[Federal Register Volume 85, Number 192 (Friday, October 2, 2020)]
[Proposed Rules]
[Pages 62239-62266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21589]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AG89
Small Business Size Standards: Agriculture, Forestry, Fishing and
Hunting; Mining, Quarrying, and Oil and Gas Extraction; Utilities;
Construction
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The U.S. Small Business Administration (SBA) proposes to
increase its receipts-based small business size definitions (commonly
referred to as ``size standards'') for North American Industry
Classification System (NAICS) Sectors related to Agriculture, Forestry,
Fishing and Hunting; Mining, Quarrying, and Oil and Gas Extraction;
Utilities; and Construction. SBA proposes to increase size standards
for 68 industries in those sectors, including 58 industries and 2
subindustries (``exceptions'') in NAICS Sector 11 (Agriculture,
Forestry, Fishing and Hunting), 3 industries in Sector 21 (Quarrying,
and Oil and Gas Extraction), 3 industries in Sector 22 (Utilities), and
1 industry and 1 subindustry (``exception'') in Sector 23
(Construction). SBA's proposed revisions relied on its recently revised
``Size Standards Methodology'' (Methodology). SBA seeks comments on its
proposed changes to size standards in the above sectors, and the data
sources it evaluated to develop the proposed size standards.
DATES: SBA must receive comments to this proposed rule on or before
December 1, 2020.
ADDRESSES: Identify your comments by RIN 3245-AG89 and submit them by
one of the following methods: (1) Federal eRulemaking Portal:
www.regulations.gov. Follow 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 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, 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.
FOR FURTHER INFORMATION CONTACT: Jorge Laboy-Bruno, Ph.D., Economist,
Office of Size Standards, (202) 205-6618 or [email protected].
SUPPLEMENTARY INFORMATION: To determine eligibility for Federal small
business assistance, SBA establishes small business size definitions
(usually referred to as ``size standards'') for private sector
industries in the United States. SBA uses two primary measures of
business size for size standards purposes: Average annual receipts and
average number of employees. SBA uses financial assets for certain
financial industries and refining capacity, in addition to employees,
for the petroleum refining industry to measure business size. In
addition, SBA's Small Business Investment Company (SBIC), Certified
Development Company (504), and 7(a) Loan Programs use either the
industry-based size standards or tangible net worth and net income
based alternative size standards to determine eligibility for those
programs.
In September 2010, Congress passed the Jobs Act (Pub. L. 111-240,
124 Stat. 2504, September 27, 2010), (Jobs Act) requiring SBA to review
all size standards every five years and make necessary adjustments to
reflect current industry and market conditions. In accordance with the
Jobs Act, in early 2016 SBA completed the first 5-year review of all
size standards--except those for agricultural enterprises for which
size standards were previously set by Congress--and made appropriate
adjustments to size standards for a number of industries to reflect
current industry and Federal market conditions.
During the previous 5-year comprehensive review SBA reviewed the
receipts-based size standards for sixteen (16) industries and two (2)
exceptions within NAICS Sector 11 (Agriculture, Forestry, Fishing and
Hunting); four (4) industries within Sector 21 (Quarrying, and Oil and
Gas Extraction), Subsector 213 (Support Activity for Mining); three (3)
industries in Sector 22 (Utilities) and thirty-one (31) industries and
one (1) exception in Sector 23 (Construction). These reviews of
receipts-based size standards occurred during October 2010 to December
2013. SBA's analyses of the relevant industry and Federal contracting
data available at that time supported lowering size standards for
twenty-eight (28) industries in Sector 23 and four (4) industries and
two (2) exceptions in Sector 11. However, taking into consideration
economic conditions at the time, SBA decided to either retain all size
standards for which the industry analysis suggested a lower size
standard at existing levels or bring them up to the relevant common
size standard. In the final rules, SBA increased receipts-based size
standards for nineteen (19) of all industries reviewed, including
eleven (11) industries in Sector 11 (78 FR 37398, June 20, 2013); three
(3) industries in Sector 21 (78 FR 37404, June 20, 2013); three (3)
industries in Sector 22 (78 FR 77343, December 23, 2013); and one (1)
industry and one (1) exception in Sector 23 (78 FR 77334, December 23,
2013). SBA retained the existing size standards for the remaining
thirty-six (36) industries and two (2) exceptions in these sectors.
Table 1, Size Standards Revisions During the First 5-Year Review,
provides a summary of these revisions by NAICS sector.
[[Page 62240]]
Table 1--Size Standards Revisions During the First 5-Year Review
----------------------------------------------------------------------------------------------------------------
Number of Number of Number of Number of
size size size size
NAICS sector Sector name standards standards standards standards
reviewed increased lowered maintained
----------------------------------------------------------------------------------------------------------------
11............................ Agriculture, 18 11 0 7
Forestry,
Fishing and
Hunting.
21............................ Mining, 4 3 0 1
Quarrying, and
Oil and Gas
Extraction.
22............................ Utilities....... 3 3 0 0
23............................ Construction.... 32 2 0 30
---------------------------------------------------------------
All Sectors............... ................ 57 19 0 38
----------------------------------------------------------------------------------------------------------------
Currently, there are twenty-seven (27) different size standards
levels covering 1,023 NAICS industries and 14 subindustry activities
(commonly known as ``exceptions'' in SBA's table of size standards).
Sixteen (16) of these size levels are based on average annual receipts,
nine (9) are based on average number of employees, and two (2) are
based on other measures.
Section 1831 of the National Defense Authorization Act for Fiscal
Year 2017 (``NDAA 2017'') (Pub. L. 114-328, December 23, 2016) directed
SBA to establish size standards for all agricultural enterprises in the
same manner as for other industries and to include them in the 5-year
rolling review procedures established under section 1344(a) of the Jobs
Act. Accordingly, in this proposed rule, SBA has also reviewed and
proposed revisions to size standards for all agricultural industries,
including 46 industries that are being reviewed for the first time. As
stated above, historically, the size standards for most agricultural
industries were established by statute.
SBA also adjusts its monetary-based size standards for inflation at
least once every five years. An interim final rule on SBA's latest
inflation adjustment to size standards, effective August 19, 2019, was
published in the Federal Register on July 18, 2019 (84 FR 34261). SBA
also updates its size standards every five years to adopt the Office of
Management and Budget's (OMB) quinquennial NAICS revisions to its table
of small business size standards. Effective October 1, 2017, SBA
adopted the OMB's 2017 NAICS revisions to its size standards (82 FR
44886, September 27, 2017).
This proposed rule is one of a series of proposed rules that will
review size standards of industries grouped by various NAICS sectors.
Rather than review all size standards at one time, SBA is reviewing
size standards by grouping industries within various NAICS sectors that
use the same size measure (i.e., employees or receipts). In the current
review, SBA will review size standards in six (6) groups of NAICS
sectors. (In the prior review, SBA reviewed size standards mostly on a
sector-by-sector basis.) Once SBA completes its review of size
standards for a group of sectors, the Agency issues for public comments
a proposed rule to revise size standards for those industries based on
the latest available data and other factors deemed relevant by the
SBA's Administrator.
Below is a discussion of SBA's revised ``Size Standards
Methodology'' (Methodology), available at www.sba.gov/size, for
establishing, reviewing, or modifying receipts-based size standards
that SBA has applied to this proposed rule. SBA examines the structural
characteristics of an industry as a basis to assess industry
differences and the overall degree of competitiveness of an industry
and of firms within the industry. Industry structure is typically
examined by analyzing four primary factors--average firm size, degree
of competition within an industry, start-up costs and entry barriers,
and distribution of firms by size. To assess the ability of small
businesses to compete for Federal contracting opportunities under the
current size standards, as the fifth primary factor, SBA also examines,
for each industry averaging $20 million or more in average annual
Federal contract dollars, the small business share in Federal contract
dollars relative to the small business share in total industry's
receipts. When necessary, SBA also considers other secondary factors
that are relevant to the industries and the interests of small
businesses, including impacts of size standards changes on small
businesses.
Size Standards Methodology
SBA has recently revised its Methodology for establishing,
reviewing, or modifying size standards when necessary. See the
notification in the April 11, 2019, edition of the Federal Register (84
FR 14587). The revised methodology is available on SBA's size standards
web page at www.sba.gov/size. Prior to finalizing the revised
Methodology, SBA issued a notification in the April 27, 2018 edition of
the Federal Register (83 FR 18468) to solicit comments from the public
and notify stakeholders of the proposed changes to the Methodology. SBA
considered all public comments in finalizing the revised Methodology.
For a summary of comments and SBA's responses, refer to the SBA's April
11, 2019, Federal Register notification.
The revised Methodology represents a major change from the previous
methodology, which was issued on October 21, 2009 (74 FR 53940).
Specifically, in its revised Methodology SBA is replacing the
``anchor'' approach applied in the previous methodology with a
``percentile'' approach for evaluating differences in characteristics
among various industries. Under the ``anchor'' approach, SBA generally
evaluated the characteristics of individual industries relative to the
average characteristics of industries with the anchor size standard to
determine whether they should have a higher or a lower size standard
than the anchor. In the ``percentile'' approach, SBA ranks each
industry among all industries with the same measure of size standards
(such as receipts or employees) in terms of four primary industry
factors, discussed in the Industry Analysis subsection below. The
``percentile'' approach is explained more fully elsewhere in this
proposed rule. For a more detailed explanation please see the revised
methodology at www.sba.gov/size. Additionally, as the fifth factor, SBA
evaluates the difference between the small business share in Federal
contract dollars and the small business share in total industry's
receipts to compute the size standard for the Federal contracting
factor. The overall size standard for an industry is then obtained by
averaging all size standards supported by each primary factor. The
evaluation of the Federal contracting factor is explained more fully
elsewhere in this proposed rule.
SBA does not apply all aspects of its Methodology to all proposed
rules because not all features are relevant for
[[Page 62241]]
every industry covered by each proposed rule. For example, since all
industries covered by this proposed rule have receipts-based size
standards, the Methodology described in this proposed rule applies only
to establishing, reviewing, or modifying receipts-based size standards.
SBA's Methodology is available on its website at www.sba.gov/size.
Industry Analysis
Congress granted SBA's Administrator discretion to establish
detailed small business size standards (15 U.S.C. 632(a)(2)).
Specifically, section 3(a)(3) of the Small Business Act (15 U.S.C.
632(a)(3)) requires that ``. . . the [SBA] Administrator shall ensure
that the size standard varies from industry to industry to the extent
necessary to reflect the differing characteristics of the various
industries and consider other factors deemed to be relevant by the
Administrator.'' Accordingly, the economic structure of an industry is
the basis for establishing, reviewing, or modifying small business size
standards. In addition, SBA considers current economic conditions, its
mission and program objectives, the Administration's current policies,
impacts on small businesses under current size and proposed or revised
size standards, suggestions from industry groups and Federal agencies,
and public comments on the proposed rule. SBA also examines whether a
size standard based on industry and other relevant data successfully
excludes businesses that are dominant in the industry.
The goal of SBA's size standards review is to determine whether its
existing small business size standards reflect the current industry
structure and Federal market conditions and revise them when the latest
available data suggest that revisions are warranted. In the past, SBA
compared the characteristics of each industry with the average
characteristics of a group of industries associated with the ``anchor''
size standard. For example, in the first 5-year comprehensive review of
size standards under the Jobs Act, $7 million (now $8.0 million due to
the inflation adjustment in 2019; see 84 FR 34261 (July 18, 2019)) was
considered the ``anchor'' for receipts-based size standards and 500
employees was the ``anchor'' for employee-based size standards. 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 size standard for that industry. If the
specific industry's characteristics were significantly different from
those in the anchor group, SBA assigned a size standard that was higher
or lower than the anchor. To determine a size standard above or below
the anchor size standard, SBA evaluated the characteristics of a second
comparison group of industries with higher size standards. For
industries with receipts-based standards, the second comparison group
consisted of industries with size standards between $23 million and
$35.5 million, with the weighted average size standard for the group
equaling $29 million. For manufacturing industries and other industries
with employee-based size standards (except for Wholesale Trade and
Retail Trade), the second comparison group included industries with a
size standard of 1,000 employees or 1,500 employees, with the weighted
average size standard of 1,323 employees. Using the anchor size
standard and average size standard for the second comparison group, SBA
computed a size standard for an industry's characteristic (factor)
based on the industry's position for that factor relative to the
average values of the same factor for industries in the anchor and
second comparison groups.
Under the ``percentile'' approach, 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. In the previous Methodology, comparison industry groups were
predetermined independent of the data, while in the revised Methodology
they are established using the actual data. A more detailed description
of the percentile method is provided in SBA's Methodology, available at
www.sba.gov/size.
The primary factors that SBA evaluates to examine industry
structure include average firm size, startup costs and entry barriers,
industry competition, and distribution of firms by size. SBA also
evaluates, as an additional primary factor, small business success in
receiving Federal contracting assistance under the current size
standards. Specifically, for the Federal contracting factor, SBA
examines the small business share of Federal contract dollars relative
to small business share of total receipts within an industry. These
are, generally, the five most important factors SBA examines when
establishing, reviewing, or revising a size standard for an industry.
However, SBA will also consider and evaluate other secondary factors
that it believes are relevant to a particular industry (such as
technological changes, growth trends, SBA financial assistance, other
program factors). SBA also considers possible impacts of size standard
revisions on eligibility for Federal small business assistance, current
economic conditions, the Administration's policies, and suggestions
from industry groups and Federal agencies. Public comments on proposed
rules also provide important additional information. SBA thoroughly
reviews all public comments before making a final decision on its
proposed revisions to size standards. Below are brief descriptions of
each of the five primary factors that SBA has evaluated for each
industry being reviewed in this proposed rule. A more detailed
description of this analysis is provided in the SBA's Methodology,
available at www.sba.gov/size.
1. Average firm size. SBA computes two measures of average firm
size: simple average and weighted average. For industries with
receipts-based size standards, the simple average is the total receipts
of the industry divided by the total number of firms in the industry.
The weighted average firm size is the summation of all the receipts of
the firms in an industry multiplied by their share of receipts in the
industry. The simple average weighs all firms within an industry
equally regardless of their size. The weighted average overcomes that
limitation by giving more weight to larger firms. The size standard
supported by average firm size is obtained by averaging size standards
supported by simple average firm size and weighted average firm size.
If the average firm size of an industry is higher than the average
firm size for most other industries, this would generally support a
size standard higher than the size standards for other industries.
Conversely, if the industry's average firm size is lower than that of
most other industries, it would provide a basis to assign a lower size
standard as compared to size standards for most other industries.
2. Startup costs and entry barriers. Startup costs reflect a firm's
initial size in an industry. New entrants to an industry must have
sufficient capital and other assets to start and maintain a viable
business. If firms entering an industry under review have greater
capital requirements than firms in most other industries, all other
factors remaining the same, this would be a basis for a higher size
standard.
[[Page 62242]]
Conversely, if the industry has smaller capital needs compared to most
other industries, a lower size standard would be considered
appropriate.
Given the lack of actual data on startup costs and entry barriers
by industry, SBA uses average assets as a proxy for startup costs and
entry barriers. To calculate average assets, SBA begins with the sales
to total assets ratio for an industry from the Risk Management
Association's Annual Statement Studies, available at https://rmau.org/.
SBA then applies these ratios to the average receipts of firms in that
industry obtained from the Economic Census tabulation. An industry with
average assets that are significantly higher than most other industries
is likely to have higher startup costs; this in turn will support a
higher size standard. Conversely, an industry with average assets that
are similar to or lower than most other industries is likely to have
lower startup costs; this will support either lowering or maintaining
the size standard.
3. Industry competition. Industry competition is generally measured
by the share of total industry receipts generated by the largest firms
in an industry. SBA generally evaluates the share of industry receipts
generated by the four largest firms in each industry. This is referred
to as the ``4-firm concentration ratio,'' a commonly used economic
measure of market competition. Using the 4-firm concentration ratio,
SBA compares the degree of concentration within an industry to the
degree of concentration of the other industries with the same measure
of size standards. If a significantly higher share of economic activity
within an industry is concentrated among the four largest firms
compared to most other industries, all else being equal, SBA would set
a size standard that is relatively higher than for most other
industries. Conversely, if the market share of the four largest firms
in an industry is appreciably lower than the similar share for most
other industries, the industry will be assigned a size standard that is
lower than those for most other industries.
4. Distribution of firms by size. SBA examines the shares of
industry total receipts accounted for by firms of different receipts
and employment sizes in an industry. This is an additional factor SBA
considers in assessing competition within an industry besides the 4-
firm concentration ratio. If the preponderance of an industry's
economic activity is attributable to smaller firms, this generally
indicates that small businesses are competitive in that industry, which
would support adopting a smaller size standard. A higher size standard
would be supported for an industry in which the distribution of firms
indicates that most of the economic activity is concentrated among the
larger firms.
Concentration is a measure of inequality of distribution. To
determine the degree of inequality of distribution in an industry, SBA
computes the Gini coefficient, using the Lorenz curve. The Lorenz curve
presents the cumulative percentages of units (firms) along the
horizontal axis and the cumulative percentages of receipts (or other
measures of size) along the vertical axis. (For further detail, see
SBA's Methodology on its website at www.sba.gov/size.) Gini coefficient
values vary from zero to one. If receipts are distributed equally among
all the firms in an industry, the value of the Gini coefficient will
equal zero. If an industry's total receipts are attributed to a single
firm, the Gini coefficient will equal one.
SBA compares the degree of inequality of distribution for an
industry under review with other industries with the same type of size
standards. If an industry shows a higher degree of inequality of
distribution (hence a higher Gini coefficient value) compared to most
other industries in the group this would, all else being equal, warrant
a size standard that is higher than the size standards assigned to most
other industries. Conversely, an industry with lower degree of
inequality (i.e., a lower Gini coefficient value) than most others will
be assigned a lower size standard relative to others.
