Rule2023-15078
Small Business Size Standards: Adjustment of Monetary-Based Size Standards, Disadvantage Thresholds, and 8(a) Eligibility Thresholds for Inflation
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
July 19, 2023
Effective
July 19, 2023
Issuing agencies
Small Business Administration
Abstract
This rule finalizes, without change, the U.S. Small Business Administration's (SBA or Agency) November 17, 2022, interim provisions that adjusted monetary-based industry size standards (i.e., receipts- and assets-based) for inflation. Specifically, this rule finalizes three interim final actions adopted in the November 17, 2022 rule. First, this rule finalizes an additional 13.65 percent inflation increase to the industry-based monetary small business size standards to account for the inflation that occurred since the last adjustment to size standards for inflation in 2019. Second, this rule finalizes inflation adjustments to three program-specific monetary size standards: the size standards for sales or leases of government property, the size standards for stockpile purchases, and the alternative size standard based on tangible net worth and net income for the Small Business Investment Company (SBIC) program. Third, this rule finalizes inflation adjustments to the economic disadvantage thresholds applicable to the 8(a) Business Development and Economically Disadvantaged Women-Owned Small Business programs, and the dollar limit for combined total 8(a) contracts.
Full Text
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[Federal Register Volume 88, Number 137 (Wednesday, July 19, 2023)]
[Rules and Regulations]
[Pages 46048-46055]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-15078]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 124, and 127
RIN 3245-AH93
Small Business Size Standards: Adjustment of Monetary-Based Size
Standards, Disadvantage Thresholds, and 8(a) Eligibility Thresholds for
Inflation
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
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SUMMARY: This rule finalizes, without change, the U.S. Small Business
Administration's (SBA or Agency) November 17, 2022, interim provisions
that adjusted monetary-based industry size standards (i.e., receipts-
and assets-based) for inflation. Specifically, this rule finalizes
three interim final actions adopted in the November 17, 2022 rule.
First, this rule finalizes an additional 13.65 percent inflation
increase to the industry-based monetary small business size standards
to account for the inflation that occurred since the last adjustment to
size standards for inflation in 2019. Second, this rule finalizes
inflation adjustments to three program-specific monetary size
standards: the size standards for sales or leases of government
property, the size standards for stockpile purchases, and the
alternative size standard based on tangible net worth and net income
for the Small Business Investment Company (SBIC) program. Third, this
rule finalizes inflation adjustments to the economic disadvantage
thresholds applicable to the 8(a) Business Development and Economically
Disadvantaged Women-Owned Small Business programs, and the dollar limit
for combined total 8(a) contracts.
DATES: This rule is effective July 19, 2023.
FOR FURTHER INFORMATION CONTACT: Samuel Castilla, Office of Size
Standards, (202) 205-6618 or <a href="/cdn-cgi/l/email-protection#56253f2c332522373832372432251625343778313920"><span class="__cf_email__" data-cfemail="54273d2e312720353a3035263027142736357a333b22">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION: As explained in the SBA's ``Size Standards
Methodology'' white paper available at <a href="http://www.sba.gov/size">www.sba.gov/size</a> and at
<a href="http://www.regulations.gov">www.regulations.gov</a> (Docket ID: SBA-2018-0004), SBA reviews small
business size standards and makes necessary adjustments to them for
three reasons: (i) changes in industry structure and Federal market
conditions under the Small Business Jobs Act of 2010 (Jobs Act), Public
Law 111-240, section 1344, Sep. 27, 2010; (ii) inflation in accordance
with 13 CFR 121.102(c); and (iii) adoption of the latest North American
Industry Classification System (NAICS) revision by the Office of
Management and Budget. Updating size standards based on inflation--in
addition to updating size standards based on the latest industry and
Federal contracting data under the five-year rolling review--not only
satisfies the Jobs Act's mandate that SBA review all size standards
every five years, but also is consistent with Executive Order 13563 on
improving regulation and regulatory review.
Although SBA is required to assess the impact of inflation on its
monetary-based size standards at least once every five years (67 FR
3041; January 23, 2002) (13 CFR 121.102(c)), SBA may modify the timing
of its adjustments to size standards and consider adjustments even more
frequently than five-year intervals based on the prevailing economic
conditions and the important policy objective of maintaining the value
of size standards in inflation-adjusted terms.
