[Federal Register Volume 82, Number 73 (Tuesday, April 18, 2017)]
[Proposed Rules]
[Pages 18253-18265]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07709]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 82, No. 73 / Tuesday, April 18, 2017 /
Proposed Rules
[[Page 18253]]
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AG84
Small Business Size Standards; Adoption of 2017 North American
Industry Classification System for Size Standards
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The U.S. Small Business Administration (SBA) proposes to amend
its small business size regulations to incorporate the U.S. Office of
Management and Budget's (OMB) North American Industry Classification
System (NAICS) revision for 2017, identified as NAICS 2017, into its
table of small business size standards. NAICS 2017 created 21 new
industries by reclassifying, combining, or splitting 29 existing
industries under changes made to NAICS in 2012 (NAICS 2012). SBA's
proposed size standards for these 21 new industries have resulted in an
increase to size standards for six NAICS 2012 industries and part of
one industry, a decrease to size standards for two, a change in the
size standards measure from average annual receipts to number of
employees for one, and no change in size standards for twenty
industries and part of one industry. SBA proposes to adopt the updated
table of size standards, effective October 1, 2017
DATES: SBA must receive comments to this proposed rule on or before
June 19, 2017.
ADDRESSES: Identify your comments by RIN 3245-AG84 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, Office of Size Standards, 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, the Office of Size Standards, 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.
Requests to redact or remove posted comments cannot be honored and
a request to redact or remove posted comments will be posted as a
comment. See the www.regulations.gov help section for information on
how to make changes to your comments.
FOR FURTHER INFORMATION CONTACT: Dr. Jorge Laboy-Bruno, Office of Size
Standards, (202) 205-6618 or [email protected].
SUPPLEMENTARY INFORMATION: Effective October 1, 2000, SBA adopted NAICS
1997 industry definitions as a basis for its table of small business
size standards, replacing the 1987 Standard Industrial Classification
(SIC) (65 FR 30836 (May 15, 2000)). Since then, OMB has issued four
revisions to NAICS. SBA's table of size standards adopted the OMB's
first revision, NAICS 2002, effective October 1, 2002 (67 FR 52597
(August 13, 2002)), the second revision, NAICS 2007, effective October
1, 2007 (72 FR 49639 (August 29, 2007)), and the third revision, NAICS
2012, effective October 1, 2012 (77 FR 49991 (August 20, 2012)).
OMB published its fourth and latest revision, NAICS 2017, ``Notice
of NAICS 2017 final decisions'' in the Federal Register on August 8,
2016 (81 FR 52584). The OMB notice stated that Federal statistical
establishment data published for reference years beginning on or after
January 1, 2017, should be published using NAICS 2017. SBA proposes to
adopt NAICS 2017 for its table of size standards, effective October 1,
2017.
As with the previous NAICS revisions, SBA also proposes to adopt
the latest NAICS revision, NAICS 2017, effective October 1, 2017 or the
beginning of the new fiscal year following the OMB's release of the
NAICS revision for several reasons: (1) Federal government contracting
data and related statistics will be more consistent and comparable with
past data for analyzing future small business activity if
implementation of the revised table of size standards occurs at the
beginning of a fiscal year; (2) users of size standards, for instance,
Federal prime contractors for developing their subcontracting plans,
can have more consistent data to examine the past and future Federal
contracting trends; and (3) small business size standards apply to most
Federal agencies and their programs involving small businesses; with a
time lag between the OMB's effective date and SBA's update to its size
standards they will have time to implement the changes and develop
training tools, if necessary.
Changes in NAICS 2017
NAICS 2017 created 21 new NAICS industries by reclassifying,
splitting, or merging 29 industries or their parts under NAICS 2012. Of
those 21 new industries, five were created by merging two or more of
thirteen NAICS 2012 industries in their entirety, while three were
created by combining part of one industry with another industry. Three
new industries were created by splitting two industries to two parts
each with one part of each industry defined as a separate industry and
combining other parts of the two industries to form a separate new
industry. One new industry was formed by designating part of one
industry as a separate industry. OMB also changed 6-digit NAICS codes
for eight industries without changing their definitions and titles and
amended the title of one industry without changing its 6-digit code.
Table 1, ``NAICS 2012 Industries or Their Parts Matched to NAICS 2017
Industries,'' below, shows the changes from NAICS 2012 to NAICS 2017.
Complete information on the relationship between NAICS 2012 and
NAICS 2017 is available on the U.S. Bureau of the Census (Census
Bureau) Web site at http://www.census.gov/eos/www/naics/. The Census
Bureau's Web site also provides detailed documentation on Federal
notices involving the replacement of SIC with NAICS, and all subsequent
NAICS
[[Page 18254]]
updates and revisions, including the August 8, 2017 ``Notice of NAICS
2017 final decisions,'' as well as concordances (i.e., correspondence
tables) between SIC and NAICS 1997 and NAICS 2002, and between
subsequent NAICS revisions.
Table 1--NAICS 2012 Industries or Their Parts Matched to NAICS 2017 Industries
----------------------------------------------------------------------------------------------------------------
NAICS 2012 industry NAICS 2017 NAICS 2017 industry
NAICS 2012 code title Status code code title
----------------------------------------------------------------------------------------------------------------
211111................... Crude Petroleum and
Natural Gas Extraction.
crude petroleum .................. 211120 Crude Petroleum
extraction. Extraction.
natural gas pt. 211130 Natural Gas Extraction.
extraction.
211112................... Natural Gas Liquid pt. 211130 Natural Gas Extraction.
Extraction.
212231................... Lead Ore and Zinc Ore pt. 212230 Copper, Nickel, Lead,
Mining. and Zinc Mining.
212234................... Copper Ore and Nickel pt. 212230 Copper, Nickel, Lead,
Ore Mining. and Zinc Mining.
333911................... Pump and Pumping pt. 333914 Measuring, Dispensing,
Equipment Manufacturing. and Other Pumping
Equipment
Manufacturing.
333913................... Measuring and Dispensing pt. 333914 Measuring, Dispensing,
Pump Manufacturing. and Other Pumping
Equipment
Manufacturing.
335221................... Household Cooking pt. 335220 Major Household
Appliance Manufacturing. Appliance
Manufacturing.
335222................... Household Refrigerator pt. 335220 Major Household
and Home Freezer Appliance
Manufacturing. Manufacturing.
335224................... Household Laundry pt. 335220 Major Household
Equipment Manufacturing. Appliance
Manufacturing.
335228................... Other Major Household pt. 335220 Major Household
Appliance Manufacturing. Appliance
Manufacturing.
452111................... Department Stores pt. 452210 Department Stores.
(except Discount
Department Stores).
452112................... Discount Department
Stores.
insignificant pt. 452210 Department Stores.
perishable grocery
sales.
significant pt. 452311 Warehouse Clubs and
perishable grocery Supercenters.
sales.
452910................... Warehouse Clubs and pt. 452311 Warehouse Clubs and
Supercenters. Supercenters.
452990................... All Other General nc. 452319 All Other General
Merchandise Stores. Merchandise Stores.
454111................... Electronic Shopping..... pt. 454110 Electronic Shopping and
Mail-Order Houses.
454112................... Electronic Auctions..... pt. 454110 Electronic Shopping and
Mail-Order Houses.
454113................... Mail-Order Houses....... pt. 454110 Electronic Shopping and
Mail-Order Houses.