5. Federal contracting. As the fifth factor, SBA examines the
success small businesses are having in winning Federal contracts under
the current size standard as well as the possible impact a size
standard change may have on Federal small business contracting
opportunities. The Small Business Act requires the Federal government
to ensure that small businesses receive a ``fair proportion'' of
Federal contracts. The legislative history also discusses the
importance of size standards in Federal contracting. To incorporate the
Federal contracting factor in the size standards analysis, SBA
evaluates small business participation in Federal contracting in terms
of the share of total Federal contract dollars awarded to small
businesses relative to the small business share of industry's total
receipts. In general, if the share of Federal contract dollars awarded
to small businesses in an industry is significantly smaller than the
small business share of total industry's receipts, all else remaining
the same, a justification would exist for considering a size standard
higher than the current size standard. In cases where small business
share of the Federal market is already appreciably high relative to the
small business share of the overall market, SBA generally assumes that
the existing size standard is adequate with respect to the Federal
contracting factor.
The disparity between the small business Federal market share and
industry-wide small business share may be due to various factors, such
as extensive administrative and compliance requirements associated with
Federal contracts, the different skill set required to perform Federal
contracts as compared to typical commercial contracting work, and the
size of Federal contracts. These, as well as other factors, are likely
to influence the type of firms within an industry that compete for
Federal contracts. By comparing the small business Federal contracting
share with the industry-wide small business share, SBA includes in its
size standards analysis the latest Federal market conditions.
Besides the impact on Federal contracting, SBA also examines
impacts on SBA's loan programs both under the current and revised size
standards.
Sources of Industry and Program Data
SBA's primary source of industry data used in this proposed rule
for evaluating industry characteristics and developing size standards
is a special tabulation of the Economic Census from the U.S. Census
Bureau (www.census.gov/econ/census). The tabulation based on the 2012
Economic Census is the latest available. The special tabulation
provides industry data on the number of firms, number of
establishments, number of employees, annual payroll, and annual
receipts of companies by Industry (6-digit level), Industry Group (4-
digit level), Subsector (3-digit level), and Sector (2-digit level).
These data are arrayed by various classes of firms' size based on the
overall number of employees and receipts of the entire enterprise (all
establishments and affiliated firms) from all industries. The special
tabulation also contains information for different levels of NAICS
categories on average and median firm size in terms of both receipts
and employment, total receipts generated by the four and eight largest
firms, the Herfindahl-Hirschman Index (HHI), the Gini coefficient, and
size distributions of firms by various receipts and employment size
groupings.
In some cases, where data were not available due to disclosure
prohibitions in the Census Bureau's tabulation, SBA
[[Page 62243]]
either estimated missing values using available relevant data or
examined data at a higher level of industry aggregation, such as at the
NAICS 2-digit (Sector), 3-digit (Subsector), or 4-digit (Industry
Group) level. In some instances, SBA's analysis was based only on those
factors for which data were available or estimates of missing values
were possible.
To evaluate some industries that are not covered by the Economic
Census, SBA used a similar special tabulation of the latest County
Business Patterns (CBP) published by the U.S. Census Bureau
(www.census.gov/programs-surveys/cbp.html). Similarly, to evaluate
industries in NAICS Sector 11 that are also not covered by the Economic
Census and CBP, SBA evaluated a similar special tabulation based on the
2012 Census of Agriculture (www.nass.usda.gov) from the National
Agricultural Statistics Service (NASS). Besides the Economic Census,
Agricultural Census and CBP tabulations, SBA also evaluates relevant
industry data from other sources when necessary, especially for
industries that are not covered by the Economic Census or CBP. These
include the Quarterly Census of Employment and Wages (QCEW, also known
as ES-202 data) (www.bls.gov/cew/) and Business Employment Dynamics
(BED) data (www.bls.gov/bdm/) from the U.S. Bureau of Labor Statistics.
Similarly, to evaluate certain financial industries that have assets-
based size standards, SBA examines the data from the Statistics on
Depository Institutions (SDI) database (www5.fdic.gov/sdi/main.asp) of
the Federal Deposit Insurance Corporation (FDIC). Finally, to evaluate
the capacity component of the Petroleum Refiners (NAICS 324110) size
standard, SBA evaluates the petroleum production data from the Energy
Information Administration (www.eia.gov).
To calculate average assets, SBA used sales to total assets ratios
from the Risk Management Association's Annual eStatement Studies, 2016-
2018 (https://rmau.org/). To evaluate Federal contracting trends and
evaluate two exceptions in Sector 11 and one exception in Sector 23,
SBA examined the data on Federal prime contract awards from the Federal
Procurement Data System--Next Generation (FPDS-NG) (www.fpds.gov) for
fiscal years 2016-2018. To assess the impact on financial assistance to
small businesses, SBA examined its internal data on 7(a) and 504 loan
programs for fiscal years 2016-2018. For some portion of impact
analysis, SBA also evaluated the data from the System of Award
Management (www.sam.gov).
Data sources and estimation procedures SBA uses in its size
standards analysis are documented in detail in SBA's Methodology, which
is available at www.sba.gov/size.
Dominance in Field of Operation
Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a
small business concern as one that is: (1) Independently owned and
operated; (2) not dominant in its field of operation; and (3) within a
specific small business definition or size standard established by SBA
Administrator. SBA considers as part of its evaluation whether a
business concern at a proposed 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 size standard as well
as the distribution of firms by size. Market share and size
distribution may indicate whether a firm can exercise a major
controlling influence on a national basis in an industry where a
significant number of business concerns are engaged. If a contemplated
size standard includes a dominant firm, SBA will consider a lower size
standard to exclude the dominant firm from being defined as small.
Selection of Size Standards
In the 2009 Methodology SBA applied to the first 5-year
comprehensive review of size standards, SBA adopted a fixed number of
size standards levels as part of its effort to simplify size standards.
In response to public comments to the 2009 Methodology white paper, and
the 2013 amendment to the Small Business Act (section 3(a)(8)) under
section 1661 of the National Defense Authorization Act for Fiscal Year
2013 (``NDAA 2013'') (Pub. L. 112-239, January 2, 2013), in the revised
Methodology SBA relaxed the limitation on the number of small business
size standards. Specifically, section 1661 of NDAA 2013 states ``SBA
cannot limit the number of size standards, and shall assign the
appropriate size standard to each industry identified by NAICS.''
In the revised Methodology, SBA calculates a separate size standard
for each NAICS industry. However, to account for errors and limitations
associated with various data SBA evaluates in the size standards
analysis, SBA rounds the calculated size standard value for a receipts-
based size standard to the nearest $500,000, except for agricultural
industries in Subsectors 111 and 112 for which the calculated size
standards will be rounded to the nearest $250,000. This rounding
procedure is applied both in calculating a size standard for each of
the five primary factors and in calculating the overall size standard
for the industry.
As a policy decision, SBA continues to maintain the minimum and
maximum levels for both receipts and employee-based size standards.
Accordingly, SBA will not generally propose or adopt a size standard
that is either below the minimum level or above the maximum, even
though the calculations yield values below the minimum or above the
maximum. The minimum size standard reflects the size an established
small business should be to have adequate capabilities and resources to
be able to compete for and perform Federal contracts (but does not
account for small businesses that are newly formed or just starting
operations). On the other hand, the maximum size standard represents
the level above which businesses, if qualified as small, would
outcompete much smaller businesses when accessing Federal assistance.
With respect to receipts-based size standards, SBA has established
$6 million and $41.5 million, respectively, as the minimum and maximum
size standard levels (except for most agricultural industries in NAICS
Subsectors 111 and 112). These levels reflect the current minimum of
$6.0 million and the current maximum of $41.5 million. The industry
data suggests that $6 million minimum and $41.5 million maximum size
standards would be too high for agricultural industries. Accordingly,
SBA has established $1 million as the minimum size standard and $5
million as the maximum size standard for industries in Subsector 111
(Crop Production) and Subsector 112 (Animal Production and
Aquaculture).
Evaluation of Industry Factors
As mentioned earlier, to assess the appropriateness of the current
size standards SBA evaluates the structure of each industry in terms of
four economic characteristics or factors, namely average firm size,
average assets size as a proxy for startup costs and entry barriers,
the 4-firm concentration ratio as a measure of industry competition,
and size distribution of firms using the Gini coefficient. For each
size standard type (i.e., receipts-based or employee-based) SBA ranks
industries both in terms of each of the four industry factors and in
terms of the existing size standard and computes the 20th percentile
and 80th percentile values for both. SBA then evaluates each industry
by comparing its value for each industry factor to the 20th percentile
and 80th percentile values for the corresponding
[[Page 62244]]
factor for industries under a particular type of size standard.
If the characteristics of an industry under review within a
particular size standard type are similar to the average
characteristics of industries within the same size standard type in the
20th percentile, SBA will consider adopting as an appropriate size
standard for that industry the 20th percentile value of size standards
for those industries. For each size standard type, if the industry's
characteristics are similar to the average characteristics of
industries in the 80th percentile, SBA will assign a size standard that
corresponds to the 80th percentile in the size standard rankings of
industries. A separate size standard is established for each factor
based on the amount of differences between the factor value for an
industry under a particular size standard type and 20th percentile and
80th percentile values for the corresponding factor for all industries
in the same type. Specifically, the actual level of the new size
standard for each industry factor is derived by a linear interpolation
using the 20th percentile and 80th percentile values of that factor and
corresponding percentiles of size standards. Each calculated size
standard is bounded between the minimum and maximum size standards
levels, as discussed before. As noted earlier, the calculated value for
a receipts-based size standard for each industry factor is rounded to
the nearest $500,000, except for industries in Subsectors 111 and 112
for which a calculated size standard is rounded to the nearest
$250,000.
Table 2, 20th and 80th Percentiles of Industry Factors for
Receipts-based Size Standards, shows the 20th percentile and 80th
percentile values for average firm size (simple and weighted), average
assets size, 4-firm concentration ratio, and Gini coefficient for
industries with receipts-based size standards.
Table 2--20th and 80th Percentiles of Industry Factors for Receipts-Based Size Standards
----------------------------------------------------------------------------------------------------------------
Weighted
Simple average average Average assets 4-firm Gini
Industries/percentiles receipts size receipts size size ($ concentration coefficient
($ million) ($ million) million) ratio (%)
----------------------------------------------------------------------------------------------------------------
Industries, excluding Subsectors
111 and 112
20th percentile............. 0.83 19.42 0.34 7.9 0.686
80th percentile............. 7.52 830.65 5.19 42.4 0.834
Industries in Subsectors 111 and
112
20th percentile............. 0.06 1.48 0.07 1.7 0.608
80th percentile............. 0.83 13.32 0.88 12.3 0.908
----------------------------------------------------------------------------------------------------------------
Estimation of Size Standards Based on Industry Factors
An estimated size standard supported by each industry factor is
derived by comparing its value for a specific industry to the 20th
percentile and 80th percentile values for that factor. If an industry's
value for a particular factor is near the 20th percentile value in the
distribution, the supported size standard will be one that is close to
the 20th percentile value of size standards for industries in the size
standards group, which is $8.0 million. If a factor for an industry is
close to the 80th percentile value of that factor, it would support a
size standard that is close to the 80th percentile value in the
distribution of size standards, which is $35.0 million. For a factor
that is within, above, or below the 20-80th percentile range, the size
standard is calculated using linear interpolation based on the 20th
percentile and 80th percentile values for that factor and the 20th
percentile and 80th percentile values of size standards.
For example, if an industry's simple average receipts are $1.9
million, that would support a size standard of $12.5 million. According
to Table 2, the 20th percentile and 80th percentile values of average
receipts are $0.83 million and $7.52 million, respectively. The $1.9
million is 15.9 percent between the 20th percentile value ($0.83
million) and the 80th percentile value ($7.52 million) of simple
average receipts (($1.9 million - $0.83 million) / ($7.52 million -
$0.83 million) = 0.159 or 15.9%). Applying this percentage to the
difference between the 20th percentile value ($8 million) and 80th
percentile ($35.0 million) value of size standards and then adding the
result to the 20th percentile size standard value ($8.0 million) yields
a calculated size standard value of $12.32 million ([{$35.0 million -
$8.0 million{time} * 0.159] + $8.0 million = $12.32 million). The
final step is to round the calculated $12.32 million size standard to
the nearest $500,000, which in this example yields $12.5 million. This
procedure is applied to calculate size standards supported by other
industry factors.
Detailed formulas involved in these calculations are presented in
SBA's Methodology which is available at www.sba.gov/size.
Derivation of Size Standards Based on Federal Contracting Factor
Besides industry structure, SBA also evaluates Federal contracting
data to assess the success of small businesses in getting Federal
contracts under the existing size standards. For each industry with $20
million or more in annual Federal contract dollars, SBA evaluates the
small business share of total Federal contract dollars relative to the
small business share of total industry receipts. All other factors
being equal, if the share of Federal contracting dollars awarded to
small businesses in an industry is significantly less than the small
business share of that industry's total receipts, a justification would
exist for considering a size standard higher than the current size
standard. Conversely, if the small business share of Federal
contracting activity is near or above the small business share in total
industry receipts, this will support the current size standard.
SBA increases the existing size standards by certain percentages
when the small business share of total industry receipts exceeds the
small business share of total Federal contract dollars by 10 or more
percentage points. Proposed percentage increases generally reflect
receipts levels needed to bring the small business share of Federal
contracts on par with the small business share of industry receipts.
These proposed percentage increases for receipts-based size standards
are given in Table 3, Proposed Adjustments to Size Standards Based on
Federal Contracting Factor.
[[Page 62245]]
Table 3--Proposed Adjustments to Size Standards Based on Federal Contracting Factor
----------------------------------------------------------------------------------------------------------------
Percentage difference between the small business shares of total Federal
contract dollars in an industry and of total industry receipts
Size standards --------------------------------------------------------------------------
>-10% - 10% to - 30% <- 30%
----------------------------------------------------------------------------------------------------------------
Receipts-based standards
<$15 million..................... No change.............. Increase 30%........... Increase 60%
$15 million to < $25 million..... No change.............. Increase 20%........... Increase 40%
$25 million to < $41.5 million... No change.............. Increase 15%........... Increase 25%
----------------------------------------------------------------------------------------------------------------
For example, if an industry with the current size standard of $8.0
million had an average of $50 million in Federal contracting dollars,
of which 15 percent went to small businesses, and if that small
businesses accounted for 40 percent of total receipts of that industry,
the small business share of total Federal contract dollars would be 25
percent less than the small business share of total industry receipts
(40% - 15%). According to the above rule, the new size standard for the
Federal contracting factor for that industry would be set by
multiplying the current $8.0 million standard by 1.3 (i.e., 30%
increase) and then by rounding the result to the nearest $500,000,
yielding a size standard of $10.5 million.
SBA evaluated the small business share of total Federal contract
dollars for the thirty-one (31) industries covered by this proposed
rule--five (5) in Sector 11, one (1) in Sector 21, three (3) in Sector
22, and twenty-two (22) in Sector 23)--that had $20 million or more in
average annual Federal contract dollars during fiscal years 2016-2018.
The Federal contracting factor was significant (i.e., the difference
between the small business share of total industry receipts and small
business share of Federal contracting dollars was 10 percentage points
or more) in seven (7) of these industries, prompting an upward
adjustment of their existing size standards based on that factor. For
the remaining twenty-four (24) industries that averaged $20 million or
more in average annual contract dollars, the Federal contracting factor
was not significant, and the existing size standard was applied for
that factor. For industries with less than $20 million in average
annual contract dollars, no size standard was calculated for the
Federal contracting factor.
Derivation of Overall Industry Size Standard
The SBA's Methodology presented above results in five separate size
standards based on evaluation of the five primary factors (i.e., four
industry factors and one Federal contracting factor). SBA typically
derives an industry's overall size standard by assigning equal weights
to size standards supported by each of these five factors. However, if
necessary, SBA's Methodology would allow assigning different weights to
some of these factors in response to its policy decisions and other
considerations. For detailed calculations, see SBA's Methodology,
available on its website at www.sba.gov/size.
Calculated Size Standards Based on Industry and Federal Contracting
Factors
Table 4, Size Standards Supported by Each Factor for Each Industry
(Receipts), below, shows the results of analyses of industry and
Federal contracting factors for each industry and subindustry
(exception) covered by this proposed rule. NAICS industries in columns
2, 3, 4, 5, 6, 7, and 8 show two numbers. The upper number is the value
for the industry or Federal contracting factor shown on the top of the
column and the lower number is the size standard supported by that
factor. Column 9 shows a calculated new size standard for each
industry. This is the average of the size standards supported by each
factor, rounded to the nearest $500,000 for non-agriculture industries
and rounded to the nearest $250,000 for agriculture industries.
Analytical details involved in the averaging procedure are described in
SBA's Methodology, which is available at www.sba.gov/size. For
comparison with the calculated new size standards, the current size
standards are in column 10 of Table 4.
Table 4--Size Standards Supported by Each Factor for Each Industry (Receipts)
[Upper value = calculated factor, lower value = size standard supported]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple Weighted Average Calculated Current
NAICS code NAICS industry average average assets size Four-firm Gini Federal size size
title Type firm size firm size ($ ratio (%) coefficient contract standard standard
($ million) ($ million) million) factor (%) ($ million) ($ million)
(1) (2)............. (3) (4) (5) (6) (7) (8) (9) (10)
--------------------------------------------------------------------------------------------------------------------------------------------------------
111110 Soybean Farming........ Factor.......... $0.2 $0.9 $0.1 0.3 0.663 ........... $2.00 $1.00
Size Std........ 2.25 1.75 1.75 1.50 2.25
111120 Oilseed (except Factor.......... 0.3 1.1 0.2 5.5 0.544 ........... 2.00 1.00
Soybean) Farming. Size Std........ 2.75 1.75 2.00 2.75 1.25
111130 Dry Pea and Bean Factor.......... 0.3 1.2 0.2 7.5 0.630 ........... 2.50 1.00
Farming. Size Std........ 2.50 1.75 2.00 3.25 2.00
111140 Wheat Farming.......... Factor.......... 0.2 0.9 0.2 0.4 0.610 ........... 2.00 1.00
Size Std........ 2.25 1.75 2.25 1.50 1.75
111150 Corn Farming........... Factor.......... 0.4 1.7 0.7 0.2 0.606 ........... 2.25 1.00
Size Std........ 2.75 1.75 3.50 1.50 1.75
111160 Rice Farming........... Factor.......... 0.8 1.8 0.5 1.5 0.469 ........... 2.25 1.00
Size Std........ 4.00 1.75 3.00 1.75 1.00
111190 Other Grain Farming Factor.......... 0.5 1.8 0.4 0.3 0.567 ........... 2.00 1.00
(includes NAICS 111191 and Size Std........ 3.25 1.75 2.75 1.50 1.50
111199).
