, ensures that
intended beneficiaries have access to small business programs designed
to assist them.
Executive Order 13563
Descriptions 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
Regulatory Impact Analysis under Executive Order 12866.
In an effort to engage interested parties in this action, SBA has
presented its size standards methodology (discussed above under
Supplementary Information) to various industry associations and trade
groups. SBA also met with a number of industry groups and individual
businesses to get their feedback on its methodology and other size
standards issues. In addition, SBA presented its size standards
methodology to businesses in 13 cities in the U.S. and sought their
input as part of Jobs Act tours. The presentation also included
information on the latest status of the comprehensive size standards
review and on how interested parties can provide SBA with input and
feedback on size standards review.
Additionally, SBA sent letters to the Directors of the Offices of
Small and Disadvantaged Business Utilization (OSDBU) at several Federal
agencies with considerable procurement responsibilities requesting
their feedback on how the agencies use SBA's size standards and whether
current size standards meet their programmatic needs (both procurement
and non-procurement). SBA gave appropriate consideration to all input,
suggestions, recommendations, and relevant information obtained from
industry groups, individual businesses, and Federal agencies in
preparing this proposed rule.
The review of size standards in industries and sub-industries
covered in this proposed rule is consistent with Executive Order 13563,
Section 6, calling for retrospective analyses of existing rules. The
last comprehensive review of size standards occurred during the late
1970s and early 1980s. Since then, except for periodic adjustments for
monetary based size standards, most reviews of size standards were
limited to a few specific industries in response to requests from the
public and Federal agencies. The majority of employee based size
standards have not been reviewed since they were first established. 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 its size standards to ensure that
existing size standards have supportable bases and to revise them when
necessary. In addition, the Jobs Act requires SBA to conduct a detailed
review of all size standards and to make appropriate adjustments to
reflect market conditions. Specifically, the Jobs Act requires SBA to
conduct a detailed review of at least one-third of all size standards
during every 18-month period from the date of its enactment and do a
complete review of all size standards not less frequently than once
every 5 years thereafter.
Executive Order 12988
This action meets applicable standards set forth in Sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.
Executive Order 13132
For purposes of Executive Order 13132, SBA has determined that this
proposed rule will not have substantial, direct effects on the States,
on the relationship between the national
[[Page 53665]]
government and the States, or on the distribution of power and
responsibilities among the various levels of government. Therefore, SBA
has determined that this proposed rule has no federalism implications
warranting preparation of a federalism assessment.
Paperwork Reduction Act
For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA has determined that this proposed rule will not impose any new
reporting or record keeping requirements.
Initial Regulatory Flexibility Analysis
Under the Regulatory Flexibility Act (RFA), this proposed rule, if
adopted, may have a significant impact on a substantial number of small
businesses in the industries and sub-industries covered by this rule.
As described above, this rule may affect small businesses seeking
Federal contracts, loans under SBA's 7(a), 504 and Economic Injury
Disaster Loan Programs, and assistance under other Federal small
business programs.
Immediately below, SBA sets forth an initial regulatory flexibility
analysis (IRFA) of this proposed rule addressing the following
questions: (1) What are the need for and objective of the rule? (2)
What are SBA's description and estimate of the number of small
businesses 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 that may duplicate,
overlap, or conflict with the rule? and (5) What alternatives will
allow the Agency to accomplish its regulatory objectives while
minimizing the impact on small businesses?
1. What are the need for and objective of the rule?
Changes in industry structure, technological changes, productivity
growth, mergers and acquisitions, and updated industry definitions have
changed the structure of many industries reviewed in this proposed
rule. Such changes can be sufficient to support revisions to current
size standards for some industries. Based on the analysis of the latest
data available, SBA believes that the revised standards in this
proposed rule more appropriately reflect the size of businesses that
need Federal assistance. The Jobs Act also requires SBA to review all
size standards and make necessary adjustments to reflect market
conditions.
2. What are SBA's description and estimate of the number of small
businesses to which the rule will apply?
If the proposed rule is adopted in its present form, SBA estimates
that about 380 additional firms will become small because of increased
size standards for 30 industries and three sub-industries not in NAICS
Sectors 31-33, 42 and 44-45. That represents 0.6 percent of total firms
that are small under current size standards in all industries reviewed
by SBA in this proposed rule. This will result in an increase in the
small business share of total industry receipts for those industries
from 18.3 percent under the current size standards to 21.3 percent
under the proposed size standards. In the three industries for which
SBA has proposed to reduce their size standards, only the one or two
largest firms will be impacted in each of those industries. The
proposed size standards, if adopted, will enable more small businesses
to retain their small business status for a longer period. Many firms
may have lost their eligibility and find it difficult to compete at
current size standards with companies that are significantly larger
than they are. SBA believes the competitive impact will be positive for
existing small businesses and for those that exceed the size standards
but are on the very low end of those that are not small. They might
otherwise be called or referred to as mid-sized businesses, although
SBA only defines what is small; other entities are other than small.
