Proposed Rule2022-08091
Small Business Size Standards: Manufacturing and Industries With Employee-Based Size Standards in Other Sectors Except Wholesale Trade and Retail Trade
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 26, 2022
Issuing agencies
Small Business Administration
Abstract
The U.S. Small Business Administration (SBA or the Agency) has reviewed its employee-based small business size definitions (commonly referred to as "size standards") for North American Industry Classification System (NAICS) sectors related to Mining, Quarrying, and Oil and Gas Extraction (Sector 21); Utilities (Sector 22); Manufacturing (Sector 31-33); Transportation and Warehousing (Sector 48-49); Information (Section 51); Finance and Insurance (Sector 52); Professional, Scientific and Technical Services (Sector 54); and Administrative and Support, Waste Management and Remediation Services (Sector 56) and proposes several changes. Specifically, SBA proposes to increase 150 and retain 282 employee-based size standards in those sectors. SBA also proposes to retain the current 500-employee size standard for Federal procurement of supplies under the nonmanufacturer rule. SBA's proposed revisions relied on its "Size Standards Methodology" (Methodology). SBA seeks comments on its proposed changes to size standards in the above sectors and the data sources it evaluated to develop the proposed size standards.
Full Text
<html>
<head>
<title>Federal Register, Volume 87 Issue 80 (Tuesday, April 26, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 80 (Tuesday, April 26, 2022)]
[Proposed Rules]
[Pages 24752-24833]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-08091]
[[Page 24751]]
Vol. 87
Tuesday,
No. 80
April 26, 2022
Part III
Small Business Administration
-----------------------------------------------------------------------
13 CFR Part 121
Small Business Size Standards: Manufacturing and Industries With
Employee-Based Size Standards in Other Sectors Except Wholesale Trade
and Retail Trade; Proposed Rule
Federal Register / Vol. 87 , No. 80 / Tuesday, April 26, 2022 /
Proposed Rules
[[Page 24752]]
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AH09
Small Business Size Standards: Manufacturing and Industries With
Employee-Based Size Standards in Other Sectors Except Wholesale Trade
and Retail Trade
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The U.S. Small Business Administration (SBA or the Agency) has
reviewed its employee-based small business size definitions (commonly
referred to as ``size standards'') for North American Industry
Classification System (NAICS) sectors related to Mining, Quarrying, and
Oil and Gas Extraction (Sector 21); Utilities (Sector 22);
Manufacturing (Sector 31-33); Transportation and Warehousing (Sector
48-49); Information (Section 51); Finance and Insurance (Sector 52);
Professional, Scientific and Technical Services (Sector 54); and
Administrative and Support, Waste Management and Remediation Services
(Sector 56) and proposes several changes. Specifically, SBA proposes to
increase 150 and retain 282 employee-based size standards in those
sectors. SBA also proposes to retain the current 500-employee size
standard for Federal procurement of supplies under the nonmanufacturer
rule. SBA's proposed revisions relied on its ``Size Standards
Methodology'' (Methodology). SBA seeks comments on its proposed changes
to size standards in the above sectors and the data sources it
evaluated to develop the proposed size standards.
DATES: SBA must receive comments to this proposed rule on or before
June 27, 2022.
ADDRESSES: Identify your comments by RIN 3245-AH09 and submit them by
one of the following methods: (1) Federal eRulemaking Portal:
<a href="http://www.regulations.gov">www.regulations.gov</a>. Follow the instructions for submitting comments;
or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, Ph.D., Chief, Office
of Size Standards, 409 Third Street SW, Mail Code 6530, Washington, DC
20416.
SBA will post all comments to this proposed rule on
<a href="http://www.regulations.gov">www.regulations.gov</a>. If you wish to submit confidential business
information (CBI) as defined in the User Notice at <a href="http://www.regulations.gov">www.regulations.gov</a>,
you must submit such information to U.S. Small Business Administration,
Khem R. Sharma, Ph.D., Chief, Office of Size Standards, 409 Third
Street SW, Mail Code 6530, Washington, DC 20416, or send an email to
<a href="/cdn-cgi/l/email-protection#a2d1cbd8c7d1d6c3ccc6c3d0c6d1e2d1c0c38cc5cdd4"><span class="__cf_email__" data-cfemail="790a10031c0a0d18171d180b1d0a390a1b18571e160f">[email protected]</span></a>. Highlight the information that you consider to
be CBI and explain why you believe SBA should hold this information as
confidential. SBA will review your information and determine whether it
will make the information public.
FOR FURTHER INFORMATION CONTACT: Samuel Castilla, Economist, Office of
Size Standards, (202) 205-6618 or <a href="/cdn-cgi/l/email-protection#06756f7c637572676862677462754675646728616970"><span class="__cf_email__" data-cfemail="87f4eefde2f4f3e6e9e3e6f5e3f4c7f4e5e6a9e0e8f1">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
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.
During the first five-year comprehensive size standards review, SBA
reviewed the employee-based size standards for 25 industries within
NAICS Sector 21 (Mining, Quarrying, and Oil and Gas Extraction), 364
industries within NAICS Sector 31-33 (Manufacturing), 15 industries
within Sector 48-49 (Transportation and Warehousing), 12 industries
within NAICS Sector 51 (Information), 2 industries and 4 subindustries
(or ``exceptions'') within NAICS Sector 54 (Professional, Scientific
and Technical Services), and 4 industries or subindustries
(``exceptions'') with employee-based size standards in other sectors
covered by this proposed rule. These reviews of employee-based size
standards occurred during September 2014 to January 2016. Based on
analyses of the relevant industry and Federal contracting data
available at that time, SBA increased 15 and decreased 3 employee-based
size standards in Sector 21, increased 4 in Sector 48-49, 8 in Sector
51, 3 in Sector 54, and 2 in other sectors (81 FR 4435 (January 26,
2016)). SBA also increased 209 size standards in Sector 31-33 (81 FR
4469 (January 26, 2016)). Table 1, Size Standards Revisions During the
First 5-Year Review, provides a summary of these revisions by NAICS
sector.
Table 1--Size Standards Revisions During the First 5-Year Review
----------------------------------------------------------------------------------------------------------------
Number of size Number of size Number of size Number of size
Sector Sector name standards standards standards standards
reviewed increased decreased maintained
----------------------------------------------------------------------------------------------------------------
21................... Mining, 25 15 3 7
Quarrying, and
Oil and Gas
Extraction.
31-33................ Manufacturing.... 364 209 0 155
48-49................ Transportation 15 4 0 11
and Warehousing.
51................... Information...... 12 8 0 4
54................... Professional, 6 5 0 1
Scientific and
Technical
Services.
[[Page 24753]]
Others............... Agriculture, 4 2 0 2
Forestry,
Fishing and
Hunting (Sector
11); Utilities
(Sector 22);
Finance and
Insurance
(Sector 52);
Administrative
and Support,
Waste Management
and Remediation
Services (Sector
56).
-----------------------------------------------------------------------
Total............ ................. 426 243 3 180
----------------------------------------------------------------------------------------------------------------
Currently, there are 27 different size standards levels covering
1,023 NAICS industries and 14 subindustry activities (commonly known as
``exceptions'' in SBA's Table of Size Standards). Of these 27 size
levels, 16 are based on average annual receipts, 9 are based on average
number of employees, and 2 are based on other measures.
SBA also adjusts its monetary-based size standards for inflation at
least once every 5 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) latest NAICS revisions to its Table of
Size Standards. Effective October 1, 2017, SBA adopted OMB's 2017 NAICS
revisions to its size standards (82 FR 44886, September 27, 2017).\1\
---------------------------------------------------------------------------
\1\ On December 21, 2021, OMB published its ``Notice of NAICS
2022 Final Decisions . . .'' (86 FR 72277), accepting the Economic
Classification Policy Committee (ECPC) recommendations, as outlined
in the July 2, 2021, Federal Register notice (86 FR 35350), for the
2022 revisions to the North American Industry Classification System
(NAICS), . . . .'' In the near future, SBA will issue a proposed
rule to adopt the OMB NAICS 2022 revisions for its table of size
standards. SBA anticipates updating its size standards with the
NAICS 2022 revisions, effective October 1, 2022.
---------------------------------------------------------------------------
This proposed rule is the last of a series of proposed rules that
is reviewing size standards of industries grouped by various NAICS
sectors. Rather than review all size standards at one time, SBA
reviewed size standards by grouping industries within various NAICS
sectors that use the same size measure (i.e., employees or receipts).
In the current review, SBA reviewed size standards in six groups of
NAICS sectors. (In the prior review, SBA reviewed size standards mostly
on a sector-by-sector basis.) Once SBA completed its review of size
standards for a group of sectors, it issued for public comments a
proposed rule to revise size standards for those industries based on
the latest available data and other factors deemed relevant by the SBA
Administrator.
Below is a discussion of SBA's ``Size Standards Methodology''
(Methodology), issued on April 11, 2019, and available at <a href="http://www.sba.gov/size">www.sba.gov/size</a>, for establishing, reviewing, or modifying employee-based size
standards that SBA has applied to this proposed rule. SBA examines the
structural characteristics of an industry as a basis to assess industry
differences and the overall degree of competitiveness of an industry
and of firms within the industry. Industry structure is typically
examined by analyzing four primary factors--average firm size, degree
of competition within an industry, start-up costs and entry barriers,
and distribution of firms by size. To assess the ability of small
businesses to compete for Federal contracting opportunities under the
current size standards, as the fifth primary factor, SBA also examines,
for each industry averaging $20 million or more in average annual
Federal contract dollars, the small business share in Federal contract
dollars relative to the small business share in total industry's
receipts. When necessary, SBA also considers other secondary factors
that are relevant to the industries and the interests of small
businesses, including impacts of size standards changes on small
businesses.
Size Standards Methodology
SBA has revised its Methodology for establishing, reviewing, or
modifying size standards on April 11, 2019 (84 FR 14587). The
Methodology is available on SBA's size standards web page at
<a href="http://www.sba.gov/size">www.sba.gov/size</a>. 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 Methodology. For a summary of
comments and SBA's responses, refer to the SBA's April 11, 2019,
Federal Register notification cited above.
The Methodology represents a major change from the previous
Methodology issued on October 21, 2009 (74 FR 53940). Specifically, SBA
is replacing the ``anchor'' approach applied in the previous
methodology with a ``percentile'' approach for evaluating differences
in characteristics among various industries. Under the ``anchor''
approach, SBA generally evaluated the characteristics of individual
industries relative to the average characteristics of industries with
the anchor size standard to determine whether they should have a higher
or a lower size standard than the anchor. In the ``percentile''
approach used in 2019's methodology, SBA ranks industries with the same
measure of size standards (such as receipts or employees) in terms of
four primary industry factors, discussed in the Industry Analysis
subsection below. The ``percentile'' approach is explained more fully
elsewhere in this proposed rule. For a more detailed explanation,
please see the revised Methodology at <a href="http://www.sba.gov/size">www.sba.gov/size</a>.
Additionally, as the fifth factor, SBA evaluates the difference
between the small business share in Federal contract dollars and the
small business share in total industry's receipts to compute the size
standard for the Federal contracting factor. The overall size standard
for an industry is then obtained by averaging all size standards
supported by each primary factor. The evaluation of the Federal
contracting factor is explained more fully in the Industry Analysis
section, below, in this proposed rule.
SBA does not apply all aspects of its Methodology to all proposed
rules because not all features are relevant for every industry covered
by each proposed rule. For example, since all industries covered by
this proposed rule have employee-based size standards, the methodology
described in this proposed rule applies only to establishing,
reviewing, or modifying employee-based size standards.
Industry Analysis
Congress granted the SBA Administrator discretion to establish
[[Page 24754]]
detailed small business size standards. 15 U.S.C. 632(a)(2).
Specifically, section 3(a)(3) of the Small Business Act (15 U.S.C.
632(a)(3)) requires that ``. . . the [SBA] Administrator shall ensure
that the size standard varies from industry to industry to the extent
necessary to reflect the differing characteristics of the various
industries and consider other factors deemed to be relevant by the
Administrator.'' Accordingly, the economic structure of an industry is
the basis for establishing, reviewing, or modifying small business size
standards. In addition, SBA considers current economic conditions, its
mission and program objectives, the Administration's current policies,
impacts on small businesses under current size and proposed or revised
size standards, suggestions from industry groups and Federal agencies,
and public comments on the proposed rule. SBA also examines whether a
size standard based on industry and other relevant data successfully
excludes businesses that are dominant in the industry.
The goal of SBA's size standards review is to determine whether its
existing small business size standards reflect the current industry
structure and Federal market conditions and revise them when the latest
available data suggests that revisions are warranted. In the past, SBA
compared the characteristics of each industry with the average
characteristics of a group of industries associated with the ``anchor''
size standard. For example, in the first five-year comprehensive review
of size standards under the Jobs Act, $7 million (now $8.0 million due
to the inflation adjustment in 2019; see 84 FR 34261 (July 18, 2019))
was considered the ``anchor'' for receipts-based size standards and 500
employees was the ``anchor'' for employee-based size standards. If the
characteristics of a specific industry under review were similar to the
average characteristics of industries in the anchor group, SBA
generally adopted the anchor size standard for that industry. If the
specific industry's characteristics were significantly different from
those in the anchor group, SBA assigned a size standard that was higher
or lower than the anchor. To determine a size standard above or below
the anchor size standard, SBA evaluated the characteristics of a second
comparison group of industries with higher size standards. For
industries with receipts-based standards, the second comparison group
consisted of industries with size standards between $23 million and
$35.5 million, with the weighted average size standard for the group
equaling $29 million. For manufacturing and other industries with
employee-based size standards (except for Wholesale Trade and Retail
Trade), the second comparison group included industries with a size
standard of 1,000 employees or 1,500 employees, with the weighted
average size standard of 1,323 employees. Using the anchor size
standard and average size standard for the second comparison group, SBA
computed a size standard for an industry's characteristic (factor)
based on the industry's position for that factor relative to the
average values of the same factor for industries in the anchor and
second comparison groups.
Under the ``percentile'' approach, for each industry factor, an
industry is ranked and compared with the 20th percentile and 80th
percentile values of that factor among the industries sharing the same
measure of size standards (i.e., receipts or employees). Combining that
result with the 20th percentile and 80th percentile values of size
standards among the industries with the same measure of size standards,
SBA computes a size standard supported by each industry factor for each
industry. In the previous methodology, comparison industry groups were
predetermined independent of the data, while in the revised Methodology
they are established using the actual industry data from the Economic
Census tabulation.
The primary factors that SBA evaluates to examine industry
structure include average firm size, startup costs and entry barriers,
industry competition, and distribution of firms by size. SBA also
evaluates, as an additional primary factor, small business success in
receiving Federal contracts under the current size standards.
Specifically, for the Federal contracting factor, SBA examines the
small business share of Federal contract dollars relative to small
business share of total receipts within an industry. These are,
generally, five important factors (listed below) that SBA examines when
establishing, reviewing, or revising a size standard for an industry.
However, SBA will also consider and evaluate other secondary factors
that it believes are relevant to a particular industry (such as
technological changes, growth trends, SBA financial assistance, and
other program factors). SBA also considers possible impacts of size
standard revisions on eligibility for Federal small business assistance
(including access to small business set-aside contracts and SBA's
financial assistance), current economic conditions, the
Administration's policies, and suggestions from industry groups and
Federal agencies. Public comments on proposed rules also provide
important additional information. SBA thoroughly reviews all public
comments before making a final decision on its proposed revisions to
size standards. Below are brief descriptions of each of the five
primary factors that SBA has evaluated for each industry being reviewed
in this proposed rule. A more detailed description of this analysis is
provided in the SBA's Methodology, available at <a href="http://www.sba.gov/size">www.sba.gov/size</a>.
1. Average Firm Size
SBA computes two measures of average firm size: Simple average and
weighted average. For industries with employee-based size standards,
the simple average is the total employees of the industry divided by
the total number of firms in the industry. The weighted average firm
size is the summation of all the employees of the firms in an industry
multiplied by their share of employees in the industry. The simple
average weighs all firms within an industry equally regardless of their
size. The weighted average overcomes that limitation by giving more
weight to larger firms. The size standard supported by average firm
size is obtained by averaging size standards supported by simple
average firm size and weighted average firm size.
If the average firm size of an industry is higher than the average
firm size for most other industries, this would generally support a
size standard higher than the size standards for other industries.
Conversely, if the industry's average firm size is lower than that of
most other industries, it would provide a basis to assign a lower size
standard as compared to size standards for most other industries.