111211 Potato Farming......... Factor.......... 1.6 10.6 1.3 5.8 0.756 ........... 3.75 1.00
Size Std........ 5.00 3.75 5.00 2.75 3.00
[[Page 62246]]
111219 Other Vegetable (except Factor.......... 0.3 17.8 0.2 3.5 0.943 ........... 3.25 1.00
Potato) and Melon Farming. Size Std........ 2.50 5.00 2.00 2.25 4.50
111310 Orange Groves.......... Factor.......... 0.3 12.2 0.4 11.0 0.856 ........... 3.50 1.00
Size Std........ 2.50 4.00 2.75 4.00 3.75
111320 Citrus (except Orange) Factor.......... 0.2 11.1 0.3 22.7 0.892 ........... 3.75 1.00
Groves. Size Std........ 2.25 3.75 2.50 5.00 4.00
111331 Apple Orchards......... Factor.......... 0.3 16.6 0.4 14.4 0.909 ........... 4.00 1.00
Size Std........ 2.50 5.00 3.00 4.75 4.25
111332 Grape Vineyards........ Factor.......... 0.4 13.9 0.8 4.1 0.877 ........... 3.50 1.00
Size Std........ 2.75 4.25 4.00 2.25 4.00
111333 Strawberry Farming..... Factor.......... 1.2 19.5 1.7 15.1 0.915 ........... 4.75 1.00
Size Std........ 5.00 5.00 5.00 5.00 4.25
111334 Berry (except Factor.......... 0.1 7.1 0.2 11.1 0.900 ........... 3.25 1.00
Strawberry) Farming. Size Std........ 2.00 3.00 2.00 4.00 4.25
111335 Tree Nut Farming....... Factor.......... 0.3 12.0 0.6 4.5 0.893 ........... 3.25 1.00
Size Std........ 2.50 4.00 3.25 2.50 4.00
111336 Fruit and Tree Nut Factor.......... 0.5 16.5 1.0 31.0 0.955 ........... 4.50 1.00
Combination Farming. Size Std........ 3.00 5.00 4.50 5.00 4.75
111339 Other Noncitrus Fruit Factor.......... 0.1 6.8 0.2 7.8 0.869 ........... 3.00 1.00
Farming. Size Std........ 2.00 2.75 2.00 3.25 4.00
111410 Food Crops Grown Under Factor.......... 0.5 29.1 0.2 19.6 0.950 ........... 4.00 1.00
Cover (includes NAICS 111411 Size Std........ 3.25 5.00 2.25 5.00 4.50
and 111419).
111421 Nursery and Tree Factor.......... 0.2 7.6 0.1 2.5 0.894 ........... 2.75 1.00
Production. Size Std........ 2.25 3.00 2.00 2.00 4.25
111422 Floriculture Production Factor.......... 0.3 12.8 0.2 5.8 0.878 ........... 3.25 1.00
Size Std........ 2.75 4.25 2.25 2.75 4.00
111910 Tobacco Farming........ Factor.......... 0.2 1.5 0.2 3.9 0.666 ........... 2.25 1.00
Size Std........ 2.25 1.75 2.00 2.25 2.25
111920 Cotton Farming......... Factor.......... 0.5 7.2 0.5 6.6 0.572 ........... 2.75 1.00
Size Std........ 3.25 3.00 3.00 3.00 1.50
111930 Sugarcane Farming...... Factor.......... 2.6 34.0 2.4 28.5 0.719 ........... 4.50 1.00
Size Std........ 5.00 5.00 5.00 5.00 2.75
111940 Hay Farming............ Factor.......... 0.0 1.5 0.0 1.7 0.840 ........... 2.25 1.00
Size Std........ 1.75 1.75 1.50 1.75 3.75
111990 All Other Crop Farming Factor.......... 0.1 4.6 0.0 1.7 0.973 -20.6 2.25 1.00
(includes NAICS 111991, Size Std........ 1.75 2.50 1.75 1.75 4.75 1.25
111992 and 111998).
112111 Beef Cattle Ranching Factor.......... 0.1 3.1 0.1 1.0 0.859 ........... 2.25 1.00
and Farming. Size Std........ 1.75 2.00 1.75 1.50 3.75
112112 Cattle Feedlots........ Factor.......... 2.8 63.3 2.0 3.9 0.907 ........... 19.50 8.00
Size Std........ 16.00 9.50 17.00 6.00 41.50
112120 Dairy Cattle and Milk Factor.......... 0.9 9.5 1.5 1.3 0.697 ........... 3.25 1.00
Production. Size Std........ 4.50 3.50 5.00 1.75 2.50
112210 Hog and Pig Farming.... Factor.......... 1.0 11.4 0.8 2.7 0.803 ........... 3.50 1.00
Size Std........ 5.00 3.75 4.00 2.00 3.50
112310 Chicken Egg Production. Factor.......... 0.3 17.8 0.3 4.9 0.936 ........... 15.50 16.50
Size Std........ 6.00 8.00 7.50 6.00 41.50
112320 Broilers and Other Meat Factor.......... 1.5 6.0 1.0 2.8 0.386 ........... 3.00 1.00
Type Chicken Production. Size Std........ 5.00 2.75 4.50 2.00 1.00
112330 Turkey Production...... Factor.......... 2.3 8.6 1.4 4.2 0.554 ........... 3.25 1.00
Size Std........ 5.00 3.25 5.00 2.25 1.25
112340 Poultry Hatcheries..... Factor.......... 10.7 19.6 6.7 5.9 0.493 ........... 3.50 1.00
Size Std........ 5.00 5.00 5.00 2.75 1.00
112390 Other Poultry Factor.......... 0.1 6.2 0.1 11.0 0.931 ........... 3.25 1.00
Production. Size Std........ 2.00 2.75 1.75 4.00 4.50
112410 Sheep Farming.......... Factor.......... 0.0 3.1 0.0 13.4 0.906 ........... 3.00 1.00
Size Std........ 1.50 2.00 1.50 4.50 4.25
112420 Goat Farming........... Factor.......... 0.0 0.2 0.0 4.2 0.836 ........... 2.25 1.00
Size Std........ 1.50 1.50 1.50 2.25 3.75
112500 Aquaculture (includes Factor.......... 0.4 7.2 0.4 8.9 0.816 ........... 3.25 1.00
NAICS 112511, 112512 and Size Std........ 2.75 3.00 2.75 3.50 3.50
112519).
112910 Apiculture............. Factor.......... 0.0 0.7 0.0 6.5 0.882 ........... 2.75 1.00
Size Std........ 1.75 1.50 1.75 3.00 4.00
112920 Horses and Other Equine Factor.......... 0.0 1.0 0.0 3.7 0.900 ........... 2.50 1.00
Production. Size Std........ 1.50 1.75 1.50 2.25 4.25
112930 Fur-Bearing Animal and Factor.......... 0.0 1.6 0.0 48.9 0.894 ........... 3.25 1.00
Rabbit Production. Size Std........ 1.75 1.75 1.50 5.00 4.25
112990 All Other Animal Factor.......... 0.1 5.2 0.1 5.1 0.959 -6.9 2.50 1.00
Production. Size Std........ 1.75 2.50 1.75 2.50 4.75 1.00
[[Page 62247]]
113110 Timber Tract Operations Factor.......... 1.8 19.4 1.0 29.6 0.749 ........... 16.50 12.00
Size Std........ 12.00 8.00 11.50 25.00 19.50
113210 Forest Nurseries and Factor.......... 1.4 12.5 0.7 39.2 0.748 ........... 18.00 12.00
Gathering Forest Products. Size Std........ 10.00 8.00 10.00 32.50 19.50
114111 Finfish Fishing........ Factor.......... 1.8 72.7 2.3 30.5 0.789 ........... 20.50 22.00
Size Std........ 12.00 10.00 18.50 25.50 26.50
114112 Shellfish Fishing...... Factor.......... 0.8 18.5 0.6 25.9 0.700 ........... 12.50 6.00
Size Std........ 8.00 8.00 9.00 22.00 10.50
114119 Other Marine Fishing... Factor.......... 0.8 6.6 0.7 ........... 0.707 ........... 10.00 8.00
Size Std........ 8.00 7.50 10.00 12.00
114210 Hunting and Trapping... Factor.......... 0.6 9.8 0.5 ........... 0.666 ........... 7.50 6.00
Size Std........ 7.00 7.50 9.00 6.00
115111 Cotton Ginning......... Factor.......... 4.3 10.0 3.3 10.2 0.541 ........... 14.00 12.00
Size Std........ 22.00 7.50 24.50 10.00 6.00
115112 Soil Preparation, Factor.......... 1.5 13.6 0.8 7.9 0.684 10.3 8.50 8.00
Planting, and Cultivating. Size Std........ 10.50 8.00 10.50 8.00 7.50 8.00
115113 Crop Harvesting, Factor.......... 1.7 9.5 1.0 18.3 0.704 ........... 12.00 8.00
Primarily by Machine. Size Std........ 11.50 7.50 11.50 16.00 11.50
115114 Postharvest Crop Factor.......... 9.4 191.4 6.3 24.1 0.754 ........... 27.50 30.00
Activities (except Cotton Size Std........ 41.50 13.50 41.00 20.50 20.50
Ginning).
115115 Farm Labor Contractors Factor.......... 1.8 15.3 1.0 ........... 0.727 ........... 12.50 16.50
and Crew Leaders. Size Std........ 12.00 8.00 12.00 15.50
115116 Farm Management Factor.......... 1.3 10.5 0.7 17.9 0.743 ........... 13.50 8.00
Services. Size Std........ 10.00 7.50 10.00 16.00 18.50
115210 Support Activities for Factor.......... 0.6 24.8 0.3 ........... 0.724 -8.9 9.50 8.00
Animal Production. Size Std........ 7.00 8.00 7.50 15.00 8.00
115310 Support Activities for Factor.......... 0.9 11.3 0.4 12.6 0.723 21.3 10.00 8.00
Forestry. Size Std........ 8.00 7.50 8.00 11.50 14.50 8.00
115310 Except, Forest Fire Factor.......... 3.7 198.9 1.6 27.6 0.867 74.7 23.5 20.5
Suppression. Size Std........ 19.5 17.5 15.0 23.5 41.0 20.5
115310 Except Fuels Management Factor.......... 3.7 198.9 1.6 27.6 0.867 74.7 23.5 20.5
Services. Size Std........ 19.5 17.5 15.0 23.5 41.0 20.5
213112 Support Activities for Factor.......... 11.5 4,184.6 9.6 34.2 0.849 10.1 38.0 41.5
Oil and Gas Operations. Size Std........ 41.5 41.5 41.5 28.5 37.5 41.5
213113 Support Activities for Factor.......... 7.2 41.0 5.6 20.5 0.749 ........... 24.0 22.0
Coal Mining. Size Std........ 34.0 8.5 37.0 18.0 19.5
213114 Support Activities for Factor.......... 12.2 236.0 9.4 54.8 0.823 ........... 36.0 22.0
Metal Mining. Size Std........ 41.5 15.0 41.5 41.5 33.0
213115 Support Activities for Factor.......... 2.8 32.1 2.2 34.3 0.708 ........... 18.0 8.0
Nonmetallic Minerals (except Size Std........ 16.0 8.5 18.5 28.5 12.0
Fuels) Mining.
221310 Water Supply and Factor.......... 2.9 1,023.6 9.6 49.9 0.834 -17.0 36.0 30.0
Irrigation Systems. Size Std........ 16.5 41.5 41.5 41.0 35.0 34.5
221320 Sewage Treatment Factor.......... 3.6 142.2 18.2 55.0 0.824 -6.9 31.0 22.0
Facilities. Size Std........ 19.5 12.0 41.5 41.5 33.0 22.0
221330 Steam and Air- Factor.......... 43.3 176.2 24.0 60.3 0.678 21.4 26.5 16.5
Conditioning Supply. Size Std........ 41.5 13.0 41.5 41.5 6.5 16.5
236115 New Single-Family Factor.......... 1.3 30.8 0.7 2.6 0.667 ........... 8.0 39.5
Housing Construction (except Size Std........ 10.0 8.5 9.5 6.0 6.0
For-Sale Builders).
236116 New Multifamily Housing Factor.......... 10.9 121.7 3.6 9.4 0.782 -3.8 25.5 39.5
Construction (except For-Sale Size Std........ 41.5 11.5 26.5 9.0 25.5 39.5
Builders).
236117 New Housing For-Sale Factor.......... 5.2 1,172.3 3.5 19.9 0.818 ........... 27.5 39.5
Builders. Size Std........ 26.0 41.5 25.5 17.5 32.0
236118 Residential Remodelers. Factor.......... 0.7 34.6 0.2 3.4 0.667 -62.6 13.5 39.5
Size Std........ 7.5 8.5 7.0 6.0 6.0 41.5
236210 Industrial Building Factor.......... 10.2 351.6 3.5 17.7 0.830 17.0 29.0 39.5
Construction. Size Std........ 41.5 19.0 25.5 15.5 34.0 39.5
236220 Commercial and Factor.......... 8.3 515.4 2.6 5.0 0.802 9.4 25.5 39.5
Institutional Building Size Std........ 38.5 24.5 20.5 6.0 29.0 39.5
Construction.
237110 Water and Sewer Line Factor.......... 4.1 98.2 2.0 6.5 0.756 -4.1 20.0 39.5
and Related Structures Size Std........ 21.0 10.5 17.5 7.0 21.0 39.5
Construction.
237120 Oil and Gas Pipeline Factor.......... 22.8 715.1 10.4 20.8 0.806 4.4 33.0 39.5
and Related Structures Size Std........ 41.5 31.0 41.5 18.0 30.0 39.5
Construction.
237130 Power and Communication Factor.......... 9.3 647.7 4.2 18.5 0.824 1.4 31.0 39.5
Line and Related Structures Size Std........ 41.5 29.0 30.0 16.0 33.0 39.5
Construction.
237210 Land Subdivision....... Factor.......... 2.7 42.4 6.8 8.1 0.782 ........... 22.0 30.0
Size Std........ 15.5 9.0 41.5 8.0 25.5
[[Page 62248]]
237310 Highway, Street, and Factor.......... 12.3 285.7 6.2 6.9 0.779 24.8 28.5 39.5
Bridge Construction. Size Std........ 41.5 17.0 40.5 7.0 25.0 39.5
237990 Other Heavy and Civil Factor.......... 7.4 458.2 3.9 20.6 0.825 7.8 29.5 39.5
Engineering Construction. Size Std........ 34.5 22.5 28.0 18.0 33.0 39.5
237990 Except Dredging and Factor.......... 42.6 384.2 21.3 55.4 0.744 6.2 32.5 30.0
Surface Cleanup Activities. Size Std........ 41.5 20.0 41.5 41.5 18.5.0 30.0
238110 Poured Concrete Factor.......... 1.7 53.3 0.6 4.9 0.731 -10.3 12.5 16.5
Foundation and Structure Size Std........ 11.5 9.0 9.5 6.0 16.0 20.0
Contractors.
238120 Structural Steel and Factor.......... 3.1 38.3 1.3 7.1 0.720 26.9 13.0 16.5
Precast Concrete Contractors. Size Std........ 17.0 8.5 13.5 7.5 14.0 16.5
238130 Framing Contractors.... Factor.......... 0.8 19.0 0.2 5.0 0.707 ........... 8.5 16.5
Size Std........ 8.0 8.0 7.5 6.0 12.0
238140 Masonry Contractors.... Factor.......... 1.0 17.1 0.3 3.1 0.717 -4.8 10.5 16.5
Size Std........ 8.5 8.0 8.0 6.0 13.5 16.5
238150 Glass and Glazing Factor.......... 1.7 16.8 0.6 5.2 0.674 ........... 8.0 16.5
Contractors. Size Std........ 11.5 8.0 9.5 6.0 6.0
238160 Roofing Contractors.... Factor.......... 1.7 35.2 0.6 4.4 0.694 12.0 10.0 16.5
Size Std........ 11.5 8.5 9.0 6.0 9.5 16.5
238170 Siding Contractors..... Factor.......... 0.7 10.5 0.2 3.1 0.655 ........... 7.0 16.5
Size Std........ 7.5 7.5 7.5 6.0 6.0
238190 Other Foundation, Factor.......... 1.6 34.7 0.5 9.9 0.732 -10.2 13.0 16.5
Structure, and Building Size Std........ 11.0 8.5 9.0 9.5 16.5 20.0
Exterior Contractors.
238210 Electrical Contractors Factor.......... 2.0 164.4 0.7 5.1 0.767 -1.7 13.5 16.5
and Other Wiring Installation Size Std........ 12.5 13.0 10.0 6.0 22.5 16.5
Contractors.
238220 Plumbing, Heating, and Factor.......... 1.7 123.8 0.5 4.1 0.737 24.0 12.0 16.5
Air-Conditioning Contractors. Size Std........ 11.5 11.5 9.0 6.0 17.5 16.5
238290 Other Building Factor.......... 4.4 453.7 1.5 24.7 0.775 22.5 19.5 16.5
Equipment Contractors. Size Std........ 22.5 22.5 14.0 21.0 24.0 16.5
238310 Drywall and Insulation Factor.......... 1.7 59.3 0.5 6.0 0.746 ........... 11.5 16.5
Contractors. Size Std........ 11.5 9.5 9.0 6.5 19.0
238320 Painting and Wall Factor.......... 0.6 60.6 0.2 6.9 0.697 0.4 10.0 16.5
Covering Contractors. Size Std........ 7.0 9.5 7.0 7.0 10.0 16.5
238330 Flooring Contractors... Factor.......... 0.9 22.4 0.3 5.0 0.718 12.3 10.5 16.5
Size Std........ 8.5 8.0 7.5 6.0 14.0 16.5
238340 Tile and Terrazzo Factor.......... 0.7 10.4 0.3 3.4 0.695 ........... 7.5 16.5
Contractors. Size Std........ 7.5 7.5 7.5 6.0 9.5
238350 Finish Carpentry Factor.......... 0.7 15.1 0.2 2.2 0.686 ........... 7.5 16.5
Contractors. Size Std........ 7.5 8.0 7.0 6.0 8.0
238390 Other Building Factor.......... 1.4 18.1 0.5 5.1 0.705 -13.9 11.0 16.5
Finishing Contractors. Size Std........ 10.5 8.0 8.5 6.0 11.5 20.0
238910 Site Preparation Factor.......... 2.0 39.3 0.9 2.1 0.733 19.4 12.0 16.5
Contractors. Size Std........ 12.5 8.5 11.0 6.0 16.5 16.5
238990 All Other Specialty Factor.......... 1.4 113.9 0.5 7.8 0.703 -24.4 11.5 16.5
Trade Contractors. Size Std........ 10.0 11.0 9.0 8.0 11.0 20.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Methodology for Agricultural Size Standards
Forty-six industries in Subsectors 111 and 112 currently have the
same $1 million receipts-based size standard. These industries
previously had a $750,000 receipts-based size standard, which was
established directly by Congress in section 806 of the Small Business
Reauthorization Act of 2000, Appendix I, Public Law 106-554, 114 Stat.