512210................... Record Production....... pt. 512250 Record Production and
Distribution.
512220................... Integrated Record pt. 512250 Record Production and
Production/Distribution. Distribution.
517110................... Wired Telecommunications nc. 517311 Wired
Carriers. Telecommunications
Carriers.
517210................... Wireless nc. 517312 Wireless
Telecommunications Telecommunications
Carriers (except Carriers (except
Satellite). Satellite).
532220................... Formal Wear and Costume nc. 532281 Formal Wear and Costume
Rental. Rental.
532230................... Video Tape and Disc nc. 532282 Video Tape and Disc
Rental. Rental.
532291................... Home Health Equipment nc. 532283 Home Health Equipment
Rental. Rental.
532292................... Recreational Goods nc. 532284 Recreational Goods
Rental. Rental.
532299................... All Other Consumer Goods nc. 532289 All Other Consumer
Rental. Goods Rental.
541711................... Research and Development
in Biotechnology.
nanobiotechnologies pt. 541713 Research and
research and Development in
experimental Nanotechnology.
development
laboratories.
except 541714 Research and
nanobiotechnologies Development in
research and Biotechnology (except
experimental Nanobiotechnology).
development
laboratories.
541712................... Research and Development
in the Physical,
Engineering, and Life
Sciences (except
Biotechnology).
nanotechnology pt. 541713 Research and
research and Development in
experimental Nanotechnology.
development
laboratories.
except nanotechnology 541715 Research and
research and Development in the
experimental Physical, Engineering,
development and Life Sciences
laboratories. (except Nanotechnology
and Biotechnology).
721310................... Rooming and Boarding nt. 721310 Rooming and Boarding
Houses. Houses, Dormitories,
and Workers' Camps.
----------------------------------------------------------------------------------------------------------------
Key to Abbreviations.
pt. = Part of 2017 industry.
nc. = 6-digit NAICS codes changed without changing industries' definitions and titles.
nt. = NAICS industry title amended without changing the 6-digit code.
Proposed Size Standards for New Industries in NAICS 2017
On October 22, 1999, SBA proposed to replace SIC with NAICS 1997 as
the basis of industry definitions for its table of small business size
standards (64 FR 57188). The proposed rule included a set of guidelines
or rules that SBA applied to convert the size standards for industries
under SIC to NAICS. The guidelines aimed to minimize the impact of
applying a new industry classification system on SBA's size standards
and on small businesses that qualified as small under the SIC based
size standards. SBA received no negative comments against the proposed
guidelines. SBA published its final rule on May 15, 2000 (65 FR 30386)
(corrected on September 5, 2000, 65 FR 53533) adopting the resulting
table of size standards based on NAICS 1997, as proposed. To be
consistent, SBA used the same guidelines when it updated its table of
size standards to adopt NAICS 2002, NAICS 2007, and NAICS 2012
revisions. In those updates as well, SBA
[[Page 18255]]
received no adverse comments on using those guidelines, or on the
resulting changes to the size standards. For this proposed rule to
adopt NAICS 2017 for its size standards table, SBA has also generally
followed the same guidelines. The guidelines that are applicable to
this update are shown below in Table 2, ``General Guidelines to
Establish Size Standards for New Industries under NAICS 2017.''
Table 2--General Guidelines To Establish Size Standards for New
Industries Under NAICS 2017
------------------------------------------------------------------------
The size standard for the NAICS
If the NAICS 2017 industry is composed 2017 industry code will be:
of:
------------------------------------------------------------------------
1. A single NAICS 2012 industry or part The same size standard as for
of a single NAICS 2012 industry. the NAICS 2012 industry or
part.
2. Two or more NAICS 2012 industries;
two or more parts of an NAICS 2012
industry; parts of two or more NAICS
2012 industries; or one or more NAICS
2012 industries and part(s) of one or
more NAICS 2012 industries, and
2a. they all have the same size The same size standard as for
standard. the NAICS 2012 industries or
parts.
2b. they all have the same size The same size standard as for
measure (e.g., receipts, the NAICS 2012 industry or
employees, etc.) but do not all part that most closely matches
have the same size standard. the economic activity
described by the NAICS 2017
industry, or
The highest size standard among
the NAICS 2012 industries and
part(s) that comprise the
NAICS 2017 industry, provided
that the highest size standard
does not include dominant or
potentially dominant firms.
2c. they have different size The same size standard as for
measures (i.e., for example, some the NAICS 2012 industry or
are based on receipts and others part that most closely matches
on employees) and hence do not all the economic activity
have the same size standard. described by the NAICS 2017
industry, or
The highest size standard among
the NAICS 2012 industries and
part(s) that comprise the
NAICS 2017 industry, provided
that the highest size standard
does not include dominant or
potentially dominant firms.
To apply this rule, SBA
converts all size standards to
a single measure (e.g.,
receipts, employees, etc.)
using the size measure for the
NAICS 2012 industry or part(s)
that most closely match the
economic activity described by
the NAICS 2017 industry or
using the size measure that
applies to most of the NAICS
industries or parts comprising
the NAICS 2017 industry.
------------------------------------------------------------------------
In addition to the above general guidelines, in cases where a new
industry is formed by merging multiple industries or their parts with
substantially different levels or different measures of size standards,
in this proposed rule to adopt NAICS 2017, SBA has also examined the
relevant latest industry and Federal procurement data to determine an
appropriate size standard for the new industry. Developed based on the
above guidelines and analyses of the relevant data, where necessary,
SBA's proposed size standards for the new industries under NAICS 2017
are shown in Table 3, ``Proposed Size Standards for New Industries in
NAICS 2017.'' Also shown in the table are the current size standards
for the affected NAICS 2012 industries and their parts.
As shown in Table 3, the size standards for most of the affected
NAICS 2012 industries are not impacted and therefore remain unchanged
under NAICS 2017. The majority of the changes consist of revisions to
industry codes or titles, or mergers of two or more NAICS 2012
industries or their parts to new industries without impacting their
size standards. Of the 29 NAICS 2012 industries affected by the
revision, adopting NAICS 2017 would increase size standards for six
industries and part of one industry and decrease two. Size standards
for twenty industries and part of one industry would not change. This
would also result in changing the size standard measure for one
industry from average annual receipts to number of employees.
As stated previously, SBA generally applied the guidelines in Table
2 to convert the size standards for industries from NAICS 2012 to NAICS
2017. However, for new industries that were created by combining
industries or their parts with significantly different size standards
or different measures of size standards, SBA also evaluated the
relevant industry and Federal procurement data to determine appropriate
size standards for the new industries, as discussed below.
Table 3--Proposed Size Standards for New Industries in NAICS 2017
----------------------------------------------------------------------------------------------------------------
Proposed Proposed
Current Current NAICS 2017 NAICS 2017
NAICS 2012 NAICS 2012 size size size size NAICS 2017 NAICS 2017
code industry title standard standard standard standard code industry title
(employees) ($ million) (employees) ($ million)
----------------------------------------------------------------------------------------------------------------
211111....... Crude Petroleum 1,250
and Natural
Gas Extraction.
crude 1,250 ........... 1,250 ........... 211120 Crude Petroleum
petroleum Extraction.
extraction.
natural gas 1,250 ........... 1,250 ........... 211130 Natural Gas
extraction. Extraction.
211112....... Natural Gas 750
Liquid
Extraction.
