[Federal Register Volume 84, Number 70 (Thursday, April 11, 2019)]
[Rules and Regulations]
[Pages 14587-14596]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07130]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 84, No. 70 / Thursday, April 11, 2019 / Rules
and Regulations
[[Page 14587]]
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
Small Business Size Standards: Revised Size Standards Methodology
AGENCY: U.S. Small Business Administration.
ACTION: Notification of availability of white paper.
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SUMMARY: The U.S. Small Business Administration (SBA or Agency) advises
the public that it has revised its size standards methodology white
paper explaining how it establishes, reviews, or revises small business
size standards. The revised white paper, entitled ``SBA's Size
Standards Methodology (April 2019)'' (Revised Methodology) is available
on the SBA's website at http://www.sba.gov/size-standards-methodology
as well as on the Federal rulemaking portal at http://www.regulations.gov. SBA intends to apply the Revised Methodology to
the ongoing second five-year comprehensive review of size standards
required by the Small Business Jobs Act of 2010 (Jobs Act). On April
27, 2018, SBA published a notification seeking comments on proposed
revisions to its size standards methodology. This notification
discusses the comments SBA received on the proposed Revised Methodology
and Agency's responses, followed by a description of major changes to
the methodology and their impacts on size standards.
DATES: The Revised Methodology is effective on April 11, 2019.
FOR FURTHER INFORMATION CONTACT: Khem R. Sharma, Chief, Office of Size
Standards, (202) 205-7189 or [email protected].
SUPPLEMENTARY INFORMATION:
A. Background
To determine eligibility for Federal small business assistance
programs, SBA establishes small business definitions (commonly referred
to as size standards) for all private industries in the United States.
SBA's existing size standards use two primary measures of business
size: Average annual receipts and number of employees. Financial assets
and refining capacity are used as size measures for a few specialized
industries. In addition, SBA's Small Business Investment Company
(SBIC), 7(a), and Certified Development Company (CDC/504) Programs
determine small business eligibility using either the industry based
size standards or net worth and net income based alternative size
standards. Presently, there are 27 different industry based size
standards, covering 1,023 North American Industry Classification System
(NAICS) industries and 13 ``exceptions.'' Of these, 526 are based on
average annual receipts, 505 on number of employees (one of which also
includes barrels per day total refining capacity), and five on average
assets.
In 2010, Congress passed the Small Business Jobs Act (Jobs Act)
(Sec. 1344, Pub. L. 111-240, 124 Stat. 2504, Sept. 27, 2010) requiring
SBA to review, every five years, all size standards and make necessary
adjustments to reflect market conditions. In 2016, SBA completed the
first 5-year review of size standards under the Jobs Act and is now
conducting the second 5-year review of size standards. SBA also reviews
and adjusts, as necessary, all monetary based size standards for
inflation every five years. SBA's latest inflation adjustment to size
standards became effective on July 14, 2014 (79 FR 33647 (June 12,
2014)). SBA also updates its size standards, also every five years, to
adopt the Office of Management and Budget's (OMB) 5-year NAICS
revisions to its table of small business size standards. SBA adopted
OMB's 2017 NAICS revisions for its size standards, effective October 1,
2017 (82 FR 44886 (September 27, 2017)).
As part of the previous comprehensive size standards review, in
2009 SBA established a detailed size standards methodology (2009
Methodology) explaining how SBA establishes, reviews, or adjusts size
standards based on the evaluation of industry and Federal contracting
factors. SBA has now revised the 2009 Methodology to incorporate the
recent amendments to the Small Business Act (Act) relating to the
establishment of size standards, to address public comments the Agency
received on the 2009 Methodology, and to make certain analytical
improvements to its size standards analysis based on its own review of
the methodology.
On April 27, 2018, SBA published a notification in the Federal
Register advising the public that the Agency had revised its size
standards methodology (Revised Methodology) and made it available on
SBA's website at http://www.sba.gov/size-standards-methodology and on
the Federal rulemaking portal at http://www.regulations.gov for review
and comments (83 FR 18468). SBA proposed a number of changes to its
size standards methodology, including moving from an ``anchor''
approach to a ``percentile'' approach for evaluating industry
characteristics, assigning a separate size standard for each NAICS
industry instead of selecting a size standard from a limited number of
fixed size standards as in the 2009 Methodology, lowering the threshold
for selecting industries for the evaluation of the Federal contracting
factor to $20 million in annual Federal contracting dollars from the
$100 million threshold as in the 2009 Methodology, and applying the 4-
firm concentration ratio to all industries, as opposed to using it only
when the ratio is 40% or more as in the 2009 Methodology.
SBA sought comments on these changes as well as on a number of
policy issues/questions that the Agency faces when developing a
methodology for establishing, evaluating, or revising its small
business size standards, such as: Whether SBA's size standards should
be higher than entry level business size; whether SBA should vary size
standards from program to program or geographically; whether SBA should
establish a ceiling or cap beyond which a business concern cannot be
considered small; whether SBA should apply a single measure of business
size for all industries (i.e., employees or annual receipts); and
whether SBA should adjust employee based size standards to account for
labor productivity, similar to the adjustment of monetary based size
standards for inflation. The comment period for the Revised Methodology
was from April 27, 2018 to June 26, 2018.
SBA received a total of 14 comments on the proposed Revised
Methodology, two of which were not pertinent and
[[Page 14588]]
were not considered. The 12 valid comments and SBA's responses thereto
are discussed below.
B. Comments on the Proposed Revised Methodology
1. Comments on Calculation of Average Annual Receipts
Five commenters suggested that SBA should revise its method for
calculating the average annual receipts for size standards purposes by
allowing firms to use the three lowest annual receipts over the
preceding five years or, at least, to calculate the average annual
receipts over the preceding five years, as opposed to the three
preceding years. The commenters argued that the increased use of large
contract vehicles (such as governmentwide acquisition vehicles or
indefinite-delivery, indefinite-quantity contracts) to award Federal
contracts to small businesses can cause very rapid growth in firms'
size, thereby resulting in the loss of their small business status. The
commenters asserted that small businesses need time to develop
infrastructure to be able to compete for unrestricted procurements with
large firms after graduating to other-than-small status. Commenters
also mentioned that some industries are subject to fluctuating market
conditions that may skew average annual receipts calculated over the 3-
year period.
Three commenters suggested that SBA should only consider Federal
contractor size when determining average firm size within any NAICS
industry. They noted that including firms which do not do business with
the Federal Government could skew the true size of businesses
participating in Federal contracting, resulting in size standards that
are not reflective of government buying practices.