2763, December 21, 2000). Effective August 19, 2019, that size standard
was raised to $1 million by the interim final rule adjusting all
monetary size standards for inflation (published in the Federal
Register on July 18, 2019, (84 FR 34261)). NDAA 2017 directed SBA to
establish the size standards for those industries in the same manner
that the Agency establishes the size standards for other industries and
to include them in the 5-year rolling review under the Jobs Act.
Accordingly, in this proposed rule, SBA has evaluated those industries
using the same industry and Federal contracting factors that it uses in
evaluating characteristics of all other industries and their size
standards. However, the industry data from the 2012 Agricultural Census
tabulation reveals that firms in agricultural industries are much
smaller than those in all other industries with receipts-based size
standards. Therefore, as stated earlier, based on the data, SBA has
established $1 million and $5 million as the minimum and maximum
receipts-based size standard levels, respectively, for agricultural
industries, as opposed to $6 million as the minimum and $41.5 million
as the maximum receipts-based size standard levels for all other
industries. Similarly, SBA rounds a calculated receipts-based size
standard for agricultural industries to the nearest $250,000 instead of
rounding it to the nearest $500,000 as for other industries.
[[Page 62249]]
Of the 46 NAICS 6-digit industries in Subsectors 111 and 112, the
special tabulation of the 2012 Census of Agriculture provided data for
36 industries at the NAICS 6-digit level. Of the remaining ten (10),
seven (7) were aggregated at three different 5-digit NAICS levels and
three (3) were aggregated at one 4-digit NAICS level. SBA ranked these
40 industry categories (i.e., thirty-six (36) 6-digit, three (3) 3-
digit, and one (1) 4-digit) in terms of each industry factor and
obtained the 20th percentile an 80th percentile values for each factor.
However, since all those industries currently have the same $1 million
size standard, SBA cannot compute the 20th percentile and 80th
percentile values from existing size standards as for other industries.
Given the $1 million minimum and $5 million maximum size standard
levels and calculated size standards being rounded to the nearest
$250,000, SBA derived all possible size standards levels (e.g., $1
million, $1.25 million, $1.5 million . . . $4.75 million, and $5
million). Based on these levels, SBA computed $1.75 million as the 20th
percentile and $4.25 million as 80th percentile values of size
standards for agricultural industries. Combining these results with the
20th percentile and 80th percentile values of industry factors, SBA
computed a size standard for each factor for each industry. These
results are provided in Table 4, above.
For the 10 industries for which the data did not exist at the 6-
digit NAICS level, SBA estimated the size standard at the 5- or 4-digit
NAICS level at which the data were available and applied the same
results to the relevant 6-digit NAICS levels. These results are shown,
below, in Table 5, Calculated Agricultural Size Standards at the 4- or
5-Digit NAICS Level Matched to the 6-Digit Level.
Table 5--Calculated Agricultural Size Standards at the 4- or 5-Digit NAICS Level Matched to the 6-Digit Level
----------------------------------------------------------------------------------------------------------------
Calculated
size standard Calculated
4- or 5-digit NAICS code/title ($ million) 6-digit NAICS code/title size standard
(see Table 4) ($ million)
----------------------------------------------------------------------------------------------------------------
11119 Other Grain Farming..................... $2.0 111191 Oilseed and Grain $2.0
Combination Farming.
111199 All Other Grain Farming.. 2.0
11141 Food Crops Grown Under Cover............ 4.0 111411 Mushroom Production...... 4.0
111419 Other Food Crops Grown 4.0
Under Cover.
11199 All Other Crop Farming.................. 2.25 111991 Sugar Beet Farming....... 2.25
111992 Peanut Farming........... 2.25
111998 All Other Miscellaneous 2.25
Crop Farming.
1125 Aquaculture.............................. 3.25 112511 Finfish Farming and Fish 3.25
Hatcheries.
112512 Shellfish Farming........ 3.25
112519 Other Aquaculture........ 3.25
----------------------------------------------------------------------------------------------------------------
Evaluation of Size Standards for Subindustry Categories or
``Exceptions''
In accordance with SBA's approach to evaluating size standards for
subindustry categories (or ``exceptions''), SBA has evaluated the three
(3) exceptions covered by this rule using the procedures described in
the revised SBA's Methodology. The results of that analysis are
discussed in the following two subsections.
Forest Fire Suppression and Fuel Management Services
Forest Fire Suppression and Fuels Management Services are
subindustry categories or exceptions under NAICS 115310 (Support
Activities for Forestry) with the current size standard of $20.5
million in average annual receipts. In 2003, SBA established a
different size standard for these subindustry activities (68 FR 33348
(June 4, 2003)). In 2013, as part of the first 5-year review of size
standards under the Jobs Act, SBA initially maintained $17.5 million as
the size standard for these exceptions (78 FR 37398 (June 20, 2013)),
and subsequently, as part of the adjustment to monetary-based size
standards for inflation, the Agency increased the size standard from
$17.5 million to $19 million (79 FR 33647 (June 12, 2014)), and in the
fiscal year 2019 the size standard was adjusted from $19 million to
$20.5 million (84 FR 34261 (July 18, 2019)).
The data from the Census Bureau's and NASS' special tabulations are
limited to the 6-digit NAICS industry level, and hence, do not provide
separate data to evaluate a size standard at the subindustry level. As
such, SBA relied upon data from other sources to evaluate the current
$20.5 million size standard for both exceptions.
Firms engaged in the Forest Fire Suppression and Fuels Management
Services subindustries were identified from the contracting data
reported in FPDS-NG during fiscal years 2016-2018. Specifically, the
contracts under Forest Fire Suppression and Fuels Management Services
exceptions can be identified as those classified within NAICS 115310
under the Product Service Code (PSC) F003 (Natural Resources/
Conservation--Forest-Range Fire Suppression/Presuppression). SBA also
evaluated the contract data from the USDA Forest Service National
Interagency Fire Center (https://www.fs.fed.us/managing-land/fire and
http://www.fs.fed.us/business/incident/vipr.php). SBA also evaluated
the description of requirements of the contracts for Forest Fire
Suppression and Fuels Management Services in FPDS-NG to identify
principal activities related to forest fire suppression and fuel
management services and to differentiate them from other support
activities for forestry. SBA identified activities associated with
specialized crews, equipment and engines with trained personnel that
are critical to perform the tasks of suppressing or managing fires as
principal activities and other activities, such as leases of equipment,
machinery and transportation vehicles, or provision of services that do
not require specialized personnel or training as supporting activities.
Since most firms involved in Fire Suppression Services were also found
to be involved in Fuels Management Services and vice versa, SBA
analyzed the two as one subindustry category.
Finally, SBA obtained receipts and employment data for the fiscal
years 2016-2018 from FPDS-NG and from the System for Award Management
(SAM) to develop industry and Federal contracting factors for
evaluating the size standard for the two exceptions. SBA chose firms
with receipts greater than zero and less than $1 billion. Firms with
receipts greater than $1 billion are
[[Page 62250]]
outliers and their revenues would skew the data. Similarly, firms with
receipts at or below zero have insignificant contributions to total
Federal contract dollars obligated to the industry. Table 4, above,
shows the results from the analysis of these subindustries, which
supported a $23.5 million size standard as compared to the current
$20.5 million. Given the inherent uncertainty of occurrences of forest
fires and recent surges in forest fire incidents and extended fire
seasons, SBA believes that contracting officers need to have
flexibility to be able to hire enough small businesses, especially in
the worst-case scenario. SBA estimates that in a very busy season, it
is not implausible to assume 120 days of 14 hours shifts. Assuming an
average price of $43 dollars per person per hour, a total amount of
about $6 million could be awarded to a firm with an average number of 4
crews. In the case of firms with 15 crews, the amount could reach $22.0
million. Both numbers include only payments to firefighters for direct
fire suppression activities; in other words, here we did not consider
in the analysis additional payments, such as payments for fire engines,
water tenders, etc. With this reality in mind, SBA proposes to increase
the size standard for the Forest Fire Suppression and Fuels Management
Services exceptions to $25 million, above the current size standard of
$20.5 million and the calculated size standard of $23.5 million and
seeks comments on this proposal.
Dredging and Surface Cleanup Activities
The Dredging and Surface Cleanup Activities (Dredging) size
standard is an exception established by SBA within the 6-digit NAICS
code 237990 (Other Heavy and Civil Engineering Construction). As stated
previously, the data from the Census Bureau's special tabulation of the
Economic Census is limited to the 6-digit NAICS industry level, and
hence, does not provide separate data at the subindustry level to
evaluate exceptions. Accordingly, SBA relied upon the data from other
sources to evaluate the current $30.0 million size standard for
Dredging.
SBA identified firms engaged in the Dredging subindustry using the
contract awards data within NAICS 237990 in FPDS-NG for fiscal years
2016-2018. Specifically, dredging contracts were identified as those
classified under one of the following Product Service Codes (PSCs):
C1KF--Architect and Engineering Construction--Dredging Facilities;
M1KF--Operation of Dredging Facilities; X1KF--Lease/Rental of Dredging
Facilities; Y1KF--Construction of Dredging Facilities; Z1KF--
Maintenance of Dredging Facilities; Z2KF--Repair or alternation of
Dredging Facilities; and 1955--Dredges. SBA obtained receipts and
employment data for the identified Dredging firms from the System for
Award Management (SAM) and FPDS-NG to develop industry and Federal
contracting factors for Dredging. SBA excluded from the analysis firms
for which Dredging Federal contracts dollars accounted for a very small
percentage of their average annual receipts. SBA also excluded from the
analysis contracts awarded under PSCs C1KF and X1KF and firms receiving
such contracts as contract dollars under those PSCs were very small.
After these exclusions, SBA evaluated the data for a total of 100
Dredging firms that have received Federal contracts under NAICS 237990
and the above PSCs during fiscal years 2016-2018.
SBA also looked at the Dredging contracting information from the US
Army Corps of Engineers' Navigation and Civil Works Decision Support
Center (NDC) (https://www.iwr.usace.army.mil/About/Technical-Centers/NDC-Navigation-and-Civil-Works-Decision-Support/), as well as the
annual reports from Dredging Contractors of America (DCA)
(www.dredgingcontractors.org). However, those sources do not provide
information on business size and seem to include a smaller number of
dredging firms as compared to the number of Dredging firms found in
FPDS-NG. SBA's analysis included a vast majority of all firms found in
the NDC and DCA reports, except a few that received contracts in
industries other than NAICS 237990 or in PSCs other than those
described above.
Table 4, above, shows the results from the analysis of the Dredging
subindustry that support raising the current $30.0 million size
standard for the Dredging exception to $33.0 million. As also shown in
Table 4, the results for overall NAICS 237990 yields a smaller
calculated size standard of $29.5 million as compared to the current
standard of $39.5 million. Thus, the analytical results from the latest
available industry and Federal contracting data seem to suggest that a
separate size standard is still warranted for Dredging. Historically,
the Dredging exception size standard has been lower than the overall
NAICS 237990 size standard, but the latest results suggest otherwise.
As such, in this proposed rule, SBA is proposing to retain current size
standard for the overall NAICS 237990 and increase the size standard of
the Dredging subindustry to $33.0 million and seeking comment on the
proposal. Additionally, SBA is seeking comments on whether Dredging and
Surface Cleanup Activities should continue to be treated as an
exception or on whether it should be eliminated and subject to the same
overall NAICS 237990 size standard.
Summary of Calculated Size Standards
Of the one hundred (100) industries and three (3) subindustries
(exceptions) reviewed in this proposed rule, the results from analyses
of the latest available data on the five primary factors from Table 4,
Size Standards Supported by Each Factor for Each Industry (millions of
dollars), above, would support increasing size standards for sixty-five
(65) industries and three (3) subindustries, and decreasing size
standards for thirty-five (35) industries. Table 6, Summary of
Calculated Size Standards, summarizes these results by NAICS sector.
Table 6--Summary of Calculated Size Standards
----------------------------------------------------------------------------------------------------------------
Number of Number of Number of Number of
size size size size
NAICS sector Sector name standards standards standards standards
reviewed increased decreased unchanged
----------------------------------------------------------------------------------------------------------------
11.................................... Agriculture, Forestry, 64 60 4 0
Fishing and Hunting.
21.................................... Mining, Quarrying, and 4 3 1 0
Oil and Gas Extraction.
22.................................... Utilities............... 3 3 0 0
23.................................... Construction............ 32 2 30 0
-----------------------------------------------
All Sectors....................... ........................ 103 68 35 0
----------------------------------------------------------------------------------------------------------------
[[Page 62251]]
Evaluation of SBA Loan Data
Before proposing or deciding on an industry's size standard
revision, SBA also considers the impact of size standards revisions on
SBA's loan programs. Accordingly, SBA examined its internal 7(a) and
504 loan data for fiscal years 2016-2018 to assess whether the
calculated size standards in Table 4 (above) need further adjustments
to ensure credit opportunities for small businesses through those
programs. For the industries reviewed in this rule, the data shows that
it is mostly businesses much smaller than the current or proposed size
standards that receive SBA's 7(a) and 504 loans. For example, for
industries covered by this rule, more than 95.6 percent of 7(a) and 504
loans in fiscal years 2016-2018 went to businesses below the current or
proposed size standards.
Proposed Changes to Size Standards
Based on the analytical results in Table 4 and considerations of
impacts of calculated size standards in terms of access by currently
small businesses to SBA's loans, as discussed above, of a total of one
hundred three (103) industries or subindustries (exceptions) with
receipts-based size standards in Sectors 11, 21, 22 and 23 that are
covered by this rule, and considering the current situation due to the
COVID-19 related national emergency and its impacts on small businesses
and the overall economy, SBA proposes to increase size standards for 68
industries or subindustries, and retain the current size standards for
the remaining 35 industries.
Special Considerations
On March 13, 2020, the ongoing Coronavirus Disease 2019 (COVID-19)
was declared a pandemic of enough severity and magnitude to warrant an
emergency declaration for all states, territories, and the District of
Columbia. With the COVID-19 emergency, many small businesses nationwide
are experiencing economic hardship as a direct result of the Federal,
State, and local public health measures that are being taken to
minimize the public's exposure to the virus. These measures, some of
which are government-mandated, are being implemented nationwide and
include the closures of restaurants, bars, and gyms. In addition, based
on the advice of public health officials, other measures, such as
keeping a safe distance from others or even stay-at-home orders, are
being implemented, resulting in a dramatic decrease in economic
activity as the public avoids malls, retail stores, and other
businesses.
The Coronavirus Aid, Relief, and Economic Security Act (the CARES
Act or the Act) (Pub. L. 116-136) was signed on March 27, 2020, to
provide emergency assistance and health care response for individuals,
families, and businesses affected by the coronavirus pandemic. Section
1102 of the Act temporarily permits SBA to guarantee 100 percent of
7(a) loans under a new program titled the Paycheck Protection Program
(PPP). Section 1106 of the Act provides for forgiveness of up to the
full principal amount of qualifying loans guaranteed under the PPP. The
PPP and loan forgiveness are intended to provide economic relief to
small businesses nationwide adversely impacted under the COVID-19. On
April 24, 2020, additional funding for the CARES Act, including for the
PPP, was provided.
The Agency is following closely the development of the pandemic and
the economic situation and recovery. The consequence of the initial
response of the public to the COVID-19 pandemic as well as the
different measures taken by the Government to contain it (e.g. stay at
home orders, social distancing, etc.) have resulted in the present
economic decline. A variety of economic indicators such as the Gross
Domestic Product (GDP) and the unemployment rate shows that this
recession is significantly worse than any other recession since World
War II. The GDP decreased nearly 5 percent, and the Personal
consumption in goods and services decreased 6.8 percent in the first
quarter of 2020; in May 2020, personal income decreased 4.2 percent and
the unemployment rate increased from 3.5 percent in February 2020 to
11.1 percent in June 2020, and, also for the month of June 2020, Non-
farm payroll decreased by 15 million since February 2020. Specifically
for the sectors evaluated in this proposed rule, more recent data in
June 2020 shows that the unemployment rate for Agriculture and related
private wage and salary workers was 5.4 percent, but the sector of
Mining, quarrying, and oil and gas extraction shows an unemployment
rate of 17.8 percent and the construction sector, 10.1 percent. In June
2019, the unemployment rates for these sectors were 5.9, 3.2 and 4
percent, respectively. The latest Federal Reserve Board's Monetary
Policy Report shows that in general the most impacted firms in these
sectors are small businesses.\1\
---------------------------------------------------------------------------
\1\ Board of Governors of the Federal Reserve System (June
2020), Monetary Policy Report, p. 24 (see https://www.federalreserve.gov/monetarypolicy/files/20200612_mprfullreport.pdf) and U.S. Census Bureau's Small Business
Pulse Survey (https://portal.census.gov/pulse/data). The latest is a
recent survey created by the Census Bureau to provide high-
frequency, detailed information on participation in small business-
specific initiatives such as the PPP.
---------------------------------------------------------------------------
Accordingly, in view of above impacts on small businesses from the
COVID-19 pandemic and Federal government efforts to provide relief to
small businesses and support to the overall economy, SBA proposes to
adopt increases to size standards for 68 industries and retain the
current size standards for 35 industries for which analytical results
suggested their size standards could be lowered.