[[Page 18256]]
212231....... Lead Ore and 750 ........... 750 ........... 212230 Copper, Nickel,
Zinc Ore Lead, and Zinc
Mining. Mining.
212234....... Copper Ore and 1,500
Nickel Ore
Mining.
333911....... Pump and 750 ........... 750 ........... 333914 Measuring,
Pumping Dispensing,
Equipment and Other
Manufacturing. Pumping
Equipment
Manufacturing.
333913....... Measuring and 750
Dispensing
Pump
Manufacturing.
335221....... Household 1,500 ........... 1,500 ........... 335220 Major Household
Cooking Appliance
Appliance Manufacturing.
Manufacturing.
335222....... Household 1,250
Refrigerator
and Home
Freezer
Manufacturing.
335224....... Household 1,250
Laundry
Equipment
Manufacturing.
335228....... Other Major 1,000
Household
Appliance
Manufacturing.
452111....... Department ........... $32.5 ........... $32.5 452210 Department
Stores (except Stores.
Discount
Department
Stores).
452112....... Discount ........... 29.5
Department
Stores.
insignifican ........... 29.5
t
perishable
grocery
sales.
452112....... Discount ........... 29.5
Department
Stores.
significant ........... 29.5 ........... 29.5 452311 Warehouse Clubs
perishable and
grocery Supercenters.
sales.
452910....... Warehouse Clubs ........... 29.5
and
Supercenters.
452990....... All Other ........... 32.5 ........... 32.5 452319 All Other
General General
Merchandise Merchandise
Stores. Stores.
454111....... Electronic ........... 32.5 ........... 38.5 454110 Electronic
Shopping. Shopping and
Mail-Order
Houses.
454112....... Electronic ........... 38.5 ...........
Auctions.
454113....... Mail-Order ........... 38.5
Houses.
512210....... Record ........... 7.5 250 ........... 512250 Record
Production. Production and
Distribution.
512220....... Integrated 1,250
Record
Production/
Distribution.
517110....... Wired 1,500 ........... 1,500 ........... 517311 Wired
Telecommunicat Telecommunicat
ions Carriers. ions Carriers.
517210....... Wireless 1,500 ........... 1,500 ........... 517312 Wireless
Telecommunicat Telecommunicat
ions Carriers ions Carriers
(except (except
Satellite). Satellite).
532220....... Formal Wear and ........... 20.5 ........... 20.5 532281 Formal Wear and
Costume Rental. Costume
Rental.
532230....... Video Tape and ........... 27.5 ........... 27.5 532282 Video Tape and
Disc Rental. Disc Rental.
532291....... Home Health ........... 32.5 ........... 32.5 532283 Home Health
Equipment Equipment
Rental. Rental.
532292....... Recreational ........... 7.5 ........... 7.5 532284 Recreational
Goods Rental. Goods Rental.
532299....... All Other ........... 7.5 ........... 7.5 532289 All Other
Consumer Goods Consumer Goods
Rental. Rental.
541711....... Research and 1,000
Development in
Biotechnology.
nanobiotechn 1,000 ........... 1,000 ........... 541713 Research and
ologies Development in
research Nanotechnology
and .
experimenta
l
development
laboratorie
s.
except 1,000 ........... 1,000 ........... 541714 Research and
nanobiotech Development in
nologies Biotechnology
research (except
and Nanobiotechnol
experimenta ogy).
l
development
laboratorie
s.
[[Page 18257]]
541712....... Research and 1,000
Development in
the Physical,
Engineering,
and Life
Sciences
(except
Biotechnology).
nanotechnolo 1,000 ........... 1,000 ........... 541713 Research and
gy research Development in
and Nanotechnology
experimenta .
l
development
laboratorie
s.
except 1,000 ........... 1,000 ........... 541715 Research and
nanotechnol Development in
ogy the Physical,
research Engineering,
and and Life
experimenta Sciences
l (except
development Nanotechnology
laboratorie and
s. Biotechnology)
.
721310....... Rooming and ........... 7.5 ........... 7.5 721310 Rooming and
Boarding Boarding
Houses. Houses,
Dormitories,
and Workers'
Camps.
----------------------------------------------------------------------------------------------------------------
Derivation of Proposed Size Standards for Select NAICS 2017 Industries
NAICS 211120, Crude Petroleum Extraction
SBA proposes a 1,250-employee size standard for NAICS 2017 industry
211120 (Crude Petroleum Extraction). This new industry was generated by
partitioning NAICS 2012 industry 211111 (Crude Petroleum and Natural
Gas Extraction) into Crude Petroleum Extraction and Natural Gas
Extraction parts and then redefining the Crude Petroleum Extraction
part as new NAICS 211120. The current size standard for NAICS 211111 is
1,250 employees. Based on the 2012 Economic Census data, nearly 99
percent of all firms in NAICS 211111 qualify as small under the 1,250-
employee size standard. However, SBA cannot quantify the impact of the
partition on the size standard precisely because information on the
Crude Petroleum Extraction part of NAICS 211111 is not available in the
2012 Economic Census data. Thus, SBA analyzed the impact of reducing
the size standard for NAICS 211111 from 1,250 employees to 1,000 or 750
employees using the 2012 Economic Census data to see if a lower than
1,250 employees could be adopted for new NAICS 211120. The NAICS 211111
data showed that about 10-20 firms would lose their small business
status if the size standard was lowered to 750 or to 1,000 employees.
Based on the Federal procurement data from the Federal Procurement Data
System--Next Generation (FPDS-NG) for fiscal years 2013-2015, SBA
estimates that 23 firms involved in crude petroleum extraction (using
the ``Crude Petroleum Extraction and Others'' Product Service Code
(PSC)) received a little over $1 million in Federal contracts annually.
Seventeen of those firms had fewer than 1,250 employees, accounting for
nearly 60 percent of dollars obligated under that PSC. Thus, using a
size standard that is lower than 1,250 employees can hurt those
businesses. Based on these results, SBA proposes a size standard of
1,250 employees for new NAICS 2012 industry 211120, Crude Petroleum
Extraction.
NAICS 211130, Natural Gas Extraction
SBA proposes to adopt a 1,250-employee size standard for NAICS 2017
industry 211130 (Natural Gas Extraction). This new industry was
generated by merging the Natural Gas Extraction part of NAICS 2012
industry 211111 with NAICS 2012 industry 211112 (Natural Gas Liquid
Extraction). The current size standards are 1,250 employees for NAICS
211111 and 750 employees for NAICS 211112. Based on the 2012 Economic
Census data, about 70 percent of firms in NAICS 211112 are below the
750-employee size standard. If SBA were to increase the size standard
for NAICS 211112 to 1,250 employees, 4-6 additional firms would qualify
as small. That would increase the share of small firms in that industry
to nearly 75 percent.
Because the 2012 Economic Census data does not provide separate
information on firms involved in the Natural Gas Extraction part of
NAICS 211111, it is not possible to calculate a precise size standard
for new NAICS 211130 using the Economic Census data. Thus, SBA examined
Federal procurement data from FPDS-NG for fiscal years 2013-2015. In
that period, 55 unique firms received Federal contracts under NAICS
211111. Thirty-four of them were small under the 1,250-employee size
standard and received a third of total dollars obligated to that
industry. The average annual amount obligated to NAICS 211111 was about
$58 million. Because the partitioning of NAICS 2012 code 211111 divided
firms in that industry between Crude Petroleum Extraction (which became
NAICS 211120) and Natural Gas Liquid Extraction (which became part of
NAICS 211130), SBA examined the Federal procurement data for the two
Product Service Codes (PSCs): Natural Gas Extraction (GAS) and Crude
Petroleum Extraction and Others (OTHER THAN GAS).