2. Startup Costs and Entry Barriers
Startup costs reflect a firm's initial size in an industry. New
entrants to an industry must have sufficient capital and other assets
to start and maintain a viable business. If firms entering an industry
under review have greater capital requirements than firms in most other
industries, all other factors remaining the same, this would be a basis
for a higher size standard. Conversely, if the industry has smaller
capital needs compared to most other industries, a lower size standard
would be considered appropriate.
Given the lack of actual data on startup costs and entry barriers
by industry, SBA uses average assets as a proxy for startup costs and
entry barriers. To calculate average assets,
[[Page 24755]]
SBA begins with the sales to total assets ratio for an industry from
the Risk Management Association's Annual Statement Studies, available
at <a href="https://rmau.org">https://rmau.org</a>. SBA then applies these ratios to the average
receipts of firms in that industry obtained from the Economic Census
tabulation. An industry with average assets that are significantly
higher than most other industries is likely to have higher startup
costs; this in turn will support a higher size standard. Conversely, an
industry with average assets that are similar to or lower than most
other industries is likely to have lower startup costs; this will
support either lowering or maintaining the size standard.
3. Industry Competition
Industry competition is generally measured by the share of total
industry receipts generated by the largest firms in an industry. SBA
generally evaluates the share of industry receipts generated by the
four largest firms in each industry. This is referred to as the ``four-
firm concentration ratio,'' a commonly used economic measure of market
competition. Using the four-firm concentration ratio, SBA compares the
degree of concentration within an industry to the degree of
concentration of the other industries with the same measure of size
standards. If a significantly higher share of economic activity within
an industry is concentrated among the four largest firms compared to
most other industries, all else being equal, SBA would set a size
standard that is relatively higher than for most other industries.
Conversely, if the market share of the four largest firms in an
industry is appreciably lower than the similar share for most other
industries, the industry will be assigned a size standard that is lower
than those for most other industries.
4. Distribution of Firms by Size
SBA examines the shares of industry total receipts accounted for by
firms of different receipts and employment sizes in an industry. This
is an additional factor SBA considers in assessing competition within
an industry besides the four-firm concentration ratio. If the
preponderance of an industry's economic activity is attributable to
smaller firms, this generally indicates that small businesses are
competitive in that industry, which would support adopting a smaller
size standard. A higher size standard would be supported for an
industry in which the distribution of firms indicates that most of the
economic activity is concentrated among the larger firms.
Concentration is a measure of inequality of distribution. To
determine the degree of inequality of distribution in an industry, SBA
computes the Gini coefficient, using the Lorenz curve. The Lorenz curve
presents the cumulative percentages of units (firms) along the
horizontal axis and the cumulative percentages of receipts (or other
measures of size) along the vertical axis. (For further detail, see
SBA's Methodology on its website at <a href="http://www.sba.gov/size">www.sba.gov/size</a>.) Gini coefficient
values vary from zero to one. If receipts are distributed equally among
all the firms in an industry, the value of the Gini coefficient will
equal zero. If an industry's total receipts are attributed to a single
firm, the Gini coefficient will equal one.
SBA compares the degree of inequality of distribution for an
industry under review with other industries with the same type of size
standards. If an industry shows a higher degree of inequality of
distribution (hence a higher Gini coefficient value) compared to most
other industries in the group this would, all else being equal, warrant
a size standard that is higher than the size standards assigned to most
other industries. Conversely, an industry with lower degree of
inequality (i.e., a lower Gini coefficient value) than most others will
be assigned a lower size standard relative to others.
5. Federal Contracting
As the fifth factor, SBA examines the success small businesses are
having in winning Federal contracts under the current size standard as
well as the possible impact a size standard change may have on Federal
small business contracting opportunities. The Small Business Act
requires the Federal Government to ensure that small businesses receive
a ``fair proportion'' of Federal contracts. The legislative history
also discusses the importance of size standards in Federal contracting.
To incorporate the Federal contracting factor in the size standards
analysis, SBA evaluates small business participation in Federal
contracting in terms of the share of total Federal contract dollars
awarded to small businesses relative to the small business share of
industry's total receipts. In general, if the share of Federal contract
dollars awarded to small businesses in an industry is significantly
smaller than the small business share of total industry's receipts, all
else remaining the same, a justification would exist for considering a
size standard higher than the current size standard. In cases where
small business share of the Federal market is already appreciably high
relative to the small business share of the overall market, SBA
generally assumes that the existing size standard is adequate with
respect to the Federal contracting factor.
The disparity between the small business Federal market share and
industry-wide small business share may be due to various factors, such
as extensive administrative and compliance requirements associated with
Federal contracts, the different skill set required to perform Federal
contracts as compared to typical commercial contracting work, and the
size of Federal contracts. These, as well as other factors, are likely
to influence the type of firms within an industry that compete for
Federal contracts. By comparing the small business Federal contracting
share with the industry-wide small business share, SBA includes in its
size standards analysis the latest Federal market conditions. Besides
the impact on Federal contracting, SBA also examines impacts on SBA's
loan programs both under the current and revised size standards.
Sources of Industry and Program Data
SBA's primary source of industry data used in this proposed rule
for evaluating industry characteristics and developing size standards
is a special tabulation of the Economic Census from the U.S. Census
Bureau (<a href="http://www.census.gov/econ/census">www.census.gov/econ/census</a>). The tabulation based on the 2012
Economic Census was the latest available when this proposed rule was
developed. The special tabulation provides industry data on the number
of firms, number of establishments, number of employees, annual
payroll, and annual receipts of companies by Industry (6-digit level),
Industry Group (4-digit level), Subsector (3-digit level), and Sector
(2-digit level). These data are arrayed by various classes of firms'
size based on the overall number of employees and receipts of the
entire enterprise (all establishments and affiliated firms) from all
industries. The special tabulation also contains information for
different levels of NAICS categories on average and median firm size in
terms of both receipts and employment, total receipts generated by the
four and eight largest firms, the Herfindahl-Hirschman Index (HHI), the
Gini coefficient, and size distributions of firms by various receipts
and employment size groupings.
In some cases where data were not available due to disclosure
prohibitions in the Census Bureau's tabulation, SBA either estimated
missing values using available relevant data or examined data at a
higher level of industry aggregation, such as at the NAICS two-digit
(Sector),
[[Page 24756]]
three-digit (Subsector), or four-digit (Industry Group) level. In some
instances, SBA's analysis was based only on those factors for which
data were available or estimates of missing values were possible.
To evaluate some industries that are not covered by the Economic
Census, SBA used a similar special tabulation of the latest County
Business Patterns (CBP) published by the U.S. Census Bureau
(<a href="http://www.census.gov/programs-surveys/cbp.html">www.census.gov/programs-surveys/cbp.html</a>). Similarly, to evaluate
industries in NAICS Sector 11 that are also not covered by the Economic
Census and CBP, SBA evaluated a similar special tabulation based on the
2012 Census of Agriculture (<a href="http://www.nass.usda.gov">www.nass.usda.gov</a>) from the National
Agricultural Statistics Service (NASS). Besides the Economic Census,
Agricultural Census and CBP tabulations, SBA also evaluates relevant
industry data from other sources when necessary, especially for
industries that are not covered by the Economic Census or CBP. These
include the Quarterly Census of Employment and Wages (QCEW, also known
as ES-202 data) (<a href="http://www.bls.gov/cew/">www.bls.gov/cew/</a>) and Business Employment Dynamics
(BED) data (<a href="http://www.bls.gov/bdm/">www.bls.gov/bdm/</a>) from the U.S. Bureau of Labor Statistics.
Similarly, to evaluate certain financial industries that have asset-
based size standards, SBA examines the data from the Statistics on
Depository Institutions (SDI) database (<a href="http://www5.fdic.gov/sdi/main.asp">www5.fdic.gov/sdi/main.asp</a>) of
the Federal Depository Insurance Corporation (FDIC) data. Finally, to
evaluate the capacity component of the Petroleum Refiners (NAICS
324110) size standard, SBA evaluates the petroleum production data from
the Energy Information Administration (<a href="http://www.eia.gov">www.eia.gov</a>).
To calculate average assets, SBA used sales to total assets ratios
from the Risk Management Association's Annual eStatement Studies, 2016-
2018 (<a href="https://rmau.org">https://rmau.org</a>). To evaluate the Federal contracting factor,
SBA examined the data on Federal prime contract awards from the Federal
Procurement Data System--Next Generation (FPDS-NG) (<a href="http://www.fpds.gov">www.fpds.gov</a>) for
fiscal years 2016-2018. To assess the impact on financial assistance to
small businesses, SBA examined its internal data on 7(a) and 504 loan
programs for fiscal years 2018-2020. For some portion of impact
analysis, SBA also evaluated data from FPDS-NG for fiscal years 2018-
2020 and the System for Award Management (SAM) (<a href="http://www.sam.gov">www.sam.gov</a>).
Data sources and estimation procedures SBA uses in its size
standards analysis are documented in detail in SBA's Methodology, which
is available at <a href="http://www.sba.gov/size">www.sba.gov/size</a>.
Dominance in Field of Operation
Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a
small business concern as one that is: (1) Independently owned and
operated; (2) Not dominant in its field of operation; and (3) Within a
specific small business definition or size standard established by the
SBA Administrator. SBA considers as part of its evaluation whether a
business concern at a proposed or revised size standard would be
dominant in its field of operation. For this, SBA generally examines
the industry's market share of firms at the proposed or revised size
standard as well as the distribution of firms by size. Market share and
size distribution may indicate whether a firm can exercise a major
controlling influence on a national basis in an industry where a
significant number of business concerns are engaged. If a contemplated
size standard includes a dominant firm, SBA will consider a lower size
standard to exclude the dominant firm from being defined as small.
Selection of Size Standards
In the 2009 Methodology, SBA applied to the first five-year
comprehensive review of size standards, SBA adopted a fixed number of
size standards levels as part of its effort to simplify size standards.
In response to public comments to the 2009 Methodology white paper, and
the 2013 amendment to the Small Business Act (section 3(a)(8)) under
section 1661 of the National Defense Authorization Act for Fiscal Year
2013 (``NDAA 2013'') (Pub. L. 112-239, January 2, 2013), in the 2019
Methodology, SBA has relaxed the limitation on the number of small
business size standards. Specifically, section 1661 of NDAA 2013 states
``SBA cannot limit the number of size standards, and shall assign the
appropriate size standard to each industry identified by NAICS.''
In the revised Methodology, SBA calculates a separate size standard
for each NAICS industry. However, to account for errors and limitations
associated with various data SBA evaluates in the size standards
analysis, SBA rounds the calculated size standard value for a receipts-
based size standard to the nearest $500,000, except for agricultural
industries in Subsectors 111 and 112 for which the calculated size
standards will be rounded to the nearest $250,000. Similarly, the
calculated value for an employee-based size standard is rounded to the
nearest 50 employees for industries in manufacturing and other sectors
(except Wholesale Trade and Retail Trade) and to the nearest 25
employees for industries in Wholesale Trade and Retail Trade. This
rounding procedure is applied both in calculating a size standard for
each of the five primary factors and in calculating the overall size
standard for the industry.
As a policy decision, SBA continues to maintain the minimum and
maximum levels for both receipts and employee-based size standards.
Accordingly, SBA will not generally propose or adopt a size standard
that is either below the minimum level or above the maximum, even
though the calculations may yield values below the minimum or above the
maximum. The minimum size standard reflects the size an established
small business should be to have adequate capabilities and resources to
be able to compete for and perform Federal contracts (but does not
account for small businesses that are newly formed or just starting
operations). On the other hand, the maximum size standard represents
the level above which businesses, if qualified as small, would
outcompete much smaller businesses when accessing Federal assistance.
With respect to employee-based size standards, SBA has established
250 employees and 1,500 employees, respectively, as the minimum and
maximum size standard levels for Manufacturing and other industries
(excluding Wholesale and Retail Trade). SBA has established 50
employees and 250 employees, respectively, as the minimum and maximum
employee-based size standard levels for Wholesale and Retail Trade.
These levels reflect the current minimum of 100 employees and the
current maximum of 1,500 employees in SBA's existing size standards.
The industry data suggests that a 250-employee minimum and 1,500-
employee maximum size standards would be too high for Wholesale and
Retail Trade industries. Accordingly, SBA has established 50 employees
as the minimum size standard and 250 employees as the maximum size
standard for Wholesale and Retail Trade industries.
Evaluation of Industry Factors
As mentioned in the previous section, to assess the appropriateness
of the current size standards, SBA evaluates the structure of each
industry in terms of four economic characteristics or factors: average
firm size, average assets size as a proxy for startup costs and entry
barriers, the four-firm concentration ratio as a measure of industry
competition, and size
[[Page 24757]]
distribution of firms using the Gini coefficient. For each size
standard type (i.e., receipts-based, or employee-based), SBA ranks
industries both in terms of each of the four industry factors and in
terms of the existing size standard and computes the 20th percentile
and 80th percentile values for both. SBA then evaluates each industry
by comparing its value for each industry factor to the 20th percentile
and 80th percentile values for the corresponding factor for industries
under a particular type of size standard.
If the characteristics of an industry under review within a
particular size standard type are similar to the average
characteristics of industries within the same size standard type in the
20th percentile, SBA will consider adopting as an appropriate size
standard for that industry the 20th percentile value of size standards
for those industries. For each size standard type, if the industry's
characteristics are similar to the average characteristics of
industries in the 80th percentile, SBA will assign a size standard that
corresponds to the 80th percentile in the size standard rankings of
industries. A separate size standard is established for each factor
based on the amount of differences between the factor value for an
industry under a particular size standard type and 20th percentile and
80th percentile values for the corresponding factor for all industries
in the same type. Specifically, the actual level of the new size
standard for each industry factor is derived by a linear interpolation
using the 20th percentile and 80th percentile values of that factor and
corresponding percentiles of size standards. Each calculated size
standard is bounded between the minimum and maximum size standards
levels, as discussed before. As noted earlier, the calculated value for
an employee-based size standard is rounded to the nearest 50 employees
for industries in Manufacturing and other sectors (except Wholesale
Trade and Retail Trade) and to the nearest 25 employees for industries
in Wholesale Trade and Retail Trade.
Table 2, 20th and 80th Percentiles of Industry Factors for
Employee-Based Size Standards, shows the 20th percentile and 80th
percentile values for average firm size (simple and weighted), average
assets size, four-firm concentration ratio, and Gini coefficient for
industries with employee-based size standards.
Table 2--20th and 80th Percentiles of Industry Factors for Employee-Based Size Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple average Weighted average Four-firm
Industries/percentiles firm size (number firm size (number Average assets concentration Gini coefficient
of employees) of employees) size ($ million) ratio (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Manufacturing and other industries, excluding Sectors 42 and 44-45
--------------------------------------------------------------------------------------------------------------------------------------------------------
20th percentile.......................................... 29.5 250.7 4.14 24.7 0.760
80th percentile.......................................... 118.3 1,629.0 40.54 61.3 0.853
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industries in Sectors 42 and 44-45
--------------------------------------------------------------------------------------------------------------------------------------------------------
20th percentile.......................................... 12.6 199.8 3.19 16.1 0.794
80th percentile.......................................... 27.9 1,693.8 11.53 38.9 0.865
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimation of Size Standards Based on Industry Factors
An estimated size standard supported by each industry factor is
derived by comparing its value for a specific industry to the 20th
percentile and 80th percentile values for that factor. If an industry's
value for a particular factor is near the 20th percentile value in the
distribution, the supported size standard will be one that is close to
the 20th percentile value of size standards for industries in the size
standards group (i.e., industries with employee-based size standards
covered by this proposed rule), which is 500 employees. If a factor for
an industry is close to the 80th percentile value of that factor, it
would support a size standard that is close to the 80th percentile
value in the distribution of size standards, which is 1,250 employees.
For a factor that is within, above, or below the 20th-80th percentile
range, the size standard is calculated using linear interpolation based
on the 20th percentile and 80th percentile values for that factor and
the 20th percentile and 80th percentile values of size standards.
