HSACU Institutions for Fiscal Year 2019: This rule makes changes to the existing list of institutions in appendix B of 7 CFR part 3434. The list of institutions is amended to reflect the institutions that are granted HSACU certification by the Secretary and are eligible for HSACU programs for the period starting October 1, 2021, and ending September 30, 2022.

Certification Process: As stated in 7 CFR 3434.4, an institution must meet the following criteria to receive HSACU certification: (1) Be a Hispanic-Serving Institution (HSI), (2) offer agriculture-related degrees, (3) not be designated an 1862 land-grant institution, (4) not appear on the Excluded Parties List System (EPLS), (5) be accredited, and (6) award at least 15% of agriculture-related degrees to Hispanic students over the two most recent academic years.

NIFA obtained the latest report from the U.S. Department of Education's National Center for Education Statistics that lists all HSIs and the degrees conferred by these institutions (completion data) during the 2019-20 academic year. NIFA used this report to identify HSIs that conferred a degree in an instructional program that appears in appendix A of 7 CFR part 3434 and to confirm that over the 2018-19 and 2019-20 academic years at least 15% of the degrees in agriculture-related fields were awarded to Hispanic students. NIFA further confirmed that these institutions were nationally accredited.

The updated list of HSACUs is based on (1) completions data from 2018-19 and 2019-20, and (2) enrollment data from Fall 2020. NIFA identified 158 institutions that met the eligibility criteria to receive HSACU certification for FY 2022 (October 1, 2021 to September 30, 2022).

Section 7102 of the Agriculture Act of 2018 (Pub. L. 115-334) amended Section 1404(14) of the National Agricultural Research, Extension, and Teaching Policy Act of 1977 (7 U.S.C. 3103(14)) to remove the opt-in, opt-out language for Hispanic Serving Agricultural Colleges and Universities (HSACU) in order to apply for Non Land-Grant College of Agriculture (NLGCA) designation.

Appeal Process: As set forth in 7 CFR 3434.8, NIFA will permit HSIs that are not granted HSACU certification to submit an appeal within 30 days of the publication of this notice.

Classification: This rule relates to public property, loans, grants, benefits, or contracts. Accordingly, pursuant to 5 U.S.C. 553, notice of proposed rulemaking and opportunity for comment are not required, and this rule may be made effective less than 30 days after publication in the Federal Register . This rule also is exempt from the provisions of Executive Order 12866. This action is not a rule as defined by the Regulatory Flexibility Act, as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. 601 et seq., or the Congressional Review Act, 5 U.S.C. 801 et seq., and thus is exempt from the provisions of those Acts. This rule contains no information collection or recordkeeping requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

Accordingly, 7 CFR part 3434 is amended as set forth below:

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 (CDC/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 Small Business Jobs Act of 2010 (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 five-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.

Section 1831 of the National Defense Authorization Act for Fiscal Year 2017 (“NDAA 2017”), Public Law 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 five-year rolling review procedures established under section 1344(a) of the Jobs Act. Accordingly, in this final rule, SBA has evaluated the 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.

In addition to the comprehensive review of size standards, 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 North American Industry Classification System (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)). 1

This final rule is one of a series of final rules that will revise size standards of industries grouped by various NAICS sectors. Rather than revise all size standards at one time, SBA is revising size standards by grouping industries within various NAICS sectors that use the same size measure ( i.e., employees or receipts). In the prior review, SBA revised size standards mostly on a sector-by-sector basis. As part of second five-year review of size standards under the Jobs Act, SBA reviewed all receipt-based size standards in NAICS Sectors 11, 21, 22, and 23 to determine whether the existing size standards should be retained or revised based on the current industry and Federal market data. After its review, SBA published a proposed rule in the October 2, 2020 issue of the Federal Register (85 FR 62239) which proposed to increase the size standards for 68 industries in the above sectors, including 58 industries and two subindustries (“exceptions”) in NAICS Sector 11 (Agriculture, Forestry, Fishing and Hunting), three industries in Sector 21 (Quarrying, and Oil and Gas Extraction), three industries in Sector 22 (Utilities), and one industry and one subindustry (“exception”) in Sector 23 (Construction). In this final rule, SBA is adopting the proposed size standards from the October 2020 proposed rule without change, except for a further increase to the size standard for the Forest Fire Suppression and Fuel Management Services exceptions to NAICS 115310 based on public comments and the latest available data. For these exceptions, SBA is adopting a higher size standard of $30 million instead of the proposed $25 million.

In conjunction with the current comprehensive size standards review, SBA developed a revised “Size Standards Methodology” (Methodology) for developing, reviewing, and modifying size standards, when necessary. SBA's revised Methodology provides a detailed description of its analyses of various industry and program factors and data sources, and how the agency uses the results to establish and revise size standards. In the proposed rule itself, SBA detailed how it applied its revised Methodology to review and modify where necessary, the existing size standards for industries covered in this final rule. 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 (84 FR 14587) of the issuance of the final revised Methodology. SBA's Size Standard Methodology is available on its website at www.sba.gov/size.

In evaluating an industry's size standard, SBA examines its characteristics (such as average firm size, startup costs and entry barriers, industry competition and distribution of firms by size) and the small business level and share of Federal contract dollars in that industry. SBA also examines the potential impact a size standard revision might have on its financial assistance programs, and whether a business concern under a revised size standard would be dominant in its industry. SBA analyzed the characteristics of each receipt-based industry in NAICS Sectors 11 (except industries under Subsectors 111 and 112), 21, 22, and 23, mostly using a special tabulation obtained from the U.S. Bureau of the Census from its 2012 Economic Census (the latest available). The 2012 Economic Census special tabulation 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. To evaluate industries under Subsectors 111 and 112, SBA used the special tabulation of the 2012 Census of Agriculture obtained from the USDA's National Agricultural Statistics Service (NASS). To evaluate average asset size, SBA combines the sales to total assets ratios by industry, obtained from the Risk Management Association's (RMA) Annual eStatement Studies ( http://www.rmahq.org/estatement-studies/ ) with the simple average receipts size by industry from the 2012 Economic Census tabulation to estimate the average assets size for each industry. SBA also evaluated the small business level and share of Federal contracts in each of the industries using data from the Federal Procurement Data System—Next Generation (FPDS-NG) for fiscal years 2016-2018. Table 4 of the October 2020 proposed rule, Size Standards Supported by Each Factor for Each Industry (Receipts), shows the results of analyses of industry and Federal contracting factors for each industry and subindustry (exception) covered by the proposed rule. Of the 100 industries and three subindustries (exceptions) reviewed in the proposed rule, the results from analyses of the latest available data on the five primary factors from Table 4 of the proposed rule supported increasing size standards for 65 industries and three subindustries, and decreasing size standards for 35 industries. Table 1, Summary of Calculated Size Standards, summarizes the analytical results from the proposed rule by NAICS sector.

In the October 2020 proposed rule, SBA discussed the impacts of the COVID-19 pandemic on small businesses and greater society. Recognizing the wide-ranging economic impacts of the pandemic, SBA decided not to lower any size standards for which the analysis suggested lowering them. Instead, SBA proposed to maintain all size standards for industries in which the analytical results supported a decrease or no change to size standards and adopt all size standards for which the analytical results supported an increase to size standards. To evaluate the impact of the changes to size standards adopted in this final rule on the Federal contracting market and SBA's loan programs, SBA analyzed FPDS-NG data for fiscal years 2018-2020 and internal data on its guaranteed loan programs for fiscal years 2018-2020. The results of this analysis can be found in the Regulatory Impact Analysis section of this final rule.

In the proposed rule, SBA sought comments on its proposal to increase size standards for 68 industries and subindustries and retain the current size standards for the remaining 35 industries in NAICS Sectors 11, 21, 22 and 23. Specifically, SBA requested comments on whether the proposed revisions are appropriate for the industries covered by the proposed rule, whether the decision not to lower any size standards is justified by the COVID-19 pandemic, whether the equal weighting of individual factors to derive an industry size standard is appropriate, and whether the data sources used were appropriate or sufficient.

SBA received a total of 1,021 comments to the proposed rule from a wide range of entities, including individuals, businesses, organizations, and trade associations. Of the 1,021 comments received, 1,013 comments pertained to Sector 11—including 942 comments that pertained to the animal production industries and 71 comments that pertained to the Agricultural (Sector 11) industry generally. SBA also received three comments on NAICS 115310 (Support Activities for Forestry) and its two exceptions, and one comment each on NAICS codes 237990 (the dredging exception), 236220 and NAICS Sector 23. SBA received one comment that was not relevant to the proposed rule and 1 comment that voiced a general objection to the proposed rule without providing any rationale. The comments to the proposed rule are available at www.regulations.gov (RIN 3245-AG89) and are summarized and discussed below.

SBA received a total of 1,013 comments to its proposed changes to size standards for industries in Sector 11. Of the 1,013 comments received, 942 comments, many of which were nearly identical, objected to the proposed rule on the grounds that it would result in Federal funding for corporate animal agribusiness, including concentrated animal feeding operations (CAFOs). These commenters stated that the increase of certain agricultural size standards would result in large corporate agricultural concerns with potentially abusive animal practices qualifying as small for SBA's financial assistance programs. Most of these commenters did not identify a particular NAICS code or set of NAICS codes, but the SBA assumes they most likely referred to NAICS codes 112111 through 112519, which correspond to the animal production industries. The remaining 71 comments objected to the proposed changes to the size standards on the grounds that it would unfairly benefit larger businesses and farms. These comments emphasized the historical consolidation in the agricultural sector as well as larger farms receiving the majority of Federal assistance and subsidies. One commenter also cited the difficulty for smaller farms to enter the market and the prevalence of vertical integration for concentrated animal feeding operations (CAFOs) as reasons not to raise agricultural size standards.

SBA disagrees with commenters that the proposed regulations will allow a significant number of large firms to qualify as small in the animal production industries, namely NAICS codes 112111, 112112, 112120, 112310, 112320, 112330, 112340, 112390, 112410, 112420, 112511, 112512 and 112519. Based on data from the 2012 Agricultural Census, SBA determined that if the proposed size standards were adopted, the number of small firms in these industries would increase from 801,603 to 821,632, an increase of 20,029 firms or 2.5%. The percentage of small firms in these industries would increase from 96.5% under current size standards to 98.9% under the proposed size standards. SBA also analyzed its internal data on 7(a) and 504 loans to determine the impact of increases to size standards on SBA's financial assistance programs for these industries.

As discussed in the proposed rule, the majority of the animal production 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). In 2016, Congress passed NDAA 2017, directing SBA to establish size standards for these industries in the same manner that the agency establishes the size standards for other industries and to include them in the five-year rolling review under the Jobs Act. Effective August 19, 2019, SBA raised the $750,000 receipts-based size standard for these industries to $1 million in an interim final rule, adjusting all monetary size standards for inflation (84 FR 34261 (July 18, 2019)).

Based on the data for fiscal years 2019-2020, the time period when the higher $1 million size standard was effective, SBA did not see any increase to the total number of firms receiving loans in the animal production industries identified above. Recognizing that firms may have qualified for SBA's financial assistance programs under the tangible net worth and net income based alternative size standard, and thus, may have exceeded the industry size standard, SBA also analyzed the distribution of loans by revenue and determined that there was not an increase in the number of loans to firms with revenues between $0.75 million and $1 million during fiscal years 2019-2020. SBA found that the average firm size of businesses receiving loans was much smaller than the current $1 million industry size standard, indicating that larger small firms are not the primary beneficiaries of SBA's financial assistance programs.

