[Federal Register Volume 81, Number 15 (Monday, January 25, 2016)]
[Rules and Regulations]
[Pages 3941-3949]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01411]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG49


Small Business Size Standards: Employee Based Size Standards in 
Wholesale Trade and Retail Trade

AGENCY: U.S. Small Business Administration.

ACTION: Final rule.

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SUMMARY: The U.S. Small Business Administration (SBA or Agency) is 
increasing 47 small business size standards based on a concern's number 
of employees. These increases affect 46 industries in North American 
Industry Classification System (NAICS) Sector 42, Wholesale Trade, and 
one industry in NAICS Sector 44-45, Retail Trade. SBA retains the size 
standards for the remaining industries in those sectors and the 500-
employee size standard for the Federal Government's procurement of 
supplies under the nonmanufacturer rule. As part of its comprehensive 
size standards review under the Small Business Jobs Act of 2010, SBA 
reviewed all 71 industries in NAICS Sector 42, as well as the two 
industries in NAICS Sector 44-45, that have employee based size 
standards. The revisions adopted in this rule primarily affect 
eligibility for SBA's financial assistance programs, and have no impact 
on Federal procurement programs.

DATES: This rule is effective on February 26, 2016.

FOR FURTHER INFORMATION CONTACT: Carl Jordan, Office of Size Standards, 
(202) 205-6618 or [email protected].

SUPPLEMENTARY INFORMATION:  On May 19, 2014 (79 FR 28631), SBA proposed 
to increase employee based size standards for 46 industries in NAICS 
Sector 42, Wholesale Trade, and one industry in NAICS Sector 44-45, 
Retail Trade. The Agency proposed keeping the current size standards 
for the remaining industries in those sectors. SBA also proposed to 
retain the 500-employee size standard for Federal procurement of 
supplies under the nonmanufacturer rule (13 CFR 121.406).
    The proposed rule sought comments from the public on the Agency's 
proposals and received seven comments. Generally, commenters opposed 
the proposed increases to the size standards in the wholesale trade 
industries. However, while some commenters appeared to be cognizant of 
the effects of the proposed increases and how they apply to various 
small business programs and their industries, others did not seem to be 
aware that the NAICS codes and size standards for the wholesale and 
retail trade industries do not apply to Federal Government procurement 
programs and the proposed increases would have no impact on size 
eligibility for Federal contracts.
    What follows is a summary and discussion of the comments, their 
positions and the issues they raise, and SBA's responses. All comments 
are available for public review at the Federal Rulemaking Portal, 
www.regulations.gov.

Summary and Discussion of Public Comments to the May 19, 2014 Proposed 
Rule

    Two parties submitted identical comments, opposing SBA's proposal 
to increase the size standards. The commenters stated that current size 
standards are already too high, and expanding them will make matters 
worse. The commenters contended that 98 percent of all businesses 
(including non-employer firms) have 1-19 employees, and those 
businesses mostly need loans of $50,000 to $250,000. Expanding the 
definition of ``small'' is crippling their ability to get loans, they 
added. The commenters maintained that the average size of SBA's loan 
increased from $182,000 in 2008 to $547,000 in 2013, while the share of 
loans under $100,000, which they claimed generally go to truly small 
businesses, decreased from 24 percent to 9 percent.
    The European Union defines the smallest unit of small business as 
less than 10 employees, and Australia defines ``small'' as 1-14 
employees under its Fair Work Act, the commenters noted. In addition, 
they stated that the U.S. Congress defines small business as 20-25 
employees ``and rarely as high as 50.'' The commenters asked SBA to 
stop focusing on 2 percent of the largest small businesses and refocus 
on the remaining 98 percent of small businesses because they are the 
ones who really need the help. The higher size standards, if adopted, 
will put loan assistance out of reach for most small businesses, they 
argued.
    Another commenter that offers startup workshops to entrepreneurs 
expressed concerns on how SBA defines small business. Specifically, the 
commenter stated that almost any business with up

[[Page 3942]]