Accordingly, on November 17, 2022 (87 FR 69118), SBA published a
joint final rule and interim final rule (IFR) that finalized, without
change, SBA's July 2019 IFR (84 FR 34261; July 18, 2019) that adjusted
industry-based (i.e., receipts- and assets-based) and certain program-
specific monetary size standards for inflation that occurred since the
previous inflation adjustment in 2014 (79 FR 33647; June 12, 2014).
SBA's November 2022 rule also contained interim final provisions to
increase by 13.65 percent all industry-specific monetary small business
size standards, including receipts-based size standards for 496
industries and nine subindustries (i.e., ``exceptions'' in the SBA
Table of Size Standards), as well as assets-based size standards for
four industries.
SBA assessed the impact of the general price increases on size
standards before the normal five-year review for inflation was due,
which would have been in 2024, due to the prevailing economic
conditions and the rise in the general level of prices since the last
adjustment in 2019. SBA's adjustments to industry-based monetary size
standards for inflation were in addition to the changes to monetary-
based size standards adopted in March and June of 2022 as part of SBA's
second five-year rolling review of size standards,\1\ as required by
section 1344 of the Jobs Act.
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\1\ See Small Business Size Standards: Agriculture, Forestry,
Fishing and Hunting; Mining, Quarrying, and Oil and Gas Extraction;
Utilities; Construction (87 FR 18607; March 31, 2022), Small
Business Size Standards: Transportation and Warehousing;
Information; Finance and Insurance; Real Estate and Rental and
Leasing (87 FR 18627; March 31, 2022), Small Business Size
Standards: Professional, Scientific and Technical Services;
Management of Companies and Enterprises; Administrative and Support
and Waste Management and Remediation Services (87 FR 18665; March
31, 2022), Small Business Size Standards: Education Services; Health
Care and Social Assistance; Arts, Entertainment and Recreation;
Accommodation and Food Services; Other Services (87 FR 18646; March
31, 2022), and Small Business Size Standards: Wholesale Trade and
Retail Trade (87FR 35869; June 14, 2022).
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SBA's November 2022 rule also contained interim final provisions to
adjust for inflation three program-specific receipts-based size
standards. These include the size standards for sales or leases of
government property which was increased from $8 million to $9 million
in average annual receipts, the size standards for stockpile purchases
which was increased from $67.5 million to $76.5 million in average
annual receipts, and the alternative size standard based on tangible
net worth and net income for the Small Business Investment Company
(SBIC) program. Inflation adjustment increased tangible net worth from
$19.5 million to $24 million and net income from $6.5 million to $8
million.
Besides adjustment of industry and program-based monetary size
standards described above, the interim final provisions of the November
2022 rule also adjusted other monetary thresholds primarily used in the
8(a) Business Development (8(a) BD) program and the Economically
Disadvantaged Women-Owned Small Business (EDWOSB) program to determine
eligibility of applicants and current participants as economically
disadvantaged business concerns. Specifically, SBA adjusted for
inflation the following Economic disadvantage thresholds for the 8(a)
BD and EDWOSB programs: Net worth from $750,000 to $850,000 (13 CFR
124.104(c)(2)), Income (adjusted gross income or AGI) from $350,000 to
[[Page 46049]]
$400,000 (13 CFR 124.104(c)(3)), and total assets from $6 million to
$6.5 million (13 CFR 124.104(c)(4)). SBA also adjusted the dollar limit
for combined total 8(a) contracts from $100 million to $168.5 million
(13 CFR 124.519(a)).
In this final rule, SBA is adopting, without change, the interim
final provisions contained in the November 2022 rule as described
above. SBA's adoption of the interim final provisions provides
assurances to the public that the Agency is monitoring inflation to
determine whether to adjust size standards within a reasonable period
since its last inflation adjustment. SBA's adoption of the interim
final provisions also ensures that the recently reviewed industry-based
monetary size standards under the Jobs Act are up-to-date for
accurately determining small business status, and restores the
eligibility of businesses that may have lost their small business
status due solely to price level increases rather than from increases
in business activity. Given the current developments in the U.S.
economy, SBA will continue to monitor the inflation and other economic
indicators and their impacts on size standards and adjust size
standards, as needed.