For example, if an industry's simple average firm size in number of
employees is 50 employees, that would support a size standard of 650
employees. According to Table 2, the 20th percentile and 80th
percentile values of average number of employees are 29.5 and 118.3
employees, respectively. The 50-employee average firm size is 23.1%
between the 20th percentile value (29.5 employees) and the 80th
percentile value (118.3 employees) of simple average firm size in
number of employees ((50 employees-29.5 employees) / (118.3 employees-
29.5 employees) = 0.2308 or 23.1%)). Applying this percentage to the
difference between the 20th percentile value (500 employees) and 80th
percentile (1,250 employees) value of size standards and then adding
the result to the 20th percentile size standard value (500 employees)
yields a calculated size standard value of 673 employees ([{1,250
employees-500 employees{time} * 0.231] + 500 employees = 673
employees). The final step is to round the calculated 673 employee size
standard to the nearest 50 employees, which in this example yields 650
employees. This procedure is applied to calculate size standards
supported by other industry factors. Detailed formulas involved in
these calculations are presented in SBA's Methodology, which is
available on its website at <a href="http://www.sba.gov/size">www.sba.gov/size</a>.
Derivation of Size Standards Based on Federal Contracting Factor
Besides industry structure, SBA also evaluates Federal contracting
data to assess the success of small businesses in getting Federal
contracts under the existing size standards. For each industry with $20
million or more in annual Federal contract dollars, SBA evaluates the
small business share of total Federal contract dollars relative to the
small business share of total industry receipts. All other factors
being equal, if the share of Federal contracting dollars awarded to
small businesses in an industry is significantly less than the small
business share of that industry's total receipts, a justification would
exist for considering a size standard higher than the current size
standard.
[[Page 24758]]
Conversely, if the small business share of Federal contracting activity
is near or above the small business share in total industry receipts,
this will support the current size standard.
SBA increases the existing size standards by certain percentages
when the small business share of total industry receipts exceeds the
small business share of total Federal contract dollars by ten or more
percentage points. Proposed percentage increases generally reflect
employee levels needed to bring the small business share of Federal
contracts on par with the small business share of industry receipts.
These proposed percentage increases for employee-based size standards
are given in Table 3, Proposed Adjustments to Size Standards Based on
Federal Contracting Factor.
Table 3--Proposed Adjustments to Size Standards Based on Federal Contracting Factor
----------------------------------------------------------------------------------------------------------------
Percentage difference between the small business shares of total Federal
contract dollars in an industry and of total industry receipts
Size standards --------------------------------------------------------------------------------
>-10% -10% to -30% <-30%
----------------------------------------------------------------------------------------------------------------
Employee-based standards:
<500 employees............. No change................ Increase 30%............. Increase 60%.
500 to <1,000 employees.... No change................ Increase 20%............. Increase 40%.
1,000 to <1,500 employees.. No change................ Increase 15%............. Increase 25%.
----------------------------------------------------------------------------------------------------------------
For example, if an industry with the current size standard of 750
employees had an average of $50 million in Federal contracting dollars,
of which 15% went to small businesses, and if small businesses
accounted for 40% of total receipts of that industry, the small
business share of total Federal contract dollars would be 25% less than
the small business share of total industry receipts (40%-15%).
According to the adjustments shown in Table 3 (above), the new size
standard for the Federal contracting factor for that industry would be
set by multiplying the current 750 employee standard by 1.2 (i.e., 20%
increase) and then by rounding the result to the nearest 50 employees,
yielding a size standard of 900 employees.
SBA evaluated the small business share of total Federal contract
dollars for the 210 industries covered by this proposed rule that had
$20 million or more in average annual Federal contract dollars during
fiscal years 2016-2018. The Federal contracting factor was significant
(i.e., the difference between the small business share of total
industry receipts and small business share of Federal contracting
dollars was ten percentage points or more) in 64 of these industries,
prompting an upward adjustment of their existing size standards based
on that factor. For the remaining 146 industries that averaged $20
million or more in average annual contract dollars, the Federal
contracting factor was not significant, and the existing size standard
was applied for that factor. For industries with less than $20 million
in average annual contract dollars, no size standard was calculated for
the Federal contracting factor.
Derivation of Overall Industry Size Standard
The SBA's methodology presented above results in five separate size
standards based on evaluation of the five primary factors (i.e., four
industry factors and one Federal contracting factor). SBA typically
derives an industry's overall size standard by assigning equal weights
to size standards supported by each of these five factors. However, if
necessary, SBA's methodology would allow assigning different weights to
some of these factors in response to its policy decisions and other
considerations. For detailed calculations, see SBA's methodology,
available on its website at <a href="http://www.sba.gov/size">www.sba.gov/size</a>.
Calculated Size Standards Based on Industry and Federal Contracting
Factors
Table 4, Size Standards Supported by Each Factor for Each Industry
(Employees), below, shows the results of analyses of industry and
Federal contracting factors for each industry and subindustry
(``exception'') covered by this proposed rule. NAICS industries in
columns 2, 3, 4, 5, 6, 7, and 8 show two numbers. The upper number is
the value for the industry or Federal contracting factor shown on the
top of the column and the lower number is the size standard supported
by that factor. Column 9 shows a calculated new size standard for each
industry. This is the average of the size standards supported by each
factor (the size standard for average firm size is an average of size
standards supported by simple average firm size and weighted average
firm size), rounded to the nearest 50 employees for industries in
Manufacturing and other sectors (except Wholesale Trade and Retail
Trade) and to the nearest 25 employees for industries in Wholesale
Trade and Retail Trade. Analytical details involved in the averaging
procedure are described in SBA's methodology, which is available on its
website at <a href="http://www.sba.gov/size">www.sba.gov/size</a>. For comparison with the calculated new
size standards, the current size standards are in column 10 of Table 4.
BILLING CODE 8026-03-P
[[Page 24759]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.015
[[Page 24760]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.016
[[Page 24761]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.017
[[Page 24762]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.018
[[Page 24763]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.019
[[Page 24764]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.020
[[Page 24765]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.021
[[Page 24766]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.022
[[Page 24767]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.023
[[Page 24768]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.024
[[Page 24769]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.025
[[Page 24770]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.026
[[Page 24771]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.027
[[Page 24772]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.028
[[Page 24773]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.029
[[Page 24774]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.030
[[Page 24775]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.031
[[Page 24776]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.032
[[Page 24777]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.033
[[Page 24778]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.034
[[Page 24779]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.035
[[Page 24780]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.036
[[Page 24781]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.037
[[Page 24782]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.038
[[Page 24783]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.039
[[Page 24784]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.040
[[Page 24785]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.041
[[Page 24786]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.042
[[Page 24787]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.043
[[Page 24788]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.044
[[Page 24789]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.045
[[Page 24790]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.046
[[Page 24791]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.047
[[Page 24792]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.048
[[Page 24793]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.049
[[Page 24794]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.050
[[Page 24795]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.051
[[Page 24796]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.052
[[Page 24797]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.053
[[Page 24798]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.054
[[Page 24799]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.055
[[Page 24800]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.056
[[Page 24801]]
[GRAPHIC] [TIFF OMITTED] TP26AP22.057
[[Page 24802]]
BILLING CODE 8026-03-C
Evaluation of Size Standards for Select NAICS Industries and
Subindustry Categories or ``Exceptions''
In accordance with the SBA's approach to evaluating size standards
for industries or subindustries (or ``exceptions'') as described in the
SBA's size standards Methodology, in the following subsections, SBA
evaluates the size standards for three NAICS industries and five
exceptions that are not covered by the Economic Census tabulation. The
three NAICS industries are NAICS 482211 (Line Haul Railroads), NAICS
482212 (Short Line Railroads), and NAICS 324110 (Petroleum Refineries),
for which the refining capacity component of the size standard is not
covered by the Economic Census tabulation. The five exceptions are the
three Research and Development (R&D) exceptions to NAICS 541715, the
Information Technology Value Added Resellers (ITVAR) exception to NAICS
541519, and the Environmental Remediation Services (ERS) exception to
NAICS 562910.
NAICS 324110--Petroleum Refineries
Among all industries for which SBA establishes size standards, only
NAICS 324110 (Petroleum Refineries) comprises two size measures in its
size standard--number of employees and total daily refining capacity.
As explained in Footnote 4 of the SBA's Table of Size Standards (13 CFR
121.201), to qualify as small for purposes of Government procurement,
the petroleum refiner, including its affiliates, must be a concern that
has either no more than 1,500 employees or no more than 200,000 barrels
per calendar day total Operable Atmospheric Crude Oil Distillation
capacity. Capacity includes all domestic and foreign affiliates, all
owned or leased facilities, and all facilities under a processing
agreement or an arrangement such as an exchange agreement or a
throughput. To qualify under the capacity size standard, the firm,
together with its affiliates, must be primarily engaged in refining
crude petroleum into refined petroleum products. A firm's ``primary
industry'' is determined in accordance with 13 CFR 121.107.
During the first five-year review of size standards, SBA proposed
to increase the capacity component of the Petroleum Refiners industry
(NAICS 324110) size standard from 125,000 barrels per calendar day
(BPCD) total Operable Atmospheric Crude Oil Distillation capacity to
200,000 BPCD total capacity and retain the employee component at the
1,500-employee level (79 FR 54145 (November 10, 2014)). SBA also
proposed to allow business concerns to qualify as small either under
the 1,500-employee size standard or under the 200,000 BPCD capacity
size standard, if they, together with affiliates, are primarily engaged
in petroleum refining. Finally, SBA proposed to eliminate the
requirement that, for purposes of Federal contracting, ``[t]he total
product to be delivered under the contract must be at least 90% refined
by the successful bidder from either crude oil or bona fide
feedstocks.'' SBA determined that the 90% requirement was overly
restrictive for small refiners to compete for government contracts. SBA
adopted these proposed changes without amendments in a 2016 final rule
(81 FR 4469 (January 26, 2016)).
To evaluate the refining capacity component of the size standard
for NAICS 324110 in the current review of size standards, SBA
coordinated with the Defense Logistics Agency (DLA) to obtain a special
tabulation of refinery production data, maintained by the Energy
Information Administration (EIA). This tabulation included data on
employees and various measures of production capacity. SBA also
obtained the data from SAM, FPDS-NG, and other publicly available
information such as corporate 10-K filings and annual reports to
evaluate the economic characteristics of NAICS 324110 in terms of
production capacity.
To determine if the current size standard for Petroleum Refineries
is still appropriate, SBA used the above data to analyze both total and
aviation fuel capacity, as well as the number of employees of all
refiners operating in the United States. SBA also examined industry
trends and the Federal Government's petroleum procurement needs.
SBA's analysis of the above data showed that the production
capacity of the petroleum refineries industry is concentrated among the
largest 30% of firms, as measured by BPCD total capacity. Specifically,
the largest 30% of firms account for over 83% of the total industry
production capacity. The average size of firms exceeding 200,000 BPCD
total production capacity is 40,178 employees.
Currently, about 60% of firms, representing 26% of employees, are
classified as small under the 200,000 BPCD total capacity size
standard. The average size of these firms is 11,064 employees. SBA's
analysis showed that increasing the total capacity size standard beyond
the current 200,000 BPCD level, even by 150% increase from the current
level, would only marginally increase the number of small firms in this
industry, and would include firms with characteristics similar to the
dominant firms at the top of the size distribution. Based on this
analysis, SBA proposes to maintain the refining capacity component of
the size standard for Petroleum Refineries at 200,000 BPCD total
Operable Atmospheric Crude Oil Distillation capacity. As presented in
Table 4 (above), based on the data from the 2012 Economic Census, SBA
also proposes to maintain the employee component of the size standard
for Petroleum Refineries at the current 1,500-employee level.
NAICS 482111--Line Haul Railroads and NAICS 482112--Short Line
Railroads
SBA's primary source of industry data used in this proposed rule is
a special tabulation of the 2012 Economic Census prepared by the U.S.
Bureau of the Census for SBA. The 2012 Economic Census data are the
latest Economic Census data available at the time of drafting this
proposed rule.
In some cases, certain industries are not covered by the Economic
Census; thus, they are not represented in the Census Bureau's special
tabulation. For those industries, SBA first identifies companies that
are registered in SAM under those industry NAICS codes and then
evaluates their employment and revenue data obtained from their SAM
profiles. SBA supplements the SAM data with revenue and employment data
from FPDS-NG and, in some cases, the data from other Federal agencies
and industry trade groups to establish the industry characteristics
necessary to evaluate the size standard for the industry. In some
instances, SBA's analysis is based only on those factors for which data
are available or estimates of missing values are possible. SBA applied
this approach to the evaluation of industry factors for two industries
in NAICS Sector 48-49 that are not covered by the Economic Census,
namely Line Haul Railroads (NAICS 482111) and Short Line Railroads
(NAICS 482112).
During the first five-year review of size standards, based on the
data from SAM, SBA proposed to maintain the 1,500-employee size
standard for Line Haul Railroads and increase the size standard for
Short Line Railroads from 500 employees to 1,500 employees (79 FR 53646
(September 10, 2014)). In the final rule, SBA adopted this proposal
without change (81 FR 4435 (January 26, 2016)).
To evaluate the size standard for these industries during the
ongoing second
[[Page 24803]]
five-year size standards review, SBA relied on data from SAM, industry
trade groups, and other Federal agencies. SBA sought data external to
SAM because of a lack of adequate representation of firms in those
industries in the SAM database. For example, the Railroad Facts 2019
Edition statistical publication of the American Association of
Railroads (AAR) estimates that there were 613 railroads in the U.S. in
2017; however, the number of firms registered under NAICS 482111 or
482112 as their primary NAICS code was only 37 based on the 2019 SAM
data. The data for these industries in FPDS-NG was also equally
inadequate for purposes of evaluating size standards for those
industries. Thus, SBA was not able to rely on the SAM and FPDS-NG data
alone to determine the economic characteristics of those industries.
SBA also evaluated its internal data from its 7(a), 504, and disaster
loan programs for purposes of determining economic characteristics of
NAICS 482111 and 482112; however, SBA found that there was very limited
loan activity in those industries.
To determine the economic characteristics of NAICS 482111 and
482112 and calculate the industry factors for evaluation of their size
standards, SBA relied on the 2018 data from the Railroad Retirement
Board (RRB), which publishes employment data for railroad employers.
SBA used this data to calculate the simple and weighted average firm
size in terms of employees. SBA used the data from AAR and the American
Short Line and Regional Railroad Association (ASLRRA) to calculate
average assets and the four-firm concentration ratio. SBA was not able
to obtain suitable data on receipts to calculate the Gini coefficient
values for these industries. SBA requests suggestions on sources of
data for the railroad industry that include an estimate of the receipts
per firm similar to the employee data provided by the RRB.
Based on the data from the RRB, SBA was unable to reliably
determine the number of railroads primarily engaged in either the Line
Haul Railroad or Short Line Railroad industry. For statistical and
regulatory purposes, most Federal agencies and trade associations do
not classify railroads in terms of line haul or short line railroads.
Instead, railroads are classified based on other characteristics, such
as class, revenue, or track mileage owned/operated. For example, the
Surface Transportation Board (STB), the Federal agency responsible for
regulating railroad rates and service, categorizes rail carriers into
three classes: Class I, Class II, and Class III. These classes are
based on the carrier's annual operating revenues. For 2019, Class I
carriers were defined as those earning above $504.80 million in
revenue; Class II carriers as those earning $40.38 million or more in
revenue and less than the Class I threshold; and Class III carriers as
those earning less than the Class II minimum. The AAR identifies two
groups of non-Class I railroads based on revenue and track mileage
covered: Regional railroads and Local railroads. Regional railroads are
line haul railroads below the Class I revenue threshold, operating at
least 350 miles of railroad track and earning at least $20 million in
revenue, or earning revenue between $40 million and the Class I revenue
threshold, regardless of track mileage operated. Local railroads are
line haul railroads below the Regional criteria, plus switching and
terminal railroads. The RRB classifies railroads by Class I and non-
Class I operator. Based on the available data, SBA was not able to
reliably determine the composition of the railroad industry at the 6-
digit NAICS industry level. Thus, for purposes of analysis, SBA
combines the operators in NAICS industries 482111 and 482112 to
determine a size standard for those industries.
The results from SBA's analysis are presented in Table 4 (above) of
this proposed rule. The analysis supports maintaining the current size
standard of 1,500 employees for both the Line Haul Railroad (NAICS
482111) and Short Line Railroad industries (NAICS 482112). SBA invites
comments, along with supporting information, on this proposal as well
as sources of data that more clearly define the economic
characteristics of these industries.