to 500 employees can qualify as small under the current size standards. 
The commenter maintained that ``this definition needs to be changed, 
but not in the direction SBA suggests, to 1,500 employees for some 
businesses.'' He suggested that the size standard should be revised 
down to 300 employees.
    A Service-Disabled Veteran-Owned Small Business concern opposed the 
500-employee nonmanufacturer size standard. The commenter stated that 
it provides an unfair advantage for larger small businesses. His small 
business cannot compete with the larger small businesses with up to 500 
employees, the commenter added. The commenter noted that pricing is one 
of the reasons why larger small businesses have an advantage in the 
bidding process for work set aside for small businesses.
    A small woman-owned company submitted a comment, opposing the 
proposed increase to the size standard for NAICS 423610 (Electrical 
Apparatus and Equipment, Wiring Supplies, and Related Equipment 
Merchant Wholesalers) from 100 employees to 200 employees. The 
commenter asked how increasing the size standard would assist with 
startup cost and entry barriers. The commenter stated that it took 
almost 30 years for her business to grow from one employee to 38 
employees. The proposed 200-employee standard is too large for the 
industry, and no company with 200 employees need assistance, the 
commenter added. The commenter suggested that SBA should consider 
converting the size standard for NAICS 423610 from employees to 
receipts, because it would help the Agency to better collect data on 
assistance to actual small businesses. The commenter stated that her 
company is able to compete with similarly sized companies in the 
industry for work reserved for small businesses, but not with large 
businesses. The commenter maintained that the difference between a 200-
employee size business and a 38-employee business is huge, mainly 
because a 200-employee size business has considerably more resources 
when competing for Federal Government contracts. The commenter 
concluded by stating that the size standard for NAICS 423610 should 
remain at 100 employees or be converted to gross receipts.
    SBA received a collective comment from four parties, including two 
organizations representing women-owned businesses, a trade group 
representing small manufacturers, and an attorney representing Federal 
prime contractors and subcontractors, opposing the Agency's proposal to 
increase the size standards for some wholesale and retail trade 
industries. The commenters were concerned that with increasing size 
standards businesses that have outgrown size standards through SBA's 
programs will be redefined as small. This is completely unfair to truly 
small firms that are not able to compete against larger firms, win 
contracts and grow, they explained. This is contrary to SBA's mission 
and the purpose of the Small Business Act to provide small business 
owners with opportunities to compete for and win Federal contracts, the 
commenters added.
    The commenters stated that 90 percent of U.S. businesses have fewer 
than 20 employees, and felt that increasing size standards would have a 
negative impact on those small businesses, and on the broader economy, 
especially on the under-served communities. ``What about the truly 
small businesses that often do not qualify for financial assistance 
because they don't meet funding qualifications, because they are too 
small, have insufficient capacity and resources, insufficient revenue 
and cash flow, and not enough relevant past performance?,'' the 
commenters asked. The commenters maintained that larger small firms 
have more resources, can get better pricing and are more likely to be 
eligible for loans, and beat out the small firms every time.
    The commenters asserted that milestones and goals that are used to 
justify changing size standards (i.e., number of loans awarded, number 
of contracts and dollars awarded to small businesses, number of people 
hired, etc.) should apply to truly small businesses. It is questionable 
as to how much of $83 billion awarded in fiscal year 2013 actually went 
to truly small businesses with 20 or fewer employees, they added. Going 
from 100 to 200 employees with unlimited revenue is a huge deal, and 
firms that size already have access to capital and do not need 
assistance, the commenters maintained. They argued that if the proposed 
rule is passed small businesses will be at even more risk of losing 
their companies because they will be competing with firms that generate 
10 times their revenues and have 10 times their capacity. Accordingly, 
they suggested that size standards identified in the proposed rule, and 
generally, should be changed to gross revenues, because, they claimed, 
gross revenues is a better indicator of whether a business is small 
than number of employees. With employee based size standards without a 
revenue limit, a company with revenues of up to $100 million or $1 
billion can qualify as small, the commenters noted. They pointed out 
that once a specialty trade contractors firm reaches $14 million 
(currently $15 million) in gross receipts, it is no longer small, but a 
distributor or wholesaler with 100 or 200 employees can have unlimited 
revenue and can still be considered small. In conclusion, the 
commenters recommended that SBA not approve the proposal to increase 
the size standards in NAICS Sectors 42 and 44-45 and that the Agency 
consider changing the standards to gross receipts.
    Opposing the proposed increases to size standards for the wholesale 
and retail trade industries, a commenter stated that, according to the 
U.S. Census Bureau data, 98 percent of all U.S. firms have less than 
100 employees, 89 percent have less than 20 employees, and the average 
American small business has approximately 10 employees. Small business 
size standards should more closely reflect the actual size of American 
small businesses, the commenter added. He noted that SBA's size 
standards allow firms up to 1,500 employees to qualify as small. The 
commenter maintained that current size standards have an adverse effect 
on small businesses because, as he claimed, they favor large 
businesses. He stated that large businesses, including Fortune 500 
companies, abuse size standards and end up getting contracts set aside 
for small businesses. In addition, he argued that SBA's Office of 
Inspector General and the Government Accountability Office have found 
numerous instances of abuse of size standards and small business 
contracts that were awarded to large businesses.
    SBA's response: From time to time, the U.S. Congress has used 
different thresholds, sometimes below the SBA's thresholds, to define 
small firms under certain laws or programs, but those thresholds apply 
only to those laws and programs and generally are of no relevance to 
SBA's size standards. In addition, what constitutes a small business in 
other countries does not apply and has no relevance to SBA's small 
business definitions and U.S. Government programs that use them. 
Depending on their economic and political realities, other countries 
have their own programs and priorities that can be very different from 
those in the U.S. Accordingly, small business definitions that other 
countries use for their Government programs can be vastly different 
from those established by SBA for U.S. Government programs.
    SBA establishes size standards, in accordance with the Small 
Business Act, for purposes of establishing eligibility for Federal 
small business procurement and financial assistance