The proposed size standards are presented in Table 7, Proposed Size
Standards Revisions. Also presented in Table 7 are current and
calculated size standards for comparison.
Table 7--Proposed Size Standards Revisions
----------------------------------------------------------------------------------------------------------------
Current size Calculated Proposed size
NAICS code NAICS industry title standard ($ size standard standard ($
million) ($ million) million)
----------------------------------------------------------------------------------------------------------------
111110........................... Soybean Farming.............. $1.0 $2.0 $2.0
111120........................... Oilseed (except Soybean) 1.0 2.0 2.0
Farming.
111130........................... Dry Pea and Bean Farming..... 1.0 2.5 2.5
111140........................... Wheat Farming................ 1.0 2.0 2.0
111150........................... Corn Farming................. 1.0 2.25 2.25
111160........................... Rice Farming................. 1.0 2.25 2.25
111191........................... Oilseed and Grain Combination 1.0 2.0 2.0
Farming.
111199........................... All Other Grain Farming...... 1.0 2.0 2.0
[[Page 62252]]
111211........................... Potato Farming............... 1.0 3.75 3.75
111219........................... Other Vegetable (except 1.0 3.25 3.25
Potato) and Melon Farming.
111310........................... Orange Groves................ 1.0 3.5 3.5
111320........................... Citrus (except Orange) Groves 1.0 3.75 3.75
111331........................... Apple Orchards............... 1.0 4.0 4.0
111332........................... Grape Vineyards.............. 1.0 3.5 3.5
111333........................... Strawberry Farming........... 1.0 4.75 4.75
111334........................... Berry (except Strawberry) 1.0 3.25 3.25
Farming.
111335........................... Tree Nut Farming............. 1.0 3.25 3.25
111336........................... Fruit and Tree Nut 1.0 4.5 4.5
Combination Farming.
111339........................... Other Noncitrus Fruit Farming 1.0 3.0 3.0
111411........................... Mushroom Production.......... 1.0 4.0 4.0
111419........................... Other Food Crops Grown Under 1.0 4.0 4.0
Cover.
111421........................... Nursery and Tree Production.. 1.0 2.75 2.75
111422........................... Floriculture Production...... 1.0 3.25 3.25
111910........................... Tobacco Farming.............. 1.0 2.25 2.25
111920........................... Cotton Farming............... 1.0 2.75 2.75
111930........................... Sugarcane Farming............ 1.0 4.5 4.5
111940........................... Hay Farming.................. 1.0 2.25 2.25
111991........................... Sugar Beet Farming........... 1.0 2.25 2.25
111992........................... Peanut Farming............... 1.0 2.25 2.25
111998........................... All Other Miscellaneous Crop 1.0 2.25 2.25
Farming.
112111........................... Beef Cattle Ranching and 1.0 2.25 2.25
Farming.
112112........................... Cattle Feedlots.............. 8.0 19.5 19.5
112120........................... Dairy Cattle and Milk 1.0 3.25 3.25
Production.
112210........................... Hog and Pig Farming.......... 1.0 3.5 3.5
112310........................... Chicken Egg Production....... 16.5 15.5 16.5
112320........................... Broilers and Other Meat Type 1.0 3.0 3.0
Chicken Production.
112330........................... Turkey Production............ 1.0 3.25 3.25
112340........................... Poultry Hatcheries........... 1.0 3.5 3.5
112390........................... Other Poultry Production..... 1.0 3.25 3.25
112410........................... Sheep Farming................ 1.0 3.0 3.0
112420........................... Goat Farming................. 1.0 2.25 2.25
112511........................... Finfish Farming and Fish 1.0 3.25 3.25
Hatcheries.
112512........................... Shellfish Farming............ 1.0 3.25 3.25
112519........................... Other Aquaculture............ 1.0 3.25 3.25
112910........................... Apiculture................... 1.0 2.75 2.75
112920........................... Horses and Other Equine 1.0 2.5 2.5
Production.
112930........................... Fur-Bearing Animal and Rabbit 1.0 3.25 3.25
Production.
112990........................... All Other Animal Production.. 1.0 2.5 2.5
113110........................... Timber Tract Operations...... 12.0 16.5 16.5
113210........................... Forest Nurseries and 12.0 18.0 18.0
Gathering of Forest Products.
114111........................... Finfish Fishing.............. 22.0 20.5 22.0
114112........................... Shellfish Fishing............ 6.0 12.5 12.5
114119........................... Other Marine Fishing......... 8.0 10.0 10.0
114210........................... Hunting and Trapping......... 6.0 7.5 7.5
115111........................... Cotton Ginning............... 12.0 14.0 14.0
115112........................... Soil Preparation, Planting, 8.0 8.5 8.5
and Cultivating.
115113........................... Crop Harvesting, Primarily by 8.0 12.0 12.0
Machine.
115114........................... Postharvest Crop Activities 30.0 27.5 30.0
(except Cotton Ginning).
115115........................... Farm Labor Contractors and 16.50 12.5 16.5
Crew Leaders.
115116........................... Farm Management Services..... 8.0 13.5 13.5
115210........................... Support Activities for Animal 8.0 9.5 9.5
Production.
115310........................... Support Activities for 8.0 10.0 10.0
Forestry.
Except........................... Fire Suppression Services.... 20.5 23.5 25.0
Except........................... Fuels Management Services.... 20.5 23.5 25.0
213112........................... Support Activities for Oil 41.5 38.0 41.5
and Gas Operations.
213113........................... Support Activities for Coal 22.0 24.0 24.0
Mining.
213114........................... Support Activities for Metal 22.0 36.0 36.0
Mining.
213115........................... Support Activities for 8.0 18.0 18.0
Nonmetallic Minerals (except
Fuels) Mining.
221310........................... Water Supply and Irrigation 30.0 36.0 36.0
Systems.
221320........................... Sewage Treatment Facilities.. 22.0 31.0 31.0
221330........................... Steam and Air-Conditioning 16.5 26.5 26.5
Supply.
236115........................... New Single-Family Housing 39.5 8.0 39.5
Construction (except For-
Sale Builders).
236116........................... New Multifamily Housing 39.5 25.5 39.5
Construction (except For-
Sale Builders).
236117........................... New Housing For-Sale Builders 39.5 27.5 39.5
236118........................... Residential Remodelers....... 39.5 13.5 39.5
236210........................... Industrial Building 39.5 29.0 39.5
Construction.
236220........................... Commercial and Institutional 39.5 25.5 39.5
Building Construction.
[[Page 62253]]
237110........................... Water and Sewer Line and 39.5 20.0 39.5
Related Structures
Construction.
237120........................... Oil and Gas Pipeline and 39.5 33.0 39.5
Related Structures
Construction.
237130........................... Power and Communication Line 39.5 31.0 39.5
and Related Structures
Construction.
237210........................... Land Subdivision............. 30.0 22.0 30.0
237310........................... Highway, Street, and Bridge 39.5 28.5 39.5
Construction.
237990........................... Other Heavy and Civil 39.5 29.5 39.5
Engineering Construction.
Except........................... Dredging and Surface Clean-Up 30.0 32.5 32.5
Activities.
238110........................... Poured Concrete Foundation 16.5 12.5 16.5
and Structure Contractors.
238120........................... Structural Steel and Precast 16.5 13.0 16.5
Concrete Contractors.
238130........................... Framing Contractors.......... 16.5 8.5 16.5
238140........................... Masonry Contractors.......... 16.5 10.5 16.5
238150........................... Glass and Glazing Contractors 16.5 8.0 16.5
238160........................... Roofing Contractors.......... 16.5 10.0 16.5
238170........................... Siding Contractors........... 16.5 7.0 16.5
238190........................... Other Foundation, Structure, 16.5 13.0 16.5
and Building Exterior
Contractors.
238210........................... Electrical Contractors and 16.5 13.5 16.5
Other Wiring Installation
Contractors.
238220........................... Plumbing, Heating, and Air- 16.5 12.0 16.5
Conditioning Contractors.
238290........................... Other Building Equipment 16.5 19.5 19.5
Contractors.
238310........................... Drywall and Insulation 16.5 11.5 16.5
Contractors.
238320........................... Painting and Wall Covering 16.5 10.0 16.5
Contractors.
238330........................... Flooring Contractors......... 16.5 10.5 16.5
238340........................... Tile and Terrazzo Contractors 16.5 7.5 16.5
238350........................... Finish Carpentry Contractors. 16.5 7.5 16.5
238390........................... Other Building Finishing 16.5 11.0 16.5
Contractors.
238910........................... Site Preparation Contractors. 16.5 12.0 16.5
238990........................... All Other Specialty Trade 16.5 11.5 16.5
Contractors.
----------------------------------------------------------------------------------------------------------------
Table 8, Summary of Proposed Size Standards Revisions by Sector,
below, summarizes the proposed changes to size standards by NAICS
sector.
Table 8--Summary of Proposed Size Standards Revisions by Sector
----------------------------------------------------------------------------------------------------------------
Size standards Size standards Size standards
NAICS Sector Sector name increased lowered maintained
----------------------------------------------------------------------------------------------------------------
11.................................... Agriculture, Forestry, 60 0 4
Fishing and Hunting.
21.................................... Mining, Quarrying, and 3 0 1
Oil and Gas Extraction.
22.................................... Utilities............... 3 0 0
23.................................... Construction............ 2 0 30
-----------------------------------------------
All Sectors....................... ........................ 68 0 35
----------------------------------------------------------------------------------------------------------------
Evaluation of Dominance in Field of Operation
SBA has determined that for the industries which it has evaluated
in this proposed rule, no individual firm at or below the proposed size
standard would be large enough to dominate its field of operation. At
the proposed size standards levels, if adopted, the small business
share of total industry receipts among those industries would be, on
average, 1.1 percent, varying from 0.003 percent to 30.5 percent. These
market shares effectively preclude a firm at or below the proposed size
standards from exerting control on any of the industries.
Alternatives Considered
By law, SBA is required to develop numerical size standards for
establishing eligibility for Federal small business assistance programs
and to review every five years all size standards and make necessary
adjustments to reflect the current industry structure and Federal
market conditions. Other than varying the levels of size standards by
industry and changing the measures of size standards (e.g., using
annual receipts vs. the number of employees), no practical alternatives
exist to the systems of numerical size standards.
The proposal is to increase size standards where the data suggested
increases are warranted, and to retain, in response to COVID-19
emergency and resultant economic impacts on small businesses, all
current size standards where the data suggested lowering is
appropriate.
Nonetheless, SBA considered two other alternatives. Alternative
option one was to propose changes exactly as suggested by the
analytical results. Alternative option two was to retain all current
size standards.
Alternative option one would cause a substantial number of
currently small businesses to lose their small business status and
hence to lose their access to Federal small business assistance,
especially small business set-aside contracts and SBA's financial
assistance in some cases. During the first 5-year review of size
standards, some commenters had expressed concerns
[[Page 62254]]
about SBA's policy of not lowering size standards based on the
analytical results.
As part of option one, SBA also considered increasing 68 size
standards as suggested by the analytical results and mitigating the
impact of the decreases to size standards by adjusting the calculated
sizes considering the impact on small business access to Federal
contracting and loans. However, in the present situation with the
global COVID-19 pandemic resulting in high levels of risk and dramatic
reductions in economic activity of unprecedented nature, SBA presents
the impacts of adopting the analytical results without adjustment in
alternative option one and proposes to retain all size standards for
which the evaluation of principal factors suggested reductions, and to
adopt only the increases suggested by the evaluation. SBA will adopt
this approach temporarily and may reevaluate this approach as the
economic situation evolves.
Under option two, given the current COVID-19 Pandemic, SBA
considered retaining the current level of all size standards even
though the current analysis may suggest changing them. SBA considers
that the option of retaining all size standards at this moment provides
the opportunity to reassess the economic situation once the economic
recovery starts. Under this option, as the current situation develops,
SBA will be able to assess new data available on economic indicators,
federal procurement, and SBA loans as well, before adopting changes to
size standards. However, SBA is not adopting option two because the
Regulatory Impact Analysis shows that retaining all size standards at
their current levels is more onerous for the small businesses than the
option of adopting 68 increases and retaining 35 size standards.
Additionally, SBA regards size standards evaluation of 46 agricultural
industries for the first time as one of the most important
contributions of our current comprehensive size standards review, and
postponing the adoption of the calculated size standards should be
detrimental for the small businesses within those industries. Finally,
given the inherent uncertainty of occurrences of fires, the recent
surges in forest fire incidents and the extended fire seasons, SBA
believes that not proposing the increases in size standards for the
NAICS 115310 in general and its two exceptions will adversely affect
the availability of small businesses for these tasks, especially in the
worst-case scenarios. SBA may reevaluate this approach as the current
economic situation evolves.
Request for Comments
SBA invites public comments on this proposed rule, especially on
the following issues:
1. SBA seeks feedback on whether SBA's proposal to increase 68 size
standards and retain 35 size standards is appropriate given the results
from the latest available industry and Federal contracting data of each
industry and subindustry (exception) reviewed in this proposed rule,
along with ongoing uncertainty and dramatic contraction in economic
activity due to the global COVID-19 pandemic. SBA also seeks
suggestions, along with supporting facts and analysis, for alternative
standards, if they would be more appropriate than the proposed size
standards.
2. SBA also seeks comments on whether SBA should not lower any size
standards in view of COVID-19 pandemic and its adverse impacts on small
businesses as well as on the overall economic situation when analytical
results suggest some size standards could be lowered. SBA believes that
lowering size standards under the current economic environment would
run counter to what Congress and the Federal government are doing to
aid and provide relief to the nation's small businesses impacted by the
COVID-19 pandemic.
3. Given the uncertainty produced by the global COVID-19 pandemic
and the economic consequences, SBA would like to receive comments from
the public on the possibility of lowering size standards while
mitigating the consequences of the lower standards, instead of not
lowering any size standards.
4. In accordance with NDAA 2017, in this proposed rule, SBA has
evaluated 46 agricultural industries for which the size standards were
previously established directly by Congress and proposed a new size
standard for each of those industries. SBA seeks comments on the
methodology and data sources it used to develop such proposed standards
as well as on the appropriateness of the proposed size standards
levels.
5. In calculating the overall industry size standard, SBA has
assigned equal weight to each of the five primary factors in all
industries and subindustries covered by this proposed rule. SBA seeks
feedback on whether it should assign equal weight to each factor or on
whether it should give more weight to one or more factors for certain
industries or subindustries. Recommendations to weigh some factors
differently than others should include suggested weights for each
factor along with supporting facts and analysis.
6. For evaluating the size standards for the Forest Fire
Suppression and Fuel Management Services subindustries (``exceptions'')
within NAICS 115310, SBA used PSC F003 (Forest/Range Fire Suppression/
Presuppression Services) within NAICS 115310 in FPDS-NG to identify
firms engaged in the Forest Fire Suppression and Fuel Management
Services exceptions during fiscal years 2016-2018. Using the receipts
and employment data for those firms, SBA analyzed the industry and
Federal contracting factors for these subindustries. SBA seeks
suggestions or comments on data sources it used and its proposal to
increase the current $20.5 million size standard for both exceptions to
$25 million even if the analysis supported an increase to $23.5
million. SBA is also interested in comments on the possible elimination
of the Forest Fire Suppression and Fuel Management Services as
``exceptions'' to NAICS 115310, and the application of the same general
size standard for NAICS 115310. Comments on applying the same NAICS
115310 size standard for Forest Fire Suppression and Fuel management
Services should address why the same size standard is more suitable
than separate size standards for Forest Fire Suppression and Fuel
Management Services or why firms engaged in Forest Fire Suppression and
Fuel Management Services should continue to be treated as separate
activities from the rest of NAICS 115310 for SBA's size standards
purposes.
7. For evaluating the size standard for the Dredging and Surface
Cleanup Activities (Dredging), a subindustry (``exception'') category
within NAICS code 237990, SBA used relevant PSCs within NAICS code
237990 to identify Dredging contracts in FPDS-NG and firms receiving
such contracts during fiscal years 2016-2018. Using the receipts and
employment data for those firms from FPDS-NG, SBA analyzed the industry
and Federal contracting factor for this subindustry. SBA seeks
suggestions or comments on the use of the data sources and the proposed
size standard. SBA is also interested in comments on the elimination of
the subindustry category for Dredging, and the application of the same
size standard as for overall NAICS 237990. Comments on applying the
same NAICS 237990 size standard for Dredging should address the basis
for why that industry size standard is more suitable than a specific
dredging subindustry size standard or why dredging firms
[[Page 62255]]
should continue to be evaluated as a discrete subindustry for SBA's
size standards purposes.
8. In addition to comments on its proposal to increase the size
standard for the Dredging exception from the current $30.0 million to
$33.0 million, SBA also seeks comments regarding the requirement for a
dredging concern to qualify as small on a Federal procurement that it
or its similarly situated subcontractors must perform at least 40
percent of the volume dredged with its own equipment or equipment owned
by another small dredging concern (see Footnote 2 in 13 CFR 121.201).
This requirement has been in SBA's small business size regulations
since 1974 (see 30 FR 24669, July 5, 1974 and 39 FR 31302, August 28,
1974) and was interpreted by SBA's Office of Hearings and Appeals to
encompass subcontractors in Size Appeal of U.S. Army Corps of
Engineers, SBA No. SIZ-5915 (2018). This proposed rule retains the
requirement set forth in Footnote 2 in order to ensure that small
Dredging firms or their similarly situated subcontractors perform a
significant and meaningful portion of a Dredging project set aside for
small business. However, SBA requests comments as to whether that
footnote is still necessary. Comments pertaining to this requirement
should address: (1) Whether there continues to be a need to retain the
current 40 percent equipment requirement under current industry
practices; (2) whether the 40 percent equipment requirement should be
revised, and if so, the rationale for an alternative percentage; and
(3) whether a different and more verifiable requirement based on an
alternative measure (such as value of contract or personnel involved)
may achieve the same objective of ensuring that small businesses
perform significant and meaningful work on dredging contracts set aside
for small businesses.
9. Finally, SBA seeks comments on data sources it used to examine
industry and Federal market conditions, as well as suggestions on
relevant alternative data sources that the Agency should evaluate in
reviewing or modifying size standards for industries covered by this
proposed rule.