Exception to NAICS 541519--Information Technology Value Added Resellers
Information Technology Value Added Resellers (ITVAR) is a
subindustry (or ``exception'') under NAICS 541519 (Other Computer
Related Services). SBA first proposed to establish this subindustry
category in 2002 in order to better apply small business eligibility
requirements under Federal contracts that combine substantial services
with the acquisition of computer hardware and software (67 FR 48419
(July 24, 2002)). The following year, SBA adopted the ITVAR industry
category, as proposed, with a size standard of 150 employees (68 FR
74833 (December 28, 2003)). As stated in Footnote 18 to the SBA's Table
of Size Standards, for a Federal contract to be classified under the
ITVAR subindustry or ``exception'' and its 150-employee size standard,
it must consist of at least 15% but not more than 50% of value added
services, as measured by the total price less cost of computer hardware
and software, and profit. If the contract consists of less than 15% of
value-added services, it must be classified under the appropriate
manufacturing NAICS industry. If the contract consists of more than 50%
of value-added services, it must be classified under the NAICS industry
that best describes the principal nature of services being procured.
In 2014, as part of the first 5-year review of size standards, SBA
proposed to eliminate the ITVAR exception due to inconsistencies and
misuse (79 FR 53646 (September 10, 2014)). For example, SBA's
evaluation of FPDS-NG data and solicitations at that time revealed many
cases of misuse where Federal agencies applied the 150-employee size
standard, instead of the receipts-based size standard, for contracts
that were predominantly for services. Moreover, SBA found the use of
the ITVAR exception was discretionary and inconsistent with other SBA's
regulations. Under the terms of the exception as stated in Footnote 18
in the SBA's Table of Size Standards, it is clear that the majority of
the cost of the contracts that qualify under the ITVAR exception and
its 150-employee size standard will be incurred for supplies. Thus,
instead of using the ITVAR 150-employee size standard under NAICS
541519, a contracting officer could alternatively use a manufacturing
NAICS code, such as NAICS 334111 (Electronic Computer Manufacturing)
with a 1,000-employee size standard, to which the 500-employee
nonmanufacturer size standard would also apply. Thus, firms may or may
not be eligible or be able to compete as a small business for the exact
same contract simply based on the contracting officer's selection of
the NAICS code and size standard. SBA found that this was inconsistent
with SBA's regulations that require contracting officers to select the
NAICS code that best describes the principal purpose of the acquisition
(see 13 CFR 121.402(b)). Many commenters to the 2014 SBA's proposed
rule agreed with these findings but were strongly against the SBA's
proposal to eliminate the ITVAR exception and its 150-employee size
standard. Commenters viewed that the SBA's proposal would force small
ITVARs with fewer than 150 employees to compete for Federal
opportunities with large companies with up to 500 employees under the
500-employee nonmanufacturer size standard. To address these concerns,
in the 2016 final
[[Page 24804]]
rule, SBA amended Footnote 18 by retaining the ITVAR exception and its
150-employee size standard and adding the requirement that the offeror
on small business set-aside ITVAR contracts must comply with the
manufacturing performance requirements or the nonmanufacturer rule (81
FR 4436 (January 26, 2016)).
In this proposed rule, to review the 150-employee size standard for
the ITVAR exception to NAICS 541519, SBA evaluated the data from FPDS-
NG and SAM using a two-step procedure. First, using FPDS-NG, SBA
identified Product Service Codes (PSCs) that correspond to contracts
under the ITVAR exception. SBA then identified firms that have received
Federal contracts under those PSCs and evaluated their receipts and
employees' data from SAM and FPDS-NG to derive the values of industry
and Federal contracting factors. SBA uses this approach because the
data that SBA receives from the Census Bureau's Economic Census
tabulation are limited to the 6-digit NAICS industry level and
therefore do not provide information on economic characteristics of
firms at the subindustry level.
SBA found that contracting activity for the ITVAR exception is
distributed over roughly 36 different PSCs. Each of these PSCs describe
the activity of procuring either an IT product, or an IT service, but
not both. Generally, the code structure of the PSC classification
system is such that PSCs for products start with a number whereas PSCs
for services begin with an alphabet. Table 5, Top 5 ITVAR Related PSCs
by Average Total Dollars Obligated, below, identifies the top 5 PSCs
for ITVAR related products and services. The table also displays
average total dollars obligated under each PSC for fiscal years 2016-
2018, and the product or services identifier for each PSC.
Table 5--Top 5 ITVAR Related PSCs by Average Total Dollars Obligated
----------------------------------------------------------------------------------------------------------------
Average total
dollars obligated
PSC PSC description in FY 2016-2018 PSC type
($ million)
----------------------------------------------------------------------------------------------------------------
D399........................... IT and telecom--other IT and $2,419,341 Service.
telecommunications.
7030........................... Information technology 1,824,017 Product.
software.
D319........................... IT and telecom--annual 761,227 Service.
software maintenance
service plans.
7050........................... Information technology 673,647 Product.
components.
D318........................... IT and telecom--integrated 664,801 Service.
hardware/software/services
solutions, predominantly
services.
----------------------------------------------------------------------------------------------------------------
Due to the involvement of numerous PSCs discussed above, SBA was
unable to reliably determine a singular PSC that would adequately
represent the level of activity corresponding uniquely to the ITVAR
exception, which by definition includes both product and service-
related activities. For purposes of analysis, and in an effort to
differentiate economic activity under the ITVAR exception and determine
the economic characteristics of the firms comprising this subindustry,
SBA analyzed the FPDS-NG and SAM data. For this, SBA analysts first
queried the FPDS-NG data for fiscal years 2016-2018 to match firms with
a primary NAICS of 541519 and at least one contract with an ITVAR PSC
for products to firms with a primary NAICS of 541519 and at least one
contract with an ITVAR PSC for services; that is, SBA identified firms
with a primary NAICS of 541519 with at least one contract under both a
product and service-related PSC. This query resulted in a total of
1,210 firms. Further analysis showed that, for many of these 1,210
firms, the percentage of total revenues from ITVAR services and
products PSCs was very low, which SBA used as an indication that the
revenue structure of such firms was not representative of a typical
ITVAR firm. Therefore, using a similar procedure that SBA applied in
the analysis of the Dredging and Surface Cleanup Activities exception
to NAICS 237990 (Other Heavy and Civil Engineering Construction) (85 FR
62239 (December 1, 2020)), SBA excluded firms from the analysis whose
combined dollars obligated to both ITVAR services and products PSCs did
not exceed 2.5% of their total receipts. SBA further refined the
analysis by excluding firms with an average revenue below $1,000. After
these exclusions, SBA was left with 485 firms for purposes of
analysis.\2\ Together, those 485 firms represented 55% of the dollars
obligated to original 1,210 firms under the top 5 ITVAR-related PSCs
identified in Table 5. SBA analyzed those 485 firms to obtain the four
industry factors (average firm size, average assets size, four-firm
ratio, and Gini coefficient) and the Federal contracting factor for the
ITVAR subindustry or exception.
---------------------------------------------------------------------------
\2\ SBA analysts found that increasing the percentage of ITVAR
services and products PSCs in total receipts to 5% to exclude firms
for which those PSCs contributions to their receipts is very
limited, and applying other refinements to the list of 1,210 firms--
such as excluding firms with a majority focus on services and
excluding firms having less than 1% of total receipts coming from
products--ultimately produced a similar calculated size standard.
---------------------------------------------------------------------------
In its 2003 final rule (68 FR 74833 (December 29, 2003)), SBA used
a hybrid approach to create and evaluate the ITVAR exception.
Specifically, based on the assumption that ITVARs operate in NAICS
Industry Group 5415 (Computer System Design and Related Services) and
in NAICS 423430 (Computer and Computer Peripheral Equipment and
Software Merchant Wholesalers), SBA combined part of NAICS Industry
Group 5415 with part of NAICS 423430 using the 1997 Economic Census
data and defined the result as the ITVAR subindustry and used it as the
basis to establish the characteristics of ITVAR firms. As discussed in
the 2016 final rule (81 FR 4436 (January 26, 2016)), SBA now finds
several problems with that approach. First, there is no need to create
the ITVAR industry in that manner because, based on their primary
activity of selling computer hardware and software, ITVARs are included
in NAICS 423430. Accordingly, SBA now believes the industry data for
NAICS 423430 alone would provide a more accurate description of ITVAR
firms than the hybrid approach, especially given significant
differences in economic structure between firms in NAICS Industry Group
5415 and ITVAR firms, as suggested by the Economic Census data and also
confirmed by many commenters at that time. Similar to the 2016 final
rule, SBA's analysis in this proposed rule is based on the premise that
ITVARs are most closely related to wholesalers, supplying computer
hardware and software as nonmanufacturers. Thus, any size standard
exception to the ITVARs should be addressed within the context of the
nonmanufacturer rule. As such, in this proposed rule, SBA uses the 20th
and 80th percentile values of industry
[[Page 24805]]
factors for employee-based size standards for Wholesale Trade and
Retail Trade shown in Table 2 (above), along with the 20th and 80th
percentile values of employee-based size standards in those sectors, as
a basis for reviewing the size standard for the ITVAR exception.
Table 6, Size Standards Supported by Each Factor for the ITVAR
Exception to NAICS 541519 (Employees), below, shows the results of
analyses of industry and Federal contracting factors for the ITVAR
exception, along with size standards supported by each industry and
Federal contracting factors. The analysis supports maintaining the
current size standard of 150 employees. As such, SBA proposes to retain
the 150-employee size standard for the ITVAR exception with no
additional changes to the terms of this industry exception SBA invites
comments, along with supporting information, on this proposal as well
as suggestions for alternative sources of data that more clearly define
the economic characteristics of ITVARs.
Table 6--Size Standards Supported by Each Factor for the ITVAR Exception to NAICS 541519 (Employees)
[Upper value = calculated factor, lower value = size standard supported]
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
NAICS code NAICS industry title Type........... Simple Weighted Average Four-firm Gini Federal Calculated Current
average average assets size ratio coefficient contract size size
firm size firm size ($ million) (%) factor standard standard
(number of (number of (%) (number of (number of
employees) employees) employees) employees)
--------------------------------------------------------------------------------------------------------------------------------------------------------
541519 (ITVAR Exception)....... Factor......... 136.5 3,594.9 $13.6 19.7 0.743 25.5 ........... ...........
Size Std....... 250 250 250 75 50 150 150 150
--------------------------------------------------------------------------------------------------------------------------------------------------------
Exceptions to NAICS 541715--Aircraft, Aircraft Engine and Engine Parts;
Other Aircraft Parts and Auxiliary Equipment; and Guided Missiles and
Space Vehicles, Their Propulsion Units and Propulsion Parts
Currently, NAICS 541715 (Research and Development in the Physical,
Engineering, and Life Sciences (except Biotechnology)) has three
subindustries or ``exceptions.'' As stated in Footnote 11 to the SBA's
Table of Size Standards, for Research and Development (R&D) contracts
requiring the delivery of a manufactured product, the appropriate size
standard is that of the corresponding manufacturing industry. The three
exceptions under NAICS 541715 and their corresponding manufacturing
industry counterparts and their size standards are shown in Table 7,
NAICS 541715 Exceptions and Corresponding Manufacturing Size Standards
(Employees), below. This table also displays the proposed size
standards for each of the three exceptions and corresponding
manufacturing industries.
To better match size standards for the exceptions to the
corresponding employee-based industry size standards in manufacturing,
SBA proposes to increase the size standard of the third exception
(Guided Missiles and Space Vehicles, Their Propulsion Units and
Propulsion Parts) from 1,250 employees to 1,300 employees by adopting
the highest size standard of that exception's corresponding
manufacturing industry counterparts. As shown in Table 7 (below), SBA
retains the current size standards for the other two exceptions.
Table 7--NAICS 541715 Exceptions and Corresponding Manufacturing Size Standards (Employees)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current Calculated Proposed Proposed size Current size
Exception Manufacturing NAICS code and size size size standard for standard for
industry title standard standard standard the exception the exception
--------------------------------------------------------------------------------------------------------------------------------------------------------
Aircraft, Aircraft Engine and Engine Parts.... 336411--Aircraft Manufacturing... 1,500 1,500 1,500 1,500 1,500
336412--Aircraft Engine and 1,500 1,500 1,500
Engine Parts Manufacturing.
Other Aircraft Parts and Auxiliary Equipment.. 336413--Other Aircraft Part and 1,250 1,200 1,250 1,250 1,250
Auxiliary Equipment
Manufacturing.
Guided Missiles and Space Vehicles, Their 336414--Guided Missile and Space 1,250 1,300 1,300 1,300 1,250
Propulsion Units and Propulsion Parts. Vehicle Manufacturing. 1,250 1,200 1,250
336415--Guided Missile and Space
Vehicle Propulsion Unit and
Propulsion Unit Parts
Manufacturing.
336419--Other Guided Missile and 1,000 1,050 1,050 .............. ..............
Space Vehicle Parts and
Auxiliary Equipment
Manufacturing.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Exception to NAICS 562910--Environmental Remediation Services
In 2016, SBA increased the size standard for Environmental
Remediation Services (ERS) exception to NAICS 562910 (Remediation
Services) from 500 employees to 750 employees (81 FR 4436 (January 26,
2016)). The requirements that apply to the ERS exception and its 750-
employee size standard for Federal procurement and SBA's financial
assistance are defined in Footnote 14 to the SBA's Table of Size
Standards (13 CFR 121.201). SBA requires that for a Government contract
to be classified under the ERS exception, it should cover activities in
three or more separate industries that each could be categorized in
separate NAICS codes. If any activity in the procurement can be
identified with a separate NAICS code, or component of a code with a
distinct size standard, and that industry accounts for 50% or more of
the value of the entire procurement, then the proper size standard is
the one for that industry, and not the ERS exception size standard.
In 1994, SBA established the 500-employee based size standard for
the ERS exception for Federal procurements and for SBA assistance (59
FR 47236 (September 15, 1994)). The Agency determined that ERS was an
emergent industry in which firms perform tasks that depart from
traditional activities in any one industry defined (at the time)
[[Page 24806]]
in the Standard Industrial Classification (SIC) system, and the types
of activities were requiring larger firms to be able to perform them.
When the North American Industry Classification System (NAICS) was
adopted by the Federal Government in 1997, one of the new industries
identified with a six-digit code was NAICS 562910 (Remediation
Services), and one of the activities on the scope of NAICS 562910 was
the environmental remediation services.
SBA believes that the justification for the creation of an
environmental remediation services subindustry within NAICS 562910 with
a special size standard in 1994 is still valid today. NAICS 562910
includes some remediation activities (e.g., collection and disposal of
garbage, ashes, rubbish and sweeping services), which are usually
performed by smaller firms relative to the size of firms performing
activities that fall under environmental remediation services.
As explained previously in the Sources of Industry and Program Data
section, the data from the Census Bureau's Economic Census tabulation
are limited to the 6-digit NAICS industry level and hence do not
provide all the economic characteristics for the ERS subindustry. Thus,
similar to the evaluation of other exceptions, in accordance with the
SBA's size standards methodology, in this proposed rule, SBA analyzed
the data coming from FPDS-NG and SAM to evaluate the size standard for
the ERS exception.
First, using FPDS-NG data for fiscal years 2016-2018, SBA
identified firms that participated in Federal contracts using the
Product Service Codes (PSCs) F108 (Environmental Systems Protection--
Environmental Remediation) and F999 (Other Environmental Services)
within NAICS 562910. Then, SBA obtained those firms' revenue and
employment data from the information related to the ERS awards in FPDS-
NG, and the data from SAM was used to complement the information
available in FPDS-NG.
SBA identified 1,151 firms receiving Federal contracts under NAICS
562910 and PSCs F108 and F999. Initially, the number of firms was
obtained by counting the DUNS numbers, but because the DUNS numbers
refer to a location, multi-establishments firms will have more than one
DUNS number. So, SBA decided to identify those firms using Global DUNS
numbers, reducing the number of firms to 1,033. After deleting firms
with null values for number of employees or revenue, the number of
firms was reduced to 979. SBA also deleted entities that could be
identified as government agencies or as manufacturers, further reducing
the number of ERS firms to 962.
As discussed in the SBA's size standards methodology white paper,
when reviewing size standards for subindustries or ``exceptions'' using
the SAM and FPDS-NG data, to reduce the impact of the differences
between the industry data from the Economic Census and the data
obtained from FPDS-NG and SAM, SBA may (i) identify and remove firms
whose primary activity is not the subindustry or exception under review
(in this case ERS), (ii) trim the data to prevent extreme observations
from distorting the results, or (iii) apply a combination of these two
approaches.