[[Page 3943]]

programs. The primary statutory definition of a small business is that 
the firm is not dominant in its field of operation, and that a size 
standard varies from industry to industry to the extent necessary to 
reflect the differing characteristics of the various industries. 15 
U.S.C. 632(3)(a)(3). Accordingly, rather than representing the smallest 
size within an industry, SBA's size standards generally designate the 
largest size that a business concern can be relative to other 
businesses in the industry and still qualify as small for Federal 
Government programs that provide benefits to small businesses. In the 
May 19, 2014 proposed rule, SBA fully explained its Size Standards 
Methodology (Methodology) to establish size standards. SBA has made the 
Methodology available on its Web site at www.sba.gov/size, as well as 
on the proposed rule (79 FR 28631 (May 19, 2014)) Docket (RIN 3245-
AG49) at www.regulations.gov.
    Although the smallest business unit may consist of less than 10 
employees, SBA's small business size standards do not necessarily 
reflect the smallest size of businesses. It should be noted that SBA's 
size standards apply to most Federal programs that provide benefits to 
small businesses, including small business procurement programs. 
Accordingly, qualifications and capabilities that businesses need to 
perform Federal Government contracts are an important factor in 
determining which company qualifies as small within an industry. Size 
standards based on the smallest business size would be too small, and 
there would not be enough capable and qualified small businesses to 
meet Federal Government small business contracting needs. This would 
lead agencies to compete contracts on a full and open basis, thereby 
allowing large corporations to dominate the Federal market. It is 
imperative that small firms have room to grow and expand without losing 
their small business status until they are large enough to achieve a 
competitive size in their industry. Additionally, it is very important 
to note that while the size standards may appear to include a large 
segment of an industry in terms of the percentage of firms, small firms 
represent only about a third of total industry receipts and less than 
25 percent of Federal contracting dollars.
    SBA does not agree with, and the data does not support, the 
argument that businesses with 1-19 employees mostly need loans in the 
amount of $50,000 to $250,000. Based on the data on firms in all 71 
industries in Sector 42 and the two industries in Sector 44-45 covered 
in this rule that received SBA's 7(a) and 504 loans in 2014, the median 
loan amount among firms with less than 20 employees was about $305,500. 
In addition, $250,000 or higher loans accounted for 62 percent of total 
number of loans and 85 percent of total loan volumes for those firms. 
SBA also does not agree with the argument that increases in average 
loan amounts and decreases in smaller loans are solely due to the 
increases in size standards for two reasons. First, with the passage of 
the Small Business Jobs Act in 2010 (Jobs Act) (Pub. L. 111-240, Sec.  
1116, Sep. 27, 2010), Congress increased the maximum loan amount for 
SBA's 7(a) loans from $2 million to $5 million, for CDC/504 loans from 
$1.5 million to either $5 million or $5.5 million, depending on the 
project. Second, at the same time, Congress also increased the tangible 
net worth and net income limits of the alternative size standard for 
those programs from $8.5 million and $3 million to $15 million and $5 
million, respectively. 15 U.S.C. 632(3)(a)(5). Under the alternative 
size standard, businesses that are above their industry size standards 
can qualify for SBA guaranteed loans. These statutory changes may be 
important factors for the purported changes in SBA's lending. However, 
such changes do not necessarily mean that truly small businesses are 
getting fewer loans now than in 2008. For example, in industries 
covered by this rule, businesses with less than 20 employees received a 
total of $1.2 billion in loans through SBA's 7(a) and 504 programs in 
2014, as compared to about $0.8 billion in 2008. That is an increase of 
50 percent. Nearly 85 percent of total loans granted in those 
industries in 2014 went to firms with less than 20 employees.
    The data does not support the argument that increasing small 
business size standards from 100 employees to 200 or 250 employees and 
thereby allowing larger businesses to qualify as small would affect the 
ability of truly small firms to obtain SBA's loans. For example, of the 
total loan amount disbursed under SBA's 7(a) and 504 programs to firms 
in Sector 42 during fiscal years 2012-2014, 63 percent went to firms 
with less than 20 employees, 89 percent to firms with less than 50 
employees, and 96 percent to firms with less than 100 employees. Since 
the vast majority of firms that obtained SBA's loans are well below the 
current 100-employee size standard, the Agency does not believe that 
increasing it to 200 or 250 employees will have a significant negative 
impact on firms below the current size standard. Moreover, even if SBA 
decided to leave the size standard for all wholesale trade industries 
at the current 100-employee level, firms with more than 100 employees 
may still qualify as small for purposes of SBA's financial assistance. 
This is because, as stated above, for SBA's 7(a) and CDC/504 loan 
programs the Jobs Act established an alternative size standard making 
those firms that exceed their industry size standards eligible for 
SBA's 7(a) and 504 loans if their tangible net worth does not exceed 
$15 million and their average net income, after Federal income taxes, 
does not exceed $5 million over their preceding two fiscal years. 
Accordingly, firms whose annual receipts or number of employees are 
higher than their industry size standards may still qualify as small 
under the alternative size standard. In other words, any wholesaler 
that exceeded the 100-employee size standard would still be eligible 
for SBA's financial assistance if it met the alternative size standard. 
However, during fiscal years 2012-2014, less than 4 percent of total 
loan volume under SBA's 7(a) and 504 programs in Sector 42 went to 
firms with more than 100 employees. This further supports the earlier 
conclusion that the proposed increases to size standards in the 
wholesale and retail trade industries are unlikely to impact smaller 
firms seeking loans through SBA's financial assistance programs.
    SBA does not agree with the comment that a 200-employee company 
with up to $1 billion in annual revenue will qualify as small under the 
proposed higher size standards and would compete with smaller firms for 
SBA's loans. It is very unlikely that a company with $1 billion in 
revenue will qualify for or need SBA's financial assistance. SBA 
provides business loan assistance only to those businesses for which 
the desired credit is not available on reasonable terms from non-
Federal sources (13 CFR 120.101). A firm with that level of revenue 
would likely have access to credit with reasonable terms from non-
Federal sources, making it ineligible for SBA's assistance.
    With respect to the comment that truly small businesses are not 
able get SBA's loans, SBA has initiated fee relief for certain SBA-
guaranteed loans to encourage more lending to smaller businesses. Since 
2013, both the up-front guaranty fee and the lender's annual service 
fee for SBA's 7(a) loans of $150,000 or less have been set at zero. In 
addition, in 2014 the Agency introduced SBA Veterans Advantage, which 
reduced the up-front guaranty fee to zero on its Express loans of 
$150,001 up to $350,000 to qualified small businesses owned by veterans 
and other