One commenter asserted that firms should be allowed to deduct
subcontractor costs from annual receipts calculations. The commenter
argued that subcontracting services can be very expensive and take up a
substantial portion of the total contract value, at least for
Advertising Agencies (NAICS 541810).
SBA's Response
Any consideration to change the rule on how SBA calculates average
annual receipts for size standards or any other part of SBA's small
business regulations would require formal rulemaking in accordance with
the Administrative Procedure Act. The purpose of the size standards
methodology white paper is to explain what data sources and factors SBA
considers when establishing and revising size standards, but not to
change SBA's small business regulations.
The Small Business Runway Extension Act of 2018 (Runway Extension
Act) (Pub. L. 115-324 (Dec. 17, 2018)) amended section
3(a)(2)(C)(ii)(II) of the Small Business Act by changing the period for
calculation of annual average receipts of businesses providing services
from three (3) years to five (5) years. This change to the calculation
of annual average receipts requires the issuance of a proposed rule and
approval by the SBA Administrator. Accordingly, SBA will be initiating
a rulemaking to implement the new law into SBA's regulations.
Businesses must continue to report their annual receipts based on a 3-
year average until SBA amends its regulations.
SBA would not consider the average size of government contractors
only as a measure of average firm size in establishing size standards
for several reasons. First, SBA's size standards are used not only for
Federal procurement purposes, but also for various non-procurement
purposes, including establishing eligibility for SBA's loan programs,
conducting flexibility regulatory analyses for Federal rulemaking under
the Regulatory Flexibility Act, and determining eligibility for small
business exemptions from certain Federal reporting and compliance
requirements. Second, firms that are government contractors in an
industry do not provide an adequate representation of all firms that
are interested, willing, or able to perform Federal work in that
industry. For example, of about 5.5 million employer firms in the U.S.,
only about 400,000 firms (or about 7.2 percent) are registered in the
System for Award Management (SAM) for Federal contracting purposes, of
which about 38 percent have received any Federal contracts during
fiscal years 2014-2017. Third, for size standards purposes, SBA
considers receipts from all sources (e.g., commercial, Federal, etc.)
and the receipts data on government contractors in SAM and the Federal
Procurement Data System--Next Generation (FPDS-NG) also include
receipts from all sources, not just from Federal work. Fourth, as
current size standards are, on average, several times higher than the
average size of all firms in the industry, SBA's size standards already
reflect that firms that receive Federal contracts are typically larger
than all firms in the overall industry. Finally, in accordance with the
Jobs Act, every five years, SBA reviews, and adjusts, where necessary,
all size standards to ensure that they reflect current market
conditions, including government buying trends.
SBA's regulation in 13 CFR 121.104(a) provides several exclusions
from the calculation of receipts for size standards purposes, but
subcontracting costs is not one of them, meaning that subcontracting
costs are part of receipts and cannot be excluded from the calculation.
However, as stated in Footnote 10 to the SBA table of size standards,
for certain industries, including Advertising Agencies (NAICS 541810),
funds received in trust for an unaffiliated third party, such as
bookings or sales subject to commissions, are excluded from receipts.
Subcontracting occurs in most industries (although at varying degrees)
and may even vary from firm to firm within the same industry. For
example, while some small businesses may want to perform all or most of
their Federal work themselves, others may elect to subcontract a large
part or most of their work out to others. Allowing businesses to
exclude subcontractor costs from receipts would put firms performing
most of their work in-house in serious competitive disadvantage
relative to those who subcontract a significant portion of their work
out to others. This may also encourage businesses to subcontract more
of their set-aside contract work to others to maintain their small
business status, which would defeat the very intent of the set-aside
program, especially if the work is subcontracted out to large
businesses. As stated elsewhere in this notification, any consideration
to amend the rule on how SBA defines and calculates receipts for size
purposes would require formal rulemaking. Additionally, the methodology
white paper is not meant to address issues concerning size standards
for specific industries. SBA will consider such issues in future
rulemakings as part of the ongoing second 5-year review of size
standards under the Jobs Act.
2. Comment on Data Sources
One commenter argued that SBA should not use the 2012 Economic
Census data for evaluating industry characteristics. The commenter
argued that the 2012 Economic Census only reflects industry conditions
before 2012 and is, therefore, outdated. The commenter suggested that
SBA should look at industry-specific publications that provide richer
and more current industry data. To support its argument that the
Advertising Agencies size standard should be higher than the current
$15 million, the commenter submitted reports from the two industry
associations.
[[Page 14589]]
SBA's Response
While the methodology states that the 2012 Economic Census data is
the latest available principal source of industry data that SBA uses
for size standards analysis, SBA will consider the 2017 Economic Census
data as it becomes available, as well as any other newer data available
from other sources, including industry specific publications, provided
that such data provides an accurate and comprehensive representation of
all firms within the industry. However, many industry publications do
not provide a comprehensive picture of the industry they represent. For
example, the two industry associations referred to by one of the
commenters included about 600-700 advertising agencies, whereas there
are more than 12,000 advertising firms in the United States. SBA
believes that, for consistency, all industries sharing the same measure
of size standards (such as receipts based or employee based) should be
evaluated using the single set of industry data. Moreover, the data
from industry publications does not usually provide information on all
industry factors that SBA examines when establishing size standards.
Not all industries have industry publications and, where they do, the
information is likely to be incomplete and inconsistent with the
Economic Census data SBA uses for size standards analysis. However, SBA
will consider any industry specific data submitted as part of the
public comments to proposed rulemakings. Despite a time lag for the
availability of the Economic Census data, SBA believes that the
Economic Census is still the most consistent and comprehensive data
available out there for evaluating industry structure to comply with
the statutory requirement that the size standards vary from industry to
industry in order to reflect differences in characteristics among the
various industries.
3. Comments on Industry Analysis
One commenter suggested using the median instead of the mean for
average firm size calculations. The same commenter also did not see the
usefulness of using the ``percentile'' approach in the Revised
Methodology and asked where the ``anchor'' size standard values came
from. Another commenter, however, agreed with SBA's proposal to replace
the ``anchor'' approach in the 2009 Methodology with the ``percentile''
approach in the Revised Methodology. The commenter stated that the new
approach provides a reasonable methodology for incorporating the
economic characteristics of individual industries into SBA's size
standards analysis and suggested that, for transparency, SBA should
provide the primary factor values and associated size standards
supported by each factor for each industry and sub-industry reviewed.
This commenter disagreed with the idea to use the median instead of the
mean as a measure of the average firm size.