The dollars awarded by firms' employment size indicate a large
concentration of the ERS activity among the largest firms. Small firms
with less than or equal to 750 employees received about 37% of the
total ERS dollar awards during fiscal years 2016-2018, while firms with
more than 5,000 employees accounted for about 60% of the total ERS
contract awards. Moreover, just two firms with more than 5,000
employees accounted for almost 40% of the total awards under ERS
activities. The rest of the ERS contract dollars (3.5%) went to firms
between 750 employees and 5,000 employees.
Since fiscal year 2016, the share of total ERS contract dollars
awarded to small businesses decreased significantly, from an average of
50.0% in fiscal years 2013-2015 to an average of 37.0% in fiscal years
2016-2018. SBA believes that the large skewness in the distribution of
ERS firms by the number of employees, the large percentage of ERS
contracting dollars being concentrated among very large firms, and a
decrease in the small business share of total ERS awards (especially
after the adoption of the higher 750-employee size standard in 2016)
are all indications that an additional increase to the ERS size
standard is warranted. The large concentration of ERS awards among very
large and diversified firms suggests that trimming the data is
warranted to obtain a more representative picture of the ERS industry.
Thus, to avoid the results being distorted by very large, diversified
firms, SBA excluded from analysis 2.5% of the largest firms by the
number of employees. That leaves the number of ERS firms at 937, which
were used to calculate the industry and Federal contracting factors for
the ERS exception. Table 8, Size Standards Supported by Each Factor for
the Exception to NAICS 562910 (Employees), below, summarizes the
results.
Table 8--Size Standards Supported by Each Factor for the Exception to NAICS 562910 (Employees)
[Upper value = calculated factor, lower value = size standard supported]
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
NAICS code NAICS industry title Type........... Simple Weighted Average Four-firm Gini Federal Calculated Current
average average assets ratio coefficient contract size size
firm size firm size size % factor standard standard
(number of (number of ($ million) (%) (number of (Number of
employees) employees) employees) employees)
--------------------------------------------------------------------------------------------------------------------------------------------------------
562910 (Exception)............. Factor......... 174.9 3,249.0 $22.8 35.1 0.851 64.2 ........... ...........
Size Std....... 1,500 1,500 850 700 1,250 750 1,000 750
--------------------------------------------------------------------------------------------------------------------------------------------------------
Based on the above rationale and the analysis of industry and
Federal contracting factors, SBA proposes to increase the ERS size
standard to 1,000 employees, which would cause a very minimal impact on
currently small firms in the ERS Federal procurement market while
allowing a few larger small firms an expanded runway to grow and remain
competitive. SBA repeated this analysis without trimming the data,
which yielded a calculated size standard of 1,200 employees; however,
SBA does not believe that this method most accurately reflects the
economic characteristics of firms primarily engaged in the business
activities related to the ERS exception since the untrimmed data
includes firms whose primary activity is unrelated to ERS. Of the 25
firms excluded from the analysis due to trimming, 12 firms had less
than $1 million in ERS contracts. The share of ERS dollars obligated to
these firms
[[Page 24807]]
was less than 0.1% in terms of both their total receipts and total
dollars obligated (across all NAICS codes), indicating that the ERS
exception is clearly not the primary activity for these firms. Also,
among the remaining 13 excluded firms that received more contract
dollars under the ERS exception, these firms' share of ERS dollars in
their total receipts was, on average, only 1.2%, varying from 0.0% to
5.7%. SBA found that the vast majority of these excluded firms operated
in numerous, diverse NAICS codes and none of them reported the ERS
exception as being their primary activity relative to their overall
operations.
As such, SBA is proposing to increase the ERS size standard to
1,000 employees in accordance with SBA's size standards methodology and
the trimming approach described above. As discussed previously in this
subsection, in February 2016, SBA increased the size standard for the
ERS exception from 500 employees to 750 employees. In fiscal years
2018-2019, still the largest number of small ERS firms were below 500
employees, receiving the largest percentage of ERS small business
contract awards. By increasing the size standard to 1,000 employees,
only about 2 additional firms will gain small business status. SBA
believes that this will not have a significant impact on small
businesses below the current 750-employee size standard.
Summary of Calculated Size Standards
Of the 427 industries and 5 subindustries (i.e., ``exceptions'')
reviewed in this proposed rule, the results from analyses of the latest
available data on the five primary factors discussed above would
support increasing employee-based size standards for 157 industries and
2 subindustries (``exceptions''), decreasing size standards for 216
industries, and maintaining size standards for 54 industries and 3
subindustries (``exceptions''). Table 9, Summary of Calculated Size
Standards, below, summarizes these results by NAICS sector.
Table 9--Summary of Calculated Size Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of size Number of size Number of size Number of size
NAICS sector NAICS sector title standards standards standards standards
reviewed increased decreased maintained
--------------------------------------------------------------------------------------------------------------------------------------------------------
21...................................... Mining, Quarrying, and Oil and Gas 24 15 9 0
Extraction.
22...................................... Utilities............................. 11 11 0 0
31-33................................... Manufacturing......................... 360 123 187 50
48-49................................... Transportation and Warehousing........ 15 5 8 2
51...................................... Information........................... 12 3 7 2
54...................................... Professional, Scientific and Technical 7 1 3 3
Services.
Other................................... Agriculture, Forestry, Fishing and 3 1 2 0
Hunting (Sector 11); Finance and
Insurance (Sector 52); Administrative
and Support, Waste Management and
Remediation Services (Sector 56).
-----------------------------------------------------------------------
Total............................... 432 159 216 57
--------------------------------------------------------------------------------------------------------------------------------------------------------
Evaluation of SBA Loan Data
Before proposing or deciding on size standard revisions, SBA also
considers the impact of size standards revisions on its loan programs.
Accordingly, SBA examined its internal 7(a) and 504 loan data for
fiscal years 2018-2020 to assess whether the calculated size standards
in Table 4 (above) need further adjustments to ensure credit
opportunities for small businesses through those programs. For the
industries reviewed in this proposed rule, the data shows that it is
mostly businesses much smaller than the current or calculated size
standards that receive SBA's 7(a) and 504 loans. For example, for
industries covered by this rule, more than 99.0% of SBA's 7(a) and 504
loans in fiscal years 2018-2020 went to businesses below the calculated
size standards.
Evaluation of Calculated Size Standards for Dominance in Field of
Operation
The Small Business Act provides that a small business concern must
not be dominant in its field of operation. Accordingly, to ensure that
neither an existing nor a calculated or proposed size standard includes
the dominant or potentially dominant firms in any industry, besides the
calculation of the Gini coefficient, SBA further assessed the
distribution of firms in each industry by employee size and a firm's
share of total industry's receipts at the existing or calculated size
standard. Generally, SBA believes shares below 40% would preclude
dominant firms from qualifying as small and exerting control on any
industry. Accordingly, based on the results, SBA is proposing to retain
the size standards for nine industries at their current levels, even
though the analytical results suggested that an increase is warranted.
These industries include NAICS 212222, 212291, 311213, 221116, 212113,
212392, 311512, 316992, and 212324, for which a firm's share of total
industry's receipts or employees at the calculated size standard was
more than 40%. SBA proposes to adopt a smaller increase to the size
standard for NAICS 221114 to ensure that the industry's dominant firms
are not included in the definition of small business for the industry.
SBA estimates that at the calculated size standard of 700 employees for
NAICS 221114, based on the 2012 Economic Census data, a firm's share of
total industry receipts would be 41.1% and the share of employees
44.2%. Thus, SBA is proposing a smaller increase to the size standard
for NAICS 221114 from the current 250 employees to 500 employees to
ensure that a firm's share of total industry receipts or employees at
the proposed size standard is not greater than 40%. These adjustments
would affect only the one or two largest firms in each of those
industries. Similarly, based on the results from dominance analysis
using
[[Page 24808]]
the 2012 Economic Census data, SBA considered proposing to reduce the
size standard for NAICS 221118 from 250 employees to 100 employees,
even though the analytical results supported a higher size standard of
650 employees. The results showed that the share of total receipts for
a firm at the 250-employee current size standard or at the 650-employee
calculated size standard would be much higher than the 40% threshold.
However, after considering the level of Federal contracting activity
and the Federal contracting factor for this industry as presented in
Table 4 above, SBA proposes to adopt the calculated size standard of
650 employees for NAICS 221118 as there are a number of large firms
participating in Federal contracting in this industry that are not
classified under NAICS 221118 in the Economic Census data. Based on the
FPDS-NG data for fiscal years 2018-2020, on an annual basis, SBA
identified 131 firms receiving 443 contracts under NAICS 221118. The
average annual total dollars obligated to these firms was about $216.0
million. Together, these firms had total employees of 1.5 million,
averaging 11,771 employees. These figures are much greater than the
total of 224 employees and average of 14 employees for NAICS 221118
based on the 2012 Economic Census data. Using the data from FPDS-NG for
fiscal years 2018-2020 for NAICS 221118, SBA estimates the share of
receipts of a firm at the calculated size standard of 650 employees to
be 0.07%, which effectively precludes a firm of this size from exerting
control over the industry. Thus, these results demonstrate that the
Economic Census Economic Census data for this industry do not correlate
well with the Federal market data from FPDS-NG that supports a higher
size standard.
As explained elsewhere in this proposed rule, in industries where
small business share of the Federal market is already appreciably high
relative to the small business share of the overall market, SBA
generally assumes that the existing size standard is adequate with
respect to the Federal contracting factor. Regarding NAICS 221118
specifically, using the Federal market data for fiscal years 2016-2018,
SBA estimated a Federal contracting factor of -64.4% (i.e., the
difference between the small business share of Federal market and the
small business share of industry receipts) that supports increasing the
size standard to 400 employees (see Table 4 above). Using the FPDS-NG
data from fiscal years 2018-2020, SBA estimates the small business
share of dollars obligated to NAICS 221118 to be 4.4% and the small
business share of industry receipts, based on the 2012 Economic Census
data, to be 71.6%, thereby yielding a Federal contracting factor of -
67.2%.
Therefore, based on the reasons presented above, SBA is proposing
to adopt the 650-employee calculated size standard for NAICS 221118 to
further promote competition among all firms and create additional
opportunities for small firms. Table 10, Proposed Adjustments to
Calculated Size Standards Based on Dominance Analysis, below,
summarizes adjustments to calculated size standards based on SBA's
evaluation of dominance in field of operation.
Table 10--Proposed Adjustments of Calculated Size Standards Based on Dominance Analysis
----------------------------------------------------------------------------------------------------------------
Adjusted/
Current size Calculated proposed size
NAICS code NAICS industry title standard size standard standard
(employees) (employees) (employees)
----------------------------------------------------------------------------------------------------------------
212113............................ Anthracite Mining........... 250 600 250
212222............................ Silver Ore Mining........... 250 1,100 250
212291............................ Uranium-Radium-Vanadium Ore 250 900 250
Mining.
212324............................ Kaolin and Ball Clay Mining. 750 1,050 750
212392............................ Phosphate Rock Mining....... 1,000 1,350 1,000
221114............................ Solar Electric Power 250 700 500
Generation.
221116............................ Geothermal Electric Power 250 1,050 250
Generation.
221118............................ Other Electric Power 250 650 650
Generation.
311213............................ Malt Manufacturing.......... 500 900 500
311512............................ Creamery Butter 750 1,000 750
Manufacturing.
316992............................ Women's Handbag and Purse 750 850 750
Manufacturing.
----------------------------------------------------------------------------------------------------------------
Special Considerations
On March 13, 2020, the ongoing Coronavirus Disease 2019 (COVID-19)
was declared a pandemic of enough severity and magnitude to warrant an
emergency declaration for all U.S. states, territories, and the
District of Columbia. With the COVID-19 emergency, many small
businesses nationwide experienced economic hardship as a direct result
of the Federal, State, and local public health measures that were being
taken to minimize the public's exposure to the virus. In addition,
based on the advice of public health officials, other measures, such as
keeping a safe distance from others or even stay-at-home orders, were
implemented, resulting in a dramatic decrease in economic activity as
the public avoided malls, retail stores, and other businesses.
The Coronavirus Aid, Relief, and Economic Security Act (the CARES
Act or the Act) (Pub. L. 116-136) was signed on March 27, 2020, to
provide emergency assistance and health care response for individuals,
families, and businesses affected by the coronavirus pandemic. Section
1102 of the Act temporarily permitted SBA to guarantee 100% of 7(a)
loans under a new program titled the Paycheck Protection Program (PPP).
Section 1106 of the Act provides for forgiveness of up to the full
principal amount of qualifying loans guaranteed under the PPP. The PPP
and loan forgiveness are intended to provide economic relief to small
businesses nationwide adversely impacted by COVID-19. On April 24,
2020, additional funding for the CARES Act, including for the PPP, was
provided (see The Paycheck Protection Program and Health Care
Enhancement Act, Pub. L. 116-139). On December 27, 2020, Congress
passed the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and
Venues Act as part of the Consolidation Appropriations Act, approving
additional funding for the PPP loan program and allowing the hardest-
hit small businesses to receive a second draw PPP loan (Pub. L. 116-
260). Additionally, the law approved grants for shuttered-venue
operators. On March 11, 2021, the American Rescue Plan Act of 2021
(Pub. L. 117-2) was
[[Page 24809]]
signed into law. This act provided additional relief for the Nation's
small businesses and hard-hit industries by adding new support to the
recovery effort, including additional funding for the PPP and the
Shuttered Venue Operators Grant programs. The act also provided
additional funding for targeted Economic Injury Disaster Loan (EIDL)
Advance payments.
The Agency is following closely the development of the pandemic and
the economic situation. A variety of economic indicators such as the
Gross Domestic Product (GDP) and the unemployment rate show that the
economic recession from the COVID-19 pandemic was significantly worse
than any other recession since World War II. According to the Bureau of
Economic Analysis (BEA), the real GDP decreased 5.1%, and the real
personal consumption in goods and services decreased 6.9% in the first
quarter of 2020. In the second quarter, the real GDP decreased 31.2%
and the real personal consumption in goods and services decreased
33.4%. In the third quarter, the real GDP increased 33.8%, and the real
personal consumption in goods and services increased 41.4%. The real
GDP showed a more moderate increase of 4.5% and the real personal
consumption expenditures increased 3.4% in the fourth quarter of 2020.
The real GDP decreased 3.4% in 2020 from 2019 (from the 2019 annual
level to the 2020 annual level), compared with an increase of 2.3% in
2019 from 2018. The real GDP increased 6.3% in the first quarter of
2021 and 6.7% in the second quarter. The real personal consumption in
goods and services grew 11.4% in the first quarter of 2021 and 12.0% in
the second quarter. The growth rates of both the real GDP and real
personal consumption expenditures slowed significantly in the third
quarter, increasing just 2.3% and 2.0%, respectively. Economic growth
accelerated in the fourth quarter, with real GDP and real personal
consumption expenditures increasing 6.9% and 2.5%, respectively. The
real GDP increased 5.7% in 2021 from 2020 (from the 2020 annual level
to the 2021 annual level), compared with an decrease of 3.4% in 2020
from 2019.\3\
---------------------------------------------------------------------------
\3\ Source: gdp4q21_3rd.pdf (<a href="http://bea.gov">bea.gov</a>), March 30, 2022. This
report represents the BEA's March 30, 2022, full News Release on the
U.S. Economic data for the fourth quarter of 2021 and year 2021, and
associated figures and tables. Specifically included in the report
are, among other things, GDP (third estimate), personal consumption
expenditures (PCE), Corporate Profits, and GDP by industry for the
fourth of 2021 and year 2021. Provided in the report are levels of
various economic measures and percentage changes from preceding
period. The report provides annual data for years 2019, 2020 and
2021, and quarterly data from the first quarter of 2018 to the
fourth quarter of 2021.
---------------------------------------------------------------------------
In March 2022, the unemployment rate fell to 3.6%, and the number
of unemployed persons to 6.0 million. Although both measures are
significantly lower than their April 2020 highs (14.8% and 23.1
million, respectively), they are still higher than their pre-pandemic
levels in February 2020 (3.5% and 5.7 million, respectively).
Specifically, for the sectors evaluated in this proposed rule, in March
2022, the average unemployment rate was 3.4%. In February 2020, the
average unemployment rate for these sectors was 3.8%.
SBA believes that lowering size standards under the current
economic environment could stifle the momentum of the ongoing economic
recovery by causing a large number of currently small firms to become
ineligible for SBA's financial assistance and Federal contracting
programs at a time when these programs could be particularly helpful to
businesses in need of Federal assistance the most to survive the
economic impacts of the ongoing COVID-19 pandemic. SBA is meeting the
need for increased support by not lowering size standards even though
analytical results suggest that some size standards might be lowered.