Public comments on the above issues are very valuable to SBA for
validating its proposed size standards revisions in this proposed rule.
Commenters addressing size standards for a specific industry or a group
of industries should include relevant data and/or other information
supporting their comments. If comments relate to the application of
size standards for Federal procurement programs, SBA suggests that
commenters provide information on the size of contracts in their
industries, the size of businesses that can undertake the contracts,
start-up costs, equipment and other asset requirements, the amount of
subcontracting, other direct and indirect costs associated with the
contracts, the use of mandatory sources of supply for products and
services, and the degree to which contractors can mark up those costs.
Compliance With Executive Orders 12866 and 13771, the Regulatory
Flexibility Act (5 U.S.C. 601-612), Executive Orders 13563, 12988, and
13132, and the Paperwork Reduction Act (44 U.S.C. Ch. 35)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
proposed rule is a significant regulatory action for purposes of
Executive Order 12866. Accordingly, in the next section SBA provides a
Regulatory Impact Analysis of this proposed rule, including: (1) A
statement of the need for the proposed action, (2) an examination of
alternative approaches, and (3) an evaluation of the benefits and
costs--both quantitative and qualitative--of the proposed action and
the alternatives considered. However, this rule is not a ``major rule''
under the Congressional Review Act, 5 U.S.C. 800.
Regulatory Impact Analysis
1. What is a need for this regulatory action?
Under the Small Business Act (Act) (15 U.S.C. 632(a)), SBA's
Administrator is responsible for establishing small business size
definitions (or ``size standards'') and ensuring that such definitions
vary from industry to industry to reflect differences among various
industries. The Jobs Act requires SBA to review every five years all
size standards and make necessary adjustments to reflect current
industry and Federal market conditions. This proposed rule is part of
the second 5-year review of size standards in accordance with the Jobs
Act. The first 5-year review of size standards was completed in early
2016. Such periodic reviews of size standards provide SBA with an
opportunity to incorporate ongoing changes to industry structure and
Federal market environment into size standards and to evaluate the
impacts of prior revisions to size standards on small businesses. This
also provides SBA with an opportunity to seek and incorporate public
input to the size standards review and analysis. SBA believes that
proposed size standards revisions for industries being reviewed in this
rule will make size standards more reflective of the current economic
characteristics of businesses in those industries and the latest trends
in Federal marketplace.
SBA's mission is to aid and assist small businesses through a
variety of financial, procurement, business development and counseling,
and disaster assistance programs. To determine the actual intended
beneficiaries of these programs, SBA establishes numerical size
standards by industry to identify businesses that are deemed small.
The proposed revisions to the existing size standards for 103
industries in NAICS Sectors 11, 21, 22 and 23 are consistent with SBA's
statutory mandates to help small businesses grow and create jobs and to
review and adjust size standards every five years. This regulatory
action promotes the Administration's goals and objectives as well as
meets the SBA's statutory responsibility. One of SBA's goals in support
of promoting the Administration's objectives is to help small
businesses succeed through fair and equitable access to capital and
credit, Federal Government contracts and purchases, and management and
technical assistance. Reviewing and modifying size standards, when
appropriate, ensures that intended beneficiaries are able to access
Federal small business programs that are designed to assist them to
become competitive and create jobs.
2. What are the potential benefits and costs of this regulatory
action?
OMB directs agencies to establish an appropriate baseline to
evaluate any benefits, costs, or transfer impacts of regulatory actions
and alternative approaches considered. The baseline should represent
the agency's best assessment of what the world would look like absent
the regulatory action. For a new regulatory action promulgating
modifications to an existing regulation (such as modifying the existing
size standards), a baseline assuming no change to the regulation (i.e.,
making no changes to current size standards) generally provides an
appropriate benchmark for evaluating benefits, costs, or transfer
impacts of proposed regulatory changes and their alternatives.
Proposed Changes to Size Standards
Based on the results from analysis of latest industry and Federal
contracting data, as well as consideration of impact of size standards
changes on small businesses and significant adverse impacts of the
COVID-19 emergency on small businesses and the overall
[[Page 62256]]
economic activity, of the total of 103 industries in Sectors 11, 21, 22
and 23 that have receipts-based size standards, SBA proposes to
increase size standards for 68 industries (including exceptions), and
maintain current size standards for the remaining 35 industries.
The Baseline
For purposes of this regulatory action, the baseline represents
maintaining the ``status quo,'' i.e., making no changes to the current
size standards. Using the number of small businesses and levels of
benefits (such as set-aside contracts, SBA's loans, disaster
assistance, etc.) they receive under the current size standards as a
baseline, one can examine the potential benefits, costs and transfer
impacts of proposed changes to size standards on small businesses and
on the overall economy.
Based on the 2012 Economic Census (the latest available), of a
total of about 2.7 million businesses in industries in Sectors 11, 21,
22, and 23 for which SBA proposes to increase their receipts-based size
standards, 96.9 percent are considered small under the current size
standards. That percentage varies from 95.5 percent in Sector 21 to
98.5 percent in Sector 23. Based on the data from FPDS-NG for fiscal
years 2016-2018, about 17,300 unique firms in those industries received
at least one Federal contract during that period, of which 86.4 percent
were small under the current size standards. A total of $30.2 billion
in average annual contract dollars were awarded to businesses in those
industries during the period of evaluation, and 51.2 percent of the
dollars awarded went to small businesses. For these sectors, providing
contract dollars to small business through set asides is quite
important. From the total small business contract dollars awarded
during the period considered, 83.4 percent were awarded through various
small business set-aside programs and 16.6 percent were awarded through
non-set aside contracts. Based on the SBA's internal data on its loan
programs for fiscal years 2016-2018, small businesses in those
industries received, on an annual basis, a total of nearly 8,300 7(a)
and 504 loans in that period, totaling about $2.4 billion, of which 89
percent was issued through the 7(a) program and 11 percent was issued
through the 504/CDC program. During fiscal years 2016-2018, small
businesses in those industries also received 318 loans through the
SBA's Economic Injury Disaster Loan (EIDL) program, totaling about
$25.0 million on an annual basis. Table 9, Baseline for All Industries,
below, provides these baseline results by sector.
Table 9--Baseline for All Industries
----------------------------------------------------------------------------------------------------------------
Sector 11 Sector 21 Sector 22 Sector 23 Total
----------------------------------------------------------------------------------------------------------------
Baseline All Industries (current 64 4 3 32 103
size standards)................
Total firms (Economic 2,122,631 8,196 3,673 587,173 2,721,673
Census)....................
Total small firms under 2,046,316 7,828 3,586 578,430 2,636,160
current size standards
(Economic Census)..........
Small firms as % of total 96.4 95.5 97.6 98.5 96.9
firms......................
Total contract dollars ($ $591.2 $90.0 $311.1 $29,178 $30,170.0
million) (FPDS-NG FY2016-
2018)......................
Total small business $459.1 $31.3 $67.0 $14,879 $15,436.4
contract dollars under
current standards ($
million) (FPDS-NG FY2016-
2018)......................
Small business dollars as % 77.6 34.8 21.5 51.0 51.2
of total dollars (FPDS-NG
FY2016-2018)...............
Total No. of unique firms 3,557 298 624 13,290 17,300
getting contracts (FPDS-NG
FY2016-2018)...............
Total No. of unique small 3,174 221 488 11,422 14,933
firms getting small
business contracts (FPDS-NG
FY2016-2018)...............
Small business firms as % of 89.2 74.2 78.2 85.9 86.4
total firms................
No. of 7(a) and 504/CDC 843 73 36 7,334 8,286
loans (FY2016-2018)........
Amount of 7(a) and 504 loans $620.7 $34.2 $6.5 $1,705.3 $2,366.7
($ million) (FY2016-2018)..
No. of EIDL loans (FY2016- 90 3 3 222 318
2018)......................
Amount of EIDL loans ($ $5.6 $0.6 $0.7 $18.0 $25.0
million) (FY2016-2018).....
----------------------------------------------------------------------------------------------------------------
Increases to Size Standards
As stated above, of 103 receipts-based size standards in Sectors
11, 21, 22 and 23 that are reviewed in this rule, based on the results
from analyses of latest industry and Federal market data as well as
impacts of size standards changes on small businesses, SBA proposes to
increase 68 size standards. Below are descriptions of the benefits,
costs and transfer impacts of these proposed increases to size
standards.
Benefits of Increases to Size Standards
The most significant benefit to businesses from proposed increases
to size standards is gaining eligibility for Federal small business
assistance programs or retaining that eligibility for a longer period.
These include SBA's business loan programs, EIDL program, and Federal
procurement programs intended for small businesses. Federal procurement
programs provide targeted, set-aside opportunities for small businesses
under SBA's various business development and contracting programs.
These include the 8(a)/BD(business development) Program, the Small
Disadvantaged Businesses (SDB) Program, the Historically Underutilized
Business Zones (HUBZone) Program, the Women-Owned Small Businesses
(WOSB) Program, the Economically Disadvantaged Women-Owned Small
Businesses (EDWOSB) Program, and the Service-Disabled Veteran-Owned
Small Businesses (SDVOSB) Program.
Besides set-aside contracting and financial assistance discussed
above, small businesses also benefit through reduced fees, less
paperwork, and fewer compliance requirements that are available to
small businesses through Federal government. However, SBA has no data
to estimate the number of small businesses receiving such benefits.
Based on the 2012 Economic Census (latest available), SBA estimates
that in 68 industries in NAICS Sectors 11, 21, 22 and 23 for which it
has proposed to increase size standards, more than 49,400 firms (see
Table 10, below) not small under the current size standards will become
small under the proposed
[[Page 62257]]
size standards increases and therefore become eligible for these
programs. That represents about 2.4 percent of all firms classified as
small under the current size standards in industries for which SBA has
proposed increasing size standards. If adopted, proposed size standards
would result in an increase to the small business share of total
receipts in those industries from 35.6 percent to 55.2 percent.
With more businesses qualifying as small under the proposed
increases to size standards, Federal agencies will have a larger pool
of small businesses from which to draw for their small business
procurement programs. Growing small businesses that are close to
exceeding the current size standards will be able to retain their small
business status for a longer period under the higher size standards,
thereby enabling them to continue to benefit from the small business
programs.
Based on the FPDS-NG data for fiscal years 2016-2018, SBA estimates
that about 90 firms that are active in Federal contracting in those
industries would gain small business status under the proposed size
standards. Based on the same data, SBA estimates that those newly
qualified small businesses under the proposed increases to size
standards, if adopted, could receive Federal small business contracts
totaling about $9.8 million annually. That represents a 1.6 percent
increase to small business dollars from the sector baseline.
The added competition from more businesses qualifying as small can
result in lower prices to the government for procurements set aside or
reserved for small businesses, but SBA cannot quantify this impact.
Costs could be higher when full and open contracts are awarded to
HUBZone businesses that receive price evaluation preferences. However,
with agencies likely setting aside more contracts for small businesses
in response to the availability of a larger pool of small businesses
under the proposed increases to size standards, HUBZone firms might
actually end up getting more set-aside contracts and fewer full and
open contracts, thereby resulting in some cost savings to agencies.
While SBA cannot estimate such costs savings as it is impossible to
determine the number and value of unrestricted contracts to be
otherwise awarded to HUBZone firms will be awarded as set-asides, such
cost savings are likely to be relatively small as only a small fraction
of full and open contracts are awarded to HUBZone businesses.
Under SBA's 7(a) and 504 loan programs, based on the data for
fiscal years 2016-2018, SBA estimates up to about 21 7(a) and 504 loans
totaling about $14.4 million could be made to these newly qualified
small businesses in those industries under the proposed size standards.
That represents a 0.6 percent increase to the loan amount compared to
the Group baseline.
Newly qualified small businesses will also benefit from the SBA's
EIDL program. Since the benefit provided through this program is
contingent on the occurrence and severity of a disaster in the future,
SBA cannot make a meaningful estimate of this impact. However, based on
the historical trends of the EIDL data, SBA estimates that, on an
annual basis, the newly defined small businesses under the proposed
increases to size standards, if adopted, could receive four (4) EIDL
loans, totaling about $0.5 million. Additionally, the newly defined
small businesses would also benefit through reduced fees, less
paperwork, and fewer compliance requirements that are available to
small businesses through the Federal government, but SBA has no data to
quantify this impact. Table 10, Impacts of Proposed Increases to Size
Standards, provides these results by NAICS sector.
Table 10--Impacts of Proposed Increases to Size Standards
----------------------------------------------------------------------------------------------------------------
Sector 11 Sector 21 Sector 22 Sector 23 Total
----------------------------------------------------------------------------------------------------------------
No. of industries with proposed 60 3 3 2 68
increases to size standards....
Total current small businesses 2,016,066 536 3,586 5,413 2,025,601
in industries with Proposed
increases to size standards
(Economic Census 2012).........
Additional firms qualifying as 49,352 21 9 34 49,415
small under proposed standards
(2012 Economic Census).........
Percentage of additional firms 2.4% 3.9% 0.2% 0.6% 2.4%
qualifying as small relative to
current small businesses in
industries with proposed
increases to size standards....
No. of current unique small 3,143 171 488 576 4,346
firms getting small business
contracts in industries with
proposed increases to size
standards (FPDS-NG FY2016-2018)
\1\............................
Additional small business firms 66 1 12 12 88
getting small business status
(FPDS-NG FY2016-2018)..........
% increase to small businesses 2.1% 0.6% 2.5% 2.1% 2.0%
relative to current unique
small firms getting small
business contracts in
industries with proposed
increases to size standards
(FPDS-NG FY2016-2018) \1\......
Total small business contract $455.7 $4.5 $67.0 $90.8 $618.0
dollars under current standards
in industries with proposed
increases to size standards ($
million) (FPDS-NG FY2016-2018).
Estimated small business dollars $5.1 $0.2 $2.7 $1.8 $9.8
available to newly qualified
small firms (Using avg dollars
obligated to SBs) ($ million)
(FPDS-NG FY 2016-2018) \1\.....
% increase to small business 1.1 5.1 4.1 2.0 1.26
dollars relative to total small
business contract dollars under
current standards in industries
with proposed increases to size
standards......................
Total no. of 7(a) and 504 loans 779 4 36 96 915
to small business in industries
with proposed increases to size
standards (FY2016-2018)........
Total amount of 7(a) and 504 $582.5 $1.5 $6.5 $33.7 $624.3
loans to small businesses in
industries with proposed
increases to size standards ($
million) (FY2016-2018).........
[[Page 62258]]
Estimated no. of 7(a) and 504 18 1 1 1 21
loans to newly qualified small
firms..........................
Estimated 7(a) and 504 loan $13.5 $0.4 $0.2 $0.4 $14.4
amount to newly qualified small
firms ($ million)..............
% increase to 7(a) and 504 loan 2.3 25.0 2.8 1.0 2.3
amount relative to the total
amount of 7(a) and 504 loans in
industries with proposed
increases to size standards....
Total no. of EIDL loans to small 73 0 3 3 79
businesses in industries with
proposed increases to size
standards (FY2016-2018)........
Total amount of EIDL loans to $4.7 $0.0 $0.7 $0.3 $5.8
small businesses in industries
with proposed increases to size
standards ($ million) (FY2016-
2018)..........................
Estimated no. of EIDL loans to 2 0 1 1 4
newly qualified small firms....
Estimated EIDL loan amount to $0.13 $0.0 $0.3 $0.10 $0.5
newly qualified small firms ($
million).......................
% increase to EIDL loan amount 2.3 0.0 33.3 33.3 8.2
relative to the total amount of
EIDL loans in industries with
proposed increases to size
standards......................
----------------------------------------------------------------------------------------------------------------
1. Additional dollars are calculated multiplying average small business dollars obligated per DUNS times change
in number of firms. Numbers of firms are calculated using the SBA current size standard, not the contracting
officer's size designation.
2. Total impact represents total unique number of firms impacted to avoid double counting as some firms are
participating in more than one industry.
Costs of Increases to Size Standards
Besides having to register in SAM to be able to participate in
Federal contracting and update the SAM profile annually, small
businesses incur no direct costs to gain or retain their small business
status as a result of increases to size standards. All businesses
willing to do business with the Federal government must register in SAM
and update their SAM profiles annually, regardless of their size
status. SBA believes that a vast majority of businesses that are
willing to participate in Federal contracting are already registered in
SAM and update their SAM profiles annually. More importantly, this
proposed rule does not establish the new size standards for the very
first time; rather it intends to modify the existing size standards in
accordance with a statutory requirement and the latest data and other
relevant factors.
To the extent that the newly qualified small businesses could
become active in Federal procurement, the proposed increases to size
standards, if adopted, may entail some additional administrative costs
to the government as a result of more businesses qualifying as small
for Federal small business programs. For example, there will be more
firms seeking SBA's loans, more firms eligible for enrollment in the
Dynamic Small Business Search (DSBS) database or in certify.sba.gov,
more firms seeking certification as 8(a)/BD or HUBZone firms or
qualifying for small business, SDB, WOSB, EDWOSB, and SDVOSB status,
and more firms applying for SBA's 8(a)/BD and all small business
mentor-prot[eacute]g[eacute] programs. With an expanded pool of small
businesses, it is likely that Federal agencies would set aside more
contracts for small businesses under the proposed increases to size
standards. One may surmise that this might result in a higher number of
small business size protests and additional processing costs to
agencies. However, the SBA's historical data on size protests shows
that the number of size protests decreased following the increases to
receipts-based size standards as part of the first 5-year review of
size standards. Specifically, on an annual basis, the number of size
protests fell from about 600 during fiscal years 2011-2013 (review of
most receipts-based size standards was completed by the end of FY
2013), as compared to about 500 during fiscal years 2014-2016 when size
standards increases were in effect. That represents a 17 percent
decline. Among those newly defined small businesses seeking SBA's
loans, there could be some additional costs associated with
verification of their small business status. However, small business
lenders have an option of using the tangible net worth and net income
based alternative size standard instead of using the industry-based
size standards to establish eligibility for SBA's loans. For these
reasons, SBA believes that these added administrative costs will be
minor because necessary mechanisms are already in place to handle these
added requirements.