[[Page 3944]]

members of the military community. In October 2014, SBA Veterans 
Advantage was expanded to reduce the up-front guaranty fee by 50 
percent on 7(a) loans (other than SBA Express) of $150,001 up to and 
including $5 million to qualified small businesses owned by veterans 
and other members of the military community. The fee relief provided on 
these loans helps remove impediments for some businesses looking to 
take out SBA-guaranteed loans. In 2014, SBA lending in its 7(a) program 
increased 7.4 percent over 2013. In 2014, SBA guaranteed 52,044 loans, 
up 12 percent from 2013. Nearly 60 percent of these loans were under 
$150,000. The number of loans of this size was up 23 percent in 2014, 
helped by the agency's decision to eliminate fees on loans below that 
level. SBA anticipates lending to continue rising, and the Agency will 
maintain these programs to encourage businesses in need of smaller 
loans to apply.
    SBA does not agree with the commenters' assertion that certain 
milestones and goals provide impetus for changing size standards (e.g., 
number of loans awarded, number of contracts and dollars awarded to 
small businesses, number of people hired, etc.). As explained in its 
Methodology, SBA uses industry factors (such as average firm size, 
industry concentration, and startup cost and entry barriers) and 
Federal market conditions (e.g., small business share of total Federal 
contracts relative to small business share of industry receipts) as 
bases for changing size standards. In other words, the various 
milestones and goals identified by the commenters are not the reasons 
for changing size standards.
    SBA finds it difficult to evaluate the suggestion that size 
standards should not exceed 300 employees, because the comment included 
no supporting data or analysis. Furthermore, the proposed changes would 
increase the standard to no more than 250 employees in any of the 
affected NAICS codes. As a result, this comment is not relevant to the 
proposed rule.
    SBA does not accept the suggestion to change the basis for the size 
standards for wholesale trade industries from number of employees to 
annual receipts. In the May 19, 2014 proposed rule, SBA fully explained 
its Methodology, including why it uses the employee based size 
standards for certain industries, and receipts based size standards for 
others. For industries that are highly capital intensive, have low 
operational costs relative to their receipts, show a variation of firms 
within industry by stage of production or degree of vertical 
integration, and are more horizontally structured, SBA uses employee 
based size standards. Most mining, manufacturing and wholesale trade 
industries fall under this category. For most services retail trade, 
and others with more seasonal and part-time employment (such as 
hospitality related industries), SBA uses receipts based size 
standards. Because of a wide variation in values of products sold by 
different types of wholesalers and retailers covered by this rule, 
receipts are not an appropriate measure of size for those firms. 
Moreover, the commenters did not specify what level of receipts based 
size standards would be appropriate.
    SBA does not agree with the argument that the proposed increase in 
size standards for the wholesale and retail trade industries would 
affect the ability of firms to compete and win Federal contracts set 
aside for small businesses, because the increases only apply to SBA's 
financial programs and other federal programs that use SBA's size 
standards. As stated in the proposed rule, the increases to the size 
standards for the wholesale and retail trade industries do not apply to 
Federal Government procurement programs. Similarly, the proposed 
increases to size standards for wholesale and retail trade industries 
will have no effects on size standards in other industries. None of the 
proposed size standards was over 250 employees. The 1,500-employee size 
standard that the commenters pointed out only applies to a few 
industries comprised of firms that are significantly larger than those 
in most other industries. Such examples would be Petroleum Refineries, 
Aircraft Manufacturing, Air Transportation, and Telecommunications 
Carriers. Small business size standards define businesses as small, 
relative to the size of all firms in the industry. In industries where 
enterprises are very large, a much higher size standard than for most 
other industries is warranted. Such industries and size standards were 
not the subject of the proposed rule that this rule finalizes. The 
commenter who opposed the SBA's proposal to retain the 500-employee 
size standard under the nonmanufacturer rule, except for stating that 
his business cannot compete with larger small businesses with up to 500 
employees, did not provide any industry or Federal market data to 
support this point.
    As stated in the proposed rule, firms in Wholesale Trade and Retail 
Trade industries generally carry multiple items from different 
industries as inventory, and therefore identify themselves with 
multiple NAICS codes. Different size standards for individual 
industries in Wholesale Trade and Retail Trade under the 
nonmanufacturer rule would further complicate the contracting decision 
process, which already entails the decision to establish an applicable 
manufacturing industry, along with its size standard, associated with 
manufacturing, production, or processing of the product being procured. 
SBA believes the current 500-employee size standard makes sense because 
Wholesale and Retail Trade firms have to compete with manufacturers for 
supply or product contracts set aside for small businesses, and the 
anchor and most common size standard for the manufacturing industries 
is 500 employees. SBA believes that it is appropriate to retain the 
current 500-employee size standard in the nonmanufacturer rule in order 
to keep Wholesale and Retail Trade firms competitive with 
manufacturers.
    The revised size standards will have no impact on the ability of 
small businesses to continue participating in Federal Government 
procurement programs because their competitive status will not change. 
Wholesalers, dealers, distributors, retailers, etc., up to 500 
employees will continue to be eligible to bid on small business set-
asides under the nonmanufacturer rule, as discussed below. The 500-
employee nonmanufacturer size standard helps small businesses to 
compete with larger suppliers so they can sell products or supplies to 
the Federal Government. In addition, businesses that exceed the revised 
size standards but have 500 employees or less and qualify under the 
nonmanufacturer rule are eligible for SBA's financing directly and 
primarily relating to the performance of that procurement. See 13 CFR 
121.305. The increased size standards in this rule will not affect 
their eligibility for financing in that regard either. Therefore, under 
the revised size standards adopted in this rule, there will be no 
adverse impact on small businesses that participate in the Federal 
Government's small business procurement programs.
    To qualify as small on supply or product contracts set aside for 
small businesses, a business concern must either: (1) Be the 
manufacturer or producer of the end item being procured (and the end 
item must be manufactured or produced in the United States) itself; (2) 
qualify as a ``nonmanufacturer;'' or (3) be considered a kit assembler. 
See 13 CFR 121.406. In general, to qualify as a small business 
nonmanufacturer the concern must: (i) Have no more than 500 employees; 
(ii) be primarily engaged in the retail or wholesale trade and normally 
sell the type of item being supplied; (iii) take ownership or