The November 2022 rule requested comments from the public on SBA's
methodology of using the gross domestic product (GDP) price index for
adjusting size standards for inflation and suggestions for alternative
measures of inflation, on whether SBA should adjust employee-based size
standards for labor productivity growth and technical changes similar
to adjusting monetary-based size standards for inflation, and on
changes to program-specific size standards. Below is a discussion of
those comments and SBA's responses.
As required under 13 CFR 121.102(e), SBA advises readers that
interested eligible parties may file a petition for reconsideration of
a revised, modified, or established size standard at SBA's Office of
Hearings and Appeals (OHA) within 30 calendar days after publication of
this final rule in accordance with 15 U.S.C. 632(a)(9) and 13 CFR part
134, subpart I. You may reach OHA using the following contact
information: by mail at U.S. Small Business Administration, Office of
Hearings and Appeals, 409 Third St. SW, Eighth Floor, Washington, DC
20416, by email at <a href="/cdn-cgi/l/email-protection#680700090e010401060f1b281b0a09460f071e"><span class="__cf_email__" data-cfemail="701f181116191c191e1703300312115e171f06">[email protected]</span></a>, by phone: 202-401-8200 TTY/TRS:
711, or by fax at (202) 205-7059.
Summary and Discussion of Public Comments on the November 17, 2022 Rule
SBA received nine comments on the November 2022 rule, of which
eight comments were relevant. Each of the eight relevant comments
expressed general support for SBA's interim changes to NAICS-based
industry size standards. Four commenters petitioned SBA to make
adjustments to certain monetary thresholds other than monetary-based
size standards that the Agency adjusted for inflation in the November
2022 rule, of which one commenter also petitioned SBA to consider
changing its methodology for adjusting size standards for inflation
generally. All comments are available at the Federal rulemaking portal,
<a href="http://www.regulations.gov">www.regulations.gov</a>, and are summarized and discussed below.
Comments Supporting SBA's Changes
SBA received eight pertinent comments to the November 2022 rule
that expressed general support for SBA's interim changes to industry-
based monetary size standards. Commenters supported SBA's changes for
several reasons, including the timeliness of SBA's adjustments given
the recent increases in inflation and SBA's decision to issue the
changes through an interim final rulemaking with requests for comments
instead of a proposed rule. Commenters also expressed support for SBA's
changes due to the expanded runway that it provides to small business
in accessing SBA's financial assistance and contracting programs. One
commenter explained that SBA's support of small business and timely
recognition of the impacts of inflation on the size standards and
ability of small business to compete is laudatory. The commenter
expressed that issuance of the inflation adjustments as an interim
final rule while still soliciting public comment correctly balances the
need for urgency and public interest. Another comment from a national
organization representing over 15,000 minority-owned businesses
expressed that minority-owned business enterprises (MBEs) will benefit
greatly from this new rule change as it will help bring economic equity
in the Federal contracting process. Another comment from a national
trade association supported SBA's changes on the grounds that the
changes will allow more small businesses to be eligible or remain
eligible for SBA assistance.
SBA Response
SBA agrees with commenters supporting the rule that there are
various benefits from adopting the interim final changes to size
standards contained in the November 2022 rule. The most significant
benefits were described in the Regulatory Impact Analysis section of
the November 2022 rule. The primary benefits include: (1) Some
businesses that are above the current size standards may gain small
business status under the higher, inflation-adjusted size standards,
thereby enabling them to participate in Federal small business
assistance programs; (2) Growing small businesses that are close to
exceeding the current size standards will be able to retain their small
business status under the higher size standards, thereby enabling them
to continue their participation in the programs; and (3) Federal
agencies will have a larger pool of small businesses from which to draw
for their small business procurement programs.
SBA estimated that the changes adopted in the November 2022 rule
enabled approximately 17,700 firms in industries and subindustries with
receipts-based size standards and about 170 firms in industries with
assets-based size standards, above SBA's size standards at the time, to
gain small business status and become eligible for SBA programs,
resulting in about $1.3 billion in additional small business Federal
contract dollars to the newly-qualified businesses.