Additionally, some Federal contracts may possibly have higher
costs. With a greater number of businesses defined as small due to the
proposed increases to size standards, Federal agencies may choose to
set aside more contracts for competition among small businesses only
instead of using a full and open competition. The movement of contracts
from unrestricted competition to small business set-aside contracts
might result in competition among fewer total bidders, although there
will be more small businesses eligible to submit offers under the
proposed size standards. However, the additional costs associated with
fewer bidders are expected to be minor since, by law, procurements may
be set aside for small businesses under the 8(a)/BD, SDB, HUBZone,
WOSB, EDWOSB, or SDVOSB programs only if awards are expected to be made
at fair and reasonable prices.
Costs may also be higher when full and open contracts are awarded
to HUBZone businesses that receive price evaluation preferences.
However, with agencies likely setting aside more contracts for small
businesses in response to the availability of a larger pool of small
businesses under the proposed increases to size standards, HUBZone
firms might actually end up getting fewer full and open contracts,
thereby resulting in some cost savings to agencies. However, such cost
savings are likely to be minimal as only a small fraction of
unrestricted contracts are awarded to HUBZone businesses.
[[Page 62259]]
Transfer Impacts of Increases to Size Standards
The proposed increases to size standards, if adopted, may result in
some redistribution of Federal contracts between the newly qualified
small businesses and large businesses and between the newly qualified
small businesses and small businesses under the current standards.
However, it would have no impact on the overall economic activity since
total Federal contract dollars available for businesses to compete for
will not change with changes to size standards. While SBA cannot
quantify with certainty the actual outcome of the gains and losses from
the redistribution contracts among different groups of businesses, it
can identify several probable impacts in qualitative terms. With the
availability of a larger pool of small businesses under the proposed
increases to size standards, some unrestricted Federal contracts which
would otherwise be awarded to large businesses may be set aside for
small businesses. As a result, large businesses may lose some Federal
contracting opportunities. Similarly, some small businesses under the
current size standards may obtain a fewer set aside contracts due to
the increased competition from more advanced businesses qualifying as
small under the proposed increases to size standards. This impact may
be offset by a greater number of procurements being set aside for all
small businesses. With larger businesses qualifying as small under the
higher size standards, smaller small businesses could face some
disadvantage in competing for set aside contracts against their larger
counterparts. However, SBA cannot quantify these impacts.
3. What alternatives have been considered?
Under OMB Circular A-4, SBA is required to consider regulatory
alternatives to the proposed changes in the proposed rule. In this
section, SBA describes and analyzes two such alternatives to the
proposed rule. Alternative Option One to the proposed rule, a more
stringent alternative to the proposed rule, would propose adopting size
standards based solely on the analytical results. In other words, the
size standards of 68 industries for which the analytical results
suggest raising size standards would be raised. However, the size
standards of 35 industries for which the analytical results suggest
lowering size standards would be lowered. Alternative Option Two would
propose retaining all size standards for all industries, given the
uncertainty generated by the ongoing COVID-19 pandemic. Below, SBA
discusses and presents the net impacts of each option.
Alternative Option One: Consider Adopting All Calculated Size Standards
As discussed elsewhere in this proposed rule, Alternative Option
One would cause a substantial number of currently small businesses to
lose their small business status and hence to lose their access to
Federal small business assistance, especially small business set-aside
contracts and SBA's financial assistance in some cases. These
consequences could be mitigated. For example, in response to the 2008
Financial Crisis and economic conditions that followed, SBA adopted a
general policy in the first 5-year comprehensive size standards review
to not lower any size standard (except to exclude one or more dominant
firms) even when the analytical results suggested the size standard
should be lowered. Currently, because of the economic challenges
presented by the COVID-19 pandemic and the measures taken to protect
public health, SBA has decided to propose the same general policy of
not lowering size standards in the ongoing second 5-year comprehensive
size standards review as well.
The primary benefit of adopting this alternative is that SBA's
procurement, management, technical and financial assistance resources
would be targeted to the most appropriate beneficiaries of such
programs according to the analytical results. Adopting the size
standards suggested by the analytical results would also promote
consistency with analytical results in SBA's exercise of its authority
to determine size standards. SBA seeks public comment on the impact of
adopting the size standard as suggested by the analytical results.
As explained in the Size Standards Methodology White Paper, in
addition to adopting all results of the primary analysis, SBA evaluates
other relevant factors as needed such as the impact of the reductions
or increases of size standards on the distribution of contracts awarded
to small businesses, and may adopt different results with the intention
of mitigating potential negative impacts.
We have discussed already the benefits and costs of increasing 68
size standards. Below we discuss the benefits and costs of decreasing
35 size standards.
Benefits of Decreases to Size Standards
The most significant benefit to businesses from decreases to size
standards when the SBA's analysis suggests such decreases is to ensure
that size standards are more reflective of latest industry structure
and Federal market trends and that Federal small business assistance is
more effectively targeted to its intended beneficiaries. These include
SBA's loan programs, EIDL program, and Federal procurement programs
intended for small businesses. Federal procurement programs provide
targeted, set-aside opportunities for small businesses under SBA's
business development programs, such as small business, 8(a)/BD, SDB
HUBZone, WOSB, EDWOSB, and SDVOSB programs. The adoption of smaller
size standards when the results support them diminishes the risk of
awarding contracts to firms which are not small anymore.
Decreasing size standards may reduce the administrative costs of
the government, because the risk of awarding contracts to other than
small businesses may diminish when the size standards reflect better
the structure of the market. The risks of providing SBA's loans to
firms that are not needing them the most, or allowing firms that are
not eligible for small business set-asides or to participate on the SBA
procurement programs will provide for a better chance for smaller firms
to grow and benefit from the opportunities available on the Federal
market, and strengthen the small business industrial base for the
Federal Government.
Costs of Decreases to Size Standards
With fewer businesses qualifying as small under the decreases to
size standards, Federal agencies will have a smaller pool of small
businesses from which to draw for their small business procurement
programs. For example, in Option One, during fiscal years 2016-2018,
agencies awarded, on an annual basis, about $14,818 million in small
business contracts in those 35 industries for which this Option
considered decreasing size standards. Table 11 below shows that
lowering 35 size standards would reduce Federal contract dollars
awarded to small businesses by $865.4 million or about 5.8 percent
relative to the baseline level, of which 99 percent are accounted for
by the Construction Sector (NAICS 23). Because of the importance of the
construction sector for Federal procurement and the immediate impact on
businesses that will see their status as small changed relatively fast,
SBA would adopt mitigating measures to reduce the negative impact under
the assumptions of Option One. SBA could adopt one or more of the
following three actions: (1) To accept decreases in size standards as
suggested by the analytical
[[Page 62260]]
results, (2) to decrease size standards by a smaller amount than the
calculated threshold, and (3) to retain the size standards at their
current levels.
Nevertheless, since Federal agencies are still required to meet the
statutory small business contracting goal of 23 percent, actual impacts
on the overall set aside activity is likely to be smaller as agencies
are likely to award more set aside contracts to small businesses that
continue to remain small under the reduced size standards.
With fewer businesses qualifying as small, the decreased
competition can also result in higher prices to the Government for
procurements set aside or reserved for small businesses, but SBA cannot
quantify this impact. However, SBA estimates an almost null impact or
non-significant reduction in dollars obligated to small businesses, if
mitigation measures are adopted. Decreases to size standards would have
a very minor impact on small businesses applying for SBA's 7(a) and 504
loans because a vast majority of such loans are issued to businesses
that are far below the reduced size standards. For example, based on
the loan data for fiscal years 2016-2018, Option One estimates that
about 71 7(a) and 504 loans with total amounts of $16.8 million could
not be made to those small businesses that would lose eligibility under
the reduced size standards (before mitigation). That represents about
one (1.0) percent decrease of the loan amounts compared to the
baseline. Table 11, Impacts of Decreases to Size Standards Under
Alternative Option One, below, shows these results by sector. However,
the actual impact could be much less as businesses losing small
business eligibility under the decreases to industry based size
standards could still qualify for SBA's loans under the tangible net
worth and net income based alternative size standard.
Businesses losing small business status would also be impacted in
terms of access to loans through SBA's EIDL program. However, SBA
expects such impact to be minimal as only a small number of businesses
in those industries received such loans during fiscal years 2016-2018.
Additionally, all those businesses were below the reduced size
standards. Since this program is contingent on the occurrence and
severity of a disaster in the future, SBA cannot make a meaningful
estimate of this impact.
Small businesses becoming other than small if size standards were
decreased might lose benefits through reduced fees, less paperwork, and
fewer compliance requirements that are available to small businesses
through Federal government, but SBA has no data to quantify this
impact. However, if agencies determine that SBA's size standards do not
adequately serve such purposes, they can establish a different size
standard with an approval from SBA if they are required to use SBA's
size standards for their programs.
Table 11--Impacts of Decreases to Size Standards Under Alternative Option One
----------------------------------------------------------------------------------------------------------------
Sector 11 Sector 21 Sector 22 Sector 23 Total
----------------------------------------------------------------------------------------------------------------
No. of industries for which SBA 4 1 0 30 35
considered decreasing size
standards (2012 Economic
Census)........................
Total current small businesses 30,250 7,292 0 573,017 610,559
in industries for which SBA
considered decreasing size
standards (EC 2012)............
Estimated no. of firms losing 17 16 0 5,479 5,512
small status for which SBA
considered decreasing size
standards (EC 2012)............
% of Firms losing small status 0.1 0.2 0.0 1.0 0.9
relative to current small
businesses in industries for
which SBA considered decreasing
size standards.................
No. of current unique small 33 50 0 11,087 11,157
firms getting small business
contracts in industries for
which SBA considered decreasing
size standards (FPDS-NG FY2016-
2018) \1\......................
Estimated number of small 0 2 0 518 518
business firms that would have
lost small business status in
the decreases that SBA
considered.....................
% decrease to small business 0 4.0 0 4.7 4.6
firms relative to current
unique small firms getting
small business contracts in
industries for which SBA
considered decreasing size
standards (FPDS-NG FY2016-
2018)\ 1\......................
Total small business contract $3.3 $26.9 $0 $14,790 $14,818
dollars under current size
standards in industries for
which SBA considered decreasing
size standards ($ million)
(FPDS-NG FY2016-2018)..........
Estimated small business dollars $0 $1.1 $0 $864.4 $865.4
not available to firms losing
small business status (Using
avg dollars obligated to SBs)
($ million)\ 1\ (FPDS-NG FY
2016-2018).....................
% decrease to small business 0 4.1 0 5.8 5.8
dollars relative to total small
business contract dollars under
current size standards in
industries for which SBA
considered decreasing size
standards......................
Total no. of 7(a) and 504 loans 64 69 0 7,328 7,371
to small businesses in
industries for which SBA
considered decreasing size
standards (FY2016-2018)........
Total amount of 7(a) and 504 $38.2 $32.7 $0.0 $1,671.5 $1,742.4
loans to small businesses in
industries for which SBA
considered decreasing size
standards ($ million) (FY2016-
2018)..........................
Estimated no. of 7(a) and 504 1 0 0 70 71
loans not available to firms
that would have lost small
business status................
Estimated 7(a) and 504 loan $0.6 $0.0 $0.0 $16.2 $16.8
amount not available to firms
that would have lost small
status ($ million).............
[[Page 62261]]
% decrease to 7(a) and 504 loan 1.6% 0.0% 0.0% 1.0% 1.0%
amount relative to the total
amount of 7(a) and 504 loans in
industries for which SBA
considered decreasing size
standards......................
Total no. of EIDL loans to small 17 3 0 219 239
businesses in industries for
which SBA considered decreasing
size standards (FY2016-2018)...
Total amount of EIDL loans to $0.9 $0.6 $0.0 $17.8 $19.2
small businesses in industries
for which SBA considered
decreasing size standards ($
million) (FY2016-2018).........
Estimated no. of EIDL loans not -1 0 0 -3 -4
available to firms that would
have lost small business status
Estimated EIDL loan amount not -$0.1 $0.0 $0.0 -$0.2 $0
available to firms that would
have lost small business status
($ million)....................
% decrease to EIDL loan amount 5.9% 0.0% 0.0% 1.4% 1.5%
relative to the baseline.......
----------------------------------------------------------------------------------------------------------------
1. Additional dollars are calculated multiplying average small business dollars obligated per DUNS times change
in number of firms.
2. Total impact represents total unique industries impacted to avoid double counting as some industries have
large firms gaining small business status and small firms extending small business status.
Transfer Impacts of Decreases to Size Standards
If the size standards were decreased under Alternative Option One,
it may result in a redistribution of Federal contracts between small
businesses losing their small business status and large businesses and
between small businesses losing their small business status and small
businesses remaining small under the reduced size standards. However,
as under the proposed increases to size standards, it would have no
impact on the overall economic activity since total Federal contract
dollars available for businesses to compete for will stay the same.
While SBA cannot estimate with certainty the actual outcome of the
gains and losses among different groups of businesses from contract
redistribution resulting from decreases to size standards, it can
identify several probable impacts. With a smaller pool of small
businesses under the decreases to size standards, some set-aside
Federal contracts to be otherwise awarded to small businesses may be
competed in unrestricted basis. As a result, large businesses may have
more Federal contracting opportunities. However, because agencies are
still required by law to award 23 percent of dollars to small
businesses, SBA expects the movement of set-aside contracts to
unrestricted competition to be limited. For the same reason, small
businesses remaining small under the reduced size standards are likely
to obtain more set aside contracts due to the reduced competition from
fewer businesses qualifying as small under the decreases to size
standards. With some larger small businesses losing small business
status under the decreases to size standards, smaller small businesses
would likely become more competitive in obtaining set aside contracts.
However, SBA cannot quantify these impacts.
Net Impact of Alternative Option One
To estimate the net impacts of Alternative Option One, SBA followed
the same methodology used to evaluate the impacts of the proposed size
standards (see Table 10 above). However, under Alternative Option One,
SBA used the calculated size standards instead of the proposed ones to
determine the impacts of changes to current thresholds. The impact of
the increases of the calculated size standards were already shown in
Table 10 above. Table 11 (above) and Table 12, Net Impacts of Size
Standards Changes under Alternative Option One, below, present the
impact of the decreases of size standards and the net impact of
adopting the calculated results under Alternative Option One,
respectively.
Based on the 2012 Economic Census, SBA estimates that in 103
industries in NAICS Sectors 11, 21, 22 and 23 for which the analytical
results suggested to change size standards, about 43,900 firms (see
Table 12, below), would become small under the Option One. That
represents about 1.7 percent of all firms classified as small under the
current size standards.
Based on the FPDS-NG data for fiscal years 2016-2018, SBA estimates
that about 433 active firms in Federal contracting in those industries
would lose small business status under Option One, most of them from
the Construction Sector. This represents a decrease of about 2.9
percent of the total number of small businesses participating in
Federal contracting under the current size standards. Based on the same
data, SBA estimates that about $855.6 million of Federal procurement
dollars would not be available to firms losing their small status. This
represents a decrease of 5.5 percent from the Group's baseline. Again,
a large amount of the loses are accounted for by the Construction
Sector.
Based on the SBA's loan data for fiscal years 2016-2018, the total
number of 7(a) and 504 loans may decrease by about 50 loans, and the
loan amounts by about $2.4 million. This represents a 0.1 percent
decrease of the loan amounts relative to the Group baseline.
Firms' Participation under the SBA's EIDL program will be affected
as well. Since the benefit provided through this program is contingent
on the occurrence and severity of a disaster in the future, SBA cannot
make a meaningful estimate of this impact. However, based on the
historical trends of the EIDL data, SBA estimates that, on an annual
basis, the net impact of the Option One on additional firms is zero,
and additional loans amounts total about $0.18 million for the Group
relative to the baseline. Table 12, below, provides these results by
NAICS sector.
Table 12--Net Impacts of Size Standards Changes Under Alternative Option One
----------------------------------------------------------------------------------------------------------------
Sector 11 Sector 21 Sector 22 Sector 23 Total
----------------------------------------------------------------------------------------------------------------
No. of industries with proposed 64 4 3 32 103
changes to size standards......
[[Page 62262]]
Total no. of small business 2,046,316 7,828 3,586 578,430 2,636,160
under the current size
standards (2012 Economic
Census)........................
Additional firms qualifying as 49,335 5 9 -5,445 43,902
small under proposed size
standards (2012 Economic
Census)........................
% of additional firms qualifying 2.4% 0.1% 0.2% -0.9% 1.7%
as small relative to total
current small businesses.......
No. of current unique small 3,174 221 488 11,422 14,933
firms getting small business
contracts (FPDS-NG FY2016-2018)
\1\............................
Additional small firms getting 64 -1 12 -505 -433
small business status (FPDS-NG
FY2016-2018)...................
% increase to small firms 2.0 -0.5 2.5 -4.4 -2.9
relative to current unique
small firms getting small
business contracts (FPDS-NG
FY2016-2018) \1\...............
Total small business contract 459.1 31.3 67.0 14,879.0 15,436.4
dollars under current size
standards ($ million) (FPDS-NG
FY 2016-2018)..................
Estimated small business dollars 5.1 -0.9 2.7 -862.6 -855.6
available to newly qualified
small firms ($ million) (FPDS-
NG FY 2016-2018) \1\...........
% increase to dollars relative 1.1 -2.8 4.1 -5.8 -5.5
to total small business
contract dollars under current
size standards.................
Total no. of 7(a) and 504 loans 843 73 36 7,334 8,286
to small businesses (FY2016-
2018)..........................
Total amount of 7(a) and 504 $620.7 $34.2 $6.5 $1,705.3 $2,366.7
loans to small businesses
(FY2016-2018)..................
Estimated no. of additional 7(a) 17 1 1 -69 -50
and 504 loans to newly
qualified small firms..........
Estimated additional 7(a) and $12.9 $0.4 $0.2 -$15.8 -$2.4
504 loan amount to newly
qualified small firms ($
million).......................
% increase to 7(a)and 504 loan 2.1% 1.1% 2.8% -0.93% -0.1%
amount relative to the total
amount of 7(a) and 504 loans to
small businesses...............
Total no. of EIDL loans to small 90 3 3 222 318
businesses (FY2016-2018).......
Total amount of EIDL loans to $5.6 $0.6 $0.7 $18.0 $25.0
small businesses (FY2016-2018).