Thirty-eight firms received contracts under GAS PSC, of which 19
had fewer than 1,250 employees. Of those 19, only one firm would lose
its small business status if the 750-employee size standard that
currently applies to NAICS 211112 was used as the size standard for
NAICS 211130. The GAS PSC category accounted for about 98 percent of
total dollars obligated in NAICS 211111, and firms with fewer than
1,250 employees accounted for 33 percent. However, if SBA adopted a
size standard of 750 employees for new NAICS 211130, the small business
share of total dollars obligated would reduce to 24 percent.
During fiscal years 2013-2015, 62 unique firms received Federal
contracts under NAICS 211112. Thirty-nine of them were below the 750-
employee size standard and received 38 percent of total contract
dollars obligated to that industry. The average annual dollars
obligated to NAICS 211112 was about $1.4 million. Using 1,250 employees
as a size standard for NAICS 211130 would
[[Page 18258]]
enable one currently large firm to qualify as small.
When firms under GAS PSC in NAICS 211111 and those in NAICS 211112
are considered together, 100 unique firms received Federal contracts
during fiscal years 2013-2015. Of those 100, 59 had fewer than 1,250
employees, accounting for 33 percent of total dollars obligated in
those industries. If SBA were to adopt 750 employees as the size
standard for NAICS 211130, the number of firms considered small would
decrease from 59 to 57, and the share of dollars obligated to small
businesses would decrease from 33 percent to 24 percent. Thus, these
results suggest that 1,250 employees is a more appropriate size
standard for NAICS 211130 than 750 employees.
Additionally, when a new NAICS 2017 industry consists of one or
more NAICS 2012 industries or their part(s) with different size
standards, SBA normally adopts the largest size standard for the
resulting new industry (see guidelines 2b in Table 2). Accordingly, SBA
proposes to adopt a size standard of 1,250 employees for NAICS 211130,
Natural Gas Extraction.
NAICS 212230, Copper, Nickel, Lead, and Zinc Mining
SBA proposes to adopt a 750-employee size standard for NAICS 2017
industry 212230 (Copper, Nickel, Lead, and Zinc Mining). NAICS 212230
was formed by merging NAICS 2012 industry 212231 (Lead Ore and Zinc Ore
Mining) and NAICS 2012 industry 212234 (Copper Ore and Nickel Ore
Mining). The current size standards are 750 employees for NAICS 212231
and 1,500 employees for NAICS 212234. Based on the 2012 Economic Census
data, adopting a 1,500-employee size standard for the new industry will
result in almost every firm, including potentially dominant ones,
qualifying as small in NAICS 212231. In other words, 1,500 employees
will be too large a size standard for firms currently operating under
NAICS 212231. Similarly, adopting a 750-employee size standard for the
new industry will result in only one firm being no longer small in
NAICS 212234.
Furthermore, SBA also examined Federal procurement data from FPDS-
NG for fiscal years 2013-2015, and found that Federal contracting was
not significant in both NAICS 212231 and NAICS 212234. During that
period, only one firm with 20 employees received about $55,000 in
Federal contracts in NAICS 212231, and only two firms (one with seven
employees and other with just one employee) received, on average, about
$65,000 in Federal contracts under NAICS 212234.
SBA also examined its loan data for fiscal years 2015-2016 and
found that there were no loans granted to firms in both NAICS 212231
and NAICS 212234 during that period.
Given the above results, SBA proposes to adopt a size standard of
750 employees for NAICS 212230, Copper, Nickel, Lead, and Zinc Mining.
NAICS 335220, Major Household Appliance Manufacturing
SBA proposes to adopt 1,500 employees as the small business size
standard for NAICS 2017 industry 335220 (Major Household Appliance
Manufacturing). This new industry was formed by merging four NAICS 2012
industries as set forth in Table 4, ``Formation of Major Household
Appliance Manufacturing,'' below.
Table 4--Formation of Major Household Appliance Manufacturing
----------------------------------------------------------------------------------------------------------------
Size standard NAICS 2017
NAICS 2012 code NAICS 2012 title (employees) code NAICS 2017 title
----------------------------------------------------------------------------------------------------------------
335221........................... Household Cooking 1,500 335220 Major Household
Appliance Manufacturing. Appliance
Manufacturing.
335222........................... Household Refrigerator 1,250
and Home Freezer
Manufacturing.
335224........................... Household Laundry 1,250
Equipment Manufacturing.
335228........................... Other Major Household 1,000
Appliance Manufacturing.
----------------------------------------------------------------------------------------------------------------
Rule 2b in Table 2, above, suggests adopting the size standard that
most closely matches the economic activity described by the new NAICS
2017 industry, or adopting the highest size standard among the NAICS
2012 industries being merged to form the new industry.
To arrive at a proposed size standard of 1,500 employees, SBA
evaluated the 2012 Economic Census data for NAICS 2012 5-digit industry
33522 (Major Appliance Manufacturing), which includes information about
all firms allocated to any of the four 6-digit NAICS codes that were
merged to form NAICS 2017 industry 335220. About 89 percent of all
firms in those four industries would qualify as small if SBA set the
size standard for NAICS 335220 at 1,000 employees. That percentage
would rise to nearly 91 percent at 1,250 employees and 94.5 percent at
1,500 employees.
Analyzing the four NAICS 2012 industries individually shows that
the most affected industry by any reduction of the size standard is
NAICS 335221 (Household Cooking Appliance Manufacturing), which
currently has a size standard of 1,500 employees. If SBA were to use
1,250 employees or 1,000 employees as the size standard for NAICS
335220, four firms currently operating in NAICS 335220 would lose their
small business status. More importantly, NAICS 335221 represents about
77 percent of the total number of firms in the new industry. The
industry data, therefore, supports adopting the largest size standard
among the four NAICS industries being merged into this new NAICS
325220. A lower size standard at 1,250 employees or 1,000 employees
would reduce the number of small firms by about 4 percent to 6 percent.
Furthermore, SBA examined the Federal procurement data from FPDS-NG
for fiscal years 2013-2015. During that period, 352 unique firms
received about $11 million in Federal contracts annually under the four
NAICS 2012 industries being merged to form new NAICS 2017 industry
335220. Of those 352 firms, 320 had fewer than 1,000 employees,
accounting for 86.7 percent of dollars obligated in those four
industries, 323 had fewer than 1,250 employees with a share of dollars
obligated of 87.2 percent, and 327 had fewer than 1,500 employees with
a share of dollars obligated of 88.8 percent.
These results show that some firms would be affected if the size
standard adopted for the new industry is smaller than 1,500 employees.
Accordingly,
[[Page 18259]]
SBA proposes adopting a size standard of 1,500 employees for new NAICS
2017 industry 335220, Major Appliance Manufacturing.
NAICS 452210, Department Stores
SBA proposes to adopt $32.5 million as the size standard for NAICS
2017 industry 452210 (Department Stores). This new industry was formed
by merging one NAICS 2012 industry and part of another, as set forth in
Table 5, ``Formation of Department Stores.''