Generally, the majority of loans guaranteed by SBA through its 7(a) and CDC/504 loan programs are disbursed to firms that are much smaller than the industry size standard, in part due to the SBA's “credit elsewhere” test (13 CFR 120.101). This test requires lenders to certify that an applicant to the SBA's loan program is unable to obtain a loan on reasonable terms without a Federal Government guaranty, and that some or all of the loan is not available from the resources of the applicant business or the personal resources of the principals of the applicant business. SBA's proposed changes to size standards do not impact this requirement; thus, smaller small firms are more likely to remain the primary beneficiaries of SBA's financial assistance programs as firms at the margin of SBA's industry size standards are more likely to be able to obtain credit elsewhere.

For the above reasons, SBA does not anticipate that a 2.5% increase to the total number of small firms in the animal production industries will unfairly favor larger small firms in those industries, particularly those that may be classified as CAFOs, to the detriment of smaller small firms in accessing SBA's financial assistance. Therefore, SBA is adopting the size standards for the animal production industries identified above, as proposed.

SBA received three comments generally supporting the proposed increase to the size standard for NAICS 115310 and its two exceptions. SBA proposed to increase the size standard for the overall NAICS 115310 (Support Activities for Forestry) from $8 million to $10 million and the size standard for the Forest Fire Suppression and Fuel Management Services exceptions to that NAICS code from $20.5 million to $25 million. These comments listed a number of factors in support of the proposed increases, including increased costs, increased size of Federal contracts, increased length, frequency and severity of wildfires, and Government's encouragement to use wood biproducts to generate further receipts. The commenters stressed that if the size standard is not raised, they would be forced to cut back on growth to stay small and possibly lay off employees. Two of these commenters petitioned SBA to raise the size standard for the two exceptions to between $35 million and $41.5 million, with one commenter requesting that SBA immediately increase the size standard to at least $22 million until a final determination can be made.

SBA agrees with commenters that a higher size standard better reflects the economic characteristics of the firms within NAICS 115310 and its two exceptions. In the proposed rule, SBA's calculated size standard for the Forest Fire Suppression and Fuel Management Services exceptions was $23.5 million. However, in view of 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 better flexibility to be able to hire enough small businesses, especially in the worst-case scenario. In the proposed rule, SBA estimated that in a very busy fire season, it is not implausible to assume the length of fire season to be 120 days with 14 hours work shifts of fire crews. Based on a review of the latest available data, SBA determined that the length of the average fire season has increased in recent years as well as the severity of fires in terms of total acreage burned. For example, based on data from the National Interagency Fire Center ( https://www.nifc.gov/fire-information/statistics/wildfires ), SBA determined that two of the three fire seasons with total acres burned above ten million have occurred in the past five years, and all of them within the past seven years. Based on recent data, SBA estimates that a very busy fire season could last as long as seven months. Assuming an average price of $43 dollars per person per hour, a total amount of about $9 million could be awarded to a firm with an average number of four crews (one crew comprises 20 firefighters) during a longer, more severe fire season. In the case of the largest firms with 15-20 crews, the amount could reach up to $43 million. Both figures include only payments to firefighters for direct fire suppression activities and do not cover additional payments, such as payments for fire engines, water tenders, etc. With the reality of a longer and more severe average fire season in mind, in the proposed rule, SBA proposed 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. However, in light of public comments and more recent data demonstrating the increasing severity and length of wildfires and the growing costs to suppress them, in this final rule, SBA is adopting a higher size standard of $30 million. In addition to the comprehensive review of size standards, SBA also adjusts its monetary-based size standards for inflation at least once every five years but may choose to adjust them more frequently if economic conditions warrant an increase during the five-year period.

SBA reviewed the arguments and data provided by commenters requesting that SBA establish an even higher size standard for the Forest Fire Suppression and Fuel Management Services exceptions in the range of $35 million to $41.5 million. SBA believes that the arguments and data provided by commenters were not sufficient to support a size standard higher than $30 million because the economic characteristics of firms in this industry do not support a size standard near the SBA's maximum receipts-based size standard. Specifically, while two commenters maintained that increased operational costs, longer fire seasons and the almost exclusive use of set-asides by the Federal government in the industry exceptions have caused many firms to cut back on growth to stay small, SBA determined that only a very few firms providing services under the industry exceptions may face a scenario where they would need to downsize or reject work in order to remain small. The average firm size of firms participating in the Forest Fire Suppression and Fuel Management Services is $3.7 million, far below SBA's proposed size standard of $25 million and much lower than the adopted size standard of $30 million. Generally, SBA would expect to see a larger average firm size for the industry if a large number of firms were approaching the size standard and having to downsize or reject work in order to remain small.

Based on SBA's analysis of the five primary factors for the Forest Fire Suppression and Fuel Management Services exceptions, provided in Table 4 of the October 2020 proposed rule, a size standard in the range of $35 million to $41.5 million recommended by the commenters would be supported by only one factor. Only the Gini coefficient factor supported a $41 million size standard for these exceptions. All other factors supported $23.5 million or less. SBA's decision to adopt a higher $30 million size standard was influenced by information submitted by three commenters, our communications with Forest Service officials, and review of updated information on firms involved in forest fire suppression. All these indicated that forest fire seasons have become longer and more severe and fire suppression (including wages to fire crews) and equipment costs have increased from the time when the $25 million size standard was proposed. Thus, SBA believes that a size standard of $30 million is appropriate for this industry and will benefit small businesses of all sizes as well as the Federal Government in terms of access to an expanded pool of small businesses to draw from for small business set-asides in case of unexpected surges in forest fires. The inherent uncertainty of occurrences of forest fires and recent surges in forest fire incidents and extended fire seasons and the contracting officers' need to have flexibility to be able to hire enough small businesses, especially in the worst case scenario, also supports a higher $30 million size standard. SBA believes that competition within the industry will improve as more set-aside opportunities are created, and businesses have a longer runway to gain experience and compete with larger firms whose primary services are outside of NAICS 115310. Given the above reasons, SBA is adopting $10 million as the size standard for NAICS 115310 and $30 million as the size standard for Forest Fire Suppression and Fuel Management Services exceptions under that NAICS industry.

SBA received one comment expressing support for SBA's approach to calculating the size standard for the Dredging and Surface Cleanup Activities (Dredging) exception under NAICS 237990 (Other Heavy and Civil Engineering Construction). Specifically, the commenter supported the SBA's proposal to increase the size standard for Dredging from $30 million to $32.5 million in average annual receipts. This comment also supported keeping the 40% equipment requirement for this exception as outlined in Footnote 2 under the SBA's Table of Size Standards, or perhaps even raising it to higher than 40%. The commenter expressed that any alternative to the equipment requirement found in footnote 2, such as basing the requirement on contract dollar value or the number of personnel involved, would not be as effective at preventing large firms from accessing small business set-aside opportunities.

SBA agrees with the commenter that SBA's proposed size standard better reflects the economic characteristics of the firms within the Dredging industry. SBA believes that the proposed size standard will benefit all small firms as a larger size standard extends the time that small firms can remain small and compete for larger Dredging contracts. As a result of this expanded runway, small firms will be able to acquire more experience and technical capabilities in order to compete with larger firms once they exceed the size standard. Moreover, with an expanded pool of small businesses, the Federal Government will have more qualified small businesses to choose from, and as a result, likely will set aside more contracts for all small businesses. SBA agrees with the commenter that the 40% equipment requirement for this exception as outlined in footnote 2 of the SBA's Table of Size Standards is appropriate. Given the expressed support for SBA's proposed increase to the size standard for the Dredging exception to NAICS 237990 and the absence of any significant adverse comments opposing the increase, SBA is adopting $32.5 million as the size standard for Dredging, as proposed.

SBA received one comment regarding SBA's proposal to maintain the size standard for NAICS 236220 (Commercial and Institutional Building Construction) at $39.5 million. The analytical results supported a lower $25.5 million size standard for NAICS 236220, but considering the impact of the COVID-19 pandemic and Government response, SBA proposed to retain the current $39.5 million size standard. The commenter argued that the size standard for NAICS 236220 should be increased to help small firms overcome the government's overly restrictive contracting practices in this industry which results in disadvantages to truly small firms. The commenter cited such practices as excessive and high threshold past performance requirements as well as a general rise in overall project size requirements. The commenter also emphasized that the COVID-19 pandemic has resulted in a contraction of the pool of small businesses able to contract with the government. The commenter believes that the result of these circumstances is that only mentor-protégé firms will be able to qualify under these very restrictive contracting opportunities.

In response to comments that the Federal government's contracting practices in NAICS 236220 disadvantage small firms and that the COVID-19 pandemic has resulted in a contraction of the pool of small businesses able to contract with the Government SBA analyzed data from FPDS-NG during fiscal years 2018-2020 to evaluate the number and size of Federal contracting opportunities available to small firms. Based on an analysis of this data, SBA determined that there was an increase in dollars obligated to small businesses during fiscal years 2018-2020, which suggests that small firms have continued to do well in the Federal marketplace while providing valuable services to the Federal government during the COVID-19 related economic crisis. Table 2, Dollars Obligated to Small Businesses under NAICS 236220, shows the count of small business contracts under this NAICS code, the dollars obligated to small businesses, and the annual growth rate in small business dollars obligated during fiscal years 2018-2020.

In the proposed rule, SBA used FPDS-NG data from fiscal years 2016-2018 to evaluate small business participation in the Federal contracting market in terms of the share of total Federal contract dollars awarded to small businesses relative to the small business share of an 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 the 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 the 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. Regarding NAICS 236220 specifically, SBA calculated a Federal contracting factor of 9.4%, which indicates that the small business share of federal contracting dollars is higher than the small business share of industry receipts. Thus, the Federal contracting factor supports maintaining the size standard at the current $39.5 million level. Using the FPDS-NG data from fiscal years 2018-2020, SBA found that the small business share of federal contracting dollars is still higher than the share of industry receipts. As such, SBA disagrees with the commenter that the Federal government's contracting practices in this industry disadvantage small firms and that the COVID-19 pandemic has resulted in a contracted pool of small businesses able to contract with the government and is adopting $39.5 million as the size standard for NAICS 236220, as proposed.

SBA received one comment to the proposed rule that petitioned SBA to change the measure of size for construction industries from average annual receipts to full time equivalent (FTE) employees. This comment argued that receipts is a misleading measure of size for these industries due to increasing costs for materials, supplies, and labor.