Moreover, SBA agrees with commenters regarding the importance of
SBA's timely adjustments to size standards, including adjustments even
more frequently than regular five year intervals, as required by 13 CFR
121.102(c)), based on the prevailing economic conditions. Accordingly,
in response to the recent sustained increases in the general level of
prices in the economy, SBA issued the November 2022 rule which
contained interim final changes to adjust monetary size standards for
inflation that has occurred since the last adjustment in July 2019 (84
FR 34261; July 18, 2019). In this final rule, SBA is adopting, without
change, the interim final provisions contained in the November 2022
rule to ensure that small businesses can successfully compete for
Federal contracting opportunities and access SBA's financial assistance
programs.
Comments Recommending Changes to the November 2022 Rule
While eight commenters to SBA's November 2022 rule expressed
general
[[Page 46050]]
support for SBA's changes to NAICS-based industry size standards, three
commenters petitioned SBA to adjust other monetary thresholds not
included in the rule, namely, the alternative size standard applicable
to SBA's 7(a) and Certified Development Company (CDC)/504 loan programs
(collectively ``Business Loan programs''), and the sole source/direct
awards thresholds applicable to SBA's 8(a) and other SBA programs. Of
these three commenters, one commenter also petitioned SBA to adjust
size standards for inflation on an industry-by-industry basis. SBA
received one comment urging SBA to revise its calculation of net worth.
Regarding SBA's alternative size standard, a national trade
association for Certified Development Companies (CDCs) recommended that
SBA immediately adjust for inflation the statutory alternative size
standard applicable to SBA's 7(a) and 504 loan programs, and include it
in future inflation adjustments on a five-year schedule, but did not
recommend specific thresholds for the alternative size standard.
Regarding the sole source thresholds applicable to SBA's 8(a) and
other SBA programs, SBA received one comment from a business
recommending that SBA increase the current $4.5 million threshold for
sole source awards applicable to 8(a) contracts for services by a
significant amount; however, the commenter did not specify what size
level would constitute a ``significant'' increase, nor provided any
data to support their position.
Another commenter urged SBA to adjust the sole source thresholds in
line with the House-passed National Defense Authorization Act (NDAA)
2023 \2\ and proposed amendments to the Federal Contracting Fairness
Act of 2022.\3\ The commenter recommended that SBA increase the sole
source thresholds as follows: $12,000,000 in the case of a contract
opportunity assigned a NAICS code for research and development or
related Product Services Codes (PSCs); $14,000,000 in the case of a
contract opportunity assigned a NAICS code for manufacturing or if the
small business concern partners with an institution of higher education
described in section 371(a) of the Higher Education Act of 1965 (20
U.S.C. 1067q(a)); or $10,000,000 in the case of any other contract
opportunity.
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\2\ Text--H.R. 7900--117th Congress (2021-2022): National
Defense Authorization Act for Fiscal Year 2023 [verbar] <a href="http://Congress.gov">Congress.gov</a>
[verbar] Library of Congress.
\3\ Text--S. 5044--117th Congress (2021-2022): Federal
Contracting Fairness Act of 2022 [verbar] <a href="http://Congress.gov">Congress.gov</a> [verbar]
Library of Congress.
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One commenter in this group also petitioned SBA to consider
adjusting size standards for inflation on an industry-by-industry basis
instead of applying a general price increase to all industries. The
commenter argued that the general value applied to all industries
doesn't account for market trends and the rising costs of technology
tools, software, and program implementation in certain industries.
Another commenter urged SBA to revise its calculation of net worth
by allowing applicants to subtract real estate debt from the value of
their real estate assets in order to counter housing price inflation.
The commenter expressed concern that housing price inflation may create
paper gains for real estate assets that have significant debt
liabilities that may force a firm to leave an SBA program.
SBA Response
Regarding the comment that SBA should evaluate and immediately
adjust for inflation the alternative size standard applicable to SBA's
7(a) and 504 loan programs, SBA affirms its commitment to meet its
statutory obligation under section 3(a)(5) of the Small Business Act to
establish an appropriate alternative size standard using maximum
tangible net worth and average net income for its Business Loan
Programs. The Jobs Act established for applicants for the SBA's
Business Loan Programs an interim alternative size standard of not more
than $15 million in tangible net worth and not more than $5 million in
the average net income after Federal income taxes (excluding any carry-
over losses) of the applicant for the two full fiscal years before the
date of the application and it provided that this interim statutory
alternative size standard would remain in effect until such time as SBA
has established a new permanent alternative size standard for the
Business Loan Programs through rulemaking. 15 U.S.C. 632(a)(5). Prior
to that, SBA had a lower permanent regulatory alternative size standard
that applied to the 504 Loan Program, and temporarily applied to the
7(a) Loan Program for the period beginning on May 5, 2009, and ending
on September 30, 2010, 13 CFR 120.301(b)(2). SBA is not reviewing the
alternative size standard applicable to its Business Loan Programs
under this final rule. However, SBA intends to issue in the near future
a separate proposed rule to adjust for inflation the interim
alternative size standards for 7(a) and CDC/504 programs and solicit
feedback and public comments on a permanent alternative size standard
for SBA's Business Loan Programs.