Table 5--Formation of Department Stores
----------------------------------------------------------------------------------------------------------------
Size standard NAICS 2017
NAICS 2012 code NAICS 2012 title ($ million) code NAICS 2017 title
----------------------------------------------------------------------------------------------------------------
452111........................... Department Stores 32.5 452210 Department Stores.
(except Discount
Department Stores).
452112........................... Discount Department 29.5
Stores pt:
Insignificant
perishable grocery
sales only.
----------------------------------------------------------------------------------------------------------------
According to the 2012 County Business Pattern and Economic Census
data, 35 firms were below the $32.5 million size standard in NAICS
452111 and 36 firms were under the $29.5 million size standard in NAICS
452112. Therefore, based on these data the impact of adopting either
the lower $29.5 million or the higher $32.5 million size standard for
the new industry would be quite negligible.
In accordance with SBA's regulations (13 CFR 121.402(b)(2)), NAICS
codes and their size standards in Sectors 42 (Wholesale Trade) and 44-
45 (Retail Trade) do not apply to Federal procurement. Therefore,
evaluation of Federal procurement data is not warranted although FPDS-
NG shows some Federal contracts awarded using both NAICS 452111 and
NAICS 452112. It is more than likely that contracting officers applied
the 500-employee nonmanufacturer size standard to establish small
business eligibility for such contracts.
Because NAICS codes and their size standards in Sectors 42 and 44-
45 primarily apply for SBA's loan programs, SBA examined its loan data
for fiscal years 2015-2016. During that period, 24 loans, totaling $4.6
million, were granted to firms in NAICS 452111. Similarly, 12 loans,
totaling $2.6 million, were approved for firms in NAICS 452112. All of
those firms were much smaller than the size standards for the affected
industries.
While the industry and program data shows little difference in
impacts of adopting either $29.5 million or $32.5 million as the size
standard for the new industry, in accordance with SBA's general policy
of adopting the highest size standard among the merged industries or
industry parts, SBA proposes adopting the higher $32.5 million as the
size standard for NAICS 452210, Department Stores.
NAICS 454110, Electronic Shopping and Mail-Order Houses
SBA proposes to adopt $38.5 million in average annual receipts as
the small business size standard for NAICS 2017 industry 454110
(Electronic Shopping and Mail-Order Houses). This new industry was
formed by merging three NAICS 2012 industries as set forth in Table 6,
``Formation Electronic Shopping and Mail-Order Houses.''
Table 6--Formation Electronic Shopping and Mail-Order Houses
----------------------------------------------------------------------------------------------------------------
Size standard NAICS 2017
NAICS 2012 code NAICS 2012 title ($ million) code NAICS 2017 title
----------------------------------------------------------------------------------------------------------------
454111........................... Electronic Shopping..... 32.5 454110 Electronic Shopping
and Mail-Order
Houses.
454112........................... Electronic Auctions..... 38.5
454113........................... Mail-Order Houses....... 38.5
----------------------------------------------------------------------------------------------------------------
Analysis of the 2012 Economic Census data shows that about 27,525
firms were below the $38.5 million size standard associated with two of
the three industries, shown above. If the size standard were to reduce
to $32.5 million, about 80 firms would lose their small business
eligibility. Thus, the data supports adopting $38.5 million as the size
standard for the new industry.
For the reason explained under NAICS 452210 (Department Stores),
above, the analysis of Federal procurement data is also not warranted
for establishing the size standard for NAICS 454110. NAICS codes and
their size standards in Sectors 42 and 44-45 primarily apply for SBA's
loan programs. During fiscal years 2015-2016, 468 loans were granted to
firms in the three NAICS 2012 industries being merged to form NAICS
454110, with a total loan volume of $97.8 million. About 94 percent of
total loans and 97 percent of total volume went to firms in NAICS
454111.
Based on the ratio of receipts to employees using the 2012 Economic
Census data for those three industries, SBA estimates that the $38.5
million revenue standard is equivalent to 47 employees. Among the firms
that received SBA's loans in fiscal years 2015-2016, only four had more
than 47 employees (between 50 and 111 employees). The Small Business
Jobs Act of 2010 (Jobs Act), Public Law 111-240, 124 Stat. 504, title
1, subtitle A, part 1, section 1116 (Sep. 27, 2010), established an
alternative size standard for SBA's 7(a) and 504 Loan Programs.
Specifically, the Jobs Act provides that a firm that does not meet the
size standard for its industry may still qualify as small if it has a
tangible net worth that does not exceed $15 million and average net
income after Federal income taxes (excluding any carry-over losses) for
its preceding two completed fiscal years that does not exceed $5
million. It is very likely that those four firms qualified for SBA's
loans under the alternative size standard.
Based on the above results, SBA proposes $38.5 million as the small
business size standard for NAICS 454110, Electronic Shopping and Mail-
[[Page 18260]]
Order Houses. This also conforms to SBA's general rule of adopting the
highest size standard among the merged industries as the size standard
for the new industry.
NAICS 512250, Record Production and Distribution
SBA proposes to adopt a 250-employee size standard for new NAICS
2017 industry 512250 (Record Production and Distribution), formed by
combining the NAICS 2012 industry 512210 (Record Production) and NAICS
2012 industry 512220 (Integrated Record Production/Distribution). The
current size standards are $7.5 million in average annual receipts for
NAICS 512210 and 1,250 employees for NAICS 512220. Presently, according
to the 2012 Economic Census data, at the current $7.5 million size
standard 97.7 percent of all firms in NAICS 512210 qualify as small.
Adopting a 1,250-employee size standard for new industry would result
in all, but one, firms currently in NAICS 512210 being small. While
NAICS 512210 has no firms between 250 employees and 1,250 employees,
NAICS 512220 has three firms in that employee range. A 250-employee
size standard for NAICS 512250 would include 99.4 percent of all firms
in NAICS 512210 and 97.6 percent of all firms in NAICS 512220.
SBA also examined Federal procurement data for fiscal years 2013-
2015 for both NAICS 512210 and 512220. In that period, 37 unique firms
received about $7.8 million annually in Federal contracts under NAICS
512210. Twenty-seven of them were small under the $7.5 million size
standard and 10 were other than small. Of all the small businesses
under $7.5 million, the largest had no more than 80 employees. By
adopting a 250-employee size standard for NAICS 512250, three of the 10
firms currently in NAICS 512210 that are above $7.5 million would
qualify as small and seven will remain large. The three qualifying as
small would have average annual revenue between $52 million and $213
million.
During fiscal years 2013-2015, 13 unique firms received Federal
contracts under NAICS 512220. Ten of the awardees were at or below the
1,250-employee standard and three were above. Six of them were below
$7.5 million. If the size standard for NAICS 512250 is set at 250
employees, only two currently small firms under the 1,250-employee size
standard in NAICS 512220 will become other than small. On an average
annual basis, only about $174,000 in Federal contract dollars were
obligated to NAICS 512220 during that period. With this level of
Federal contracting activity, the impact of using a size standard of
250 employees instead of 1,250 employees will be very minimal.
SBA also examined its loan data in these NAICS codes during fiscal
years 2015-2016. In NAICS 512210 and 512220 combined, there were fewer
than five loans granted each year, with most of the loan recipients
having fewer than five employees.
Based on the above results, SBA proposes a size standard of 250
employees for NAICS 512230, Record Production and Distribution.