3. What are the projected reporting, record keeping and other
compliance requirements of the rule?
The proposed size standard changes impose no additional reporting
or record keeping requirements on small businesses. However, qualifying
for Federal procurement and a number of other programs requires that
businesses register in the SAM database and certify in SAM that they
are small at least once annually. Therefore, businesses opting to
participate in those programs must comply with SAM requirements.
However, there are no costs associated with SAM registration or
certification. Changing size standards alters the access to SBA's
programs that assist small businesses, but does not impose a regulatory
burden because 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 size
standards.
However, the Small Business Act and SBA's regulations allow Federal
agencies to develop different size standards if they believe that SBA's
size standards are not appropriate for their programs, with the
approval of SBA's Administrator (13 CFR 121.903). The Regulatory
Flexibility Act authorizes an Agency to establish an alternative small
business definition, after consultation with the Office of Advocacy of
the U.S. Small Business Administration (5 U.S.C. 601(3)).
5. What alternatives will allow the Agency to accomplish its regulatory
objectives while minimizing the impact on small entities?
By law, SBA is required to develop numerical size standards for
establishing eligibility for Federal small business assistance
programs. Other than varying size standards by industry and changing
the size measures, no practical alternative exists to the systems of
numerical size standards.
List of Subjects in 13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Individuals with
disabilities, Loan programs--business, Reporting and recordkeeping
requirements, Small businesses.
For the reasons set forth in the preamble, SBA proposes to amend
part 13 CFR part 121 as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
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, amend the table ``Small Business Size Standards by
NAICS Industry'' as follows:
0
a. Revise the entries for ``211111'', ``211112'', ``212111'',
``212112'', ``212113'', ``212210'', ``212221'', ``212222'', ``212231'',
``212234'', ``212291'', ``212299'', ``212312'', ``212313'', ``212324'',
``212391'', ``212392'', ``213111'', ``221210'',
[[Page 53666]]
''482112'', ``483112'', ``483113'', ``483211'', ``511110'', ``511120'',
``511130'', ``511140'', ``511191'', ``512220'', ``512230'', ``519130'',
``541711'', ``541712 introductory entry and first, second and third
sub-entry, and ``562910 sub-entry''.
0
b. Amend the entry for ``481211'' by removing its sub-entry ``Except,''
``Offshore Marine Air Transportation Services'' ``$30.5''.
0
c. Amend the entry for ``481212'' by removing the sub-entry ``Except,''
``Offshore Marine Air Transportation Services'' ``$30.5''.
0
d. Amend the entry for ``541519'' by removing the subentry ``Except,''
``Value Added Resellers \18\'', ``150 \18\''.
0
e. Revise Footnote 11.
0
f. Remove and reserve Footnote 15.
0
g. Remove and reserve Footnote 18.
0
h. Footnote 14 is republished.
The revisions 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
----------------------------------------------------------------------------------------------------------------
* * * * * * *
211111..................................... Crude Petroleum and Natural Gas .............. 1,250
Extraction.
211112..................................... Natural Gas Liquid Extraction...... .............. 750
* * * * * * *
212111..................................... Bituminous Coal and Lignite Surface .............. 1,250
Mining.
212112..................................... Bituminous Coal Underground Mining. .............. 1,500
212113..................................... Anthracite Mining.................. .............. 250
212210..................................... Iron Ore Mining.................... .............. 750
212221..................................... Gold Ore Mining.................... .............. 1,500
212222..................................... Silver Ore Mining.................. .............. 250
212231..................................... Lead Ore and Zinc Ore Mining....... .............. 750
212234..................................... Copper Ore and Nickel Ore Mining... .............. 1,500
212291..................................... Uranium-Radium-Vanadium Ore Mining. .............. 250
212299..................................... All Other Metal Ore Mining......... .............. 750
* * * * * * *
212312..................................... Crushed and Broken Limestone Mining .............. 750
and Quarrying.
212313..................................... Crushed and Broken Granite Mining .............. 750
and Quarrying.
* * * * * * *
212324..................................... Kaolin and Ball Clay Mining........ .............. 750
* * * * * * *
212391..................................... Potash, Soda, and Borate Mineral .............. 750
Mining.
212392..................................... Phosphate Rock Mining.............. .............. 1,000
* * * * * * *
213111..................................... Drilling Oil and Gas Wells......... .............. 1,000
* * * * * * *
221210..................................... Natural Gas Distribution........... .............. 1,000
* * * * * * *
481211..................................... Nonscheduled Chartered Passenger .............. 1,500
Air Transportation.