As part of this effort, on March 22, 2018, SBA issued an advanced
notice of proposed rulemaking (ANPRM) to solicit comments and data for
use in its forthcoming proposed rule (83 FR 12506). SBA looks forward
to receiving public comments on its proposed revisions to the
alternative size standard under the future proposed rule for the
alternative size standard for SBA's Business Loan Programs.
Regarding the comments that SBA should adjust for inflation the
sole source thresholds applicable to SBA's 8(a) and other SBA programs,
SBA notes that 13 CFR 124.506(a)(1) establishes that the Federal
Acquisition Regulatory Council (FAR Council) has the responsibility of
adjusting each acquisition-related dollar threshold on October 1, of
each year that is evenly divisible by five. Accordingly, on October 2,
2020, the Department of Defense (DoD), the General Services
Administration (GSA), and the National Aeronautics and Space
Administration (NASA), which constitute the FAR Council, issued a final
rule adjusting for inflation the sole source thresholds for the 8(a),
HUBZone, and Women Owned Small Business programs (85 FR 62485).
Specifically, the FAR Council raised the following small business
thresholds in 48 CFR part 19: the sole-source thresholds in the 8(a)
program to $7.5 million for manufacturing contracts and $4.5 million
for all other contracts (previously $7 million and $4 million,
respectively) (19.805-1); the threshold to require a justification for
a sole-source 8(a) award to $25 million (previously $22 million)
(19.808-1), of which DoD applies a $100 million threshold for these
justifications (219.808-1); the sole-source thresholds in the HUBZone
program to $7.5 million for manufacturing contracts and $4.5 million
for all other contracts (previously $7 million and $4 million,
respectively) (19.1306); the sole-source threshold in the Small
Disadvantaged Veteran Owned Small Business (SDVOSB) program to $7
million for manufacturing contracts (previously $6.5 million)
(19.1406); and the sole-source thresholds in the Woman Owned Small
Business (WOSB) program to $7 million for manufacturing contracts and
$4.5 million for all other contracts (previously $6.5 million and $4
million, respectively) (19.1506). Thus, given the recent adjustments to
these size standards for inflation and SBA's regulations at 13 CFR
124.506(a)(1) establishing that the FAR Council has the responsibility
of adjusting acquisition-related dollar thresholds, in this final rule,
SBA is not further
[[Page 46051]]
adjusting the above sole source thresholds applicable to SBA programs.
However, such adjustments may be made through a future proposed
rulemaking.
Regarding the comment petitioning SBA to consider adjusting
monetary-based size standards for inflation on an industry-by-industry
basis instead of applying a general price increase to all industries,
SBA notes that small business size standards are used to determine
eligibility of businesses for a wide variety of SBA's and other Federal
programs. The majority of businesses participating in those programs
are engaged in multiple industries producing a wide range of goods and
services. Therefore, it is important that SBA use a broad measure of
inflation to adjust its size standards. SBA's preferred measure of
inflation has consistently been the chain-type price index for the U.S.
Gross Domestic Product (GDP price index), published by the Bureau of
Economic Analysis (BEA) within the U.S. Department of Commerce on a
quarterly basis as part of its National Income and Product Accounts
(NIPA). In the SBA's 2014 IFR adjusting size standards for inflation
(79 FR 33647; June 12, 2014), besides the GDP price index, SBA reviewed
several alternative inflation measures published by the Federal
Government (including the consumer price index, the personal
consumption expenditures price index, the producer price index, and the
employment cost index) for their appropriateness to use for adjusting
SBA's size standards. Among all these indexes, SBA determined that the
GDP price index is the most comprehensive measure to capture movements
in the general price level in the economy and consequently the most
appropriate measure of inflation for adjusting SBA's size standards.