Evaluation of 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.
SBA has determined that for the industries for which it has proposed to
revise 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, the small business share of
total industry receipts among those industries for which SBA has
revised size standards is, on average, 2.7 percent, ranging from a
minimum of 0.01 percent to a maximum of 9.9 percent. SBA determines
that these levels of market shares effectively preclude a firm at or
below the revised size standards from exerting control on any of the
industries.
Alternatives To Adopting NAICS 2017 for Size Standards
SBA considered retaining NAICS 2012 as the basis for its small
business size standards. That would, however, lead to inconsistency
between SBA's size standards and data published by Federal agencies
that will adopt NAICS 2017 for their statistical and other programs.
OMB stated in its August 8, 2016 notice that ``Federal statistical
establishment data published for reference years beginning on or after
January 1, 2012, should be published using the 2017 NAICS United States
codes.'' SBA is not a statistical agency, but the Agency uses for its
size standards analyses establishment data collected from other Federal
agencies, such as the Economic Census data and County Business Patterns
from the Census Bureau. If SBA continues using NAICS 2012 for its size
standards, it will not be able to analyze and evaluate industry
structure adequately and accurately and adjust small business size
standards appropriately because the forthcoming Economic Census and
County Business Patterns data based on NAICS 2017 will not be
compatible with NAICS 2012. That would run counter to the Jobs Act
mandate that requires SBA to review all size standards and adjust them
appropriately to reflect the current industry and market data every
five years.
To establish, review, and revise, where necessary, small business
size standards, SBA uses special tabulations of industry data that the
Agency obtains from the Census Bureau based on its Economic Census of
U.S. industries and businesses and establishment data from its County
Business Patterns. Because the 2017 Economic Census will be based on
NAICS 2017 industry definitions, it is imperative that SBA use NAICS
2017 as the basis for its table of small business size standards.
Request for Comments
SBA welcomes public comment on this proposed rule. Specifically,
SBA invites comments on whether its proposed size standards for new
industries are appropriate and suggestions on alternative size
standards, along with supporting data and analysis, if proposed size
standards are not appropriate. SBA also seeks comments on its
methodology for converting size standards from NAICS 2012 to NAICS 2017
and data sources and analyses it used in developing proposed size
standards for certain new industries. SBA will thoroughly evaluate and
address all comments in preparing the final rule the Agency will
publish to adopt NAICS 2017 for its table of size standards.
Justification for the October 1, 2017 Effective Date
SBA's small business size standards matched to NAICS 2017 to be
adopted in a forthcoming final rule, will be
[[Page 18261]]
effective on October 1, 2017 for the following reasons:
1. OMB stated in its August 8, 2016 notice that Federal statistical
establishment data published for reference years beginning on or after
January 1, 2017, should be published using NAICS 2017. SBA is not a
statistical agency, but it uses the establishment data collected from
other Federal agencies, such as the Economic Census and County Business
Patterns data from the Census Bureau for its size standards analysis.
Similarly, Federal procurement databases and systems, such as FPDS-NG
and the System for Award Management (SAM), are based on NAICS codes
from SBA's table of size standards. If SBA does not adopt NAICS 2017
for its table of size standards in a timely manner, it will result in
inconsistency between SBA's size standards and other Federal databases.
2. October 1, 2017 is the start of the new Federal Government
fiscal year following OMB's adoption of NAICS 2017 effective January 1,
2017, and is consistent with SBA's adoption of previous NAICS revisions
for its size standards effective at the beginning of the new fiscal
year after the OMB's effective date.
3. With the adoption of the updated size standards at the start of
the new fiscal year, Federal agencies that use NAICS industry
definitions and SBA's size standards can collect comparable and
consistent data on Federal statistics for program and industry
analyses.
4. With the October 1, 2017 effective date, Federal agencies that
use SBA's small business size standards for their programs will have
sufficient time to plan and implement the updated size standards, and
assess the impact of size standards changes on their programs.
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
OMB has determined that this proposed rule is not a ``significant
regulatory action'' for purposes of Executive Order 12866. This rule
proposes to incorporate the OMB's 2017 revisions of NAICS, which SBA
uses to identify industries in the United States for purposes of
establishing small business size standards. As discussed in the
Supplementary Information above, the size standard of some activities
would change because of the NAICS 2017 revisions. However, SBA has
determined that virtually all businesses currently defined as small
under the NAICS 2012 based size standards will continue to be small
under the NAICS 2017 based size standards. The proposed rule, if
adopted in its present form, will also affect other Federal Government
programs that provide a benefit for small businesses. SBA welcomes
comments describing the impact on small businesses of the size standard
changes resulting from this rule. In order to help explain the need of
this proposed rule and the rule's potential benefits and costs, SBA is
providing below a Cost Benefit Analysis. This is also not a ``major
rule'' under the Congressional Review Act, 5 U.S.C. 800.
Cost Benefit Analysis
1. Is there a need for the regulatory action?
SBA believes that revising its small business size standards based
on NAICS 2017 is in the best interests of small businesses. SBA's
mission is to aid and assist small businesses through a variety of
financial, procurement, business development, and advocacy programs. To
assist the intended beneficiaries of these programs effectively, SBA
establishes numerical definitions to determine which businesses are
deemed small businesses. NAICS 2017 provides the latest industry
definitions reflecting the latest changes in industry structure. The
Small Business Act (the Act) delegates to SBA's Administrator the
responsibility for establishing definitions for small business. The Act
also requires that small business definitions vary from industry to
industry reflecting differences among the various industries. 15 U.S.C.
632(a). By analyzing and reviewing size standards based on the latest
NAICS definitions, SBA can more accurately and appropriately fulfill
its mandate. If SBA does not use the latest industry definitions, size
standards would not accurately reflect differences among industries. In
addition, the Jobs Act requires SBA to review all size standards and
make necessary adjustments to reflect current industry and market
conditions at least every five years. To better serve this mandate, SBA
needs to evaluate industry data based on the latest NAICS industry
definitions available. In this proposed rule, SBA generally followed
the same guidelines that the Agency used for adopting prior NAICS
revisions, as spelled out under the supplemental information section,
above. For certain NAICS 2017 industries involving NAICS 2012
industries with substantially different size standards, SBA also
analyzed the relevant industry and program data to determine the size
standards for them. Size standards based on NAICS 2017 industry
definitions and corresponding data will serve SBA's mission more
effectively.
2. What are the potential benefits and costs of this regulatory
action?
As stated previously, the vast majority of the changes from NAICS
2012 to NAICS 2017 consist of revisions to industry titles or 6-digit
codes or mergers of some NAICS 2012 industries or their parts to form
the industries in NAICS 2017 without impacting their size standards. Of
the 29 affected NAICS 2012 industries or their parts, SBA's proposed
size standards using NAICS 2017, if adopted, will result in increases
to size standards for six NAICS 2012 industries and part of one
industry, decreases for two industries, and the change of size standard
from average annual receipts to number of employees for one industry.
The size standards will remain unchanged for other affected industries
or parts.
Based on the 2012 Economic Census data for the affected NAICS 2012
industries, SBA estimates that approximately 60 additional businesses
would gain small business status under the revised size standards. That
represents about 0.1 percent of the number of small businesses in the
affected industries. SBA also estimates that fewer than five firms that
qualify as small under current size standards under NAICS 2012 will no
longer qualify. However, almost all of those firms do not currently
participate in any small business programs.