SBA's Response
In response to these opposing comments (i.e., one supporting the
median and another supporting the mean), SBA conducted analyses using
both the mean (simple average) and the median firm size. In terms of
numbers of industries for which size standards would change or remain
the same, the results from the two approaches were very similar for a
large majority of industries. For most industries where the levels of
calculated size standards differed between the two approaches, such
differences were generally small. SBA has provided a detailed
justification in the Revised Methodology white paper for replacing the
old ``anchor'' approach with the new ``percentile'' approach. SBA has
determined that the ``percentile'' approach provides a better approach
to evaluating differences among industries and varying size standards
accordingly. In addition, as stated in the Revised Methodology, the
``anchor'' approach that entails grouping all industries under a common
(so-called ``anchor'') size standard (i.e., the size standard shared by
most industries) is inconsistent with the statute that such groupings
should be limited to the 4-digit NAICS level. For these reasons, SBA
will continue to use the simple average (mean) as one of the two
measures of firm size (other being the weighted average) and is
adopting the ``percentile'' approach to evaluate industry
characteristics, as proposed.
SBA does not provide in the methodology white paper the primary
factor values and associated size standards supported for each industry
and sub-industry in the methodology as the results are likely to change
with the availability of new data. The methodology is intended to
explain SBA's approach to establishing, reviewing, or adjusting size
standards. SBA will provide such results for the public review and
comment on individual proposed rulemakings on reviews of size standards
for various NAICS sectors.
4. Comments on Number of Size Standards and Rounding
One commenter agreed with SBA's approach to rounding size standards
to the nearest $500,000 for receipts based size standards and to the
nearest 50 employees for employee based size standards (or to the
nearest 25 employees for employee based size standards in Wholesale
Trade and Retail Trade). This commenter believed that the increased
number of and reduced increments between size standards would limit the
effect of errors, counteract the limitations of the data used by SBA in
calculating size standards, and ensure that similar industries are
treated in an equitable fashion, and more accurately reflect each
industry's economic characteristics. The same commenter disagreed with
SBA's policy of capping calculated size standards at some predetermined
maximum levels instead of allowing the data to determine what the
maximum size standard levels should be. If the agency decides to
continue with this policy, the commenter suggested that capping should
be applied for the calculation of the aggregated size standard, not for
size standard for each factor individually. Another commenter
questioned where do the minimum and maximum size standards levels come
from, although they were fully explained in the proposed Revised
Methodology.
SBA's Response
The National Defense Authorization Act of Fiscal Year 2013 (NDAA
2013) (Pub. L. 112-239, Section 1661, Jan. 2, 2013) amended the Small
Business Act requiring SBA not to impose the limitation on the number
of size standards and to establish specific size standards for each
NAICS industry. In absence of any adverse comments to this approach,
SBA is adopting the number of size standards and the rounding
procedure, as proposed.
Allowing the data alone to determine a maximum size standard would
lead to very high size standards for some industries, thereby allowing
very successful businesses with hundreds of millions in receipts or
tens of thousands of employees to qualify as small and be eligible for
Federal assistance intended for small businesses. For example, under
receipts based size standards, if not capped, about 20 industries
(excluding Retail Trade) would end up with a size standard of $100
million or more (with some being as high as more than $1 billion) and
another 30 industries would have a size standard between $50 million
and $100 million,
[[Page 14590]]
as compared to the proposed receipts based cap of $40 million and the
current maximum of $38.5 million. Similarly, for employee based size
standards, about a dozen industries would end up with having a size
standard of 5,000 employees or more (some being as large as 20,000
employees) and another 25 would have a size standard between 2,000
employees and 5,000 employees, as compared to the proposed and current
maximum of 1,500 employees. From a policy standpoint, it would be
almost impossible for SBA to justify such large businesses as small for
Federal small business programs. Additionally, in the absence of caps,
the calculated size standards will be very small (in some cases even
negative) for some industries such that businesses qualifying as small
would not only lack capabilities to meet the Federal Government small
business procurement requirements, but also businesses graduating out
of such small size standards would not have yet developed enough size
to be competitive in the market and would still need Federal support to
grow and be competitive on their own. SBA believes that such very high
or very low size standards would not enable the Agency to effectively
fulfill its critical mission to serve and protect the interests of
American small businesses. Accordingly, SBA is adopting its policy of
capping calculated size standards, both at the factor level and the
aggregate level, at maximum or minimum values, as proposed.
5. Comments on Federal Contracting Factor
One commenter noted the asymmetry in using the Federal contracting
factor to increase size standards when small business Federal contract
shares are lower than for their overall market shares while not
decreasing them when those shares are higher than the overall market
share. Another commenter agreed with the increased utilization of the
Federal contracting factor for industries with at least $20 million in
Federal contracting dollars (as opposed to a $100 million level in the
previous methodology). This commenter felt that the adoption of a lower
threshold allows for a more detailed analysis of competitive and
economic characteristics of relevant industries. However, the commenter
disagreed with SBA's use of ``maximum size caps'' as it would not
allow, the commenter argued, the size standard to increase according to
the Federal contracting factor.
SBA's Response
The objective of the Federal contracting factor is to assess how
successful small businesses have been in receiving Federal contracts
under the current size standards and to adjust them if small businesses
are not faring well in the Federal marketplace relative to the overall
market, but not to penalize small businesses by lowering size standards
where they are doing well. Generally, SBA adjusts size standards
upwards for industries where the small business shares in the Federal
market are substantially lower (i.e., 10 percent or more) than their
shares in the overall market and maintains them at their current levels
(instead of lowering them) for industries where those differences are
less than 10 percent or where small business shares in the Federal
market are higher than the small business shares in the overall market.
Lowering size standards, simply because the shares of small businesses
in the Federal contracts are higher than their shares in the industry's
overall market, would not serve the interests of small businesses or
contribute to SBA's mission to ensure that small businesses receive a
fair proportion of Federal government contracts. Accordingly, for the
Federal contracting factor, SBA will maintain size standards at their
current levels where the small business shares of the Federal market
are higher than the small business shares in the overall market.
Additionally, to be consistent, SBA will apply the same capping
procedure for all factors, including the Federal contracting factor.