SBA disagrees that receipts-based standards do not properly reflect the size of companies in the construction industry. SBA believes that receipts, which represent the value of a company's entire portfolio of completed work in a given period of time, is a better measure of the size of a construction company to determine its eligibility for Federal contracts set aside for small businesses than the number of employees. Moreover, under SBA's prime contractor performance requirements (see 13 CFR 125.6, limitations on subcontracting), a general construction company must perform as little as 15% of value of work with its own resources, and a specialty trade contractor may perform as little as 25% of work with its own resources. SBA is concerned that employee-based size standards for construction industries could encourage a construction company near the size standard to subcontract more work to others to bypass the limitations on subcontracting and remain technically a small business. Regardless of the amount of work a company subcontracts, it is part of its annual revenue, because the company is responsible for the entire project. In other words, under a receipts-based size standard, the company is not allowed to deduct subcontracting costs from the average annual receipts-based calculation. Under the employee-based size standard, companies would not count their subcontractors' employees to calculate their total number of employees. A company that subcontracts a great deal can have a considerably fewer employees than one that performs more of its work in-house.

Furthermore, in 2004, SBA proposed to replace annual receipts with number of employees as the basis for size standards for most industries, including construction (see 69 FR 11129 (March 19, 2004)). Commenters in the construction industry generally opposed SBA's proposal for a number of reasons, such as those SBA provides above. In addition, because employee-based size standards represent the average number of employees per pay period for the firm's immediately preceding 12 calendar months, businesses would have to recalculate their size on a monthly basis. Receipts, on the other hand, are calculated over the last five fiscal years for all SBA's programs, except for the loan programs for which receipts are calculated over the last three years. This allows for changes in the construction industry as well as fluctuations in sales due to economic conditions.

Employment data by industry from Economic Census and County Business Patterns and Federal statistical agencies (such Bureaus of Economic Analysis and Labor Statistics) that SBA uses in its size standards analysis are based on total head counts of part-time, temporary, and full-time employees, not based on FTEs. In other words, part-time employees are counted the same as full-time employees. In addition, using FTEs as a basis of size measure may increase reporting and record keeping requirements for small businesses to qualify for Federal programs. For the reasons outlined above, in this final rule, SBA is not adopting employee-based size standards for the construction sector.

Based on the evaluation of public comments it received on the proposed rule and given the expressed support for SBA's proposed increases and the absence of any significant adverse comments opposing the proposed increases, SBA is adopting the size standards as proposed in the October 2020 proposed rule, except for the Forest Fire Suppression and Fuel Management exceptions under NAICS 115310. For these exceptions, SBA is adopting a higher size standard of $30.0 million based on public comments and evaluation of newly available information regarding the industry and firms participating in the fire suppression and related activities. Thus, SBA is increasing size standards for 68 industries in NAICS sectors 11, 21, 22, and 23. This includes 58 industries and two subindustries (“exceptions”) in NAICS Sector 11 (Agriculture, Forestry, Fishing and Hunting), three industries in Sector 21 (Quarrying, and Oil and Gas Extraction), three industries in Sector 22 (Utilities), and one industry and one subindustry (“exception”) in Sector 23 (Construction). A summary of SBA's size standards revisions in this rule can be found below in Table 3, Summary of Size Standards Revisions in NAICS Sectors 11, 21, 22, and 23.

Table 4, Summary of Adopted Size Standards Revisions by Sector, below, summarizes the adopted changes to size standards by NAICS sector.

SBA determined that for the industries evaluated under this final rule, no individual firm at or below the adopted size standards would be large enough to dominate its field of operation. At the size standard levels adopted in this final rule, the small business share of total industry receipts among those industries would be, on average, 0.63%, varying from 0.003% to 22.3%. These market shares effectively preclude a firm at or below the adopted size standards from exerting control on any of the industries.

In response to the unprecedented economic impacts of the COVID-19 pandemic on small businesses and Government response, SBA is adopting increases to size standards where the data suggests increases are warranted and retaining all current size standards where the data suggested lowering is appropriate. SBA is also retaining all current size standards where the data suggested no changes to the current standards.

Nonetheless, SBA considered two other alternatives. Alternative Option One was to adopt changes to size standards exactly as suggested by the analytical results. In other words, Alternative Option One would entail increasing size standards for 68 industries and subindustries and decreasing them for 35 industries. Alternative Option Two was to retain all current size standards.

SBA did not adopt Alternative Option One because it 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. Lowering size standards in the current environment would run counter to various measures the Federal Government has implemented to help U.S. small businesses and the overall economy recover from the ongoing COVID-19 pandemic. Considering the impacts of the Great Recession and Government actions that followed to support small businesses and the overall economy, SBA also adopted a similar policy of not decreasing size standards during the first five-year review of size standards, even though the data suggested decreases.

Under Alternative Option Two, given the current COVID-19 pandemic, SBA considered retaining the current level of all size standards even though the analytical results suggested changing them. 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 before adopting changes to size standards. However, SBA is not adopting Alternative Option Two either because the results discussed in the Regulatory Impact Analysis section, below, show that retaining all size standards at their current levels would cause otherwise qualified small businesses to forgo various small business benefits becoming available to them under the option of increasing 68 and retaining 35 size standards adopted in this final rule. Such benefits would include access to Federal contracts set aside for small businesses and capital through SBA's loan and SBIC programs, and exemptions from paperwork and other compliance requirements.

The Office of Management and Budget (OMB) has determined that this 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 final rule, including: (1) A statement of the need for the action, (2) An examination of alternative approaches, and (3) An evaluation of the benefits and costs—both quantitative and qualitative—of the action and the alternatives considered.

1. What is a need for this regulatory action?

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.

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 rule is part of the second five-year review of size standards in accordance with the Jobs Act. The first five-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 size standards revisions for industries being adopted in this rule will make size standards more reflective of the current economic characteristics of businesses in those industries and the latest trends in the Federal marketplace.

The revisions to the existing size standards for 68 industries in NAICS Sectors 11, 21, 22, and 23 are consistent with SBA's statutory mandate 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 can 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 regulatory changes and their alternatives.

Based on the results from the analysis of the latest industry and Federal contracting data, evaluation of public comments and input to the proposed rule, 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 economic activity, of the total of 103 industries in Sectors 11, 21, 22, and 23 that have receipts-based size standards, SBA is increasing size standards for 68 industries (including exceptions), and maintaining current size standards for the remaining 35 industries.

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 changes to size standards on small businesses and on the overall economy.

Based on the 2012 Economic Census (the latest available when this rulemaking was developed), of a total of about 2.7 million businesses in industries in Sectors 11, 21, 22, and 23 for which SBA is increasing their receipts-based size standards, 96.9% are considered small under the current size standards. That percentage varies from 95.5% in Sector 21 to 98.5% in Sector 23. Based on the data from FPDS-NG for fiscal years 2018-2020, about 15,567 unique firms in those industries received at least one Federal contract during that period, of which 85% were small under the current size standards. A total of about $39 billion in average annual contract dollars were awarded to businesses in those industries during the period of evaluation, and 45.3% 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, 81.8% were awarded through various small business set-aside programs and 18.2% were awarded through non-set aside contracts.

Based on the SBA's internal data on its loan programs for fiscal years 2018-2020, small businesses in those industries received, on an annual basis, a total of nearly 7,250 7(a) and 504 loans in that period, totaling about $2.3 billion, of which 84.8% was issued through the 7(a) program and 15.2% was issued through the CDC/504 program. During fiscal years 2018-2020, small businesses in those industries also received 174 loans through the SBA's Economic Injury Disaster Loan (EIDL) program, totaling about $8 million on an annual basis. 2 Table 5, Baseline for All Industries, provides these baseline results by NAICS sector.

As stated above, of 103 receipts-based size standards in NAICS 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, impacts of size standards changes on small businesses as well as considerations of the impacts of the COVID-19 pandemic and public comments to the proposed rule, SBA is increasing 68 and maintaining 35 size standards. Below are descriptions of the benefits, costs, and transfer impacts of these increases to size standards adopted in this final rule.

The results of regulatory impact analyses SBA provided in the October 2020 proposed rule were based on the FPDS-NG and SBA loan data for fiscal years 2016-2018. In this final rule, SBA is updating the impact analysis results by using the FPDS-NG and SBA loan data for fiscal years 2018-2020. Accordingly, there can be some differences between the proposed rule and this final rule with respect to impacts of size standards changes on Federal contracts and SBA loans.

The most significant benefit to businesses from increases to size standards is gaining eligibility for Federal small business assistance programs or retaining eligibility for a longer period. These include SBA's business loan programs, Economic Injury Disaster Loan (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)/Business Development (BD) 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 programs. 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 is increasing size standards, more than 49,400 firms (see Table 6, below) not small under the current size standards will become small under the revised size standards and therefore become eligible for these programs. That represents about 2.4% of all firms classified as small under the current size standards in industries for which SBA is increasing size standards. The revised size standards will result in an increase to the small business share of total receipts in those industries from 35.6% to 55.2%.

With more businesses qualifying as small under the revised 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 2018-2020, SBA estimates that about 90 firms that are active in Federal contracting in those industries will gain small business status under the revised size standards. Based on the same data, SBA estimates that those newly qualified small businesses under the increases to 68 size standards could receive Federal small business contracts totaling about $13 million annually. That represents a 1.9% increase to small business dollars from the baseline. Table 6, Impacts of Increasing Size Standards, provides these results by NAICS sector.

The added competition from more businesses qualifying as small can result in lower prices to the Federal 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 revised size standards, HUBZone firms might end up getting more set-aside contracts and fewer full and open contracts, thereby resulting in some cost savings to agencies. 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. However, 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 2018-2020, SBA estimates up to about 15 7(a) and 504 loans totaling about $8.6 million could be made to these newly qualified small businesses in those industries under the revised size standards. That represents a 2.3% increase to the loan amount compared to the baseline.

Newly qualified small businesses will also benefit from the SBA's EIDL program. Because 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 loan data, SBA estimates that, on an annual basis, the newly defined small businesses under the increases of 68 size standards could receive three EIDL loans, totaling about $0.1 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.

Besides having to register in sam.gov 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 because 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. This 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, the latest data, and other relevant factors.

To the extent that the newly qualified small businesses could become active in Federal procurement, the increases to size standards may entail some additional administrative costs to the Federal 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 mentor-protégé program. With an expanded pool of small businesses, it is likely that Federal agencies would set aside more contracts for small businesses under the revised 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 the number of size protests processed shows that the number of size protests decreased following the increases to receipts-based size standards as part of the first five-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 fiscal year 2013), as compared to about 500 during fiscal years 2018-2020 when the increases to size standards were in effect. That represents a 17% 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 revised 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 revised size standards. However, the additional costs associated with fewer bidders are expected to be minor because, 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 revised 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.

The increases to 68 size standards that are adopted in this final rule 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 because total Federal contract dollars available for businesses to compete for will not change with changes to size standards. Although 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 revised 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 fewer set-aside contracts due to the increased competition from more advanced businesses qualifying as small under the revised 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 changes in this rule. In this section, SBA describes and analyzes two such alternatives to the changes in this rule. Alternative Option One to the changes in this rule, a more stringent alternative, would adopt size standards based solely on the analytical results. In other words, the size standards of 68 industries or subindustries (“exceptions”) for which the analytical results, as presented in Table 4 of the October 2020 proposed rule, suggest raising them would be raised. However, the size standards of 35 industries for which the analytical results suggest lowering them would be lowered. Alternative Option Two would retain 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.

As discussed elsewhere in this 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 five-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 adopt the same general policy of not lowering size standards in the ongoing second five-year comprehensive size standards review as well.