Moreover, reducing the number of small businesses in the economy may
also lead to fewer set-aside opportunities overall as it would reduce
the pool of eligible firms that the Federal Government could select
from when setting aside procurement opportunities for small businesses.
Thus, SBA believes that lowering size standards at this time would be
counter to its mission to aid, counsel, assist and protect the
interests of small business concerns, preserve free competitive
enterprise, and maintain and strengthen the overall economy of our
Nation.
Proposed Changes to Size Standards
Based on the analytical results and SBA's policy of not lowering
size standards in response to the ongoing economic impacts of the
COVID-19 pandemic and Government response to mitigate the impacts
discussed above, SBA proposes to increase size standards for 150
industries or subindustries (or ``exceptions'') and retain the current
size standards for 282 industries. The proposed size standards are
presented in Table 11, Proposed Size Standards Revisions. Also
presented in Table 11 are current and calculated size standards for
comparison.
Table 11--Proposed Size Standards Revisions
----------------------------------------------------------------------------------------------------------------
Current size Calculated Proposed size
NAICS code NAICS industry title standard size standard standard
(employees) (employees) (employees)
----------------------------------------------------------------------------------------------------------------
212113................................. Anthracite Mining...... 250 600 250
212210................................. Iron Ore Mining........ 750 1,400 1,400
212222................................. Silver Ore Mining...... 250 1,100 250
212230................................. Copper, Nickel, Lead, 750 1,400 1,400
and Zinc Mining.
212291................................. Uranium-Radium-Vanadium 250 900 250
Ore Mining.
212299................................. All Other Metal Ore 750 1,250 1,250
Mining.
212313................................. Crushed and Broken 750 850 850
Granite Mining and
Quarrying.
212319................................. Other Crushed and 500 550 550
Broken Stone Mining
and Quarrying.
212322................................. Industrial Sand Mining. 500 750 750
212324................................. Kaolin and Ball Clay 750 1,050 750
Mining.
212325................................. Clay and Ceramic and 500 650 650
Refractory Minerals
Mining.
212391................................. Potash, Soda, and 750 1,050 1,050
Borate Mineral Mining.
212392................................. Phosphate Rock Mining.. 1,000 1,350 1,000
212393................................. Other Chemical and 500 600 600
Fertilizer Mineral
Mining.
212399................................. All Other Nonmetallic 500 600 600
Mineral Mining.
221111................................. Hydroelectric Power 500 750 750
Generation.
221112................................. Fossil Fuel Electric 750 950 950
Power Generation.
221113................................. Nuclear Electric Power 750 1,150 1,150
Generation.
[[Page 24810]]
221114................................. Solar Electric Power 250 700 500
Generation.
221115................................. Wind Electric Power 250 1,150 1,150
Generation.
221116................................. Geothermal Electric 250 1,050 250
Power Generation.
221117................................. Biomass Electric Power 250 550 550
Generation.
221118................................. Other Electric Power 250 650 650
Generation.
221121................................. Electric Bulk Power 500 950 950
Transmission and
Control.
221122................................. Electric Power 1,000 1,100 1,100
Distribution.
221210................................. Natural Gas 1,000 1,150 1,150
Distribution.
311111................................. Dog and Cat Food 1,000 1,250 1,250
Manufacturing.
311119................................. Other Animal Food 500 650 650
Manufacturing.
311211................................. Flour Milling.......... 1,000 1,050 1,050
311212................................. Rice Milling........... 500 750 750
311213................................. Malt Manufacturing..... 500 900 500
311221................................. Wet Corn Milling....... 1,250 1,300 1,300
311224................................. Soybean and Other 1,000 1,250 1,250
Oilseed Processing.
311225................................. Fats and Oils Refining 1,000 1,100 1,100
and Blending.
311230................................. Breakfast Cereal 1,000 1,300 1,300
Manufacturing.
311313................................. Beet Sugar 750 1,150 1,150
Manufacturing.
311314................................. Cane Sugar 1,000 1,050 1,050
Manufacturing.
311411................................. Frozen Fruit, Juice, 1,000 1,100 1,100
and Vegetable
Manufacturing.
311422................................. Specialty Canning...... 1,250 1,400 1,400
311511................................. Fluid Milk 1,000 1,150 1,150
Manufacturing.
311512................................. Creamery Butter 750 1,000 750
Manufacturing.
311514................................. Dry, Condensed, and 750 1,000 1,000
Evaporated Dairy
Product Manufacturing.
311611................................. Animal (except Poultry) 1,000 1,150 1,150
Slaughtering.
311824................................. Dry Pasta, Dough, and 750 850 850
Flour Mixes
Manufacturing from
Purchased Flour.
311920................................. Coffee and Tea 750 1,000 1,000
Manufacturing.
311930................................. Flavoring Syrup and 1,000 1,100 1,100
Concentrate
Manufacturing.
311941................................. Mayonnaise, Dressing, 750 850 850
and Other Prepared
Sauce Manufacturing.
311942................................. Spice and Extract 500 650 650
Manufacturing.
311991................................. Perishable Prepared 500 700 700
Food Manufacturing.
311999................................. All Other Miscellaneous 500 700 700
Food Manufacturing.
312111................................. Soft Drink 1,250 1,400 1,400
Manufacturing.
312112................................. Bottled Water 1,000 1,100 1,100
Manufacturing.
312140................................. Distilleries........... 1,000 1,100 1,100
313220................................. Narrow Fabric Mills and 500 550 550
Schiffli Machine
Embroidery.
313230................................. Nonwoven Fabric Mills.. 750 850 850
314999................................. All Other Miscellaneous 500 550 550
Textile Product Mills.
315190................................. Other Apparel Knitting 750 850 850
Mills.
315990................................. Apparel Accessories and 500 600 600
Other Apparel
Manufacturing.
316110................................. Leather and Hide 500 800 800
Tanning and Finishing.
316992................................. Women's Handbag and 750 850 750
Purse Manufacturing.
321113................................. Sawmills............... 500 550 550
321114................................. Wood Preservation...... 500 550 550
321211................................. Hardwood Veneer and 500 600 600
Plywood Manufacturing.
322110................................. Pulp Mills............. 750 1,050 1,050
322122................................. Newsprint Mills........ 750 1,050 1,050
323111................................. Commercial Printing 500 650 650
(except Screen and
Books).
323120................................. Support Activities for 500 550 550
Printing.
324122................................. Asphalt Shingle and 750 1,100 1,100
Coating Materials
Manufacturing.
324191................................. Petroleum Lubricating 750 900 900
Oil and Grease
Manufacturing.
324199................................. All Other Petroleum and 500 950 950
Coal Products
Manufacturing.
325110................................. Petrochemical 1,000 1,300 1,300
Manufacturing.
325120................................. Industrial Gas 1,000 1,200 1,200
Manufacturing.
325130................................. Synthetic Dye and 1,000 1,050 1,050
Pigment Manufacturing.
325220................................. Artificial and 1,000 1,050 1,050
Synthetic Fibers and
Filaments
Manufacturing.
325311................................. Nitrogenous Fertilizer 1,000 1,050 1,050
Manufacturing.
325312................................. Phosphatic Fertilizer 750 1,350 1,350
Manufacturing.
325314................................. Fertilizer (Mixing 500 550 550
Only) Manufacturing.
325320................................. Pesticide and Other 1,000 1,150 1,150
Agricultural Chemical
Manufacturing.
325412................................. Pharmaceutical 1,250 1,300 1,300
Preparation
Manufacturing.
325520................................. Adhesive Manufacturing. 500 550 550
325611................................. Soap and Other 1,000 1,100 1,100
Detergent
Manufacturing.
325612................................. Polish and Other 750 900 900
Sanitation Good
Manufacturing.
325613................................. Surface Active Agent 750 1,100 1,100
Manufacturing.
325910................................. Printing Ink 500 750 750
Manufacturing.
325991................................. Custom Compounding of 500 600 600
Purchased Resins.
325998................................. All Other Miscellaneous 500 650 650
Chemical Product and
Preparation
Manufacturing.
[[Page 24811]]
326121................................. Unlaminated Plastics 500 600 600
Profile Shape
Manufacturing.
326130................................. Laminated Plastics 500 650 650
Plate, Sheet (except
Packaging), and Shape
Manufacturing.
326220................................. Rubber and Plastics 750 800 800
Hoses and Belting
Manufacturing.
326299................................. All Other Rubber 500 650 650
Product Manufacturing.
327211................................. Flat Glass 1,000 1,100 1,100
Manufacturing.
327410................................. Lime Manufacturing..... 750 1,050 1,050
327910................................. Abrasive Product 750 900 900
Manufacturing.
327992................................. Ground or Treated 500 600 600
Mineral and Earth
Manufacturing.
327999................................. All Other Miscellaneous 500 750 750
Nonmetallic Mineral
Product Manufacturing.
331313................................. Alumina Refining and 1,000 1,300 1,300
Primary Aluminum
Production.
331315................................. Aluminum Sheet, Plate, 1,250 1,400 1,400
and Foil Manufacturing.
331420................................. Copper Rolling, 1,000 1,050 1,050
Drawing, Extruding,
and Alloying.
331491................................. Nonferrous Metal 750 900 900
(except Copper and
Aluminum) Rolling,
Drawing, and Extruding.
331492................................. Secondary Smelting, 750 850 850
Refining, and Alloying
of Nonferrous Metal
(except Copper and
Aluminum).
331512................................. Steel Investment 1,000 1,050 1,050
Foundries.
331513................................. Steel Foundries (except 500 700 700
Investment).
331523................................. Nonferrous Metal Die- 500 700 700
Casting Foundries.
331524................................. Aluminum Foundries 500 550 550
(except Die-Casting).
332112................................. Nonferrous Forging..... 750 950 950
332114................................. Custom Roll Forming.... 500 600 600
332117................................. Powder Metallurgy Part 500 550 550
Manufacturing.
332215................................. Metal Kitchen Cookware, 750 1,000 1,000
Utensil, Cutlery, and
Flatware (except
Precious)
Manufacturing.
332439................................. Other Metal Container 500 600 600
Manufacturing.
332613................................. Spring Manufacturing... 500 600 600
332722................................. Bolt, Nut, Screw, 500 600 600
Rivet, and Washer
Manufacturing.
332812................................. Metal Coating, 500 600 600
Engraving (except
Jewelry and
Silverware), and
Allied Services to
Manufacturers.
332992................................. Small Arms Ammunition 1,250 1,300 1,300
Manufacturing.
332996................................. Fabricated Pipe and 500 550 550
Pipe Fitting
Manufacturing.
333131................................. Mining Machinery and 500 900 900
Equipment
Manufacturing.
333243................................. Sawmill, Woodworking, 500 550 550
and Paper Machinery
Manufacturing.
333314................................. Optical Instrument and 500 600 600
Lens Manufacturing.
333924................................. Industrial Truck, 750 900 900
Tractor, Trailer, and
Stacker Machinery
Manufacturing.
333991................................. Power-Driven Hand Tool 500 950 950
Manufacturing.
333993................................. Packaging Machinery 500 600 600
Manufacturing.
333995................................. Fluid Power Cylinder 750 800 800
and Actuator
Manufacturing.
333997................................. Scale and Balance 500 700 700
Manufacturing.
334290................................. Other Communications 750 800 800
Equipment
Manufacturing.
334416................................. Capacitor, Resistor, 500 550 550
Coil, Transformer, and
Other Inductor
Manufacturing.
334511................................. Search, Detection, 1,250 1,350 1,350
Navigation, Guidance,
Aeronautical, and
Nautical System and
Instrument
Manufacturing.
334512................................. Automatic Environmental 500 650 650
Control Manufacturing
for Residential,
Commercial, and
Appliance Use.
334514................................. Totalizing Fluid Meter 750 850 850
and Counting Device
Manufacturing.
334517................................. Irradiation Apparatus 1,000 1,200 1,200
Manufacturing.
334519................................. Other Measuring and 500 600 600
Controlling Device
Manufacturing.
335122................................. Commercial, Industrial, 500 600 600
and Institutional
Electric Lighting
Fixture Manufacturing.
335129................................. Other Lighting 500 550 550
Equipment
Manufacturing.
335311................................. Power, Distribution, 750 800 800
and Specialty
Transformer
Manufacturing.
335912................................. Primary Battery 1,000 1,300 1,300
Manufacturing.
335931................................. Current-Carrying Wiring 500 600 600
Device Manufacturing.
335991................................. Carbon and Graphite 750 900 900
Product Manufacturing.
335999................................. All Other Miscellaneous 500 600 600
Electrical Equipment
and Component
Manufacturing.
336310................................. Motor Vehicle Gasoline 1,000 1,050 1,050
Engine and Engine
Parts Manufacturing.
336414................................. Guided Missile and 1,250 1,300 1,300
Space Vehicle
Manufacturing.
336419................................. Other Guided Missile 1,000 1,050 1,050
and Space Vehicle
Parts and Auxiliary
Equipment
Manufacturing.
336611................................. Ship Building and 1,250 1,300 1,300
Repairing.
336991................................. Motorcycle, Bicycle, 1,000 1,050 1,050
and Parts
Manufacturing.
337125................................. Household Furniture 750 950 950
(except Wood and
Metal) Manufacturing.
337214................................. Office Furniture 1,000 1,100 1,100
(except Wood)
Manufacturing.
[[Page 24812]]
339113................................. Surgical Appliance and 750 800 800
Supplies Manufacturing.
339910................................. Jewelry and Silverware 500 700 700
Manufacturing.
339930................................. Doll, Toy, and Game 500 700 700
Manufacturing.
339991................................. Gasket, Packing, and 500 600 600
Sealing Device
Manufacturing.
339994................................. Broom, Brush, and Mop 500 750 750
Manufacturing.
339999................................. All Other Miscellaneous 500 550 550
Manufacturing.
483111................................. Deep Sea Freight 500 1,050 1,050
Transportation.
483113................................. Coastal and Great Lakes 750 800 800
Freight Transportation.
483114................................. Coastal and Great Lakes 500 550 550
Passenger
Transportation.
483211................................. Inland Water Freight 750 1,050 1,050
Transportation.
483212................................. Inland Water Passenger 500 550 550
Transportation.
511199................................. All Other Publishers... 500 550 550
512230................................. Music Publishers....... 750 900 900
512250................................. Record Production and 250 900 900
Distribution.
541715 (Exception 3)................... Guided Missiles and 1,250 1,300 1,300
Space Vehicles, Their
Propulsion Units and
Propulsion Parts.
562910 (Exception)..................... Environmental 750 1,000 1,000
Remediation Services.
----------------------------------------------------------------------------------------------------------------
As shown in the above table, SBA proposes to increase size
standards for 150 industries or subindustries (``exceptions'') in those
sectors, including 10 industries in NAICS Sector 21 (Mining, Quarrying,
and Oil and Gas Extraction), 10 industries in NAICS Sector 22
(Utilities), 120 industries in NAICS Sector 31-33 (Manufacturing), 5
industries in Sector 48-49 (Transportation and Warehousing), 3
industries in NAICS Sector 51 (Information), and 1 subindustry (or
``exception'') each in NAICS Sector 54 (Professional, Scientific and
Technical Services) and in NAICS Sector 56 (Administrative and Support,
Waste Management and Remediation Services). Table 12, Summary of
Proposed Size Standards Revisions by Sector, below, summarizes the
proposed changes to size standards by NAICS sector.
Table 12--Summary of Proposed Size Standards Revisions by Sector
----------------------------------------------------------------------------------------------------------------
Number of size Number of size Number of size Number of size
Sector Sector name standards standards standards standards
reviewed increased decreased maintained
----------------------------------------------------------------------------------------------------------------
21............................ Mining, 24 10 0 14
Quarrying, and
Oil and Gas
Extraction.
22............................ Utilities....... 11 10 0 1
31-33......................... Manufacturing... 360 120 0 240
48-49......................... Transportation 15 5 0 10
and Warehousing.
51............................ Information..... 12 3 0 9
54............................ Professional, 7 1 0 6
Scientific and
Technical
Services.
Other Sectors................. Agriculture, 3 1 0 2
Forestry,
Fishing and
Hunting;
Finance and
Insurance;
Administrative
and Support,
Waste
Management and
Remediation
Services.