Thus, as in the previous inflation adjustments in 2014 and 2019, SBA
decided to use the GDP price index to adjust industry-based monetary
size standards for the November 2022 inflation adjustment.
Moreover, as discussed earlier in this rule, SBA recently concluded
the second five-year review of size standards under the Jobs Act. Under
the second five-year review, SBA evaluated all industry-based monetary
size standards and adopted revisions to size standards where
appropriate based on SBA's evaluation of industry and Federal
contracting factors. The inflation adjustments to size standards
adopted in this final rule are in addition to SBA's changes to size
standards under the second five-year review of size standards.
SBA believes that its five-year comprehensive review of size
standards under the Jobs Act is the most appropriate regulatory venue
to evaluate and address industry-specific economic characteristics and
recent Federal contracting trends that may support a size standard
different from SBA's current size standard. As part of its review of
size standards, SBA must ensure that small business definitions vary
from industry to industry to reflect industry differences as required
by the Small Business Act (15 U.S.C. 632(a)) (Act). To that end, as
part of the comprehensive review of size standards, SBA evaluates
industry structure at the 6-digit NAICS level, such as average firm
size, startup costs and entry barriers, industry concentration, and
distribution of firms by business size. SBA also evaluates Federal
contracting trends (i.e., small business share of Federal contract
dollars relative to small business share of total industry's receipts)
for industries with significant contracting activities (i.e.,
industries averaging $20 million or more in Federal contracts
annually). Based on its analysis of the above industry and Federal
contracting factors, and after considering all comments submitted to
SBA during the proposed rule stage, in March and June of 2022, as part
of SBA's second five-year review of size standards, SBA issued a series
of five final rules reviewing all industry-based monetary size
standards as required under the Jobs Act.\4\ Thus, while SBA is not
including a comprehensive review of industry factors in this final
rule, SBA believes that it has satisfied the commenter's petition to
consider industry-specific factors in the evaluation of size standards
under the recently completed, second five-year review of size
standards.
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\4\ See Footnote 1, above.
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Regarding the comment urging SBA to revise its calculation of net
worth by excluding real estate debt from the calculation of net worth,
SBA assumes that the commenter is referring to SBA's net worth
calculation for determining economic disadvantage for purposes of
assessing eligibility for participation in the 8(a) BD program. SBA
notes that under the current regulations at 13 CFR 124.104(a),
economically disadvantaged individuals are defined as those whose
ability to compete in the free enterprise system has been impaired due
to diminished capital and credit opportunities as compared to others in
the same or similar line of business who are not socially
disadvantaged. SBA disagrees that real estate debt should be excluded
from the calculation of net worth because such exclusions may allow
individuals with access to substantial capital and credit
opportunities, as demonstrated by their significant real estate debts,
to qualify as economically disadvantaged. This would be counter to
SBA's definition of an economically disadvantaged individual, which
requires that individuals demonstrate diminished capital and credit
opportunities.
Prior to the SBA's November 2022 rule, the net worth of an
economically disadvantaged individual had to be less than $750,000. In
addition, their Income (AGI) (13 CFR 124.104(c)(3)) had to be less than
$350,000, and their Total Assets (13 CFR 124.104(c)(4)) less than $6
million. In the November 2022 rule, SBA increased these thresholds for
inflation. Currently, the net worth of an economically disadvantaged
individual must be less than $850,000 (13 CFR 124.104(c)(2)), Income
(AGI) (13 CFR 124.104(c)(3)) must be less than $400,000, and Total
Assets (13 CFR 124.104(c)(4)) less than $6.5 million. In determining
net worth, SBA excludes the individual's equity in their primary
personal residence. However, exclusions for net worth purposes are not
exclusions for asset valuation or access to capital and credit
purposes. SBA continues to believe that it is appropriate to determine
economic disadvantage for purposes of the 8(a) BD program based on
these factors, and thus, is not adjusting the methodology for
calculating net worth in this final rule.