The primary benefits of adopting Alternative Option One would include: (1) 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; (2) Adopting size standards based on the analytical results would also promote consistency and predictability in SBA's implementation of its authority to set or adjust size standards; and (3) Firms who would remain small would face less competition from larger small firms for the remaining set-aside opportunities. Specifically, SBA sought public comment on the impact of adopting the size standards based on 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 discussed already the benefits, costs, and transfer impacts of increasing 68 size standards. Below we discuss the benefits, costs, and transfer impacts of decreasing 35 size standards based on the analytical results.

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 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 business development programs, such as small business, 8(a)/BD, SDB, HUBZone, WOSB, EDWOSB, and SDVOSB Programs. The adoption of calculated size standards diminishes the risk of awarding contracts to firms which are not small anymore.

Decreasing size standards may reduce the administrative costs of the Federal Government, because the risks of awarding set-aside contracts to other than small businesses may diminish when the size standards reflect better the structure of the market. This may also diminish the risks of providing SBA's loans to firms that do not need them the most. This may provide a better chance for smaller small firms to grow and benefit from the opportunities available on the Federal marketplace, and strengthen the small business industrial base for the Federal Government.

Table 7, Impacts of Decreasing Size Standards Under Alternative Option One, below, shows the various impacts of lowering size standards in 35 industries based solely on the analytical results. Based on the 2012 Economic Census, about 5,500 (0.9%) firms would lose their small business status under this option. Similarly, based on the FPDS-NG data for fiscal years 2018-2020, nearly 500 (5.0%) small businesses participating in Federal contracting would lose their small status and become ineligible to compete for set-aside contracts.

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 programs. For example, during fiscal years 2018-2020, agencies awarded, on an annual basis, about $17 billion in small business contracts in those 35 industries for which SBA considered decreasing size standards. Lowering size standards in those industries could reduce Federal contract dollars awarded to small businesses by about $1 billion or 6% relative to the baseline level, of which 99% was accounted for by the industries in 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 this option. SBA could adopt one or more of the following three actions: (1) Accept decreases in size standards as suggested by the analytical results, (2) Decrease size standards by a smaller amount than the calculated threshold, and (3) Retain the size standards at their current levels.

Nevertheless, because Federal agencies are still required to meet the statutory small business contracting goal of 23%, 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. Lowering size standards may cause current small business contract or option holders to lose their small business status, thereby making those dollars unavailable to count toward the agencies' small business procurement goals. Additionally, impacted small businesses will be unable to compete for upcoming options as small businesses.

As shown in Table 7, 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 2018-2020, SBA estimates that, under Alternative Option One, about 5 7(a) and 504 loans with total amounts of $1.8 million could not be made to those small businesses that would lose eligibility under the reduced size standards. That represents about 0.1% decrease of the loan amounts compared to the baseline. 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 by way of access to loans through SBA's EIDL loan program. However, SBA expects such impact to be minimal. For example, based on the disaster loan data for fiscal years 2018-2020, SBA estimates that, under Alternative Option One, about 3 EIDL loans with total amounts of $0.1 million could not be made to those small businesses that would lose eligibility under the reduced size standards (before mitigation). That represents about 1.3% decrease of the loan amounts compared to the baseline. Because this program is contingent on the occurrence and severity of a disaster in the future, SBA cannot make a more meaningful estimate of the immediate 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 the Federal Government programs, 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.

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 increases to size standards, it would have no impact on the overall economic activity because total Federal contract dollars available for businesses to compete for will stay the same. Although 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 on an unrestricted basis. As a result, large firms may have more Federal contracting opportunities. However, because agencies are still required by law to award 23% of Federal dollars to small businesses, SBA expects the movement of set-aside contracts to unrestricted competition to be limited. For the same reason, small businesses under the reduced size standards are likely to obtain more set-aside contracts due to the reduced competition from fewer firms 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 such impacts.

To estimate the net impacts of Alternative Option One, SBA used the same methodology used to evaluate the impacts of increasing size standards (Table 6). However, under Alternative Option One, SBA used the calculated size standards instead of the revised size standards to determine the impacts of changes to current thresholds. The impact of the increases of size standards were already shown in Table 6. Table 7 and Table 8, Net Impacts of Size Standards Changes under Alternative Option One, below, present the impacts 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, in aggregate, about 43,900 firms (see Table 8), would become small under the Alternative Option One. That represents about 1.7% of all firms classified as small under the current size standards. That is about 5,500 fewer firms qualifying as small under Alternative Option One, which represents an 11.0% reduction from about 49,400 firms that would qualify as small (see Table 6) under the proposal being adopted in this final rule ( i.e., increasing 68 and retaining 35 size standards).

Based on the FPDS-NG data for fiscal years 2018-2020, SBA estimates that about 400 active firms in Federal contracting in those industries would lose small business status under Alternative Option One, most of them from the construction sector. This represents a decrease of about 3.1% 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 $1.0 billion of Federal procurement dollars would not be available to firms losing their small status. This represents a decrease of 5.7% from the 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 2018-2020, the total number of 7(a) and 504 loans may increase by about 10 loans, and the loan amounts by about $6.8 million (see Table 8). This represents a 2.3% increase to the loan amount relative to the baseline.

Firms' participation under the SBA's EIDL loan program will be affected as well. Because 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 loan data, SBA estimates that there will be no change to the total number of EIDL loans, while the total loan amount will increase by about $.01 million. This represents a 0.1% increase of the loan amounts relative to the baseline. Table 8 provides these results by NAICS sector.

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 suggested changing them. 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. When compared to the baseline, there is a net impact of zero ( i.e., zero benefit and zero cost) for retaining all size standards. However, this option would cause otherwise qualified small businesses to forgo various small business benefits ( e.g., access to set-aside contracts and capital) that become available to them under the option of increasing 68 and retaining 35 size standards adopted in this final rule. Moreover, retaining all size standards under Alternative Option Two would also be contrary to the SBA's statutory mandate to review and adjust, every five years, all size standards to reflect current industry and Federal market conditions. Retaining all size standards without required periodic adjustments would increasingly exclude otherwise eligible small businesses from small business benefits.

Subtitle E of the Small Business Regulatory Enforcement Fairness Act of 1996 (codified at 5 U.S.C. 801-808), also known as the Congressional Review Act or CRA, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. SBA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States. A major rule under the CRA cannot take effect until 60 days after it is published in the Federal Register . OMB's Office of Information and Regulatory Affairs has determined that this rule is not a “major rule” as defined by 5 U.S.C. 804(2).

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 final rule may have a significant impact on a substantial number of small businesses in the industries covered by this rule. As described above, this rule may affect small businesses seeking Federal contracts, loans under SBA's 7(a), 504 and disaster loan programs, and assistance under other Federal small business programs.

Immediately below, SBA sets forth a final regulatory flexibility analysis (FRFA) of this 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? (5) What alternatives will allow SBA 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 industries covered by this 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 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 revised size standards. SBA estimates that an additional 49,415 businesses will become small under this rulemaking.

3. What are the projected reporting, record keeping and other compliance requirements of the rule?

The revised size standards 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 (FAR 52.204-13). For existing contracts, small business contractors are required to update their SAM registration as necessary, to ensure that they reflect the Contractor's current status (FAR 52.219-28). Businesses are also required to verify that their SAM registration is current, accurate, and complete with the submission of an offer for every new contract (FAR 52.204-7 and 52.204-8). 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 SBA 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 increasing 68 and maintaining 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 them 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 and decreasing 35 size standards. Retaining all size standards at their current levels would be more onerous for the small businesses than the option of increasing 68 and retaining 35 size standards. Additionally, for the first time, SBA evaluated 46 agricultural industries and, based on analytical results presented in Table 4 of the October 2020 proposed rule, proposed to increase the size standards for all of them. Postponing the adoption of the higher calculated size standards would be detrimental for otherwise small businesses within those industries in terms of access to various small business benefits, including access to set-aside contracts and capital through SBA contracting and financial programs, and exemptions from paperwork and other compliance requirements.

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 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 early 2016. 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 how SBA establishes, reviews, and modifies its receipts-based and employee-based small business size standards. SBA considered 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 rule.

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.

For purposes of Executive Order 13132, SBA has determined that this 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 rule has no federalism implications warranting preparation of a federalism assessment.

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.

For the reasons set forth in the preamble, SBA amends 13 CFR part 121 as follows:

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 (CDC/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 Small Business Jobs Act of 2010 (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 five-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. 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 North American Industry Classification System (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). 1

This final rule is one of a series of final rules that will revise size standards of industries grouped by various NAICS sectors. Rather than revise all size standards at one time, SBA is revising size standards by grouping industries within various NAICS sectors that use the same size measure ( i.e., employees or receipts). In the prior review, SBA revised size standards mostly on a sector-by-sector basis. As part of the second five-year review of size standards, SBA reviewed all receipt-based size standards in NAICS Sectors 48-49, 51, 52, and 53 to determine whether the existing size standards should be retained or revised based on the current industry and Federal market data. After its review, SBA published in the October 2, 2020, issue of the Federal Register (85 FR 62372) a proposed rule to increase the size standards for 18 industries in NAICS Sector 48-49 (Transportation and Warehousing), eight industries in NAICS Sector 51 (Information), ten industries in NAICS Sector 52 (Finance and Insurance), and nine industries in NAICS Sector 53 (Real Estate and Rental and Leasing). In this final rule, SBA is adopting the proposed size standards from the October 2020 proposed rule without change.

In conjunction with the current comprehensive size standards review, SBA developed a revised “Size Standards Methodology” (Methodology) for developing, reviewing, and modifying size standards, when necessary. SBA's revised Methodology provides a detailed description of its analyses of various industry and program factors and data sources, and how the agency uses the results to establish and revise size standards. In the proposed rule itself, SBA detailed how it applied its revised Methodology to review and modify where necessary, the existing size standards for industries covered in this final rule. 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 (84 FR 14587) of the issuance of the final revised Methodology. SBA's Size Standards Methodology is available on its website at www.sba.gov/size.

In evaluating an industry's size standard, SBA examines its characteristics (such as average firm size, startup costs, industry competition and distribution of firms by size) and the small business level and share of Federal contract dollars in that industry. SBA also examines the potential impact a size standard revision might have on its financial assistance programs, and whether a business concern under a revised size standard would be dominant in its industry. SBA analyzed the characteristics of each receipt-based industry in NAICS Sectors 48-49, 51, 52, and 53, mostly using a special tabulation obtained from the U.S. Bureau of the Census from its 2012 Economic Census (the latest available). The 2012 special tabulation 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. To evaluate average asset size, SBA combines the sales to total assets ratios by industry, obtained from the Risk Management Association's (RMA) Annual eStatement Studies ( http://www.rmahq.org/estatement-studies/ ) with the simple average receipts size by industry from the 2012 Economic Census tabulation to estimate the average assets size for each industry. SBA also evaluated the small business level and share of Federal contracts in each of the industries using data from the Federal Procurement Data System—Next Generation (FPDS-NG) for fiscal years 2016-2018. Table 4 of the proposed rule, Size Standards Supported by Each Factor for Each Industry (Receipts), shows the results of analyses of industry and Federal contracting factors for each industry and subindustry (exception) covered by the proposed rule. Of the 124 industries and two subindustries (exceptions) reviewed in the proposed rule, the results from analyses of the latest available data on the five primary factors from Table 4 of the proposed rule supported increasing size standards for 45 industries, decreasing size standards for 69 industries, and retaining size standards for nine industries and two subindustries. Additionally, SBA retained the size standard for NAICS 491110 (Postal Service) which the Economic Census does not cover. Table 1, Summary of Calculated Size Standards, summarizes the analytical results from the proposed rule by NAICS sector.