481212..................................... Nonscheduled Chartered Freight Air .............. 1,500
Transportation.
* * * * * * *
482112..................................... Short Line Railroads............... .............. 1,500
----------------------------------------------------------------------------------------------------------------
Subsector 483--Water Transportation
================================================================================================================
* * * * * * *
483112..................................... Deep Sea Passenger Transportation.. .............. 1,500
483113..................................... Coastal and Great Lakes Freight .............. 750
Transportation.
* * * * * * *
483211..................................... Inland Water Freight Transportation .............. 750
* * * * * * *
511110..................................... Newspaper Publishers............... .............. 1,000
511120..................................... Periodical Publishers.............. .............. 1,000
511130..................................... Book Publishers.................... .............. 1,000
511140..................................... Directory and Mailing List .............. 1,250
Publishers.
511191..................................... Greeting Card Publishers........... .............. 1,500
[[Page 53667]]
* * * * * * *
512220..................................... Integrated Record Production/ .............. 1,250
Distribution.
512230..................................... Music Publishers................... .............. 750
* * * * * * *
519130..................................... Internet Publishing and .............. 1,000
Broadcasting and Web Search
Portals.
* * * * * * *
541711..................................... Research and Development in .............. \11\ 1,000
Biotechnology \11\.
541712..................................... Research and Development in the .............. \11\ 1,000
Physical, Engineering, and Life
Sciences (except Biotechnology)
\11\.
Except..................................... Aircraft, Aircraft Engine, and .............. 1,500
Engine Parts.
Except..................................... Other Aircraft Parts and Auxiliary .............. 1,250
Equipment.
Except..................................... Guided Missiles and Space Vehicles, .............. 1,250
Their Propulsion Units and
Propulsion Parts.
* * * * * * *
562910..................................... Remediation Services............... $19.0 ..............
Except..................................... Environmental Remediation Services .............. \14\ 1,250
\14\.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
.Footnotes
* * * * *
11. NAICS code 541711 and 541712:
(a) ``Research and Development'' means laboratory or other
physical research and development. It does not include economic,
educational, engineering, operations, systems, or other nonphysical
research; or computer programming, data processing, commercial and/
or medical laboratory testing.
(b) For research and development contracts requiring the
delivery of a manufactured product, the appropriate size standard is
that of the manufacturing industry.
(c) For purposes of the Small Business Innovation Research
(SBIR) program only, a different definition has been established by
law. See Sec. 121.701 of these regulations.
(d) ``Research and Development'' for guided missiles and space
vehicles includes evaluations and simulation, and other services
requiring thorough knowledge of complete missiles and spacecraft.
* * * * *
14. NAICS 562910--Environmental Remediation Services:
(a) For SBA assistance as a small business concern in the
industry of Environmental Remediation Services, other than for
Government procurement, a concern must be engaged primarily in
furnishing a range of services for the remediation of a contaminated
environment to an acceptable condition including, but not limited
to, preliminary assessment, site inspection, testing, remedial
investigation, feasibility studies, remedial design, containment,
remedial action, removal of contaminated materials, storage of
contaminated materials and security and site closeouts. If one of
such activities accounts for 50 percent or more of a concern's total
revenues, employees, or other related factors, the concern's primary
industry is that of the particular industry and not the
Environmental Remediation Services Industry.
(b) For purposes of classifying a Government procurement as
Environmental Remediation Services, the general purpose of the
procurement must be to restore or directly support the restoration
of a contaminated environment. This includes activities such as
preliminary assessment, site inspection, testing, remedial
investigation, feasibility studies, remedial design, remediation
services, containment, and removal of contaminated materials or
security and site closeouts. The general purpose of the procurement
need not necessarily include remedial actions. Also, the procurement
must be composed of activities in three or more separate industries
with separate NAICS codes or, in some instances (e.g., engineering),
smaller sub-components of NAICS codes with separate and distinct
size standards. These activities may include, but are not limited
to, separate activities in industries such as: Heavy Construction;
Special Trade Contractors; Engineering Services; Architectural
Services; Management Consulting Services; Hazardous and Other Waste
Collection; Remediation Services; Testing Laboratories; and Research
and Development in the Physical, Engineering, and Life Sciences. If
any activity in the procurement can be identified with a separate
NAICS code, or component of a code with a separate distinct size
standard, and that industry accounts for 50 percent or more of the
value of the entire procurement, then the proper size standard is
the one for that particular industry, and not the Environmental
Remediation Service size standard.
* * * * *
Dated: August 25, 2014.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2014-20838 Filed 9-9-14; 8:45 am]
BILLING CODE 8025-01-P