[[Page 3945]]

possession of the item(s) with its personnel, equipment or facilities 
in a manner consistent with industry practice; and (iv) supply the end 
item of a small business manufacturer, processor or producer made in 
the United States, or obtain a waiver of such requirement pursuant to 
SBA's regulations at 13 CFR 121.1201-1204. See 13 CFR 121.406. On a 
small business set-aside, absent a waiver, the product must be the 
product of another small business, located in the United States. On a 
contracting opportunity set aside for small businesses, in the event an 
unsuccessful offeror believes that the successful bidder is not 
compliant with the nonmanufacturer rule, the company can and should 
protest the eligibility of the successful bidder to the Contracting 
Officer. See 13 CFR 121.1001 et seq.
    It seems that there exist misconceptions about whether industry 
size standards for Sectors 42 and 44-45 apply to Federal Government 
procurement programs. As stated elsewhere in this rule, the industry 
size standards adopted in this rule do not apply to Federal 
procurements. Under 13 CFR 121.402, Federal agencies may not use NAICS 
codes and their size standards in Sector 42 (Wholesale Trade) or Retail 
Trade (Sector 44-45) for procurement of goods or supplies. Those codes 
and size standards apply, rather, to SBA's small business lending 
programs and other Federal Government programs, but not to Federal 
procurements. For the Federal Government's procurement of manufactured 
goods, supplies, or other products, the Contracting Officer must use 
the NAICS code and size standard for the industry that manufactures, 
produces, or processes the products or supplies being procured. Any 
nonmanufacturer firm with up to 500 employees that meets the 
requirements of the nonmanufacturer rule may bid as a small business on 
those opportunities. See 13 CFR 121.406.

Conclusion

    Based on the results of the analysis of industry data provided in 
the proposed rule and evaluation of public comments on the proposed 
rule as discussed above, SBA is adopting all changes to the employee 
based size standards in Sectors 42 and 44-45, as published in the May 
19, 2014 proposed rule.

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

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
final rule is not a ``significant regulatory action'' for purposes of 
Executive Order 12866. To help explain the need for this rule and the 
rule's potential benefits and costs, SBA is providing below a Cost 
Benefit Analysis as it did in the May 19, 2014 proposed rule. This rule 
is also not a ``major rule'' under the Congressional Review Act (5 
U.S.C. 800).