In the October 2020 proposed rule, SBA discussed the impacts of the COVID-19 pandemic on small businesses and greater society. Recognizing the wide-ranging economic impacts of the pandemic, SBA decided not to lower any size standards for which the analysis suggested lowering them. Instead, SBA proposed to maintain all size standards for industries in which the analytical results supported a decrease or no change to size standards and adopt all size standards for which the analytical results supported an increase to size standards. To evaluate the impact of the changes to size standards adopted in this final rule on the Federal contracting market and SBA's loan programs, SBA analyzed FPDS-NG data for fiscal years 2018-2020 and internal data on its guaranteed loan programs for fiscal years 2018-2020. The results of this analysis can be found in the Regulatory Impact Analysis section of this final rule.

In the proposed rule, SBA sought comments on its proposal to increase size standards for 45 industries and retain the current size standards for the remaining 81 industries or subindustries in Sectors 48-49, 51, 52, and 53. Specifically, SBA requested comments on whether the proposed revisions are appropriate for the industries covered by the proposed rule, whether the decision not to lower any size standards is justified by the COVID-19 pandemic, whether the equal weighting of individual factors to derive an industry size standard is appropriate, and whether the data sources used were appropriate or sufficient. SBA also sought comments on its proposal to maintain a common size standard for industries within Subsector 525 and assets-based size standards within NAICS Industry Groups 5221 and 5222. SBA also requested comments on its proposal to retain the size standard for the exception to NAICS 488510 (Non-Vessel Owning Common Carriers and Household Good Forwarders) and NAICS 491110 (Postal Service).

SBA received a total of four comments to the proposed rule from a wide range of entities including an individual, a business, and two trade associations. Of the four comments received, one comment referenced all sectors covered by the proposed rule, one comment referenced NAICS 531210 (Offices of Real Estate Agents and Brokers), one comment referenced NAICS 522130 (Credit Unions), and one comment referenced Sector 23 (construction) which is not covered under this proposed rule. SBA did not evaluate the comment referencing Sector 23 in this final rule, instead, SBA will evaluate that comment under the final rule covering the construction industry (see RIN 3245-AG90 on www.regulations.gov ). The four comments to the proposed rule are available at www.regulations.gov (RIN 3245-AG90) and are summarized and discussed below.

One commenter maintained that SBA's proposed changes to size standards would allow the entry of large businesses to the SBA's low-interest loan and contracting programs reserved by Congress for small businesses. This commenter further argued that the proposed rule is contrary to the statutory mandate given to the SBA by Congress in this regard. Citing these reasons, the commenter asserted that the proposed rule should be withdrawn.

In the proposed rule, SBA proposed to increase size standards for 45 industries, including eighteen (18) industries in NAICS Sector 48-49 (Transportation and Warehousing), eight (8) industries in NAICS Sector 51 (Information), ten (10) industries in NAICS Sector 52 (Finance and Insurance), and nine (9) industries in NAICS Sector 53 (Real Estate and Rental and Leasing). With an expanded pool of small businesses, it is likely that Federal agencies would set aside more contracts for small businesses under the increases to size standards, thereby increasing opportunities for all small businesses, including the smaller small businesses. Also, the Administration's recent decision to increase the Government-wide Small Disadvantaged Business (SDB) goal from the current 5% to 11% in fiscal year 2021 (increasing to 15% by fiscal year 2025) is likely to drive agencies to set aside more contracts to small businesses in coming years.

SBA does not agree with the comment that the proposed rule is contrary to the Congressional mandate given to SBA and should not be issued. Pursuant to section 1344 of the Small Business Jobs Act of 2010 (the Jobs Act) (Pub. Law 111-240), SBA is statutorily mandated to review every five years all size standards and make necessary adjustments to reflect current industry and Federal market conditions. The proposed rule was part of the second five-year review of size standards in accordance with the Jobs Act. 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 the Federal marketplace. For the above reasons, SBA is adopting the proposed size standard without change.

SBA received a comment from a small business concern specializing in providing lease brokerage and other transaction services to Federal agencies. This comment was in full support of the proposed increase to the size standard for NAICS 531210 (Offices of Real Estate Agents and Brokers) from $8 million to $13 million in average annual receipts. The commenter believed that such an increase is totally consistent with the Government's policy of providing maximum practicable opportunities to small businesses.

The commenter argued that the proposed increase to the size standard for NAICS 531210 would ensure that small businesses would be able to retain access to the Federal small business assistance programs. It would also ensure that Federal agencies have a larger pool of small businesses from which to draw for their small business procurement programs, thereby increasing competition and lowering prices to the Government. Finally, the commenter believed that the proposed increase would make the size standard for NAICS 531210 more consistent with the growth of the industry in recent years.

SBA agrees with the commenter that the proposed size standard will help to provide maximum practicable opportunities to small businesses in this industry while also expanding the pool of small businesses from which the Federal Government can draw from for their small business procurement programs. Given the expressed support for SBA's proposed increase to the size standard for NAICS 531210 and the absence of any significant adverse comments opposing the increase, SBA is adopting $13 million in average annual receipts as the size standard for this NAICS code.

SBA received one comment, on behalf of the National Association of Federally Insured Credit Unions (NAFCU), supporting SBA's proposed increase to all size standards generally, and in particular the size standard for NAICS 522130 (Credit Unions) increasing from $600 million to $750 million in average assets. This comment is in support of SBA's proposed size standard increase. As the commenter maintained, although credit unions are not-for-profit entities and do not qualify for the SBA's lending programs, the proposed increases to size standards would provide credit unions that are SBA lenders with an opportunity to provide lending to more newly-qualified small businesses, thereby helping local communities to thrive, promote innovation, and provide jobs.

SBA agrees with the commenter that the proposed changes to size standards will increase the number of businesses eligible to participate in SBA's financial assistance programs. SBA also agrees with the commenter that SBA's financial assistance programs can have wide-ranging positive impacts to individuals, businesses, and communities. Given the expressed support for SBA's proposed increase to the size standard for NAICS 522130 and the absence of any significant adverse comments opposing the increase, SBA is adopting, as proposed, 750 million in average assets as the size standard for NAICS 522130.

Based on the evaluation of public comments it received on the proposed rule and on its analyses of industry and Federal contracting factors using the latest available data when the proposed rule was prepared, SBA is adopting the size standards, as proposed in the October 2020 proposed rule. Thus, SBA is increasing 45 size standards, including 18 in NAICS Sector 48-49, eight in NAICS Sector 51, ten in NAICS Sector 52, and nine in NAICS Sector 53. A summary of SBA's size standards revisions in this rule can be found below in Table 2, Summary of Size Standards Revisions in NAICS Sectors 48-49, 51, 52, and 53.

Table 3, Summary of Adopted Size Standards Revisions by Sector, below, summarizes the adopted changes to size standards by NAICS sector.

SBA determined that for the industries evaluated under this final rule, no individual firm at or below the adopted size standards would be large enough to dominate its field of operation. At the size standard levels adopted in this final rule, the small business share of total industry receipts among those industries would be, on average, 0.4%, varying from 0.005% to 4.8%. These market shares effectively preclude a firm at or below the adopted size standards from exerting control on any of the industries.

In response to the unprecedented economic impacts of the ongoing COVID-19 pandemic on small businesses and Government response, SBA is adopting increases to size standards where the data suggests increases are warranted, and retaining all current size standards where the data suggested lowering of size standards is appropriate. SBA is also retaining all current size standards where the data suggested no changes to the current size standards.

Nonetheless, SBA considered two other alternatives. Alternative Option One was to adopt changes to size standards exactly as suggested by the analytical results. In other words, Alternative Option One would entail increasing size standards for 45 industries, decreasing them for 69 industries, and retaining them at their current levels for 12 industries. Alternative Option Two was to retain all current size standards.

SBA did not adopt Alternative Option One because it 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. Lowering size standards in the current environment would also run counter to various measures the Federal Government has implemented to help small businesses and the overall economy recover from the ongoing COVID-19 pandemic. Considering the impacts of the Great Recession and Government actions that followed to support small businesses and the overall economy, SBA also adopted a policy of not decreasing size standards during the first five-year review of size standards, even though the data supported decreases.

Under Alternative Option Two, given the current COVID-19 pandemic, SBA considered retaining the current level of all size standards even though the analytical results suggested changing them. 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 before adopting changes to size standards. However, SBA is not adopting Alternative Option Two because the results discussed in the Regulatory Impact Analysis section, below, show that retaining all size standards at their current levels would cause otherwise qualified small businesses to forgo various small business benefits becoming available to them under the option of increasing 45 and retaining 81 size standards. Such benefits would include access to Federal contracts set aside for small businesses and capital through SBA's loan and SBIC programs, and exemptions from paperwork and other compliance requirements.

The Office of Management and Budget (OMB) has determined that this final 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 final rule, including (1) A statement of the need for the regulatory action, (2) An examination of alternative approaches, and (3) An evaluation of the benefits and costs—both quantitative and qualitative—of the regulatory action and the alternatives considered.

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.

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 final rule is part of the second five-year review of size standards in accordance with the Jobs Act. The first five-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 the size standards revisions adopted for industries being reviewed in this final rule will make size standards more reflective of the current economic characteristics of businesses in those industries and the latest trends in the Federal marketplace.

The revisions to the existing size standards for 45 industries in NAICS Sectors 48-49, 51, 52, and 53 are consistent with SBA's statutory mandate 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.

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 regulatory changes and their alternatives.

Based on the results from the analyses of the latest industry and Federal contracting data, as well as consideration of the impact of size standards changes on small businesses and significant adverse impacts of the COVID-19 emergency on small firms and the overall economy, of the total of 126 industries in Sectors 48-49, 51, 52, and 53 that have receipts-based size standards, SBA is adopting increases to size standards for 45 industries and maintaining current size standards for the remaining 81 industries.

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 small business 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 changes to size standards on small businesses and on the overall economy.

Based on the 2012 Economic Census (the latest available when the proposed rule was prepared), of a total of about 700,544 firms in industries in Sectors 48-49, 51, 52 (except assets-based size standards), and 53 for which SBA evaluated their receipt-based size standards, 97.2% are considered small under the current size standards. That percentage varies from 95.8% in Sector 51 to 97.9% in Sector 53. Based on the data from Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA), from a total of about 5,415 depository institutions 77.3% are small and from a total of 5,492 credit unions, 91.2% are small under the current asset-based size standards. Based on the data from FPDS-NG for fiscal years 2018-2020, about 11,939 unique firms in those industries with receipt-based size standards, received at least one Federal contract during that period, of which 73.5% were small under the current size standards. For these sectors, of $20.3 billion in total average annual contract dollars awarded to businesses during that period, 21.4% went to small businesses. From the total small business contract dollars awarded during the period considered, 43.8% were awarded through various set-aside programs and 56.2% were awarded through non-set aside contracts. Based on the FDIC data, of a total of $18,034 billion in assets, 4.6% are owned by small depository institutions. With respect to Credit Unions, from a total of $1,471 billion in assets, 25.7% are owned by small credit unions.