6. Comments on Industry Competition
One commenter stated that he did not feel the ``industry
competition'' or ``size distribution of firms'' were necessary factors
for analyzing industry structure. This commenter suggested examining a
correlation matrix of all factors, which may result in the need of
using only one or two factors to determine size standards. The
commenter also insisted that the Herfindahl index is a more generally
accepted measure of industry competitive structure and that this is
preferable to the four- or eight-firm concentration ratio. A different
commenter agreed with the use of a four-firm concentration ratio for
all industries in the Revised Methodology, as opposed to using it only
for those industries where that ratio was 40 percent or higher in the
2009 Methodology.
SBA's Response
The statute requires that small business definitions vary from
industry to industry to reflect differences among the various
industries. For that, in accordance with its regulations in 13 CFR
121.102, SBA evaluates four industry factors, namely average firm size,
average assets as a proxy for start-up costs and entry barriers,
industry competition, and size distribution of firms. SBA examined
correlations among all industry factors and found that using just one
or two factors alone would not adequately account for differences among
the various industries. To account for industry competition, SBA also
tried using the Herfindahl index instead of the four-firm concentration
ratio and the results were found to be very similar between the two
measures. Because it is simpler and easier to explain to the public and
it has long been used for SBA's size standards analyses, in the Revised
Methodology, SBA is adopting the four-firm concentration ratio as a
measure of industry competition.
7. Comments on Industry-Specific Size Standards
Several commenters expressed various viewpoints concerning size
standards for various industries as well as how NAICS codes should be
defined for contracting purposes. One commenter suggested creating a
new NAICS code to accommodate firms supplying finished products to the
government as ``nonmanufacturers'' while also performing supply chain
management and distribution services. Another commenter argued that the
size standards for sale and rental of heavy equipment should be
harmonized by changing the receipt based size standard for the
equipment rental companies to the one that is employee based. A further
commenter proposed adding additional sub-industry categories (or
``exceptions'') to NAICS codes 541330, 541513, and 236220 to more
adequately describe the scope of Federal work in these industries. This
commenter also felt that the size standards for some industries in
NAICS Sector 54 and Subsector 236 should be raised. Yet another
commenter argued that the size standard for NAICS code 561440 should be
higher than the current $15 million level. A final commenter disagreed
with SBA's approach in a 2016 final rule to excluding the largest firms
in its calculation of the employee based size standard for the
Environmental Remediation Services (ERS) exception to NAICS 562910
(Remediation Services). It further argued that no firms at the proposed
1,250-employee size standard would have been dominant in the ERS
industry. The same commenter also suggested that SBA should provide
[[Page 14591]]
a full description of SBA's approach to evaluating industries with size
standards exceptions.
SBA's Response
SBA neither defines nor modifies NAICS industry definitions. It
simply adopts the NAICS industry definitions and their updates, as
published by OMB. Any suggestions for the creation of new NAICS
industry categories should be submitted during OMB's notice and comment
process of its reviews and revisions of the NAICS definitions. Every
five years, OMB (in coordination with government statistical agencies
in the U.S., Canada and Mexico) reviews and modifies existing NAICS
definitions or creates new ones to ensure that industry definitions
reflect changes in the economy.
Some firms may elect to both sell and rent the equipment. However,
because firms that are primarily engaged in the equipment rental
activity are very different from those primarily engaged in selling
equipment (as a manufacturer or a distributor), the industry data does
not support the same size standard for the two groups. Accordingly,
whereas SBA's size standards for equipment rental industries are based
on receipts, those for equipment manufacturers and distributors are
based on employees. A firm that sells the equipment that it did not
manufacture itself is considered a nonmanufacturer and can qualify as
small under the 500-employee nonmanufacturer size standard.
The size standards methodology does not revise any size standards
as such. It only explains the methodology on how SBA establishes and
reviews size standards. Therefore, with the release of the final
Revised Methodology, SBA is not making any changes to any size
standards that are currently in effect. However, as part of the ongoing
second 5-year comprehensive review of size standards under the Jobs
Act, SBA will review all size standards and make necessary adjustments
in the coming years to ensure that they reflect current industry and
Federal market conditions. The Agency plans to issue proposed rules on
all receipts based size standards, including those in NAICS Sector 54
and Subsector 236, in the near future. Depending upon the results from
the analysis of the latest data available, some industries may see
their size standards adjusted, while others may see no changes.
Interested parties will have opportunity to comment on SBA's proposed
size standards and suggest alternatives, along with supporting data and
analysis, if they believe that the proposed standards are not
appropriate.
As the industry data from the Economic Census are limited to the 6-
digit NAICS levels, SBA does not have the necessary data to be able to
create new sub-industry categories below the 6-digit levels and
establish size standards thereto. SBA is already faced with difficulty
in reviewing size standards for the existing sub-industry categories
(``exceptions'') particularly because the industry data from SAM and
FPDS-NG used to evaluate these ``exceptions'' are not consistent with
the industry data from the Economic Census that SBA uses to evaluate
industry characteristics.
When evaluating the SAM and FPDS-NG data for reviews of size
standards under ``exceptions,'' SBA trims the data on firms on both
ends of the size distribution to prevent extreme observations (i.e.,
observations with questionable receipts values given the number
employees or vice versa) from distorting the results. Additionally, to
make the SAM and FPDS-NG data more consistent with the Economic Census
tabulations where an industry's data only includes firms that are
primarily engaged in that industry, SBA also removes very large firms
for which the contribution of Federal contracts under that
``exception'' is quite small relative to their overall enterprise
revenues. Accordingly, SBA removed from the evaluation of the ERS size
standard a few of the largest firms for which Federal contracts
received under that ``exception'' accounted for less than 25 percent of
their overall receipts. Additionally, several commenters opposing the
proposed size standard also argued that the large, diversified
environmental firms for which the Federal environmental remediation
work is not their major activity should be excluded in evaluating the
ERS size standard. While the law states that a firm qualifying as small
should not be dominant in its industry, it does not, however, mean that
all non-dominant firms can or should be classified as small. In
response to the comment, in the final Revised Methodology, SBA is
including a new section describing its general approach to evaluating
the size standard for ``exceptions.''
8. Comments on Policy Issues
Several commenters addressed various policy issues concerning the
size standards methodology for which SBA sought comments and
suggestions from interested parties. These comments are discussed
below.
a. Should SBA establish size standards that are higher than industry's
entry-level business size?
One commenter stated that it made sense for size standards to be
higher than the industry entry-level size since firms larger than
entry-level size could still experience disadvantages in the industry.
However, the commenter suggested imposing time limits for participation
in SBA programs to disincentivize firms to remain at an inefficient
size.
SBA's Response
Except for businesses participating in the 8(a) business
development program, SBA does not impose time limits for eligibility
for small business programs. Doing so would be too complicated as the
time to reach an efficient size is likely to vary from industry to
industry and firm to firm within an industry, not to mention the
complexity time limits would add to determining eligibility for such
programs.
b. Should size standards vary from program to program or
geographically?
Two commenters agreed with SBA that varying size standards by
program or geography would create confusion and be difficult to
administer.