Cost Benefit Analysis

1. Is there a need for the regulatory action?
    The revised size standards in Wholesale Trade and Retail Trade 
sectors better reflect the economic characteristics of small businesses 
in the affected industries and maximize the benefits they receive from 
Federal programs, other than from Federal procurement programs. 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 (the Act) (15 U.S.C. 632(3)(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. Public Law 111-240, sec. 1344, Sep. 27, 2010. The 
supplementary information section of the May 19, 2014 proposed rule 
explained SBA's Methodology for analyzing the size standards of 
industries covered by this rule. SBA makes the Methodology available on 
its Web site at www.sba.gov/size, as well as the on the Docket for the 
proposed rule at www.regulations.gov. The Methodology complies with the 
Small Business Act requirements and SBA's regulations that govern the 
establishment of size standards.
2. What are the potential benefits and costs of this regulatory action?
    The most significant benefit to businesses becoming small under 
these increases is that they are now eligible for SBA's financial 
assistance programs. In addition, growing small businesses that are 
close to exceeding the current size standards can retain their small 
business status under the higher size standards, thereby enabling them 
to continue their participation in those programs. These include SBA's 
7(a), CDC/504, and Economic Injury Disaster Loan (EIDL) programs.
    SBA estimates that in the 47 industries in Sector 42 and Sector 44-
45 whose size standards are being revised, nearly 4,000 firms, 
previously not small, will become small under the revised size 
standards, and therefore eligible for SBA's financial assistance 
programs and other Federal programs, except for procurement. That is a 
1.1 percent increase to the number of firms classified as small under 
the current employee based size standards in those sectors. For the 
industries reviewed in this rule, the data indicate that it is mostly 
businesses much smaller than the current size standards that use the 
SBA's 7(a) and 504 loan programs. Based on the fiscal years 2012-2014 
data, SBA estimates up to about 40 loans totaling between $20 million 
and $25 million could be made under its 7(a) and CDC/504 programs to 
these newly defined small businesses under the new size standards. 
Increasing the size standards will likely result in more small business 
guaranteed loans to businesses in those industries, but it is 
impractical to try to estimate exactly the number and total volumes 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 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 size standards on its 7(a) and 504 loan 
programs.
    Newly defined small businesses will also benefit from SBA's EIDL 
program. The EIDL program is contingent on the number and severity of 
disaster occurrences, and therefore SBA cannot make a meaningful 
estimate of this impact.
    Because NAICS codes in the Wholesale Trade and Retail Trade sectors 
and their industry size standards do not apply to Federal procurement 
programs, and because SBA is making no change to the 500-employee size 
standard under the nonmanufacturer rule, this rule will not affect 
participation in Federal procurement programs. However, retaining the 
current 500-employee size standard

[[Page 3946]]

under the nonmanufacturer rule will, in fact, enable firms in Wholesale 
and Retail Trade industries to maintain their eligibility for Federal 
supply procurements intended for small businesses. Federal procurement 
programs provide targeted opportunities for small businesses under 
SBA's business development programs, such as the 8(a) Business 
Development (BD) program, Small Disadvantaged Businesses (SDB), small 
businesses located in Historically Underutilized Business Zones 
(HUBZone), women-owned small businesses (WOSB) and economically-
disadvantaged women-owned small businesses (EDWOSB), and service-
disabled veteran-owned small businesses (SDVOSB).
    More businesses will benefit from a variety of Federal regulatory 
and other programs that use SBA's size standards. Such benefits may 
include, but are not limited to, reduced fees, less paperwork, or 
exemption from compliance or other regulatory requirements.
    To the extent that those 4,000 newly defined additional small firms 
under the revised size standards become active in seeking SBA's 
financial assistance, the changes may entail some additional 
administrative costs to the Government because of more businesses being 
eligible for the assistance. For example, there may be more firms 
seeking SBA's guaranteed loans. It will not, however, increase the 
number of firms eligible to enroll in the System of Award Management 
(SAM) database, because applicants to SBA's loans are not required to 
register in SAM. It also will not increase the number of firms eligible 
to seek certification as 8(a) BD, HUBZone, WOSB, EDWOSB, SDVOSB, or SDB 
status, because revisions to industry size standards in the Wholesale 
Trade and Retail Trade sectors do not apply to Federal procurement. 
Among those newly defined small businesses seeking SBA's financial 
assistance, there could be some additional costs associated with 
compliance and verification 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.
    The revisions to the existing employee based size standards in 
Sector 42 and Sector 44-45 are consistent with SBA's statutory mandate 
to assist those businesses that it considers small. This regulatory 
action promotes the Administration's objectives. One of SBA's goals in 
support of the Administration's objectives is to help small businesses 
succeed through fair and equitable access to capital and credit, 
Government contracts, and management and technical assistance. Although 
these revised standards will not increase access to Federal contracts, 
they will ensure that intended beneficiaries have access to other small 
business programs designed to assist them.

Executive Order 13563

    A description of the need for this regulatory action and benefits 
and costs associated with this action that relate to Executive Order 
13563 are included above in the Cost Benefit 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 the size standards review.
    Individuals and business persons who have expressed interest in the 
size standards for one or more NAICS sectors receive a copy of SBA 
proposed and final rules. SBA sent copies of the May 19, 2014 proposed 
rule to the interested individuals, seeking their comments on proposed 
changes to employee based size standards for a number of wholesale 
trade and retail trade industries, and the Agency's proposal to retain 
the 500-employee nonmanufacturer size standard. SBA also published the 
proposed rule in the Federal Register and invited comments from any 
interested members of the public. SBA received seven comments on the 
proposed rule and has addressed them thoroughly.
    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 considered all input, suggestions, 
recommendations, and relevant information obtained from industry 
groups, individual businesses, and Federal agencies in preparing this 
rule.
    The review of employee based size standards in NAICS Sector 42 and 
Sector 44-45 is consistent with Executive Order 13563, Sec. 6, calling 
for retrospective analyses of existing rules. The last comprehensive 
review of size standards was in the late 1970s and early 1980s. Since 
then, except for periodic adjustments for inflation to monetary based 
size standards (most recently, effective July 14, 2014; see 79 FR 
33647), most reviews of size standards were limited to a few specific 
industries in response to requests from the public and Federal 
agencies. SBA recognizes that changes in industry structure and the 
Federal marketplace over time have rendered existing size standards for 
some industries no longer supportable by current data. Accordingly, in 
2007, SBA began a comprehensive review of 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 than 
once every five years thereafter. Public Law 111-240, sec. 1344, Sep. 
27, 2010.