The benefits of adopting NAICS 2017 and the resulting revisions to
size standards, if adopted, will accrue to three groups in the
following ways: (1) Some businesses that are above their current size
standards may gain small business status, thereby becoming eligible to
participate in Federal small business assistance programs, including
SBA's financial assistance programs, economic injury disaster loans,
and Federal procurement opportunities intended for small businesses.;
(2) growing small businesses that are close to exceeding the current
size standards for their NAICS 2012 industry may retain their small
business status under NAICS 2017, and can continue participating in the
above programs; and (3) Federal agencies will have a larger pool of
small businesses from which to draw for their small business
procurement programs because they will be able to define more
accurately the principal purposes of their procurements under NAICS
2017, as required by 13 CFR 121.402(b).
[[Page 18262]]
Additional firms gaining small business status under NAICS 2017 may
benefit under SBA's various business development and contracting
programs. These include the 8(a) Business Development program and
programs benefiting small businesses located in the historically
underutilized business zones (HUBZones), woman owned small businesses
(WOSBs), and service disabled veteran owned small businesses (SDVOSBs).
Added competition may also result in lower prices for some Federal
contracts reserved for small businesses, although SBA cannot quantify
this benefit. Based on data for fiscal years 2013-2015, SBA estimates
that approximately $700,000 in Federal contracts could be awarded to
the newly defined small businesses under the proposed revisions of size
standards due to the adoption of NAICS 2017.
Under SBA's 7(a) Loan and 504 Loan Programs, SBA will be able to
guarantee more loans, although, in this case too, the number and amount
cannot be estimated accurately. Based on data for fiscal years 2014-
2016, SBA estimates that about two additional loans, totaling
approximately $200,000, could be made to newly defined small businesses
under the proposed size standards using NAICS 2017. Under the Jobs Act,
SBA can now guarantee substantially larger loans than in the past.
Additionally, the Jobs Act established an alternative size standard for
SBA's 7(a) and 504 Loan Programs for applicants that do not meet the
size standards for their industries. The Jobs Act provides that if a
firm applying for a 7(a) or 504 loan does not meet the size standard
for its industry, it might still qualify if it has a tangible net worth
that does not exceed $15 million and an average net income after
Federal income taxes (excluding any carry-over losses) for its
preceding two completed fiscal years that does not exceed $5 million.
Public Law 111-240, 124 Stat. 504, title 1, subtitle A, part 1, section
1116 (Sep. 27, 2010). Thus, the updated size standards may result in an
increase in SBA's loan guarantees to small businesses in the affected
industries, but SBA cannot quantify this impact.
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, SBA cannot
make a meaningful estimate of future EIDL benefit.
To the extent that newly defined small firms under NAICS 2017 could
become active in Federal procurement programs, this may entail some
additional administrative costs to the Federal Government associated
with additional bidders for Federal small business procurement
opportunities. More firms may seek SBA's guaranteed loans. More will be
enrolled in the SBA's Dynamic Small Business Search database. Since
more firms will qualify as small, more may also seek certification as
8(a) or HUBZone firms, or qualify for WOSB, SDVOSB, and/or small
disadvantaged business (SDB) status. However, it is important to point
out that most business entities that are already registered in SAM will
not be required to update their SAM profiles. However, it will be
incumbent on registrants to review their profiles to ensure that they
have the correct NAICS codes. SAM requires that registered companies
review and update their profiles annually, and therefore, businesses
will need to pay particular attention to the changes to determine if
they might affect them. They will also have to verify and update, if
necessary, their Representations and Certifications in SAM.
Among businesses in this group seeking SBA assistance, there could
be some additional costs associated with compliance and verification of
small business status and protests of small business status. These
added costs are likely to be minimal because mechanisms are already in
place to handle these administrative requirements.
The costs to the Federal Government may be higher on some Federal
contracts under the higher revised size standards under NAICS 2017.
With more businesses defined as small, Federal agencies might choose to
set aside more contracts for competition among small businesses rather
than using full and open competition. The movement from unrestricted to
set-aside contracting will likely result in competition among fewer
total bidders, although there will be a larger pool of small businesses
to submit offers. In addition, higher costs may result when additional
full and open contracts are awarded to HUBZone businesses because of a
price evaluation preference. The additional costs associated with fewer
bidders, however, will likely be minor since, as a matter of law,
procurements may be set aside for small businesses or reserved for the
8(a), HUBZone, WOSB, or SDVOSB Programs only if awards are expected to
be made at fair and reasonable prices.
The revised size standards may have some distributional effects
among large and small businesses. Although SBA cannot estimate with
certainty the actual outcome of gains and losses among small and large
businesses, there are several likely impacts. There may be a transfer
of some Federal contracts from large businesses to small businesses.
Large businesses may have fewer Federal contract opportunities as
Federal agencies decide to set aside more Federal contracts for small
businesses. In addition, some agencies may award more Federal contracts
to HUBZone concerns instead of large businesses since HUBZone concerns
may be eligible for price evaluation adjustments when they compete on
full and open procurement opportunities. Similarly, currently defined
small businesses may receive fewer Federal contracts due to the
increased competition from more businesses defined as small under NAICS
2017. This transfer may be offset by more Federal procurements set
aside for all small businesses. The number of newly defined and
expanding small businesses that are willing and able to sell to the
Federal Government will limit the potential transfer of contracts away
from large and small businesses under the existing size standards. SBA
cannot estimate with precision the potential distributional impacts of
these transfers.
SBA's adoption of NAICS 2017 and resulting revisions to size
standards is consistent with SBA's statutory mandate to assist small
business by providing access to capital and credit, Government
contracts, and management and technical assistance. Updated size
standards based on latest industry definitions ensure that Federal
small business assistance is more effectively targeted to its intended
beneficiaries. The Small Business Act states that ``the 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.'' 15 U.S.C. 632(a)(3). With the adoption of the
latest industry definitions in NAICS 2017, SBA's size standards are
more consistent with the differing characteristics among the various
industries.
Executive Order 13563
A description of the need for this proposed regulatory action and
benefits and costs associated with this action including possible
distribution impacts that relate to Executive Order 13563 are included
above in the Cost Benefit Analysis.
To engage interested parties in this action, SBA reached out to all
Federal agencies advising them that the Agency plans to update its
table of size standards to NAICS 2017, effective October 1, 2017, and
that agencies must continue using the current size standards until that
date. Adopting the
[[Page 18263]]
updated size standards on October 1, 2017 is consistent with SBA's
adoptions of previous NAICS revisions at the beginning of the new
fiscal year following the OMB's January 1 effective date of NAICS
revisions for Federal statistical agencies.
Unlike the previous NAICS revisions which SBA adopted for its size
standards either through a direct final rule or through an interim
final rule, for the adoption of NAICS 2017 revision, SBA is issuing
this proposed rule and seeking comments to better engage the public in
the process. SBA will also issue a press release on the publication of
the proposed rule and update the ``What's New With Size Standards,''
page on its Web site at www.sba.gov/size, asking interested parties to
comment on the rule. SBA will thoroughly consider all public comments
when developing the final rule.
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, if adopted as proposed, will not have substantial,
direct effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government. Therefore, SBA
has determined that this 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 would 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 some industries whose size standards have been revised.
As described above, this rule may affect small businesses applying for
Federal government 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 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, 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?