Based on the SBA's internal data on its loan programs for fiscal years 2018-2020, small businesses in those industries received, on an annual basis, a total of 6,570 7(a) and 504 loans in that period, totaling about $2.7 billion, of which 83% was issued through the 7(a) program and 17% was issued through the CDC/504 program. During fiscal years 2018-2020, small businesses in those industries also received 749 loans through the SBA's Economic Injury Disaster Loan (EIDL) program, totaling about $19.2 million on an annual basis. 2 Table 4, Baseline for All Industries, provides these baseline results by NAICS sector.

As stated above, of 126 receipts-based size standards in NAICS Sectors 48-49, 51, 52, and 53 reviewed, based on the results from analyses of latest industry and Federal market data, impacts of size standards changes on small businesses, and considerations of the impacts of the COVID-19 pandemic and public comments to the proposed rule, SBA is adopting increases to size standards for 45 industries and maintaining size standards for 79 industries and two subindustries (exceptions). Below are descriptions of the benefits, costs, and transfer impacts of the increases to size standards adopted in this final rule.

The results of regulatory impact analyses SBA provided in the October 2020 proposed rule were based on the FPDS-NG and SBA loan data for fiscal years 2016-2018. In this final rule, SBA is updating the impact analysis results by using the FPDS-NG and SBA loan data for fiscal years 2018-2020. Accordingly, there can be some differences between the proposed rule and this final rule with respect to impacts of size standards changes on Federal contracts and SBA loans.

The most significant benefit to businesses from increases to size standards is gaining eligibility for Federal small business assistance programs or retaining eligibility for a longer period. These include SBA's business loan programs, Economic Injury Disaster Loan (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)/Business Development (BD) 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 the Federal Government programs. 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 45 industries in NAICS Sectors 48-49, 51, 52, and 53 for which it is increasing size standards, about 1,790 firms not small under the current size standards, will become small under the adopted size standards increases and therefore become eligible for these programs. That represents about 0.6% of all firms classified as small under the current size standards in industries for which SBA is adopting increases to size standards. When adopted, SBA's size standards would result in an increase to the small business share of total receipts in those industries from 29.9% to 32.7%. Table 5, Impacts of Increasing Size Standards, provides impacts of increasing 45 industries by NAICS sector.

With more businesses qualifying as small under the adopted 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.

As shown in Table 5, based on the FPDS-NG data for fiscal years 2018-2020, SBA estimates that about 53 firms that are active in Federal contracting in those industries would gain small business status under the adopted size standards. Based on the same data, SBA estimates that those newly-qualified small businesses under the increases to 45 size standards could receive Federal small business contracts totaling about $20 million annually. That represents a 2.3% increase to small business dollars from the baseline.

Based on the FDIC data for fiscal year 2018, SBA estimates that about 200 depository institutions would gain small institution status under the adopted increases to asset-based size standards with an additional $132 billion or 15.8% increase in small depository institutions' assets. Also, based on the NCUA data for fiscal year 2018, SBA estimates that about 85 credit unions would gain small business status under the adopted increases to size standards, with an additional $56 billion in assets or 14.9% increase for small credit unions (see Table 5).

The added competition from more businesses qualifying as small can result in lower prices to the Federal 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 adopted increases to size standards, HUBZone firms might receive more set-aside contracts and fewer full and open contracts, thereby resulting in some cost savings to agencies. 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. However, 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 2018-2020, SBA estimates up to about 14 SBA 7(a) and 504 loans totaling about $6.3 million could be made to these newly-qualified small businesses in those industries under the adopted size standards. That represents a 0.2% increase to the loan amount compared to the group baseline (see Table 5).

Newly-qualified small businesses will also benefit from the SBA's EIDL program. Because the benefits provided through this program are 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 disaster loan program data, SBA estimates that, on an annual basis, the newly-defined small businesses under the increases to 45 size standards could receive 5 disaster loans (except physical disaster loans), totaling about $0.2 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.

Aside from taking time to register in sam.gov to be eligible to participate in Federal contracting, and update the System for Award Management (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. This final 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, the latest data, and other relevant factors.

To the extent that the newly-qualified small businesses could become active in Federal procurement, the adopted 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 mentor-protégé program. With an expanded pool of small businesses, it is likely that Federal agencies would set-aside more contracts for small businesses under the adopted 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 the number of size protests processed shows that the number of size protests decreased following the increases to receipts-based size standards as part of the first five-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 fiscal year 2013), as compared to about 500 during fiscal years 2018-2020 when size standard increases were in effect. That represents a 17% 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 adopted 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 adopted size standards. However, the additional costs associated with fewer bidders are expected to be minor because, 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 adopted increases to size standards, HUBZone firms might receive 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.

The increases to 45 size standards that are adopted in this final rule 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 because total Federal contract dollars available for businesses to compete for will not change with changes to size standards. Although 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 adopted increases to size standards, some unrestricted Federal contracts that 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 fewer set-aside contracts due to the increased competition from larger businesses qualifying as small under the adopted 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.

Under OMB Circular A-4, SBA is required to consider regulatory alternatives to the adopted changes in this final rule. In this section, SBA describes and analyzes two such alternatives. Alternative Option One to the final rule, a more stringent alternative to the adopted change, would propose adopting size standards based solely on the analytical results. In other words, the size standards of 45 industries for which the analytical results, as presented in Table 4 of the October 2020 proposed rule, suggest raising them would be raised. However, the size standards of 69 industries for which the analytical results suggest lowering them would be lowered. For the 12 remaining industries, size standards would be maintained at their current levels based on the results. Alternative Option Two would propose retaining size standards for all industries, given the uncertainty generated by the ongoing COVID-19 pandemic. Below, SBA discusses benefits, costs, and the net impacts of each option.

As discussed previously in the Alternatives Considered section of this final 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 five-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 adopt the same general policy of not lowering size standards in the ongoing second five-year comprehensive size standards review as well.

The primary benefits of adopting Alternative Option One would include: (1) 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; (2) Adopting the size standards based on the analytical results would also promote consistency and predictability in SBA's implementation of its authority to set or adjust size standards; and (3) Firms who would remain small would face less competition from larger small firms for the remaining set-aside opportunities. Specifically, SBA sought public comment on the impact of adopting the size standards based on 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, costs, and transfer impacts of increasing 45 size standards. Below we discuss the benefits, costs, and transfer impacts of decreasing 69 size standards based on the analytical results.

The most significant benefit to businesses from decreases to size standards when 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 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 business development programs, such as small business, SDB, 8(a)/BD, HUBZone, WOSB, EDWOSB, and SDVOSB programs. The adoption of calculated size standards diminishes the risk of awarding contracts to firms that are not small anymore.

Decreasing size standards may reduce the administrative costs of the Government, because the risk of awarding set-aside contracts to other than small businesses may diminish when the size standards reflect better the structure of the market. This may also diminish the risks of providing SBA's loans to firms that do not need them the most. This may provide a better chance for smaller small firms to grow and benefit from the opportunities available on the Federal marketplace, and strengthen the small business industrial base for the Federal Government.

Table 6, Impacts of Decreasing Size Standards Under Alternative Option One, below, shows the various impacts of lowering size standards in 69 industries based solely on the analytical results. Based on the 2012 Economic Census, about 5,500 (0.9%) firms would lose their small business status under Alternative Option One. Similarly, based on the FPDS-NG data for fiscal years 2018-2020, nearly 500 (5.0%) small businesses participating in Federal contracting would lose their small status and become ineligible to compete for set-aside contracts. 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, during fiscal years 2018-2020, agencies awarded, on an annual basis, about $3,338 million in small business contracts in those 69 industries for which SBA considered decreasing size standards under Alternative Option One. Lowering size standards in 69 industries would reduce Federal contract dollars awarded to small businesses by $87 million or about 2.6% relative to the baseline level.

Because of the importance of these sectors for the Federal procurement, SBA may adopt mitigating measures to reduce the negative impact under the assumptions of Alternative Option One. SBA could adopt one or more of the following three actions: (1) Accept decreases in size standards as suggested by the analytical results, (2) Decrease size standards by a smaller amount than the calculated threshold, and (3) Retain the size standards at their current levels.

Nevertheless, because Federal agencies are still required to meet the statutory small business contracting goal of 23%, 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. Lowering size standards may cause current small business contract or option holders to lose their small business status, thereby making those dollars unavailable to count toward the agencies' small business procurement goals. Additionally, impacted small businesses will be unable to compete for upcoming options as small businesses.

As shown in Table 6, decreasing 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 2018-2020, SBA estimates that about 8 of SBA's 7(a) and 504 loans with total amounts of $3.6 million could not be made to those small businesses that would lose eligibility under the reduced size standards. That represents about 0.3% decrease of the loan amounts compared to the baseline. 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 by way of access to loans through SBA's EIDL loan 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 2018-2020. For example, based on the disaster loan data for fiscal years 2018-2020, SBA estimates that, under Alternative Option One, about 5 EIDL loans with total amounts of $0.2 million could not be made to those small businesses that would lose eligibility under the reduced size standards (before mitigation). That represents about 1.4% decrease of the loan amounts compared to the baseline. Because this program is contingent on the occurrence and severity of a disaster in the future, SBA cannot make a more 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 the Federal Government programs, 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.

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 adopted increases to size standards, it would have no impact on the overall economic activity because the total Federal contract dollars available for businesses to compete for will stay the same. Although 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 on an unrestricted basis. As a result, large businesses may have more Federal contracting opportunities. However, because agencies are still required by law to award 23% of Federal dollars to small businesses, SBA expects the movement of set-aside contracts to unrestricted competition to be limited. For the same reason, small businesses 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.

To estimate the net impacts of Alternative Option One, SBA followed the same methodology used to evaluate the impacts of the increasing size standards (see Table 5). However, under Alternative Option One, SBA used the calculated size standards instead of the adopted ones to determine the impacts of changes to current thresholds. The impact of the increases of size standards were already shown in Table 5. Table 6 and Table 7, 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 114 industries in NAICS Sectors 48-49, 51, 52 and 53 for which the analytical results suggested to change size standards, about 50 firms (see Table 7), would become small under Alternative Option One. That represents about 0.01% of all firms classified as small under the current size standards in those industries. That is about 1,740 fewer firms qualifying as small under Alternative Option One, which represents a 97.0% reduction from about 1,790 firms that would qualify as small (see Table 5) under the proposal being adopted in this final rule ( i.e., increasing 45 and retaining 81 size standards).

As shown in Table 7, based on the FPDS-NG data for fiscal years 2018-2020, SBA estimates that, in aggregate, about 109 active firms in Federal contracting in those industries would lose small business status under Alternative Option One, most of them from Sector 48-49. This represents a decrease of about 1.3% 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 $660 million of Federal procurement dollars would not be available to firms losing their small status. That is a decrease of 1.6% from the baseline. A large portion of these losses is accounted for by Sector 48-49.