---------------------------------------------------------------
Total..................... ................ 432 150 0 282
----------------------------------------------------------------------------------------------------------------
Evaluation of Proposed Size Standards for Dominance in Field of
Operation
For the vast majority of industries with proposed changes to size
standards, the share of receipts of a firm at the proposed size
standard levels in Table 11 (above) is, on average, 8.9%, varying from
0.2% to 38.9%. Generally, SBA believes shares below 40% would preclude
dominant firms from qualifying as small and exerting control on any
industry. Based on the results from the 2012 Economic Census data, only
two industries had those shares above 40% at their proposed size
standards levels, namely NAICS 221118 (Other Electric Power Generation)
and NAICS 311213 (Malt Manufacturing). SBA proposes to increase the
size standard for NAICS 221118 from 250 employees to 650 employees and
to retain the current 500-employee size standard for NAICS 311213
although the industry data supported a higher 900-employee size
standard.
Regarding NAICS 221118, as discussed in the Evaluation of
Calculated Size Standards for Dominance in Field of Operation section
above, after considering the level of Federal contracting activity and
the Federal contracting factor for this industry, SBA is proposing to
adopt the calculated size standard of 650 employees. Based on the
Economic Census data, SBA estimated the share of industry receipts of a
firm with 650 employees to be above 40%, suggesting that a dominant
firm may qualify as small at the proposed size standard level. However,
considering the limitation of the Economic Census data in
characterizing the firms that participate in the Federal market in
NAICS 221118, SBA estimates, using the data from FPDS-NG for fiscal
years 2018-2020, the share of receipts of a firm at the proposed size
standard of 650 employees to be 0.07%, which would effectively preclude
a firm of this size from being dominant and exerting control over the
industry.
Regarding NAICS 311213, SBA evaluated the industry's distribution
of firms by employee size to determine whether any potentially dominant
firms
[[Page 24813]]
existed near the proposed size standard level. SBA identified only 1
firm close to or around the proposed 500-employee size standard and
determined that this firm is not dominant in its field of operation
because its share of total industry receipts is only 26.5%, well below
the 40% threshold that SBA considers for adjusting calculated or
proposed size standards to exclude dominant firms. Thus, SBA determined
that the market shares under the proposed size standards revisions for
all industries effectively preclude a firm at or below the proposed
size standards from exerting control on any of the industries. In the
Request for Comments section below, SBA seeks comments on its proposed
revisions to size standards, including its proposal to, based on the
results from dominance analysis, retain the current size standards in
certain industries for which analytical results supported higher size
standards.
Alternatives Considered
By law, SBA is required to develop numerical size standards for
establishing eligibility for Federal small business assistance programs
and to review every five years all size standards and make necessary
adjustments to reflect the current industry structure and Federal
market conditions. Other than varying the levels of size standards by
industry and changing the measures of size standards (e.g., using
annual receipts vs. the number of employees), no practical alternatives
exist to the systems of numerical size standards.
In response to the unprecedented economic impacts of the ongoing
COVID-19 pandemic on small businesses and Government response, SBA is
proposing to increase size standards where the data suggested increases
are warranted, and to retain, in response to the COVID-19 pandemic and
resultant economic impacts on small businesses, 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 propose changes exactly as suggested by the
analytical results, including the evaluation of dominance in field of
operation. In other words, Alternative Option One would entail
increasing size standards for 150 industries or subindustries
(``exceptions''), decreasing for 216 industries, and retaining at their
current levels for 66 industries. Alternative Option Two was to retain
all current size standards, even though the analytical results
suggested that changes are warranted.
SBA did not propose Alternative Option One, because it would cause,
if adopted, a substantial number of currently small businesses to lose
their small business status and hence to lose their eligibility for
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 general policy of not decreasing size
standards during the first five-year review of size standards, even
though the data supported decreases.
As part of Alternative Option One, SBA also considered increasing
150 size standards as suggested by the analytical results and
mitigating the impact of decreases to 216 size standards by adjusting
the calculated size standards to minimize the impact on small business
access to Federal contracts and SBA's loans. However, considering the
impact of the ongoing COVID-19 pandemic on businesses and the overall
economy, in the Regulatory Impact Analysis section (below), SBA
presents the impacts of adopting the analytical results without
adjustment to Alternative Option One and proposes to retain all size
standards for which the evaluation of principal industry and Federal
contracting factors suggested reductions, and to adopt only the
increases based on the analytical results.
Under Alternative Option Two, given the current COVID-19 pandemic
and resultant uncertainty, SBA considered retaining all size standards
at their current levels even though the analytical results supported
changes. Under this option, as the current situation evolves, SBA would
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 show that retaining
all size standards at their current levels would cause the otherwise
qualified small businesses to forgo various small business benefits
becoming available to them under the SBA's proposal of increasing 150
and retaining 282 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.
Federal Procurement Size Standard for Nonmanufacturers
Small business concerns must meet certain requirements when they
offer to the Government an end item they did not manufacture, process,
or produce. These requirements are known as the nonmanufacturer rule.
The nonmanufacturer rule is codified in SBA's small business size
regulations at 13 CFR 121.406.
To qualify for a Federal Government supply contract set aside for
small business, a nonmanufacturer must have an average of 500 or fewer
employees over the past 12 months, be primarily engaged in the
wholesale or retail trade activities, and supply the product of a U.S.
small manufacturer.\4\ Under SBA's regulation, NAICS codes in Wholesale
Trade (Sector 42) and Retail Trade (Sector 44-45) sectors cannot be
used for classifying Federal Government acquisitions of supplies or
products. Instead, the applicable manufacturing NAICS code associated
with manufacturing, production, or processing of the product being
procured must be used. For other purposes, such as SBA's financial
assistance programs, SBA uses industry-based size standards in Sectors
42 and 44-45 to determine eligibility of applicants in those sectors.
In effect, the nonmanufacturer rule has resulted in two sets of size
standards for industries in NAICS Sectors 42 and 44-45--industry-based
size standards for SBA's financial assistance and other Federal non-
procurement programs and 500-employee size standard for Federal
procurement programs under the nonmanufacturer rule.
---------------------------------------------------------------------------
\4\ On November 2, 2021, SBA issued a proposed rule implementing
section 863 of the National Defense Authorization Act for Fiscal
Year 2021, Public Law 116-283, which changed the averaging period
for calculating employees for SBA's employee-based size standards
from 12 months to 24 months (86 FR 60396 (November 2, 2021)).
---------------------------------------------------------------------------
SBA believes that, for purposes of determining eligibility for
Federal set-aside procurement opportunities, using a single size
standard is more appropriate than separate industry-based size
standards for Wholesale or Retail Trade firms because firms in these
sectors generally offer multiple products from different industries,
and therefore identify themselves with multiple NAICS codes across a
wide
[[Page 24814]]
spectrum of products and supplies. Thus, different size standards for
individual industries in Wholesale Trade and Retail Trade under the
nonmanufacturer rule would further complicate the contracting process,
which already entails the decision to establish an applicable
manufacturing NAICS code, along with its size standard, associated with
manufacturing, production, or processing of the product being procured.
Businesses and contracting officers would likely find it confusing if
the principal NAICS code for a solicitation could vary based on factors
other than the requirements prescribed at 13 CFR 121.402(b), which
requires contracting officers to categorize solicitations by selecting
the single NAICS code that best describes the principal purpose of the
product being acquired.
While the nonmanufacturer rule applies to firms primarily engaged
in business activities within Sectors 42 and 44-45, SBA did not review
the 500-employee nonmanufacturer size standard in a recently published
proposed rule, which reviewed industry-based size standards in Sectors
42 and 44-45 (86 FR 28012 (May 5, 2021)). In that proposed rule, SBA
proposed to retain the nonmanufacturer size standard at 500 employees.
Accordingly, in this proposed rule, SBA is examining whether the
current 500-employee size standard for nonmanufacturers is appropriate.
SBA received a total of nine comments to its May 5, 2021, proposed
rule, one of which was submitted by Members of the U.S. House of
Representatives Subcommittee on Contracting and Infrastructure
requesting that SBA evaluate the current 500-employee size standard
under the nonmanufacturer rule. Specifically, they expressed concern
that because the level of revenues is immaterial to the determination
of size under the 500-employee nonmanufacturer size standard, the
current rule may allow a firm with billions of dollars in revenues to
qualify as a small business. They suggested that SBA conduct an
assessment of the nonmanufacturing industry based on revenue and/or
other factors to determine what may be considered small for the size of
a business qualifying as a nonmanufacturer.
In response to the Congressional comment, SBA analyzed the size
standard applicable to nonmanufacturers under the nonmanufacturer rule
by comparing the employee-based average industry factors (i.e., average
firm size, average assets, industry concentration, and distribution of
firms by size) of all Wholesale Trade and Retail Trade industries
combined with those of the manufacturing industries using the SBA's
``Size Standards Methodology'' for employee-based size standards. SBA
believes this approach is logical because Wholesale Trade and Retail
Trade firms have to compete with manufacturers for supply or product
contracts set aside for small businesses. Since NAICS codes in the
Wholesale Trade and Retail Trade sectors cannot be used to classify
Government acquisitions for supplies, and only the applicable
manufacturing code can be applied (13 CFR 121.402(b)(2)), the Federal
contracting factor is not considered in evaluating industry-based size
standards in these sectors.
The analytical results, presented in Table 13, Size Standards
Supported by Each Factor for Nonmanufacturers (Employees), below,
support raising the size standard for nonmanufacturers from 500
employees to 550 employees. However, to maintain continuity with
general public familiarity with and long acceptability of the 500-
employee size standard, SBA is proposing to maintain the current 500-
employee size standard which, in practice, continues to work well for
the majority of firms to which it applies. Moreover, the 500-employee
size standard is also the most common size standard among the
manufacturing industries. It is a common practice for manufacturers to
bid on supply contracts where they do not propose to produce the
particular product to be supplied with their own labor force,
notwithstanding that they are capable of doing so. Such manufacturers
must qualify as small businesses under the nonmanufacturer rule.
Therefore, in an effort to minimize the adverse consequences upon such
concerns and promote fair competition among manufacturers and
nonmanufacturers, SBA is proposing to adopt the predominant 500-
employee size standard for manufacturers as the size standard for
nonmanufacturers who desire to bid on Federal supply contracts.
Table 13--Size Standards Supported by Each Factor for Nonmanufacturers (Employees)
[Upper value = calculated factor, lower value = size standard supported]
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
NAICS code/NAICS sector title Type........... Simple Weighted Average Four-firm Gini Federal Calculated Proposed
average average assets size ratio coefficient contract size size
firm firm ($ million) (%) factor standard standard
size size (%)
(employees) (employees)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Wholesale Trade (Sector 42) & Factor......... 21.1 63.3 $4.1 4.2 0.828 ........... ........... ...........
Retail Trade (Sector 44-45). Size Std....... 450 400 400 250 1,050 ........... 550 500
--------------------------------------------------------------------------------------------------------------------------------------------------------
SBA also evaluated the size standard for nonmanufacturers by
comparing the average receipts-based industry factors of all Wholesale
Trade and Retail Trade industries combined with those of receipts-based
industries to calculate a receipt-based size standard for
nonmanufacturers. SBA calculated a receipts-based size standard for all
industries in Wholesale Trade and Retail Trade combined to be $27.0
million. Although SBA has evaluated a receipt-based size standard for
nonmanufacturers, SBA believes that adopting a receipts-based size
standard instead of an employee-based size standard would be
inappropriate for several reasons. Specifically, the Small Business Act
provides that the size of manufacturing firms be based on the number of
employees and that the size of services firms be based on average
annual receipts. Adopting a receipts-based size standard under the
nonmanufacturer rule, which currently applies only to Government
acquisitions for supplies, would cause many manufacturing concerns
supplying products to the Government as nonmanufacturers under the
nonmanufacturer rule to be evaluated under a receipts-based size
standard. This would be contrary to the requirements of the Small
Business Act.
Moreover, based on data from the 2012 Economic Census, SBA
determined that under the calculated $27.0 million receipt-based size
standard, a significant number of firms would lose their small business
status that they currently have under the 500-employee nonmanufacturer
size
[[Page 24815]]
standard. SBA estimates that only 95.3% of the 975,625 firms in the
Wholesale Trade and Retail Trade sectors would qualify as small under
the $27.0 million receipts-based size standard whereas 99.1% of firms
qualify as small under the current 500-employee nonmanufacturer size
standard. Even if SBA were to adopt the maximum receipts-based size
standard of $41.5 million as the size standard for nonmanufacturers,
only 96.6% of firms in the Wholesale Trade and Retail Trade sectors
would qualify as small. Thus, SBA believes that adopting a receipts-
based size standard could cause thousands of firms to lose their small
business status and may likely lead to fewer set-aside opportunities
for all small businesses since it would reduce the pool of eligible
small firms that the Federal Government could select from when setting
aside procurement of supplies for small businesses.
Regarding the concern that firms with large revenues are eligible
to receive small business set-aside contracts under the nonmanufacturer
rule, SBA notes that revenues are not germane to the calculation of
size for firms subject to SBA's employee-based size standards.
Likewise, the number of employees is not germane to the calculation of
size for firms subject to SBA's receipts-based size standards. Thus,
firms under any size standard may argue that the size threshold for
their industry is unfair because it may allow large firms under the
non-germane measure of size to compete as a small business. However,
SBA's selection of size measure is not discretionary for most
industries. As stated previously, the Small Business Act provides that
the size of manufacturing firms be based on the number of employees and
that the size of services firms be based on average annual receipts.
The choice of a size measure for an industry also depends on which
measure that best represents the magnitude of operations of a business
concern. That is, the measure should account for the level of real
business activity generated by firms in the industry. Generally, SBA
prefers employees as a measure of size in industries that are highly
capital intensive, horizontally structured, or have low operational
costs relative to receipts. When applied to the subset of firms
participating in the Federal contracting market as nonmanufacturers,
these considerations, when taken together, support an employee-based
size standard for nonmanufacturers. However, although SBA proposes to
retain the current 500-employee size standard for nonmanufacturers
participating in the Federal contracting market, in the Request for
Comments section below, SBA requests comments on the appropriateness of
the current 500-employee size standard and suggestions for alternative
measures to an employee-based size standard that would be more
appropriate for size determination of nonmanufacturers.
Request for Comments
SBA invites public comments on proposed size standards in this
proposed rule, especially focusing on the following issues:
1. SBA seeks feedback on whether SBA's proposal to increase 150
employee-based size standards and retain 282 employee-based size
standards is appropriate given the results from the latest available
industry and Federal contracting data of each industry and subindustry
(``exception'') reviewed in this proposed rule, along with ongoing
uncertainty and impact on the economic activity due to the COVID-19
pandemic. SBA also seeks suggestions, along with supporting facts and
analysis, for alternative size standards, if they would be more
appropriate than the proposed size standards in this rule.
2. SBA seeks comments on whether SBA should retain size standards
in view of the COVID-19 pandemic and its adverse impacts on small
businesses as well as on the overall economy when the analytical
results suggest they could be lowered. SBA believes that lowering size
standards under the current economic environment would run counter to
what Congress and the Federal Government are doing to aid and provide
relief to the Nation's small businesses impacted by the COVID-19
pandemic.
3. SBA seeks feedback on whether SBA's proposal to maintain the
current 500-employee size standard under the nonmanufacturer rule is
appropriate given the results from the latest available industry data.
SBA also seeks suggestions, along with supporting facts and analysis,
on alternative size standards, such as annual receipts or a different
level of employees, if they would be more appropriate than the current
and proposed 500-employee size standard for nonmanufacturers. SBA also
invites input on whether the Agency should allow the use of industry-
based size standards in Wholesale Trade and Retail Trade sectors to
define whether a wholesaler or retailer is a small business concern for
the acquisition of supplies.
4. In calculating the overall industry size standard, SBA has
assigned equal weight to each of the five primary factors in all
industries and subindustries covered by this proposed rule. SBA seeks
feedback on whether it should assign equal weight to each factor or on
whether it should give more weight to one or more factors for certain
industries or subindustries. Recommendations to weigh some factors
differently than others should include suggested weights for each
factor along with supporting facts and analysis.
5. SBA seeks comments on the appropriateness of its proposal to,
based on the results from dominance analysis, retain current size
standards in certain industries for which analytical results supported
increases. For those industries, based on the data from the 2012
Economic Census, the share of industry receipts of a firm at the
calculated size standard level was above the 40% threshold that SBA
generally uses in determining whether the proposed or calculated size
standard for the industry would include a dominant or potentially
dominant firm qualifying as small. SBA invites industry analyses or
suggestions for sources of more recent data that would show changes in
industry structure, including a firm's share of industry receipts at
various size thresholds.