Conclusion
With due consideration of all public comments as discussed above,
in this final rule, SBA is adopting the increases in all industry-
specific monetary size standards for inflation, as published in the
November 2022 rule. SBA is also adopting the adjustments for inflation
to three program-specific receipts-based size standards contained in
the November 2022 rule. These include sales or leases of Government
property for which SBA is adopting $9 million in average annual
receipts, stockpile purchases for which SBA is adopting $76.5 million
in average annual receipts, and the alternative size standard based on
tangible net worth and net income for the Small Business Investment
Company (SBIC) program for which SBA is adopting $24 million of
tangible net worth and $8 million of net income.
SBA also adopts the adjustments to monetary thresholds used in the
8(a) BD and the EDWOSB programs to determine eligibility of applicants
and current participants as economically
[[Page 46052]]
disadvantaged business concerns, as contained in the November 2022
rule. Specifically, SBA is adopting the following economic disadvantage
thresholds for the 8(a) BD and EDWOSB programs: $850,000 as the
threshold for Net worth (13 CFR 124.104(c)(2)), $400,000 as the
threshold for Income (AGI) (13 CFR 124.104(c)(3)), and $6.5 million as
the threshold for Total Assets (13 CFR 124.104(c)(4)). SBA is also
adopting $168.5 million as the dollar limit for combined total 8(a)
contracts (13 CFR 124.519).
Accordingly, SBA is issuing this final rule to adopt and finalize,
without change, the interim final changes contained in the rule
published on November 17, 2022 (87 FR 69118).
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
final rule is not a ``significant regulatory action'' for purposes of
Executive Order 12866. OMB also determined that the November 2022 rule
was not a ``significant regulatory action'' for purposes of Executive
Order 12866. However, in order to help explain the need for this rule
and its potential benefits and costs, SBA provided a Cost Benefit
Analysis of the rule in the November 2022 rule, which is summarized
below.
Cost Benefit Analysis
SBA's statutory mission is to aid and assist small businesses
through a variety of financial, procurement, business development, and
advocacy programs. To assist the intended beneficiaries of these
programs effectively, SBA must establish distinct definitions of which
businesses are deemed small businesses. The Small Business Act (15
U.S.C. 632(a)) (Act) delegates to the SBA Administrator the
responsibility for establishing small business definitions. The Act
also requires that small business definitions vary from industry to
industry to reflect industry differences. SBA is required to assess the
impact of inflation on its monetary-based size standards at least once
every five years (67 FR 3041; January 23, 2002) (13 CFR 121.102(c)).
This final rule adopts, without change, the interim final changes
contained in the November 2022 rule.
The most significant benefit to businesses of SBA's adjustments to
size standards for inflation finalized in this final rule were
described in detail in the November 2022 rule. The size standards
adopted by SBA at that time enabled businesses that exceeded size
standards simply due to inflation-driven revenue growth to regain or
maintain eligibility for Federal small business assistance programs.
The changes also helped businesses about to exceed their size standards
to retain small business eligibility for Federal programs for a longer
period. These programs included SBA's financial assistance programs,
economic injury disaster loans (EIDL), and Federal procurement programs
intended for small businesses. Federal procurement programs provide
targeted opportunities for small businesses under SBA's business
development programs, such as 8(a) BD, Small Disadvantaged Businesses
(SDB), small businesses located in Historically Underutilized Business
Zones (HUBZone), WOSB, EDWOSB, and SDVOSB. Federal agencies may also
use SBA's size standards for a variety of other regulatory and program
purposes. These programs assist small businesses to become more
knowledgeable, stable, and competitive.
Besides small business contracting opportunities and financial
assistance, small businesses also benefited through reduced fees, less
paperwork, and fewer compliance requirements that are available to
small businesses through Federal agencies that use SBA's monetary-based
size standards.
In the November 2022 rule, SBA estimated that the changes would
enable approximately 17,713 firms in industries and subindustries with
receipts-based size standards and about 170 firms in industries with
assets-based size standards, above SBA's size standards, to gain small
business status and become eligible for these programs. SBA estimated
that this change would increase the small business share of total
receipts in industries and subindustries with receipts-based size
standards from 29 percent to 30 percent and the small business share of
total assets in industries with assets-based size standards from 5.4
percent to 5.9 percent.