Based on the SBA's loan data for fiscal years 2018-2020, the total number of 7(a) and 504 loans will increase by six loans, while the total loan amount will increase by about $2.6 million. This is a 0.08% rise of the loan amounts relative to the baseline. Firms' participation under the SBA's EIDL loan program will be affected as well. Because 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 loan program data, SBA estimates that there will be no change to the total number of EIDL loans, while the total loan amount will be reduced by about $.03 million. This represents a 0.1% decrease of the loan amounts relative to the baseline. Table 7 provides these results by NAICS sector.

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 suggested changing them. 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. When compared to the baseline, there is a net impact of zero ( i.e., zero benefit and zero cost) for retaining all size standards. However, this option would cause otherwise qualified small businesses to forgo various small business benefits ( e.g., access to set-aside contracts and capital) that become available to them under the option of increasing 45 and retaining 81 size standards adopted in this final rule. Moreover, retaining all size standards under this option would also be contrary to the SBA's statutory mandate to review and adjust, every five years, all size standards to reflect current industry and Federal market conditions. Retaining all size standards without required periodic adjustments would increasingly exclude otherwise eligible small firms from small business benefits.

Subtitle E of the Small Business Regulatory Enforcement Fairness Act of 1996 (codified at 5 U.S.C. 801-808), also known as the Congressional Review Act or CRA, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. SBA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States. A major rule under the CRA cannot take effect until 60 days after it is published in the Federal Register . OMB's Office of Information and Regulatory Affairs has determined that this rule is not a “major rule” as defined by 5 U.S.C. 804(2).

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 final rule may have a significant impact on a substantial number of small businesses in the industries covered by this final rule. As described above, this final rule may affect small businesses seeking Federal contracts, loans under SBA's 7(a), 504 and disaster loan programs, and assistance under other Federal small business programs.

Immediately below, SBA sets forth a final regulatory flexibility analysis (FRFA) of this final rule addressing the following questions: (1) What is the need for and objective of the rule? (2) What is 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? (5) What alternatives will allow SBA to accomplish its regulatory objectives while minimizing the impact on small businesses?

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 final 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 size standards adopted in this final 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.

Based on data from the 2012 Economic Census, SBA estimates that there are about 319,000 small firms covered by this rulemaking under industries with changes to size standards. Under this final rule, SBA estimates that an additional 1,790 businesses will be defined as small.

The size standard changes in this final rule 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 (FAR 52.204-13). For existing contracts, small business contractors are required to update their SAM registration as necessary, to ensure that they reflect the Contractor's current status (FAR 52.219-28). Businesses are also required to verify that their SAM registration is current, accurate, and complete with the submission of an offer for every new contract (FAR 52.204-7 and 52.204-8).). Therefore, businesses opting to participate in those programs must comply with SAM requirements. Changes in small business size standards do not result in additional 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.

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)).

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 increasing 45 and maintaining 81 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 45 industries for which the analytical results suggest raising size standards would be raised. However, the size standards of 69 industries for which the analytical results suggest lowering them would be lowered. This would cause a significant number of small businesses to lose their small business status, particularly in Sector 48-49 (see Table 6). 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 45 and decreasing 69 size standards. SBA believes retaining all size standards at their current levels would be more onerous for small businesses than the option of increasing 45 and retaining 35 size standards. Postponing the adoption of the higher calculated size standards would be detrimental for otherwise small businesses in terms of access to various small business benefits, including access to set-aside contracts and capital through SBA contracting and financial programs, and exemptions from paperwork and other compliance requirements.

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 final 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 early 2016. 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. The “Size Standards Methodology” white paper explains how SBA establishes, reviews, and modifies its receipts-based and employee-based small business size standards. SBA considered 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 final rule. SBA received a total of four comments to the proposed rule. In the Discussion of Comments section of this final rule, SBA summarizes and provides responses to the comments received on the proposed rule.

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.

For purposes of Executive Order 13132, SBA has determined that this final 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 final rule has no federalism implications warranting preparation of a federalism assessment.

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

For the reasons set forth in the preamble, SBA amends 13 CFR part 121 as follows:

Discussion of Size Standards

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 (CDC/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 Small Business Jobs Act of 2010 (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 five-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. 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 North American Industry Classification (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). 1

This final rule is one of a series of final rules that will revise size standards of industries grouped by various NAICS sectors. Rather than revise all size standards at one time, SBA is revising size standards by grouping industries within various NAICS sectors that use the same size measure ( i.e., employees or receipts). In the prior review, SBA revised size standards mostly on a sector-by-sector basis. As part of the second five-year review of size standards under the Jobs Act, SBA reviewed all receipt-based size standards in NAICS Sectors 61, 62, 71, 72, and 81 to determine whether the existing size standards should be retained or revised based on the current industry and Federal market data. After its review, SBA published in the November 27, 2020, issue of the Federal Register (85 FR 76390) a proposed rule to increase the size standards for 14 industries in NAICS Sector 61 (Education Services), 18 industries in Sector 62 (Health Care and Social Assistance), 11 industries in Sector 71 (Arts, Entertainment and Recreation), four industries in Sector 72 (Accommodation and Food Services), and 23 industries in Sector 81 (Other Services). In this final rule, SBA is adopting the proposed size standards from the November 2020 proposed rule without change.

In conjunction with the current comprehensive size standards review, SBA developed a revised “Size Standards Methodology” (Methodology) for developing, reviewing, and modifying size standards, when necessary. SBA's revised Methodology provides a detailed description of its analyses of various industry and program factors and data sources, and how the agency uses the results to establish and revise size standards. In the proposed rule itself, SBA detailed how it applied its revised Methodology to review and modify where necessary, the existing size standards for industries covered in this final rule. 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 (84 FR 14587) of the issuance of the final revised Methodology. SBA's Size Standard Methodology is available on its website at www.sba.gov/size.

In evaluating an industry's size standard, SBA examines its characteristics (such as average firm size, startup costs and entry barriers, industry competition and distribution of firms by size) and the small business level and share of Federal contract dollars in that industry. SBA also examines the potential impact a size standard revision might have on its financial assistance programs, and whether a business concern under a revised size standard would be dominant in its industry. SBA analyzed the characteristics of each receipt-based industry in NAICS Sectors 61, 62, 71, 72, and 81, mostly using a special tabulation obtained from the U.S. Bureau of the Census from its 2012 Economic Census (the latest available). The 2012 Economic Census special tabulation 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. To evaluate average asset size, SBA combines the sales to total assets ratios by industry, obtained from the Risk Management Association's (RMA) Annual eStatement Studies ( http://www.rmahq.org/estatement-studies/ ) with the simple average receipts size by industry from the 2012 Economic Census tabulation to estimate the average assets size for each industry. SBA also evaluated the small business level and share of Federal contracts in each of the industries using data from the Federal Procurement Data System—Next Generation (FPDS-NG) for fiscal years 2016-2018. Table 4 of the November 2020 proposed rule, Size Standards Supported by Each Factor for Each Industry (Receipts), shows the results of analyses of industry and Federal contracting factors for each industry and subindustry (exception) covered by the proposed rule. Of the 144 industries and one subindustry (exception) reviewed in the proposed rule, the results from analyses of the latest available data on the five primary factors from Table 4 of the proposed rule supported increasing size standards for 70 industries, decreasing size standards for 63 industries, and retaining size standards for 12 industries. Table 1, Summary of Calculated Size Standards, below, summarizes the analytical results from the proposed rule by NAICS sector.

In the November 2020 proposed rule, SBA discussed the impacts of the COVID-19 pandemic on small businesses and greater society. Recognizing the wide-ranging economic impacts of the pandemic, SBA decided not to lower any size standards for which the analysis suggested lowering them. Instead, SBA proposed to maintain all size standards for industries in which the analytical results supported a decrease or no change to size standards and adopt all size standards for which the analytical results supported an increase to size standards. To evaluate the impact of the changes to size standards adopted in this final rule on the Federal contracting market and SBA's loan programs, SBA analyzed FPDS-NG data for fiscal years 2018-2020 and internal data on its guaranteed loan programs for fiscal years 2018-2020. The results of this analysis can be found in the Regulatory Impact Analysis section of this final rule.

In the proposed rule, SBA sought comments on its proposal to increase size standards for 70 industries and retain the current size standards for the remaining 75 industries or subindustries in Sectors 61, 62, 71, 72, and 81. Specifically, SBA requested comments on whether the proposed revisions are appropriate for the industries covered by the proposed rule; whether the decision not to lower any size standards is justified by the COVID-19 pandemic; whether the equal weighting of individual factors to derive an industry size standard is appropriate; and whether the data sources used were appropriate or sufficient.

SBA received a total of 12 comments on the proposed rule, only three of which were related to size standards; the other nine comments were mostly concerned with impacts from the COVID-19 pandemic and getting qualified for government relief, including the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) Programs, which is beyond the scope of the proposed rule. The comments to the proposed rule are available at www.regulations.gov (RIN 3245-AG88) and are summarized and discussed below.

Of the three comments that pertained to size standards, one expressed general support of the proposed size standards increases in the proposed rule, arguing that extending the circle of small businesses will help medium-small businesses that have just exceeded size standards regain small business status and will allow small businesses to grow and still be able to qualify as a small business, which will have a positive effect on the U.S. economy. The second comment supported the SBA's proposed increase to the size standard for NAICS 624410 (Child Day Care Services) from $8 million to $8.5 million. The commenter stated that the proposed change supports childcare and preschool services, which are severely impacted by the COVID-19 pandemic, as the change will enable them to obtain financial support to survive.

The third comment was from an industry association representing amusement or theme parks, water parks, attractions, family entertainment centers, arcades, ariel adventure courses, zoos, aquariums, museums, science centers, and resorts categories, which fall under NAICS 713110 (Amusement and Theme Parks) with the current size standard of $41.5 million, which happens to be the highest of any receipts-based size standards. Citing increasing operating costs and increased investments to comply with the COVID-19 pandemic requirements, the commenter urged SBA to increase the size standard for NAICS 713110. Specifically, the association urged SBA to either consider changing the measure of SBA size eligibility for NAICS 713110 from receipts to net income or to substantially increase its receipts-based size standard.

SBA rejects the association's suggestion for the following reasons. First, section 3(a)(2)(C)(ii)(II) of the Small Business Act provides that the size of a business concern providing services (such as those in NAICS 713110) must be determined based on the annual average gross receipts. Accordingly, SBA rejects net income as a measure of size for NAICS 713110. Second, in accordance with its “Size Standards Methodology” SBA caps the highest receipts-based size standard at $41.5 million, above which no business concern could be classified as small. Because NAICS 713110 already has the highest possible $41.5 million receipts-based size standard, SBA cannot increase the size standard for that NAICS code beyond $41.5 million. SBA agrees with a comment that expressed general support to the proposed rule and another comment that supported the SBA proposed increase to the size standard for NAICS 624410.

Based on the evaluation of public comments it received on the proposed rule and on its analyses of industry and Federal contracting factors using the latest available data when the proposed rule was prepared, and given the expressed support for SBA's proposed increases and the absence of any significant adverse comments opposing the increase, SBA is adopting the size standards as proposed in the November 2020 proposed rule. Thus, SBA is increasing the size standards for 14 industries in NAICS Sector 61, 18 industries in Sector 62, 11 industries in Sector 71, four industries in Sector 72, and 23 industries in Sector 81. A summary of SBA's size standards revisions in this rule can be found in Table 2, Summary of Size Standards Revisions in NAICS Sectors 61, 62, 71, 72, and 81.