Estimated no. of additional EIDL 1 0 1 -2 0
loans to newly qualified small
firms..........................
Estimated additional EIDL loan $0.08 $0.0 $0.2 -$0.1 $0.18
amount to newly qualified small
firms ($ million)..............
% increase to EIDL loan amount 1.4% 0.0% 33.3% -0.8% 0.7%
relative to the total amount of
EIDL loans to small businesses.
----------------------------------------------------------------------------------------------------------------
\1\ Additional dollars are calculated multiplying average small business dollars obligated per DUNS times change
in number of firms.
\2\ Total impact represents total unique industries impacted to avoid double counting as some industries have
large firms gaining small business status and small firms extending small business status.
Alternative Option Two: To Retain All Current Size Standards
Under this option, given the current COVID-19 pandemic, as
discussed elsewhere, SBA considered retaining the current levels of all
size standards even though the analytical results may suggest changing
them. SBA considers that the option of retaining all size standards at
this moment provides the opportunity to reassess the economic situation
once the economic recovery starts. Under this option, as the current
situation develops, SBA will be able to assess new data available on
economic indicators, federal procurement, and SBA loans as well. SBA
estimates a net impact of zero for this option, when compared to the
baseline. However, if we compare the proposal of increasing 68 size
standards and retaining 35 with this alternative approach, the benefits
for small businesses of adopting the proposal will not be attained,
because of which SBA is not proposing the Alternative Option Two.
Executive Order 13771
SBA has determined, subject to the approval of the Office of
Information and Regulatory Affairs (OIRA) of the Office of Management
and Budget (OMB), that this proposed rule is not subject to the
requirements of E.O. 13771, because most of the rule's impacts are
income transfers between small and other than small businesses.
According to the E.O. 13771 guidance in OMB M-17-21, dated April 5,
2017 (``E.O. 13771 Guidance''), ``transfers'' are not covered by E.O.
13771. The E.O. 13771 Guidance also states that ``in some cases,
[transfer rules] may impose requirements apart from transfers, or
transfers may distort markets causing inefficiencies. In those cases,
the actions would need to be offset to the extent they impose more than
de minimis costs.'' SBA estimates that this rulemaking would impose
only de minimis costs on small businesses and would result in
negligible compliance costs. Thus, SBA has determined that this
rulemaking is exempt from the requirements of E.O. 13771. Details on
the estimated costs of this proposed rule can be found in the
Regulatory Impact Analysis above.
Initial Regulatory Flexibility Analysis
According to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601-
612, when an agency issues a rulemaking, it must prepare a regulatory
flexibility analysis to address the impact of the rule on small
entities.
This proposed rule, if adopted, may have a significant impact on a
substantial number of small businesses in the industries covered by
this proposed rule. As described above, this rule may affect small
businesses seeking
[[Page 62263]]
Federal contracts, loans under SBA's 7(a), 504 and EIDL 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 is the need for and objective of the rule;? (2)
What are SBA's description and estimate of the number of small
businesses to which the rule will apply;? (3) What are the projected
reporting, record keeping, and other compliance requirements of the
rule;? (4) What are the relevant Federal rules that may duplicate,
overlap, or conflict with the rule;? and (5) What alternatives will
allow the Agency to accomplish its regulatory objectives while
minimizing the impact on small businesses?
1. What is the need for and objective of the rule?
Changes in industry structure, technological changes, productivity
growth, mergers and acquisitions, and updated industry definitions have
changed the structure of many the industries covered by this proposed
rule. Such changes can be enough to support revisions to current size
standards for some industries. Based on the analysis of the latest data
available, SBA believes that the revised standards in this proposed
rule more appropriately reflect the size of businesses that need
Federal assistance. The 2010 Jobs Act also requires SBA to review all
size standards and make necessary adjustments to reflect market
conditions.
2. What are SBA's description and estimate of the number of small
businesses to which the rule will apply?
Based on data from the 2012 Economic Census, SBA estimates that
there are about 2.02 million small firms covered by this rulemaking
under industries with proposed changes to size standards. If the
proposed rule is adopted in its present form, SBA estimates that an
additional 49,415 businesses will become small.
3. What are the projected reporting, record keeping and other
compliance requirements of the rule?
The proposed size standard changes impose no additional reporting
or record keeping requirements on small businesses. However, qualifying
for Federal procurement and a number of other programs requires that
businesses register in SAM and self-certify that they are small at
least once annually. Therefore, businesses opting to participate in
those programs must comply with SAM requirements. There are no costs
associated with SAM registration or certification. Changing size
standards alters the access to SBA's programs that assist small
businesses but does not impose a regulatory burden because they neither
regulate nor control business behavior.
4. What are the relevant Federal rules, which may duplicate,
overlap or conflict with the rule?
Under section 3(a)(2)(C) of the Small Business Act, 15 U.S.C.
632(a)(2)(c), Federal agencies must use SBA's size standards to define
a small business, unless specifically authorized by statute to do
otherwise. In 1995, SBA published in the Federal Register a list of
statutory and regulatory size standards that identified the application
of SBA's size standards as well as other size standards used by Federal
agencies (60 FR 57988 (November 24, 1995)). SBA is not aware of any
Federal rule that would duplicate or conflict with establishing size
standards.
However, the Small Business Act and SBA's regulations allow Federal
agencies to develop different size standards if they believe that SBA's
size standards are not appropriate for their programs, with the
approval of SBA's Administrator (13 CFR 121.903). The Regulatory
Flexibility Act authorizes an Agency to establish an alternative small
business definition, after consultation with the Office of Advocacy of
the U.S. Small Business Administration (5 U.S.C. 601(3)).
5. What alternatives will allow the Agency to accomplish its
regulatory objectives while minimizing the impact on small entities?
By law, SBA is required to develop numerical size standards for
establishing eligibility for Federal small business assistance
programs. Other than varying size standards by industry and changing
the size measures, no practical alternative exists to the systems of
numerical size standards.
However, SBA considered two alternatives to its proposal to
increase 68 size standards and maintain 35 size standards at their
current levels. The first alternative SBA considered was adopting size
standards based solely on the analytical results. In other words, the
size standards of 68 industries for which the analytical results
suggest raising size standards would be raised. However, the size
standards of 35 industries for which the analytical results suggest
lowering size standards would be lowered. This would cause a
significant number of small businesses to lose their small business
status, especially in the construction sector. Under the second
alternative, in view of the COVID-19 pandemic, SBA considered retaining
all size standards at the current levels, even though the analytical
results may suggest increasing 68 size standards and decreasing 35.
Retaining all size standards at their current levels would be more
onerous for the small businesses than the option of adopting 68
increases and retaining the rest of size standards. Additionally, for
the first time, SBA evaluated 46 agricultural industries in this
proposed rule, and postponing the adoption of the calculated size
standards would be detrimental for the small businesses within these
industries.
Executive Order 13563
Executive Order 13563 emphasizes the importance of quantifying both
costs and benefits, reducing costs, harmonizing rules, and promoting
flexibility. A description of the need for this regulatory action and
benefits and costs associated with this action including possible
distributional impacts that relate to Executive Order 13563 is included
above in the Regulatory Impact Analysis under Executive Order 12866.
Additionally, Executive Order 13563, section 6, calls for retrospective
analyses of existing rules.
The review of size standards in the industries covered by this
proposed rule is consistent with section 6 of Executive Order 13563 and
the 2010 Jobs Act which requires SBA to review all size standards and
make necessary adjustments to reflect market conditions. Specifically,
the 2010 Jobs Act requires SBA to review at least one-third of all size
standards during every 18-month period from the date of its enactment
(September 27, 2010) and to review all size standards not less
frequently than once every five years, thereafter. SBA had already
launched a comprehensive review of size standards in 2007. In
accordance with the Jobs Act, SBA completed the comprehensive review of
the small business size standard for each industry, except those for
agricultural enterprises previously set by Congress, and made
appropriate adjustments to size standards for a number of industries to
reflect current Federal and industry market conditions. The first
comprehensive review was completed in 2015. Prior to 2007, the last
time SBA conducted a comprehensive review of all size standards was
during the late 1970s and early 1980s.
SBA issued a White Paper entitled ``Size Standards Methodology''
and published a notice in the April 11, 2019, edition of the Federal
Register (84 FR 14587) to advise the public that the document is
available for public review and comments. The ``Size Standards
Methodology'' White Paper explains
[[Page 62264]]
how SBA establishes, reviews, and modifies its receipts-based and
employee-based small business size standards. SBA gave appropriate
consideration to all input, suggestions, recommendations, and relevant
information obtained from industry groups, individual businesses, and
Federal agencies in developing size standards for those industries
covered by this proposed 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 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 rule will not impose any new reporting or
record keeping requirements.
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), 636(a)(36), 662, and
694a(9); Pub. L. 116-136, Section 1114.
0
2. In Sec. 121.201 amend the table ``Small Business Size Standards by
NAICS Industry'' as follows:
0
a. Revise Subsector 111, entries ``112111'', ``112112'', ``112120'',
``112210'', ``112320'' through ``112340'', ``112390'', ``112410'',
``112420'', ``112511'', ``112512'', ``112519'', ``112910'' through
``112930'', ``112990'', ``113110'', ``113210'', ``114112'', ``114119'',
``114210'', entries ``115111'' through ``115113'', ``115116'',
``115210'' ``115310'', ``115310 first and second sub-entry'', entries
``213113'' through ``213115'', ``221310'' through ``221330'',
``237990'', ``237990 sub-entry'', and ``238290'';
0
b. Revise footnote 2;
0
c. Redesignate footnote 17 as footnote 1;
0
d. Redesignate footnote 20 as footnote 15;
0
e. Redesignate footnote 19 as footnote 17;
0
f. Revise Editorial Note 1; and
0
g. Remove Editorial Note 2.
The revisions read as follows:
Sec. 121.201 What size standards has SBA identified by North American
Industry Classification System codes?
* * * * *
Small Business Size Standards by NAICS Industry
----------------------------------------------------------------------------------------------------------------
Size standards Size standards
NAICS codes NAICS U.S. industry title in millions of in number of
dollars employees
----------------------------------------------------------------------------------------------------------------
Sector 11--Agriculture, Forestry, Fishing and Hunting
Subsector 111--Crop Production
----------------------------------------------------------------------------------------------------------------
111110...................................... Soybean Farming............... $2.0 ................
111120...................................... Oilseed (except Soybean) 2.0 ................
Farming.
111130...................................... Dry Pea and Bean Farming...... 2.5 ................
111140...................................... Wheat Farming................. 2.0 ................
111150...................................... Corn Farming.................. 2.25 ................
111160...................................... Rice Farming.................. 2.25 ................
111191...................................... Oilseed and Grain Combination 2.0 ................
Farming.
111199...................................... All Other Grain Farming....... 2.0 ................
111211...................................... Potato Farming................ 3.75 ................
111219...................................... Other Vegetable (except 3.25 ................
Potato) and Melon Farming.
111310...................................... Orange Groves................. 3.5 ................
111320...................................... Citrus (except Orange) Groves. 3.75 ................
111331...................................... Apple Orchards................ 4.0 ................
111332...................................... Grape Vineyards............... 3.5 ................
111333...................................... Strawberry Farming............ 4.75 ................
111334...................................... Berry (except Strawberry) 3.25 ................
Farming.
111335...................................... Tree Nut Farming.............. 3.25 ................
111336...................................... Fruit and Tree Nut Combination 4.5 ................
Farming.
111339...................................... Other Noncitrus Fruit Farming. 3.0 ................
111411...................................... Mushroom Production........... 4.0 ................
111419...................................... Other Food Crops Grown Under 4.0 ................
Cover.
111421...................................... Nursery and Tree Production... 2.75 ................
111422...................................... Floriculture Production....... 3.25 ................
111910...................................... Tobacco Farming............... 2.25 ................
111920...................................... Cotton Farming................ 2.75 ................
111930...................................... Sugarcane Farming............. 4.5 ................
111940...................................... Hay Farming................... 2.25 ................
111991...................................... Sugar Beet Farming............ 2.25 ................
111992...................................... Peanut Farming................ 2.25 ................
111998...................................... All Other Miscellaneous Crop 2.25 ................
Farming.
----------------------------------------------------------------------------------------------------------------
[[Page 62265]]
Subsector 112--Animal Production and Aquaculture
----------------------------------------------------------------------------------------------------------------
112111...................................... Beef Cattle Ranching and 2.25 ................
Farming.
112112...................................... Cattle Feedlots............... 19.5 ................
112120...................................... Dairy Cattle and Milk 3.25 ................
Production.
112210...................................... Hog and Pig Farming........... 3.5 ................
* * * * * * *
112320...................................... Broilers and Other Meat Type 3.0 ................
Chicken Production.
112330...................................... Turkey Production............. 3.25 ................
112340...................................... Poultry Hatcheries............ 3.5 ................
112390...................................... Other Poultry Production...... 3.25 ................
112410...................................... Sheep Farming................. 3.0 ................
112420...................................... Goat Farming.................. 2.25 ................
112511...................................... Finfish Farming and Fish 3.25 ................
Hatcheries.
112512...................................... Shellfish Farming............. 3.25 ................
112519...................................... Other Aquaculture............. 3.25 ................
112910...................................... Apiculture.................... 2.75 ................
112920...................................... Horses and Other Equine 2.5 ................
Production.
112930...................................... Fur-Bearing Animal and Rabbit 3.25 ................
Production.
112990...................................... All Other Animal Production... 2.5 ................
----------------------------------------------------------------------------------------------------------------
Subsector 113--Forestry and Logging
----------------------------------------------------------------------------------------------------------------
113110...................................... Timber Tract Operations....... 16.5 ................
113210...................................... Forest Nurseries and Gathering 18.0 ................
of Forest Products.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
Subsector 114--Fishing, Hunting and Trapping
----------------------------------------------------------------------------------------------------------------
* * * * * * *
114112...................................... Shellfish Fishing............. 12.5 ................
114119...................................... Other Marine Fishing.......... 10.0 ................
114210...................................... Hunting and Trapping.......... 7.5 ................
----------------------------------------------------------------------------------------------------------------
Subsector 115--Support Activities for Agriculture and Forestry
----------------------------------------------------------------------------------------------------------------
115111...................................... Cotton Ginning................ 14.0 ................
115112...................................... Soil Preparation, Planting, 8.5 ................
and Cultivating.
115113...................................... Crop Harvesting, Primarily by 12.0 ................
Machine.
* * * * * * *
115116...................................... Farm Management Services...... 13.5 ................
115210...................................... Support Activities for Animal 9.5 ................
Production.
115310...................................... Support Activities for 10.0 ................
Forestry.
115310 (Exception 1)........................ Forest Fire Suppression \1\... 25.0 \1\ ................
115310 (Exception 2)........................ Fuels Management Services \1\. 25.0 \1\ ................
----------------------------------------------------------------------------------------------------------------
Sector 21--Mining, Quarrying, and Oil and Gas Extraction
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
Subsector 213--Support Activities for Mining
----------------------------------------------------------------------------------------------------------------
* * * * * * *
213113...................................... Support Activities for Coal 24.0 ................
Mining.
213114...................................... Support Activities for Metal 36.0 ................
Mining.
213115...................................... Support Activities for 18.0 ................
Nonmetallic Minerals (except
Fuels) Mining.
----------------------------------------------------------------------------------------------------------------
Sector 22--Utilities
Subsector 221--Utilities
----------------------------------------------------------------------------------------------------------------
* * * * * * *
221310...................................... Water Supply and Irrigation 36.0 ................
Systems.
221320...................................... Sewage Treatment Facilities... 31.0 ................
[[Page 62266]]
221330...................................... Steam and Air-Conditioning 26.5 ................
Supply.
----------------------------------------------------------------------------------------------------------------
Sector 23--Construction
Subsector 236--Construction of Buildings
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
Subsector 237--Heavy and Civil Engineering Construction
----------------------------------------------------------------------------------------------------------------
* * * * * * *
237990...................................... Other Heavy and Civil 39.5 ................
Engineering Construction.
237990 (Exception).......................... Dredging and Surface Cleanup 33.0 \2\ ................
Activities \2\.
----------------------------------------------------------------------------------------------------------------
Subsector 238--Specialty Trade Contractors
----------------------------------------------------------------------------------------------------------------
* * * * * * *
238290...................................... Other Building Equipment 19.5 ................
Contractors.
* * * * * * *
511210...................................... Software Publishers \15\...... 41.5 \15\ ................
* * * * * * *
Sector 92--Public ................ ................
Administration \17\.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
Footnotes
\1\ NAICS code 115310--Support Activities for Forestry: Forest Fire Suppression and Fuels Management Services
are two components of Support Activities for Forestry. Forest Fire Suppression includes establishments which
provide services to fight forest fires. These firms usually have fire-fighting crews and equipment. Fuels
Management Services firms provide services to clear land of hazardous materials that would fuel forest fires.
The treatments used by these firms may include prescribed fire, mechanical removal, establishing fuel breaks,
thinning, pruning, and piling.
\2\ NAICS code 237990--Dredging: To be considered small for purposes of Government procurement, a firm or its
similarly situated subcontractors must perform at least 40 percent of the volume dredged with its own
equipment or equipment owned by another small dredging concern.
\15\ NAICS code 511210--For purposes of Government procurement, the purchase of software subject to potential
waiver of the nonmanufacturer rule pursuant to Sec. 121.1203(d) should be classified under this NAICS code.
\17\ NAICS Sector 92--Small business size standards are not established for this sector. Establishments in the
Public Administration sector are Federal, State, and local government agencies which administer and oversee
government programs and activities that are not performed by private establishments. Concerns performing
operational services for the administration of a government program are classified under the NAICS private
sector industry based on the activities performed. Similarly, procurements for these types of services are
classified under the NAICS private sector industry that best describes the activities to be performed. For
example, if a government agency issues a procurement for law enforcement services, the requirement would be
classified using one of the NAICS industry codes under NAICS industry 56161, Investigation, Guard, and Armored
Car Services.
* * * * *
Editorial Note: For Federal Register citations affecting Sec.
121.201, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and at www.govinfo.gov.
Jovita Carranza,
Administrator.
[FR Doc. 2020-21589 Filed 10-1-20; 8:45 am]
BILLING CODE 8026-03-P