SBA's Response
SBA's methodology provides for establishing a single set of
industry specific size standards for both SBA's financial programs and
Federal procurement programs. Similarly, as size standards are applied
at the national level and market dominance is evaluated nationally, SBA
does not vary size standards geographically.
c. Should there be a single basis for size standards--i.e., should SBA
apply the number of employees, receipts, or some other basis to
establish its size standards for all industries?
One commenter who addressed this issue asserted that receipts are
the best measure for determining size, not gross profits. Using gross
profits would require, the commenter maintained, SBA to review a
concern's balance sheet, possibly with risks of disclosure of the
concern's financial records to its competitors.
SBA's Response
SBA does not use profits as a measure of business size for any
industry nor does it review a concern's balance sheet or financial
records for size standards analysis, except for size determination of a
company whose small business size status is protested. SBA mostly uses
either receipts or number of employees.
[[Page 14592]]
As explained in the methodology, SBA uses receipts for most services,
retail trade, construction and agricultural enterprises and employees
for all manufacturing, most mining and utilities, and a few other
industries.
d. Should there be a ceiling beyond which a business concern cannot be
considered as small?
One commenter thought a maximum ceiling was a good idea but
acknowledged it might be somewhat arbitrary. Another commenter strongly
disagreed with placing ``caps'' on size standards and reasoned that SBA
should follow the results from its analysis when establishing size
standards and allow natural maximums to develop based on the data. The
commenter felt that imposing caps on size standards before conducting
the economic data analysis would be arbitrary and non-transparent.
SBA's Response
SBA has addressed this issue elsewhere in this notice, that capping
calculated size standards at certain minimum and maximum levels is
crucial for fulfilling its mission to serve and protect the interests
of American small businesses and ensuring that Federal small business
assistance goes to small businesses in need of such assistance the
most.
e. Should there be a fixed number of size standard ranges or ``bands''
as SBA applied for the recently completed comprehensive size standards
review?
Two commenters agreed with using ``bands'' of size standards across
related industries. One of them further recommended putting groups of
related industries under the same size standards. The use of size
standard ``bands,'' the commenters noted, prevents confusion and could
also discourage size protests.
SBA's Response
While SBA agrees that using ``bands'' or limited number of fixed
size standard levels (as under the previous methodology) would simplify
size standards, it would run counter to the statute that there shall
not be any limitation on the number of size standards and that each
NAICS industry be assigned the appropriate size standard. SBA has, in
the past, used common size standards for industries within certain
NAICS Industry Groups, even if the data suggested different standards
for individual industries in the group. However, a 2013 amendment to
the statute limits the use of common size standards, except where a
justification would exist for establishing a single size standard for
industries within the 4-digit NAICS Industry Group, provided that such
size standard is appropriate for each individual industry in the group.
Thus, in view of these statutory limitations on the number of size
standards and use of common size standards, SBA is adopting the size
standards structure, as proposed.
f. Should SBA consider adjusting employee based size standards for
labor productivity growth or increased automation?
Three commenters disagreed with the idea of adjusting employee-
based size standards for productivity and/or automation. While one
commenter thought that this would be arbitrary, another stated that the
effects of productivity changes are already captured in the Economic
Census data that SBA uses for industry analysis. The third commenter
asserted that labor productivity changes are too small to warrant
meaningful size standard adjustments and would already be captured in
each 5-year comprehensive industry review. This commenter also believed
that productivity growth would have to be accounted for on an industry-
by-industry basis which would result in a very complicated adjustment
process.
SBA's Response
SBA does not quite agree that adjusting employee based size
standards for productivity would be arbitrary as there is available
data on measures of productivity, both by industry (by NAICS subsector
or industry group) and for the overall economy. However, SBA agrees
that accounting for productivity changes on an industry-by-industry
basis would entail a complicated methodology. SBA concurs with the
commenters that the effects of productivity changes are already
captured by the Economic Census data and would be reflected in the 5-
year size standards reviews. Accordingly, the Revised Methodology does
not provide for adjustments to employee based size standards for
productivity changes.
g. Should SBA consider lowering its size standards?
One commenter stated that SBA should perhaps consider lowering size
standards depending on the goals of its programs. Another commenter
opposed lowering size standards in view of the government procurement
trend of using larger and longer-term procurements.
SBA's Response
As stated in the Revised Methodology, while the results from SBA's
analysis of the relevant data would serve as a principal basis for
proposing revisions to size standards, other factors (such as public
comments, administration's policies and priorities, the current market
conditions, and impacts on small businesses) would also be important
when proposing or finalizing size standards revisions. When SBA decides
to deviate from the results of its analysis, it would provide in the
rule a detailed justification for such decisions.
C. Changes in the Revised Methodology
The Revised Methodology, entitled ``SBA's Size Standards
Methodology (April 2019)'', is available for review and download on the
SBA's website at http://www.sba.gov/size-standards-methodology as well
as on the Federal rulemaking portal at http://www.regulations.gov. It
describes in detail how SBA establishes, evaluates, or adjusts its
small business size standards pursuant to the Act and related
legislative guidelines. Specifically, the document provides a brief
review of the legal authority and early legislative and regulatory
history of small business size standards, followed by a detailed
description of the size standards analysis.
Section 3(a) of the Act (15 U.S.C. 632(a); Pub. L. 85-536, 67 Stat.
232, as amended) provides SBA's Administrator (Administrator) with
authority to establish small business size standards for Federal
government programs. The Administrator has discretion to determine
precisely how small business size standards should be established. The
Act and its legislative history highlight three important
considerations for establishing size standards. First, size standards
should vary from industry to industry according to differences among
industries. 15 U.S.C. 632(a)(3). Second, a firm that qualifies as small
shall not be dominant in its field of operation. 15 U.S.C. 632(a)(1).
Third, pursuant to 15 U.S.C. 631(a), the policies of the Agency should
be to assist small businesses as a means of encouraging and
strengthening their competitiveness in the economy. These three
considerations continue to form the basis for SBA's methodology for
establishing, reviewing, or revising small business size standards.
1. Industry Analysis
SBA examines the structural characteristics of an industry as a
basis to assess differences among the various industries and the
overall degree of competitiveness of the industry and of firms therein.