The Small Business Act requires that small business size standards
vary from industry to industry reflecting the differing characteristics
of the various industries. SBA uses the latest NAICS as a basis of
industries definitions for its table of size standards. As part of its
five-year review of and revisions to NAICS industry definitions, OMB
published its latest NAICS revision, NAICS 2017, on August 8, 2017.
According to the OMB's notice, Federal establishment and industry data
for reference years beginning on or after January 1, 2017 should be
published using NAICS 2017. This rulemaking proposes to amend SBA's
small business size regulations to incorporate NAICS 2017 into its
table of size standards. This not only makes SBA's size standards more
reflective of the latest industry differences but also makes them more
consistent with latest industry data the Agency uses to establish,
review or adjust size standards. Updating size standards to the latest
industry definitions also serves the SBA's mandate to review all size
standards and make appropriate adjustments to reflect market conditions
under the Jobs Act.
2. What are SBA's description and estimate of the number of small
businesses to which the rule will apply?
With the update of size standards to the latest industry
definitions under NAICS 2017, Federal small business assistance is more
effectively targeted to its intended beneficiaries. The adoption of
NAICS 2017, if adopted as proposed, would result in increases in size
standards for six industries and part of one industry under NAICS 2012
and decreases for two. The size standards for the rest of the 29
affected industries will remain unchanged. In industries whose size
standards have increased due to the adoption of NAICS 2017, about 60
firms above the current size standards would qualify as small under the
updated size standards, thereby making them eligible for Federal small
business assistance programs. Based on the recent data, SBA estimates
that approximately $700,000 in Federal contracts and about $200,000 in
SBA loans could be awarded to the newly defined small businesses under
the updated size standards. The updated size standards would enable
more small businesses to maintain their small business size status for
a longer period. In the two NAICS 2012 industries, about 3-4 firms
below the current size standards would lose their small business size
status under the proposed size standards. However, the program data
suggests that this would not cause much impact on them. Currently, they
are not participating in any small business programs. Additionally, in
both industries, Federal contracting and SBA's loan activities are
quite insignificant.
3. What are the projected reporting, record keeping and other
compliance requirements of the rule?
The proposed size standard changes due to the adoption of NAICS
2017 impose no additional reporting or record keeping requirements on
small businesses. However, qualifying for Federal small business
contracting and other programs may require businesses to register in
SAM and recertify in SAM that they are small at least once annually.
Therefore, the newly qualified small businesses opting to participate
in those programs 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 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(a)(2)(c), Federal agencies must generally 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)). An agency
may establish for its programs a size standard that is different from
those established by SBA if approved by SBA's Administrator in
accordance with 13 CFR 121.903. SBA is not aware of any Federal rule
that would duplicate or
[[Page 18264]]
conflict with establishing or updating 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 RFA authorizes a
Federal 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 levels of size standards by industry and
changing the size measures, no practical alternative exists to the
systems of numerical size standards. SBA considered continuing to use
NAICS 2012 as a basis of industry definitions for its table of size
standards. However, that would render SBA's table of size standards
incompatible with Federal industry and establishment statistics and
other databases.
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 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. Remove the entries for 211111 and 211112;
0
b. Add entries for 211120 and 211130;
0
c. Remove the entries for 212231 and 212234;
0
d. Add an entry for 212230;
0
e. Remove the entry 333911;
0
f. Remove the entry 333913;
0
g. Add an entry for 333914;
0
h. Add an entry for 335220;
0
i. Remove the entries for 335221, 335222, 335224, and 335228;
0
j. Remove the entries for 452111, 452112, 452910, and 452990;
0
k. Add entries for 452210, 452311, and 452319;
0
l. Add an entry for 454110;
0
m. Remove the entries for 454111, 454112, and 454113;
0
n. Remove the entries for 512210 and 512220;
0
o. Add an entry for 512250;
0
p. Remove the entries for 517110 and 517210;
0
q. Add entries for 517311 and 517312;
0
r. Remove the entries for 532220, 532230, 532291, 532292, and 532299;
0
s. Add entries for 532281, 532282, 532283, 532284, and 532289;
0
t. Remove the entry for 541711;
0
u. Remove the entry for 541712;
0
v. Add entries for 541713 and 541714;
0
w. Add an entry for 541715;
0
x. Revise the NAICS industry title of the entry for 721310 to read,
``Rooming and Boarding Houses, Dormitories, and Workers' Camps''; and
0
y. Revise footnote 11 at the end of the table.
The additions and revisions read as follows:
Sec. 121.201 What size standards has SBA identified by North
American Industry Classification System codes?
* * * * *
----------------------------------------------------------------------------------------------------------------
Size Size
standards in standards in
NAICS codes NAICS U.S. industry title millions of number of
dollars employees
----------------------------------------------------------------------------------------------------------------
* * * * * * *
211120................................... Crude Petroleum Extraction........... .............. 1,250
211130................................... Natural Gas Extraction............... .............. 1,250
* * * * * * *
212230................................... Copper, Nickel, Lead, and Zinc Mining .............. 750
* * * * * * *
333914................................... Measuring, Dispensing, and Other .............. 750
Pumping Equipment Manufacturing.
* * * * * * *
335220................................... Major Household Appliance .............. 1,500
Manufacturing.
* * * * * * *
452210................................... Department Stores.................... $32.5 ..............
452311................................... Warehouse Clubs and Supercenters..... 29.5 ..............
452319................................... All Other General Merchandise Stores. 32.5 ..............
* * * * * * *
454110................................... Electronic Shopping and Mail-Order 38.5 ..............
Houses.
* * * * * * *
512250................................... Record Production and Distribution... .............. 250
* * * * * * *
517311................................... Wired Telecommunications Carriers.... .............. 1,500
517312................................... Wireless Telecommunications Carriers .............. 1,500
(except Satellite).
* * * * * * *
532281................................... Formal Wear and Costume Rental....... 20.5 ..............
532282................................... Video Tape and Disc Rental........... 27.5 ..............
[[Page 18265]]
532283................................... Home Health Equipment Rental......... 32.5 ..............
532284................................... Recreational Goods Rental............ 7.5 ..............
532289................................... All Other Consumer Goods Rental...... 7.5 ..............
* * * * * * *
541713................................... Research and Technology in .............. 1,000
Nanotechnology \11\.
541714................................... Research and Technology in .............. 1,000
Biotechnology (except
Nanobiotechnology) \11\.
541715................................... Research and Development in the .............. 1,000
Physical, Engineering, and Life
Sciences (except Nanotechnology and
Biotechnology) \ 11\.
Except,.................................. Aircraft, Aircraft Engine and Engine .............. 1500
Parts \11\.
Except,.................................. Other Aircraft Parts and Auxiliary .............. 1,250
Equipment \11\.
Except,.................................. Guided Missiles and Space Vehicles, .............. 1,250
Their Propulsion Units and
Propulsion Parts \11\.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
Footnotes
* * * * * * *
\11\ NAICS codes 541713, 541714, and 541715--
(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) and Small Business Transfer Technology (STTR)
programs only, a different definition has been established by law. See 15 U.S.C. 638(e)(5) and section 3 of
the SBIR and STTR policy directives available at www.sbir.gov.
(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.
* * * * * * *
Linda M. McMahon,
Administrator.
[FR Doc. 2017-07709 Filed 4-17-17; 8:45 am]
BILLING CODE 8025-01-P