[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]


 ========================================================================
 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.
 
 ========================================================================
 

  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