As described more fully in the Revised Methodology document, SBA
generally evaluates industry
[[Page 14593]]
structure by analyzing four primary factors--average firm size (both
the simple and weighted average), degree of competition within an
industry (the 4-firm concentration ratio), start-up costs and entry
barriers (average assets as a proxy), and distribution of firms by size
(the Gini coefficient). This approach to assessing industry
characteristics that SBA has applied historically remains very much
intact in the Revised Methodology. As the fifth primary factor, SBA
assesses the ability of small businesses to compete for Federal
contracting opportunities under the current size standards. For this,
SBA examines the small business share of total Federal contract dollars
relative to the small business share of total industry's receipts for
each industry. SBA also considers other secondary factors as they
relate to specific industries and interests of small businesses,
including technological change, competition among industries, industry
growth trends, and impacts of the size standards on SBA programs.
While the factors SBA uses to examine industry structure remain
intact, its approach to assessing the differences among industries and
translating the results to specific size standards has changed in the
Revised Methodology. Specifically, in response to the public comments
against the ``anchor'' size standards approach applied in the previous
review of size standards, a recent amendment to the Act limiting the
use of common size standards (see section 3(a)(7) of the Act under NDAA
2013), and SBA's own review of the methodology, in the Revised
Methodology, SBA replaces the ``anchor'' approach with a ``percentile''
approach as an analytical framework for assessing industry differences
and deriving a size standard supported by each factor for each
industry.
Under the ``anchor'' approach, SBA generally compared the
characteristics of each industry with the average characteristics of a
group of industries associated with the ``anchor'' size standard. For
the recent review of size standards, the $7 million was the ``anchor''
for receipts based size standards and 500 employees was the ``anchor''
for employee based size standards (except for Wholesale Trade and
Retail Trade). If the characteristics of a specific industry under
review were similar to the average characteristics of industries in the
anchor group, SBA generally adopted the anchor standard as the
appropriate size standard for that industry. If the specific industry's
characteristics were significantly higher or lower than those for the
anchor group, SBA assigned a size standard that was higher or lower
than the anchor.
In the past, including the recent review of size standards, the
anchor size standards applied to a large number of industries, making
them a good reference point for evaluating size standards for
individual industries. For example, at the start of the recent review
of size standards, the $7 million (now $7.5 million due to the
adjustment for inflation in 2014) anchor standard was the size standard
for more than 70 percent of industries that had receipts based size
standards. A similar proportion of industries with employee based size
standards had the 500-employee anchor standard. However, when the
characteristics of those industries were evaluated individually, for a
large majority of them the results yielded a size standard different
from the applicable anchor. Consequently, now just 24 percent of
industries with receipts based size standards and 22 percent of those
with employee based size standards have the anchor size standards.
Additionally, section 3(a)(7) of the Act limits the SBA's ability to
create common size standards by grouping industries below the 4-digit
NAICS level. The ``anchor'' approach would entail grouping industries
from different NAICS sectors, thereby making it inconsistent with the
statute.
Under the ``percentile'' approach in the Revised Methodology, SBA
ranks each industry within a group of industries with the same measure
of size standards using each of the four industry factors. As stated
earlier, these four industry factors are average firm size, average
assets size as proxy for startup costs and entry barriers, industry
competition (the 4-firm concentration ratio), and distribution of firms
by size (the Gini coefficient). As detailed in the Revised Methodology,
the size standard for an industry for a specific factor is derived
based on where the factor of that industry falls relative to other
industries sharing the same measure of size standards. If an industry
ranks high for a specific factor relative to most other industries, all
else remaining the same, a size standard assigned to that industry for
that factor is higher than those for most industries. Conversely, if an
industry ranks low for a specific factor relative to most industries in
the group, a lower size standard is assigned to that industry.
Specifically, for each industry factor, an industry is ranked and
compared with the 20th percentile and 80th percentile values of that
factor among the industries sharing the same measure of size standards
(i.e., receipts or employees). Combining that result with the 20th
percentile and 80th percentile values of size standards among the
industries with the same measure of size standards, SBA computes a size
standard supported by each industry factor for each industry. The
Revised Methodology provides detailed illustration of the statistical
analyses involved in this approach.
2. Number of Size Standards
SBA applied a limited number of fixed size standards in the 2009
Methodology used in the first 5-year review of size standards: Eight
revenue based size standards and eight employee based size standards.
In response to comments against the fixed size standards approach and
section 3(a)(8) of the Act requiring SBA to not limit the number of
size standards, in the Revised Methodology, SBA has relaxed the
limitation on the number of small business size standards.
Specifically, SBA will calculate a separate size standard for each
NAICS industry, with a calculated receipts based size standard rounded
to the nearest $500,000, except for industries in NAICS Subsectors 111
(Crop Production) and 112 (Animal Production and Aquaculture) for which
the calculated standard is rounded to the nearest $250,000. Similarly,
a calculated employee based size standard is rounded to the nearest 50
employees for the manufacturing and other industries with employee
based standards, except those in Wholesale Trade and Retail Trade for
which the calculated standard is rounded to the nearest 25 employees.
However, as a policy decision, SBA will continue to maintain the
minimum and maximum size standard levels. Accordingly, SBA will not
generally propose or adopt a size standard that is either below the
minimum or above the maximum level, even though the calculations might
yield values below the minimum or above the maximum level. The minimum
size standard generally reflects the size a small business should be to
have adequate capabilities and resources to be able to compete for and
perform Federal contracts. On the other hand, the maximum size standard
represents the level above which businesses, if qualified as small,
would cause significant competitive disadvantage to smaller businesses
when accessing Federal assistance. SBA's minimum and maximum size
standards are shown in Table 1, ``Minimum and Maximum Receipts and
Employee Based Size Standards,'' below.
[[Page 14594]]
Table 1--Minimum and Maximum Receipts and Employee Based Size Standards
------------------------------------------------------------------------
Type of size standards Minimum Maximum
------------------------------------------------------------------------
Receipts based size standards $5 million........ $40 million.
(excluding agricultural
industries in Subsectors 111
and 112).
Receipts based size standards $1 million........ $5 million.
for agricultural industries in
Subsectors 111 and 112.
Employee based standards for 250 employees..... 1,500 employees.
Manufacturing and other
industries (except Wholesale
and Retail Trade).
Employee based standards in 50 employees...... 250 employees.
Wholesale and Retail Trade.
------------------------------------------------------------------------
With respect to receipts based size standards, SBA is establishing
$5 million and $40 million, respectively, as the minimum and maximum
size standard levels (except for most agricultural industries in
Subsectors 111 and 112). These levels reflect the current minimum
receipts-based size standard of $5.5 million and the current maximum of
$38.5 million, rounded for simplicity. Section 1831 of the National
Defense Authorization Act for Fiscal Year 2017 (NDAA 2017) (Pub. L.