Executive Order 12988

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

Executive Order 13132

    For purposes of Executive Order 13132, SBA has determined that this 
rule does not have substantial, direct effects on the States, on the 
relationship between the national Government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government. Therefore, SBA has determined that this rule has no 
federalism implications warranting preparation of a federalism 
assessment.

Paperwork Reduction Act

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

[[Page 3947]]

Final Regulatory Flexibility Analysis

    Under the Regulatory Flexibility Act (RFA), this rule may have a 
significant impact on a substantial number of small businesses in 
Sector 42, Wholesale Trade, and some small businesses in Sector 44-45, 
Retail Trade. As described above, this rule may affect small businesses 
seeking loans under SBA's 7(a), 504/CDC, and Economic Injury Disaster 
Loan (EIDL) programs, and assistance under other Federal small business 
programs, except procurement.
    Immediately below, SBA sets forth a final regulatory flexibility 
analysis (FRFA) of this rule addressing the following questions: (1) 
What are the need for and objectives 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, recordkeeping, 
and other compliance requirements of the rule? (4) What are the 
relevant federal rules that may duplicate, overlap, or conflict with 
the rule? and (5) What alternatives will allow the Agency to accomplish 
its regulatory objectives while minimizing the impact on small 
businesses?
1. What are the need for and objectives 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 in Sector 42 and Sector 44-45. 
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 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?
    SBA estimates that nearly 4,000 more firms in Sector 42 and Sector 
44-45 will become small for financial assistance under the revised 
employee based size standards. That represents 1.1 percent of total 
firms that are small under current employee based size standards in all 
such industries in those sectors. The adopted rule will enable more 
small businesses to retain their small business status for a longer 
period. Additionally, many firms that may have exceeded the current 
size standards and lost their eligibility for SBA's financial 
assistance and other Federal programs for small businesses will regain 
eligibility for those programs under the revised employee based size 
standards.
3. What are the projected reporting, recordkeeping and other compliance 
requirements of the rule?
    The size standard changes impose no additional reporting or 
recordkeeping requirements on small businesses. Qualifying for SBA's 
financial assistance does not require that businesses register in the 
System for Award Management (SAM) database and certify in SAM that they 
are small at least once annually. However, some newly qualified small 
businesses under the revised size standards may want to participate in 
the Federal Government procurement and other programs that require 
firms to register and certify in SAM. Small businesses may become aware 
from this rule that they have been eligible to sell goods and supplies 
to the Federal Government under the 500-employee nonmanufacturer size 
standard. Therefore, to participate as a prime contractor, those 
businesses must comply with SAM requirements. There are no costs 
associated with either SAM registration or annual recertification. 
Changing size standards alters the access to SBA's financial assistance 
programs and other Federal 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 Section 3(a)(2)(C) of the Small Business Act, 15 U.S.C. 
632(3)(a)(2)(C), Federal agencies must use SBA's size standards to 
define a small business, unless specifically authorized by statute to 
do otherwise. In 1995, SBA published in the Federal Register a list of 
statutory and regulatory size standards that identified the application 
of SBA's size standards as well as other size standards used by Federal 
agencies (60 FR 57988 (November 24, 1995)). SBA is not aware of any 
Federal rule that would duplicate or conflict with establishing or 
revising size standards.
    However, the Small Business Act (15 U.S.C. 632(3)(a)(2)(C)) and 
SBA's regulations (13 CFR 121.903) 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. The SBA's regulations (see 13 CFR 121.903(c)) authorize 
a Federal agency to establish an alternative small business definition 
for the sole purpose of performing a regulatory flexibility analysis 
pursuant to the Regulatory Flexibility Act (5 U.S.C. 601(3)), after 
consultation with the Office of Advocacy of the U.S. Small Business 
Administration.
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 amends 13 CFR part 
121 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

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

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


0
2. In Sec.  121.201, in the table ``Small Business Size Standards by 
NAICS Industry'' revise the entries for ``423110'', ``423120'', 
``423130'', ``423310'', ``423320'', ``423330'', ``423410'', ``423420'', 
``423430'', ``423450'', ``423460'', ``423490'', ``423510'', ``423610'', 
``423620'', ``423690'', ``423710'', ``423720'', ``423730'', ``423810'', 
``423860'', ``423920'', ``424110'', ``424120'', ``424130'', ``424210'', 
``424320'', ``424340'', ``424410'', ``424420'', ``424430'', ``424440'', 
``424450'', ``424470'', ``424490'', ``424510'', ``424610'', ``424690'', 
``424710'', ``424720'', ``424810'', ``424820'', ``424910'', ``424920'', 
``424940'', ``424950'', and ``454310'' to read as follows:


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

* * * * *

[[Page 3948]]



                                 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
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
423110.................................  Automobile and Other Motor Vehicle       ..............             250
                                          Merchant Wholesalers.
423120.................................  Motor Vehicle Supplies and New Parts     ..............             200
                                          Merchant Wholesalers.
423130.................................  Tire and Tube Merchant Wholesalers.....  ..............             200
 
                                                  * * * * * * *
423310.................................  Lumber, Plywood, Millwork, and Wood      ..............             150
                                          Panel Merchant Wholesalers.
423320.................................  Brick, Stone, and Related Construction   ..............             150
                                          Material Merchant Wholesalers.
423330.................................  Roofing, Siding, and Insulation          ..............             200
                                          Material Merchant Wholesalers.
 