Table 3, Summary of Adopted Size Standards Revisions by Sector, summarizes the adopted changes to size standards by NAICS sector.

SBA determined that for the industries evaluated under this final rule, no individual firm at or below the adopted size standards would be large enough to dominate its field of operation. At the size standard levels adopted in this final rule, the small business share of total industry receipts among those industries would be, on average, 0.63%, varying from 0.003% to 22.3%. These market shares effectively preclude a firm at or below the adopted size standards from exerting control on any of the industries.

In response to the unprecedented economic impacts of the COVID-19 pandemic on small businesses and Government response, SBA is adopting increases to size standards where the data suggests increases are warranted, and retaining all current size standards where the data suggested lowering is appropriate. SBA is also retaining all current size standards where the data suggested no changes to the current size standards.

Nonetheless, SBA considered two other alternatives. Alternative Option One was to adopt changes to size standards exactly as suggested by the analytical results. In other words, Alternative Option One would entail increasing size standards for 70 industries, decreasing them for 63 industries, and retaining them at their current levels for 12 industries. Alternative Option Two was to retain all current size standards.

SBA is not adopting Alternative Option One because it 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. Impacts of lowering size standards under Alternative Option One are discussed in detail in the Regulatory Impact Analysis section of this rule. Lowering size standards in the current environment would also run counter to various measures the Federal Government has implemented to help small businesses and the overall economy recover from the ongoing COVID-19 pandemic. Considering the impacts of the Great Recession and Government actions that followed to support small businesses and the overall economy, SBA also adopted a policy of not decreasing size standards during the first five-year review of size standards, even though the data supported decreases.

Under Alternative 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. 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 before adopting changes to size standards. However, SBA is not adopting Alternative Option Two because results discussed in the Regulatory Impact Analysis section, below, shows that retaining all size standards at their current levels would cause otherwise qualified small businesses to forgo various small business benefits becoming available to them under the option of increasing 70 and retaining 75 size standards. Such benefits would include access to Federal contracts set aside for small businesses and capital through SBA's loan and SBIC programs, and exemptions from paperwork and other compliance requirements.

The Office of Management and Budget (OMB) has determined that this final 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 final rule, including (1) A statement of the need for the regulatory action, (2) An examination of alternative approaches, and (3) An evaluation of the benefits and costs—both quantitative and qualitative—of the regulatory action and the alternatives considered.

1. What is the need for this regulatory action?

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. 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 final rule is part of the second five-year review of size standards in accordance with the Jobs Act. The first five-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 the size standards revisions adopted for industries being reviewed in this final rule will make size standards more reflective of the current economic characteristics of businesses in those industries and the latest trends in Federal marketplace.

The revisions to the existing size standards for 70 industries in NAICS Sectors 61, 62, 71, 72, and 81 are consistent with SBA's statutory mandate 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 regulatory changes and their alternatives.

Based on the results from the analyses of the latest industry and Federal contracting data, evaluation of the public comments on the proposed rule, as well as consideration of the impact of size standards changes on small businesses and significant adverse impacts of the COVID-19 emergency on small businesses and the overall economic activity, of the total of 145 industries in Sectors 61, 62, 71, 72, and 81 that have receipts-based size standards, SBA is adopting increases to size standards for 70 industries and maintaining current size standards for the remaining 75 industries (including exceptions).

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 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 2,016,327 businesses in industries in Sectors 61, 62, 71, 72, and 81 for which SBA evaluated their current receipts-based size standards, 98.0% are considered small under the current size standards. That percentage varies from 95.9% in Sector 61 to 98.8% in Sector 81. Based on the data from FPDS-NG for fiscal years 2018-2020, about 23,250 unique firms in those industries with receipts-based size standards, received at least one Federal contract during that period, of which 76.6% were small under the current size standards. For these sectors, of about $19 billion in total average annual contract dollars awarded to businesses during that period, 27.9% went to small businesses. From the total small business contract dollars awarded during the period considered, 66.4% were awarded through various small business set-aside programs and 33.6% were awarded through non-set aside contracts.

Based on the SBA's internal data on its loan programs for fiscal years 2018-2020, small businesses in those industries received, on an annual basis, a total of 21,350 7(a) and 504 loans in that period, totaling about $12.3 billion, of which 82.3% was issued through the 7(a) program and 17.7% was issued through the CDC/504 program. During fiscal years 2018-2020, small businesses in those industries also received 1,104 loans through the SBA's Economic Injury Disaster Loan (EIDL) program, totaling about $53.3 million on an annual basis. 2 Table 4, Baseline for All Industries, below, provides these baseline results by sector.

As stated above, of 145 receipts-based size standards in Sectors 61, 62, 71, 72, and 81 reviewed, based on the results from analyses of latest industry and Federal market data as well as impacts of size standards changes on small businesses and the consideration of comments to the proposed rule, SBA is adopting increases to size standards for 70 industries. Below are descriptions of the benefits, costs, and transfer impacts of the increases to size standards adopted in this final rule.

The results of regulatory impact analyses SBA provided in the November 2020 proposed rule were based on the FPDS-NG and SBA loan data for fiscal years 2016-2018. In this final rule, SBA is updating the impact analysis results by using the FPDS-NG and SBA loan data for fiscal years 2018-2020. Accordingly, there can be some differences between the proposed rule and this final rule with respect to impacts of size standards changes on Federal contracts and SBA loans.

The most significant benefit to businesses from 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)/Business Development (BD) 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 the Federal Government programs. 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 70 industries in NAICS Sectors 61, 62, 71, 72, and 81 for which it is increasing size standards, about 4,700 firms (see Table 5), not small under the current size standards, will become small under the adopted size standards increases and therefore become eligible for these programs. That represents about 0.4% of all firms classified as small under the current size standards in industries for which SBA is adopting increases to size standards. SBA's revised size standards would result in an increase to the small business share of total receipts in those industries from 37.4% to 38.5%.

With more businesses qualifying as small under the adopted 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 2018-2020, SBA estimates that about 238 firms that are active in Federal contracting in those industries would gain small business status under the adopted size standards. Based on the same data, SBA estimates that those newly qualified small businesses under the increases to 70 size standards could receive Federal small business contracts totaling about $60 million annually. That represents a 2.3% increase to small business dollars from the baseline. Table 5, Impacts of Increasing Size Standards, provides these results by NAICS sector.

The added competition from more businesses qualifying as small can result in lower prices to the Federal 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 adopted increases to size standards, HUBZone firms might receive more set-aside contracts and fewer full and open contracts, thereby resulting in some cost savings to agencies. 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. However, such cost savings are likely to be relatively small as only a small fraction of full and open contracts are awarded to HUBZone businesses.

As shown in Table 5, under SBA's 7(a) and 504 loan programs, based on the data for fiscal years 2018-2020, SBA estimates up to about 47 SBA 7(a) and 504 loans totaling about $ 22.6 million could be made to these newly-qualified small businesses in those industries under the adopted size standards. That represents a 0.4% increase to the loan amount compared to the group baseline.

Newly-qualified small businesses will also benefit from the SBA's EIDL program. Because the benefits provided through this program are 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 disaster loan program data, SBA estimates that, on an annual basis, the newly-defined small businesses under the adopted increases to size standards could receive five disaster loans, totaling about $0.3 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.

Besides having to register in the System for Award Management (SAM) to be eligible 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. This final 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, the latest data, and other relevant factors.

To the extent that the newly qualified small businesses could become active in Federal procurement, the adopted increases to size standards may entail some additional administrative costs to the Federal 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 mentor-protégé program. With an expanded pool of small businesses, it is likely that Federal agencies would set-aside more contracts for small businesses under the adopted 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 the number size protests processed shows that the number of size protests decreased following the increases to receipts-based size standards as part of the first five-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 fiscal year 2013), as compared to about 500 during fiscal years 2018-2020 when size standards increases were in effect. That represents a 17% 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 adopted 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 adopted size standards. However, the additional costs associated with fewer bidders are expected to be minor because, 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 adopted increases to size standards, HUBZone firms might 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.

The increases to 70 size standards that are adopted in this final rule 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 because total Federal contract dollars available for businesses to compete for will not change with changes to size standards. Although 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 adopted increases to size standards, some unrestricted Federal contracts that 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 fewer set-aside contracts due to the increased competition from larger businesses qualifying as small under the adopted 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 adopted changes in this final rule. In this section, SBA describes and analyzes two such alternatives. Alternative Option One to the final rule, a more stringent alternative to the adopted change, would propose adopting size standards based solely on the analytical results. In other words, the size standards of 70 industries for which the analytical results, as presented in Table 4 of the November 2020 proposed rule, suggest raising them would be raised. However, the size standards of 63 industries or subindustries for which the analytical results suggest lowering them would be lowered. For the 12 remaining industries or subindustries for which the analysis suggested no changes, size standards would be maintained at their current levels. Alternative Option Two would propose retaining size standards for all industries, given the uncertainty generated by the ongoing COVID-19 pandemic. Below, SBA discusses the benefits, costs, and net impacts of each option.

As discussed previously in the Alternatives Considered section of this final 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 five-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 adopt the same general policy of not lowering size standards in the ongoing second five-year comprehensive size standards review as well.

The primary benefit of adopting Alternative Option One would include: (1) 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; (2) Adopting the size standards based on the analytical results would also promote consistency and predictability in SBA's implementation of its authority to set or adjust size standards; and (3) Firms who would remain small would face less competition from larger small firms for the remaining set aside opportunities. Specifically, SBA sought public comment on the impact of adopting the size standards based on 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, costs, and transfer impacts of increasing 70 size standards. Below we discuss the benefits, costs, and transfer impacts of decreasing 63 size standards based on the analytical results.

The most significant benefit to businesses from decreases to size standards when 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 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 business development programs, such as small business, SDB, 8(a)/BD, HUBZone, WOSB, EDWOSB, and SDVOSB programs. The adoption of calculated size standards diminishes the risk of awarding contracts to firms that are not small anymore.

Decreasing size standards may reduce the administrative costs of the Federal Government, because the risk of awarding set-aside contracts to other than small businesses may diminish when the size standards reflect better the structure of the market. This may also diminish the risks of providing SBA's loans to firms that do not need them the most. This may provide a better chance for smaller small firms to grow and benefit from the opportunities available on the Federal marketplace, and strengthen the small business industrial base for the Federal Government.

Table 6, Impacts of Decreasing Size Standards Under Alternative Option One, below, shows the various impacts of lowering size standards in 63 industries based solely on the analytical results. Based on the 2012 Economic Census, about 1,700 (0.3%) firms would lose their small business status under Alternative Option One. Similarly, based on the FPDS-NG data for fiscal years 2018-2020, 169 (2.4%) small businesses participating in Federal contracting would lose their small status and become ineligible to compete for set-aside contracts. 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, during fiscal years 2018-2020, agencies awarded, on an annual basis, about $2.2 billion in small business contracts in those 63 industries for which SBA considered decreasing size standards under Alternative Option One. Lowering size standards in 63 industries and subindustries would reduce Federal contract dollars awarded to small businesses by $110 million or about 5.0% relative to the baseline level.