114-328, 130 Stat. 2000, December 23, 2016) amended the Act directing
SBA to establish and review size standards for agricultural enterprises
in the same manner it establishes and reviews size standards for all
other industries. The evaluation of the industry data from the 2012
Census of Agriculture (the latest available) seems to suggest that $5
million minimum and $40 million maximum size standards would be too
high for agricultural industries in Subsectors 111 and 112.
Accordingly, SBA is establishing $1 million as the minimum size
standard and $5 million as the maximum size standard for industries in
NAICS Subsector 111 (Crop Production) and Subsector 112 (Animal
Production and Aquaculture). Regarding employee based size standards,
SBA's minimum and maximum levels for manufacturing and other industries
(excluding Wholesale and Retail Trade) reflect the current minimum and
maximum size standards among those industries. For employee based size
standards for wholesale and retail trade industries, the proposed
minimum and maximum values are the same as what SBA used in its 2009
Methodology.
3. Evaluation of Federal Contracting Factor
For industries where Federal contracting is significant, SBA
considers Federal contracting as one of the primary factors when
establishing, reviewing, or revising size standards. Under the 2009
Methodology that was applied in the previous comprehensive size
standards review, SBA evaluated the Federal contracting factor for
industries with $100 million or more in Federal contract dollars
annually for the latest three fiscal years. However, the analysis of
the FPDS-NG data suggests that the $100 million threshold is too high,
thereby rendering the Federal contracting factor irrelevant for about
73 percent of industries (excluding wholesale trade and retail trade
industries that are not used for Federal contracting purposes),
including those for which the Federal contracting factor is significant
(i.e., the small business share of industry's total receipts exceeding
the small business share of industry's total contract dollars by 10
percentage points or more). Thus, SBA determined that the threshold
should be lowered. In the Revised Methodology, SBA evaluates the
Federal contracting factor for industries with $20 million or more in
Federal contract dollars annually for the latest three fiscal years.
Under the $20 million threshold, excluding wholesale trade and retail
trade industries, nearly 50 percent of all industries would be
evaluated for the Federal contracting factor as compared to just about
27 percent under the $100 million threshold. Because NAICS codes in
Wholesale Trade and Retail Trade do not apply to Federal procurement,
SBA does not consider the Federal contracting factor for evaluating
size standards industries in those sectors.
For each industry averaging $20 million or more in Federal contract
dollars annually, SBA compares the small business share of total
Federal contract dollars to the share of total industrywide receipts
attributed to small businesses. In general, if the share of Federal
contract dollars awarded to small businesses in an industry is 10
percentage points or more lower than the small business share of total
industry's receipts, keeping everything else the same, a justification
would exist for considering a size standard higher than the current
size standard. In cases where that difference is less than 10 percent
or the small business share of the Federal market is already higher
than the small business share of the overall market, it would generally
support the current size standards.
4. Evaluation of Industry Competition
For the reasons provided in the Revised Methodology and discussed
above with respect to the public comments, SBA continues to use the 4-
firm concentration ratio as a measure of industry competition. In the
past, SBA did not consider the 4-firm concentration ratio as an
important factor in size standards analysis when its value was below 40
percent. If an industry's 4-firm concentration ratio was 40 percent or
higher, SBA used the average size of the four largest firms as a
primary factor in determining a size standard for that industry. In
response to public comments as well as based on its own evaluation of
industry factors, in the Revised Methodology SBA apples all values of
the 4-firm concentration ratios directly in the analysis, as opposed to
using the 40 percent rule. Based on the 2012 Economic Census data, the
40 percent rule applies only to about one-third of industries for which
4-firm ratios are available. For the same reason, SBA is also dropping
the average firm size of the four largest firms as an additional factor
of industry competition. Moreover, the four-firm average size is found
to be highly correlated with the weighted average firm size, which is
used as one of the two measures of average firm size.
5. Summary of and Reasons for Changes
Table 2, ``Summary of and Reasons for Changes,'' below, summarizes
what has changed in the Revised Methodology as compared to the 2009
Methodology and the impetus for such changes, specifically whether the
changes are based on statute or discretionary.
[[Page 14595]]
Table 2--Summary of and Reasons for Changes
----------------------------------------------------------------------------------------------------------------
Process/factor Current Revised Reason
----------------------------------------------------------------------------------------------------------------
Industry analysis.................... ``Anchor'' approach.... ``Percentile'' approach Section
Average characteristics The 20th percentile and 3(a)(7) of the Small
of industries with so 80th percentile values Business Act limits
called ``anchor'' size for industry use of common size
standards formed the characteristics form standards only to the
basis for evaluating the basis for 4-digit NAICS level.
individual industries.. evaluating individual The percentage
industries.. of industries with
``anchor'' size
standards decreased
from more than 70
percent at the start
of the recent size
standards review to
less than 25 percent
today.
Some public
comments objected to
the ``anchor''
approach as being
outdated and not
reflective of current
industry structure.
Number of size standards............. The calculated size Each NAICS industry is Section
standards were rounded assigned a specific 3(a)(8) of the Small
to one of the size standard, with a Business Act mandates
predetermined fixed calculated receipts SBA to not limit the
size standards levels. based standard rounded number of size
There were eight fixed to the nearest standards and to
levels each for $500,000 and a assign an appropriate
receipts based and calculated employee- size standard for each
employee based based standard rounded NAICS industry.
standards. to 50 employees (to 25 Some public
employees for comments also raised
Wholesale and Retail concerns with the
Trade). fixed size standards
approach.
Federal contracting factor........... Evaluated the small Each industry with $20 The $100
business share of million or more in million threshold
Federal contracts vis- Federal contracts excludes about 73
[agrave]-vis the small annually is evaluated percent of industries
business share of for the Federal from the consideration
total receipts for contracting factor. of the Federal
each industry with contracting factor.
$100 million or more Lowering that
in Federal contracts threshold to $20
annually. million increases the
percentage of
industries that will
be evaluated for the
Federal contracting
factor to almost 50
percent.
Evaluating
more industries for
the Federal
contracting factor
also improves the
analysis of the
industry's competitive
environment pursuant
to section 3(a)(6) of
the Small Business
Act.
Industry competition................. Was considered as Considers all values of Some
significant factor if the 4-firm commenters opposed
the 4-firm concentration ratio using the 40 percent
concentration ratio and calculates the threshold and
was 40 percent or more size standard based recommended using all
and 4-firm average directly on the 4-firm values of the 4-firm
formed the basis for ratio. Industries with concentration ratio.
the size standard a higher (lower) 4- The 4-firm
calculation for that firm concentration average is highly
factor. ratio will be assigned correlated with the
a higher (lower) weighted average.
standard.