                                                  * * * * * * *
423410.................................  Photographic Equipment and Supplies      ..............             200
                                          Merchant Wholesalers.
423420.................................  Office Equipment Merchant Wholesalers..  ..............             200
423430.................................  Computer and Computer Peripheral         ..............             250
                                          Equipment and Software Merchant
                                          Wholesalers.
 
                                                  * * * * * * *
423450.................................  Medical, Dental, and Hospital Equipment  ..............             200
                                          and Supplies Merchant Wholesalers.
423460.................................  Ophthalmic Goods Merchant Wholesalers..  ..............             150
423490.................................  Other Professional Equipment and         ..............             150
                                          Supplies Merchant Wholesalers.
423510.................................  Metal Service Centers and Other Metal    ..............             200
                                          Merchant Wholesalers.
 
                                                  * * * * * * *
423610.................................  Electrical Apparatus and Equipment,      ..............             200
                                          Wiring Supplies, and Related Equipment
                                          Merchant Wholesalers.
423620.................................  Household Appliances, Electric           ..............             200
                                          Housewares, and Consumer Electronics
                                          Merchant Wholesalers.
423690.................................  Other Electronic Parts and Equipment     ..............             250
                                          Merchant Wholesalers.
423710.................................  Hardware Merchant Wholesalers..........  ..............             150
423720.................................  Plumbing and Heating Equipment and       ..............             200
                                          Supplies (Hydronics) Merchant
                                          Wholesalers.
423730.................................  Warm Air Heating and Air-Conditioning    ..............             150
                                          Equipment and Supplies Merchant
                                          Wholesalers.
 
                                                  * * * * * * *
423810.................................  Construction and Mining (except Oil      ..............             250
                                          Well) Machinery and Equipment Merchant
                                          Wholesalers.
 
                                                  * * * * * * *
423860.................................  Transportation Equipment and Supplies    ..............             150
                                          (except Motor Vehicle) Merchant
                                          Wholesalers.
 
                                                  * * * * * * *
423920.................................  Toy and Hobby Goods and Supplies         ..............             150
                                          Merchant Wholesalers.
 
                                                  * * * * * * *
424110.................................  Printing and Writing Paper Merchant      ..............             200
                                          Wholesalers.
424120.................................  Stationery and Office Supplies Merchant  ..............             150
                                          Wholesalers.
424130.................................  Industrial and Personal Service Paper    ..............             150
                                          Merchant Wholesalers.
424210.................................  Drugs and Druggists' Sundries Merchant   ..............             250
                                          Wholesalers.
 
                                                  * * * * * * *
424320.................................  Men's and Boys' Clothing and             ..............             150
                                          Furnishings Merchant Wholesalers.
 
                                                  * * * * * * *
424340.................................  Footwear Merchant Wholesalers..........  ..............             200
424410.................................  General Line Grocery Merchant            ..............             250
                                          Wholesalers.
424420.................................  Packaged Frozen Food Merchant            ..............             200
                                          Wholesalers.
424430.................................  Dairy Product (except Dried or Canned)   ..............             200
                                          Merchant Wholesalers.
424440.................................  Poultry and Poultry Product Merchant     ..............             150
                                          Wholesalers.
424450.................................  Confectionery Merchant Wholesalers.....  ..............             200
 
                                                  * * * * * * *
424470.................................  Meat and Meat Product Merchant           ..............             150
                                          Wholesalers.
 
                                                  * * * * * * *
424490.................................  Other Grocery and Related Products       ..............             250
                                          Merchant Wholesalers.
424510.................................  Grain and Field Bean Merchant            ..............             200
                                          Wholesalers.
 
                                                  * * * * * * *
424610.................................  Plastics Materials and Basic Forms and   ..............             150
                                          Shapes Merchant Wholesalers.
424690.................................  Other Chemical and Allied Products       ..............             150
                                          Merchant Wholesalers.
424710.................................  Petroleum Bulk Stations and Terminals..  ..............             200

[[Page 3949]]

 
424720.................................  Petroleum and Petroleum Products         ..............             200
                                          Merchant Wholesalers (except Bulk
                                          Stations and Terminals).
424810.................................  Beer and Ale Merchant Wholesalers......  ..............             200
424820.................................  Wine and Distilled Alcoholic Beverage    ..............             250
                                          Merchant Wholesalers.
424910.................................  Farm Supplies Merchant Wholesalers.....  ..............             200
424920.................................  Book, Periodical, and Newspaper          ..............             200
                                          Merchant Wholesalers.
 
                                                  * * * * * * *
424940.................................  Tobacco and Tobacco Product Merchant     ..............             250
                                          Wholesalers.
424950.................................  Paint, Varnish, and Supplies Merchant    ..............             150
                                          Wholesalers.
 
                                                  * * * * * * *
454310.................................  Fuel Dealers...........................  ..............             100
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------

* * * * *

    Dated: January 15, 2016.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2016-01411 Filed 1-22-16; 8:45 am]
 BILLING CODE 8025-01-P