6. Line Haul Railroads (NAICS 482111) and Short Line Railroads
(NAICS 482112) are not covered by the Economic Census. Based on the
evaluation of economic characteristics of these industries using the
data from the Railroad Retirement Board (RRB) and American Short Line
and Regional Railroad Association (ASLRRA), SBA is proposing to retain
the current 1.500-employee size standard for both NAICS 482111 and
482112. SBA invites comments, along with supporting information, on
this proposal as well as sources of data that more clearly define the
economic characteristics of these industries.
7. The Economic Census tabulation does not provide the data to
evaluate the size standard for the Information Technology Value Added
Resellers (ITVAR) exception to NAICS 541519 (Other Computer Related
Services). Based on the analysis of the FPDS-NG and SAM data, SBA is
proposing to retain the current 150-employee size standard for the
ITVAR exception. SBA invites comments, along with supporting
information, on this proposal as well as suggestions for alternative
sources of data that more clearly define the economic characteristics
of ITVARs.
8. Finally, SBA seeks comments on data sources it used to examine
industry
[[Page 24816]]
and Federal market conditions, as well as suggestions on relevant
alternative data sources that the Agency should evaluate in reviewing
or modifying size standards for industries or subindustries covered by
this proposed rule.
Public comments on the above issues are very valuable to SBA for
validating its proposed size standards revisions in this proposed rule.
Commenters addressing size standards for a specific industry or a group
of industries should include relevant data and/or other information
supporting their comments. If comments relate to the application of
size standards for Federal procurement programs, SBA suggests that
commenters provide information on the size of contracts in their
industries, the size of businesses that can undertake the contracts,
start-up costs, equipment, and other asset requirements, the amount of
subcontracting, other direct and indirect costs associated with the
contracts, the use of mandatory sources of supply for products and
services, and the degree to which contractors can mark up those costs.
Compliance With Executive Order 12866, the Congressional Review Act (5
U.S.C. 801-808), the Regulatory Flexibility Act (5 U.S.C. 601-612),
Executive Orders 13563, 12988, and 13132, and the Paperwork Reduction
Act (44 U.S.C. Ch. 35)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
proposed rule is a significant regulatory action for purposes of
Executive Order 12866. Accordingly, in the next section SBA provides a
Regulatory Impact Analysis of this proposed rule, including: (1) A
statement of the need for the proposed action, (2) An examination of
alternative approaches, and (3) An evaluation of the benefits and
costs--both quantitative and qualitative--of the proposed action and
the alternatives considered.
Regulatory Impact Analysis
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 proposed 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
proposed size standards revisions for industries being reviewed in this
rule will make size standards more reflective of the current economic
characteristics of businesses in those industries and the latest trends
in Federal marketplace.
The proposed revisions to the existing employee-based size
standards for 150 industries or subindustries (or ``exceptions''),
including 120 industries in Sector 31-33 and 30 industries and
subindustries in other sectors are consistent with SBA's statutory
mandates to help small businesses grow and create jobs and to review
and adjust size standards every five years. This regulatory action
promotes the Administration's goals and objectives as well as meets the
SBA's statutory responsibility. One of SBA's goals in support of
promoting the Administration's objectives is to help small businesses
succeed through fair and equitable access to capital and credit,
Federal Government contracts and purchases, and management and
technical assistance. Reviewing and modifying size standards, when
appropriate, ensures that intended beneficiaries are able to access
Federal small business programs that are designed to assist them to
become competitive and create jobs.
2. What are the potential benefits and costs of this regulatory action?
OMB directs agencies to establish an appropriate baseline to
evaluate any benefits, costs, or transfer impacts of regulatory actions
and alternative approaches considered. The baseline should represent
the agency's best assessment of what the world would look like absent
the regulatory action. For a new regulatory action promulgating
modifications to an existing regulation (such as modifying the existing
size standards), a baseline assuming no change to the regulation (i.e.,
making no changes to current size standards) generally provides an
appropriate benchmark for evaluating benefits, costs, or transfer
impacts of proposed regulatory changes and their alternatives.
Proposed Changes to Size Standards
Based on the results from the analyses of the latest industry and
Federal contracting data, as well as consideration of impact of size
standards changes on small businesses and significant adverse impacts
of the COVID-19 emergency on small businesses and the overall economic
activity, of the total of 432 industries and subindustries (or
``exceptions'') in Sector 31-33 and other sectors that have employee-
based size standards, SBA proposes to increase size standards for 150
industries or subindustries (``exceptions'') and maintain current size
standards for the remaining 282 industries or subindustries
(``exceptions'').
The Baseline
For purposes of this regulatory action, the baseline represents
maintaining the ``status quo,'' i.e., making no changes to the current
size standards. Using the number of small businesses and levels of
benefits (such as set-aside contracts, SBA's loans, disaster
assistance, etc.) they receive under the current size standards as a
baseline, one can examine the potential benefits, costs, and transfer
impacts of proposed changes to size standards on small businesses and
on the overall economy.
Based on the 2012 Economic Census (the latest available when this
proposed rule was prepared), of a total of about 337,524 businesses in
industries in Sectors 31-33 and other sectors with employee-based size
standards, 96.9% are considered small under the current size standards.
That percentage varies from 86.1% in NAICS Sector 22 to 99.8% in Sector
11. Based on the data from FPDS-NG for fiscal years 2018-2020, about
43,168 unique firms in those industries received at least one Federal
contract during that period, of which 83.6% were small under the
current size standards. A total of $231 billion in average annual
contract dollars were awarded to businesses in those industries during
the period of evaluation, and 18.6% of the dollars awarded went to
small businesses. For industries and subindustries (``exceptions'')
reviewed in this proposed rule, providing contract
[[Page 24817]]
dollars to small business through set-asides is quite important. From
the total small business contract dollars awarded during the period
considered, 47.1% were awarded through various small business set-aside
programs and 52.9% 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 4,997 7(a) and 504 loans in that period, totaling
about $3.1 billion, of which 75.7% was issued through the 7(a) program
and 24.3% was issued through the 504/CDC program. During fiscal years
2018-2020, small businesses in those industries also received 243 loans
through the SBA's Economic Injury Disaster Loan (EIDL) program,
totaling about $10.7 million on an annual basis.\5\ Table 14, Baseline
for All Industries, below, provides these baseline results by
Manufacturing (Sector 31-33) and all other sectors.
---------------------------------------------------------------------------
\5\ The analysis of the disaster loan data excludes physical
disaster loans that are available to anyone regardless of size,
disaster loans issued to nonprofit entities, and EIDLs issued under
the COVID-19 relief program. Effective January 1, 2022, SBA stopped
accepting applications for new COVID EIDL loans or advances. Thus,
the disaster loan analysis presented here pertains to the regular
EIDL loans only.
SBA estimates impacts of size standards changes on EIDL loans by
calculating the ratio of businesses getting EIDL loans to total
small businesses (based on the Economic Census data) and multiplying
it by the number of impacted small firms. Due to data limitations,
for FY 2019-20, some loans with both physical and EIDL loan
components could not be broken into the physical and EIDL loan
amounts. In such cases, SBA applied the ratio of EIDL amount to
total (physical loan + EIDL) amount using FY 2016-18 data to the FY
2019-20 data to obtain the amount attributable to the EIDL loans.
Table 14--Baseline for All Industries Under Current Size Standards
----------------------------------------------------------------------------------------------------------------
Sector 31-33 Other sectors Total
----------------------------------------------------------------------------------------------------------------
Number of industries or subindustries (``exceptions'') reviewed 360 72 432
in this proposed rule..........................................
Total firms in industries reviewed in this proposed rule (2012 266,774 70,750 337,524
Economic Census) \1\...........................................
Total small firms in those industries under current size 258,290 68,679 326,969
standards (2012 Economic Census) \1\...........................
Small firms as % of total firms (2012 Economic Census) \1\...... 96.8% 97.1% 96.9%
Total contract dollars ($ million) (FPDS-NG FY 2018-2020)....... $181,818 $49,198 $231,016
Total small business contract dollars under current standards ($ $28,713 $14,326 $43,039
million) (FPDS-NG FY2016-2018).................................
Small business dollars as % of total dollars (FPDS-NG FY 2018- 15.8% 29.1% 18.6%
2020)..........................................................
Total number of unique firms getting Federal contracts (FPDS-NG 34,209 8,959 43,168
FY 2018-2020)..................................................
Total number of unique small firms getting small business 29,037 7,065 36,102
contracts (FPDS-NG FY 2018-2020)...............................
Small firms getting Federal contracts as % of total firms 84.9% 78.9% 83.6%
getting Federal contracts (FPDS-NG FY 2018-2020)...............
Number of 7(a) and 504/CDC loans (FY 2018-2020)................. 4,484 513 4,997
Amount of 7(a) and 504 loans ($ million) (FY 2018-2020)......... $2,863 $235 $3,098
Number of EIDL loans (FY 2018-2020) \2\......................... 202 41 243
Amount of EIDL loans ($million) (FY 2018-2020) \2\.............. $8.3 $2.4 $10.7
----------------------------------------------------------------------------------------------------------------
\1\ These figures do not include two 6-digit NAICS industries and 5 subindustries or ``exceptions'' for which
Economic Census data is not available.
\2\ Excludes COVID-19 related EIDL loans due to their temporary nature. Effective January 1, 2022, SBA stopped
accepting applications for new COVID EIDL loans or advances.
Increases to Size Standards
As stated above, of 432 employee-based size standards in Sectors
31-33 and other sectors that are reviewed in this rule, based on the
results from analyses of latest industry and Federal market data as
well as impacts of size standards changes on small businesses and
considerations for the impacts from the COVID-19 pandemic, SBA proposes
to increase 150 size standards, including 120 in Sector 31-33 and 30 in
other sectors. Below are descriptions of the benefits, costs, and
transfer impacts of these proposed increases to size standards.
Benefits of Increases to Size Standards
The most significant benefit to businesses from proposed increases
to size standards is gaining eligibility for Federal small business
assistance programs or retaining that eligibility for a longer period.
These include SBA's business loan programs, EIDL program, and Federal
procurement programs intended for small businesses. Federal procurement
programs provide targeted, set-aside opportunities for small businesses
under SBA's various business development and contracting programs.
These include the 8(a)/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 when this
proposed rule was prepared), SBA estimates that in 150 industries or
subindustries (``exceptions'') in NAICS Sector 31-33 and other sectors
with employee-based size standards for which it has proposed to
increase size standards, 248 firms (see Table 15), not small under the
current size standards, will become small under the proposed size
standards increases and therefore become eligible for these programs.
That represents about 0.3% of all firms classified as small under the
current size standards in industries for which SBA has proposed
increasing size standards. If adopted, proposed size standards would
result in an increase to the small business share of total receipts in
those industries from 26.0% to 26.5%.
With more businesses qualifying as small under the proposed
increases to size standards, Federal agencies will have a larger pool
of small businesses from which to draw for their small business
procurement programs.
[[Page 24818]]
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 111 firms that are active in Federal contracting in those
industries would gain small business status under the proposed size
standards. Based on the same data, SBA estimates that those newly-
qualified small businesses under the proposed increases to size
standards, if adopted, could receive Federal small business contracts
totaling $253 million annually. That represents a 2.4% increase to
small business contract dollars from the baseline. Table 15, Impacts of
Proposed Increases to Size Standards, provides these results by NAICS
sector.
The added competition from more businesses qualifying as small can
result in lower prices to the Government for procurements set aside or
reserved for small businesses, but SBA cannot quantify this impact.
Costs could be higher when full and open contracts are awarded to
HUBZone businesses that receive price evaluation preferences. However,
with agencies likely setting aside more contracts for small businesses
in response to the availability of a larger pool of small businesses
under the proposed increases to size standards, HUBZone firms might
receive more set-aside contracts and fewer full and open contracts,
thereby resulting in some cost savings to agencies. SBA cannot estimate
such cost 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 15, under SBA's 7(a) and 504 loan programs, based
on the data for fiscal years 2018-2020, SBA estimates up to about 9 SBA
7(a) and 504 loans totaling about $5.6 million could be made to these
newly-qualified small businesses in those industries under the proposed
size standards. That represents a 0.7% increase to the loan amount
compared to the baseline.
Table 15--Impacts of Proposed Increases to Size Standards
----------------------------------------------------------------------------------------------------------------
Sector 31-33 Other sectors Total
----------------------------------------------------------------------------------------------------------------
Number of industries or subindustries (``exceptions'') with 120 30 150
proposed increases to size standards...........................
Total current small businesses in industries with proposed 68,925 5,914 74,839
increases to size standards (2012 Economic Census) \1\.........
Additional firms qualifying as small under proposed increases to 194 54 248
size standards (2012 Economic Census) \1\......................
% of additional firms qualifying as small relative to current 0.3% 0.9% 0.3%
small businesses in industries with proposed increases to size
standards (2012 Economic Census) \1\...........................
Number of current unique small firms getting small business 13,759 815 14,574
contracts in industries with proposed increases to size
standards (FPDS-NG FY 2018-2020) \2\...........................
Additional number of small business firms gaining small business 87 24 111
status under proposed increases to size standards (FPDS-NG FY
2018-2020).....................................................
% increase to number of small businesses relative to current 0.6% 2.9% 0.8%
unique small firms getting small business contracts in
industries with proposed increases to size standards (FPDS-NG
FY 2018-2020)..................................................
Total small business contract dollars under current size $9,465 $1,243 $10,708
standards in industries or subindustries with proposed
increases to size standards ($ million) (FPDS-NG FY 2018-2020).
Estimated small business dollars available to newly-qualified $73 $180 $253
small firms ($ million) (FPDS-NG FY 2018-2020) \3\.............
% increase to small business dollars relative to total small 0.8% 14.6% 2.4%
business contract dollars under current standards in industries
with proposed increases to size standards......................
Total number of 7(a) and 504 loans to small business in 1,144 62 1,206
industries with proposed increases to size standards (FY 2018-
2020)..........................................................
Total amount of 7(a) and 504 loans to small businesses in $741 $350 $776
industries with proposed increases to size standards ($
million) (FY 2018-2020)........................................
Estimated number of 7(a) and 504 loans to newly-qualified small 5 4 9
firms..........................................................
Estimated 7(a) and 504 loan amount to newly-qualified small $3.2 $2.4 $5.6
firms ($ million)..............................................
% increase to 7(a) and 504 loan amount relative to the total 0.4% 7.0% 0.7%
amount of 7(a) and 504 loans in industries with proposed
increases to size standards....................................
Total number of EIDL loans to small businesses in industries 67 12 79
with proposed increases to size standards (FY 2018-2020) \4\...
Total amount of EIDL loans to small businesses in industries $2.9 $0.8 $3.7
with proposed increases to size standards ($ million) (FY 2018-
2020) \4\......................................................
Estimated no. of EIDL loans to newly-qualified small firms \4\.. 3 4 7
Estimated EIDL loan amount to newly-qualified small firms ($ $0.1 $0.2 $0.3
million) \4\...................................................
% increase to EIDL loan amount relative to the total amount of 4.5% 36.3% 9.1%
disaster loans in industries with proposed increases to size
standards \4\..................................................
----------------------------------------------------------------------------------------------------------------
\1\ These figures do not include two 6-digit NAICS industries and 5 subindustries or ``exceptions'' for which
Economic Census data is not available.
\2\ Total impact represents total unique number of firms impacted to avoid double counting as some firms
participate in more than one industry.
\3\ Additional dollars are calculated multiplying average small business dollars obligated per unique firm times
change in number of firms. Numbers of firms are calculated using the SBA's current size standards, not the
contracting officer's size designation.
\4\ Excludes COVID-19 related EIDL loans due to their temporary nature. Effective January 1, 2022, SBA stopped
accepting applications for new COVID EIDL loans or advances.
[[Page 24819]]
Newly-qualified small businesses will also benefit from the SBA's
EIDL program. Since the benefit provided through this program is
contingent on the occurrence and severity of a disaster in the future,
SBA cannot make a precise estimate of this impact. However, based on
the disaster loan program data for fiscal years 2018-2020, SBA
estimates that, on an annual basis, the newly-defined small businesses
under the proposed increases to size standards, if adopted, could
receive seven 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.
Costs of Increases to Size Standards
Besides having to register in the System of 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 proposed 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
impacted businesses that are willing to participate in Federal
contracting are already registe
[…truncated; see source link]Indexed from Federal Register on April 26, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.