----------------------------------------------------------------------------------------------------------------
6. Impacts of Changes in the Methodology
To determine how the above changes in the methodology would
generally affect size standards across various industries and sectors,
SBA estimated new size standards using both the 2009 Methodology (i.e.,
``anchor'' approach) and the Revised Methodology (i.e., ``percentile''
approach) for each industry (except those in Sectors 42 and 44-45, and
Subsectors 111 and 112).
For receipts based size standards, the anchor group consisted of
industries with the $7.5 million size standard, and the higher size
standard group included industries with the size standard of $25
million or higher, with the weighted average size standard of $33.2
million for the group. Similarly, for employee based size standards the
anchor group comprised industries with the 500-employee size standard,
and higher size standard group comprised industries with size standard
of 1,000 employees or above, with the weighted average size standard of
1,180 employees. These and 20th percentile and 80th percentile values
for receipts-based and employee-based size standards are shown, below,
in Table 3, ``Reference Size Standards under Anchor and Percentile
Approaches.''
Table 3--Reference Size Standards Under Anchor and Percentile Approaches
----------------------------------------------------------------------------------------------------------------
Anchor approach Percentile approach
---------------------------------------------------------------
20th 80th
Anchor level Higher level percentile percentile
----------------------------------------------------------------------------------------------------------------
Receipts standard ($ million)................... $7.5 $33.2 $7.5 $32.5
Employee standard (no. of employees)............ 500 1,180 500 1,250
----------------------------------------------------------------------------------------------------------------
Under the anchor approach, SBA derived the average value of each
industry factor for industries in the anchor industry groups as well as
those in the higher size standard groups. In the percentile approach,
the 20th percentile and 80th percentile values were computed for each
industry factor. These results are presented, below, in Table 4,
``Industry Factors under Anchor and Percentile Approaches.'' As shown
in the table, generally, the anchor values are comparable with the 20th
percentile values and higher level
[[Page 14596]]
values are comparable with the 80th percentile values.
Table 4--Industry Factors Under Anchor and Percentile Approaches
----------------------------------------------------------------------------------------------------------------
Anchor approach Percentile approach
---------------------------------------------------------------
20th 80th
Anchor Higher level percentile percentile
----------------------------------------------------------------------------------------------------------------
Industry factors for receipts based size standards, excluding Subsectors 111 and 112
----------------------------------------------------------------------------------------------------------------
Simple average receipts size ($ million)........ 0.78 6.99 0.83 7.52
Weighted average receipts size ($ million)...... 18.10 685.87 19.42 830.65
Average assets size ($ million)................. 0.35 5.08 0.34 5.22
Four-firm concentration ratio (%)............... 10.4 34.4 7.9 42.4
Gini coefficient................................ 0.678 0.829 0.686 0.834
----------------------------------------------------------------------------------------------------------------
Industry factors for employee based size standards, excluding Sectors 42 and 44-45
----------------------------------------------------------------------------------------------------------------
Simple average firm size (no. of employees)..... 33.4 96.8 29.5 118.3
Weighted average firm size (no. of employees)... 232.2 1,371.3 250.7 1,629.0
Average assets size ($ million)................. 4.79 23.34 4.14 40.54
Four-firm concentration ratio (%)............... 24.8 50.2 24.7 61.3
Gini coefficient................................ 0.770 0.842 0.760 0.853
----------------------------------------------------------------------------------------------------------------
Under the anchor approach, using the anchor size standard and
average size standard for the higher size standard group, SBA computed
a size standard for an industry's characteristic (factor) based on that
industry's position for that factor relative to the average values of
the same factor for industries in the anchor and higher size standard
groups. Similarly, for the percentile approach, combining the factor
value for an industry with the 20th percentile and 80th percentile
values of size standards and industry factors among the industries with
the same measure of size standards, SBA computed a size standard
supported by each industry factor for each industry. Under both
approaches, a calculated receipts based size standard was rounded to
the nearest $500,000 and a calculated employee based size standard was
rounded to the nearest 50 employees.
With respect to the Federal contracting factor, for each industry
averaging $20 million or more in Federal contracts annually, SBA
considered under both approaches the difference between the small
business share of total industry receipts and that of Federal contract
dollars under the current size standards. Specifically, under the
Revised Methodology, the existing size standards would increase by
certain percentages when the small business share of total industry
receipts exceeds the small business share of total Federal contract
dollars by 10 percentage points or more. Those percentage increases,
detailed in the Revised Methodology, to existing size standards
generally reflect receipts and employee levels needed to bring the
small business share of Federal contracts at par with the small
business share of industry receipts.
The results were generally similar between the two approaches in
terms of changes to the existing size standards, with size standards
increasing for some industries and decreasing for others under both
approaches. The sector that was most impacted was NAICS Sector 23
(Construction), with a majority of industries experiencing decreases to
the current size standard affecting about 1 percent of all firms in
that sector under both approaches. Other negatively impacted sectors
under both approaches were Sector 31-33 (Manufacturing), Sector 48-49
(Transportation and Warehousing), and Sector 51 (Information),
affecting, respectively, 0.1 percent, 0.6 percent, and less than 0.1
percent of total firms in those sectors, with slightly higher impacts
under the percentile approach. All other sectors would see moderate
positive impacts under both approaches, impacting 0.1-0.2 percent of
all firms in most of those sectors. Overall, the changes to size
standards as the result of the changes in the methodology, if adopted,
would have a minimal impact on number businesses that qualify as small
under the existing size standards. Excluding NAICS Sectors 42 and 44-45
and Subsectors 111 and 112, 97.75 percent of businesses would qualify
as small under the new calculated size standards using the ``anchor''
approach vs. 97.70 percent qualifying under the ``percentile'' approach
in the Revised Methodology. Under the current size standards, 97.73
percent of businesses are classified as small.
D. Conclusion
After considerations of all relevant comments, SBA is adopting the
Revised Methodology, as proposed for comments, except that the Agency
has now included a new section on the evaluation of size standards at
sub-industry levels (usually referred to as ``exceptions'') in response
to comment. The Revised Methodology, entitled ``SBA's Size Standards
Methodology (April 2019),'' is available for review/download on the SBA
website at http://www.sba.gov/size-standards-methodology as well as on
the Federal rulemaking portal at http://www.regulations.gov. SBA will
apply the Revised Methodology in the ongoing, second five-year review
of size standards as required by the Jobs Act.
Dated: April 4, 2019.
Linda M. McMahon,
Administrator.
[FR Doc. 2019-07130 Filed 4-10-19; 8:45 am]
BILLING CODE 8025-01-P