SBA also estimated that firms gaining small business status under
the inflation adjusted size standards could receive $1.3 billion in
additional small business Federal contract dollars. This represented an
increase of about 1.7 percent over the baseline. Additionally, by
allowing businesses above the size threshold to regain small business
status and advanced small businesses close to size standards to prolong
their small status for a longer period, the November 2022 rule expanded
the pool of qualified small firms for Federal agencies to draw upon to
meet their small business requirements.
Moreover, SBA estimated that about seven additional loans totaling
about $4.1 million could be made to the newly defined small businesses
under SBA's 7(a) and 504 Loan Programs under the adjusted industry-
based size standards.
To the extent that those 17,883 additional small firms under
receipts-based and assets-based size standards could become active in
Federal procurement programs, SBA estimated in the November 2022 rule
that the adjusted size standards may entail some additional
administrative costs to the government as a result of more businesses
being eligible for Federal small business programs. For example, there
could be more firms seeking SBA's guaranteed loans, more firms eligible
for enrollment in the Dynamic Small Business Search (DSBS) database or
in <a href="http://certify.sba.gov">certify.sba.gov</a>, more firms seeking certification as 8(a) or HUBZone
firms or qualifying for small business, WOSB, EDWOSB, SDVOSB, and SDB
status, and more firms applying for SBA's 8(a) BD and all small
business mentor-prot[eacute]g[eacute] programs.
One may surmise that an expanded pool of small businesses under
higher size standards due to inflation adjustment might result in a
higher number of small business size protests and additional processing
costs to agencies. However, SBA's historical data on size protests
shows that the number of size protests actually decreased after an
increase in the number of businesses qualifying as small as a result of
size standards revisions as part of the first five-year review of size
standards. Specifically, on an annual basis, the number of size
protests dropped from about 600 during fiscal years 2011-2013 (review
of most receipts-based size standards was completed by the end of FY
2013) to about 500 during fiscal years 2018-2020. That represents a 17
percent decline.
Aside from taking time to register in the System for Award
Management (SAM) to be eligible to participate in Federal contracting
and update the SAM profile annually, SBA estimated that small
businesses incur no direct costs to gain or retain their small business
status under the inflation adjusted 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
[[Page 46053]]
vast majority of businesses that are willing to participate in Federal
contracting are already registered in SAM and update their SAM profiles
annually. It is important to point out that most business entities that
are already registered in SAM will not be required to update their SAM
profiles. However, it will be incumbent on registrants to review, and
update as necessary, their profiles to ensure that they have the
correct NAICS codes. SAM requires that registered companies review and
update their profiles annually, and therefore, businesses will need to
pay particular attention to the changes to determine if they might
affect them. They will also have to verify, and update, if necessary,
their Representations and Certifications in SAM. More importantly, this
rule does not establish the new size standards for the very first time;
rather it intends to modify the existing size standards by adjusting
them for the inflation that has occurred since the last inflation
adjustment in 2019.
In the November 2022 rule, SBA also described how, due to the
expanded pool of small businesses, contracts may move from unrestricted
competition to small business set-aside contracts, resulting in
competition among fewer total bidders. However, any additional costs
associated with fewer bidders are expected to be minor since, by law,
procurements may be set aside for small businesses under the 8(a)/BD,
HUBZone, WOSB, EDWOSB, or SDVOSB programs only if awards are expected
to be made at fair and reasonable prices.
Costs may also be higher when full and open contracts are awarded
to HUBZone businesses that receive price evaluation preferences.
However, with agencies likely setting aside more contracts for small
businesses in response to the availability of a larger pool of small
businesses under the higher inflation-adjusted size standards, HUBZone
firms might receive fewer full and open contracts, thereby resulting in
some cost savings to agencies. However, such cost savings are likely to
be minimal as only a small fraction of unrestricted contracts are
awarded to HUBZone businesses.
An increase in the number of new applicants to SBA's economic
disadvantage programs and an increase in the number of participants
eligible for 8(a) sole source awards has similar costs for the programs
and for the new applicants and current participants, as discussed in
the previous paragraphs. The increase in the number of participants in
the programs will not affect the SBA costs of providing services to
these business concerns, because the administrative structure is
already in place.
SBA's adoption of increases in the economic disadvantage (ED)
eligibility thresholds through inflation adjustment support gaining
eligibility of the new applicants which would otherwise be not approved
and maintaining eligibility of the existing participants in the 8(a) BD
and EDWOSB programs. The new applicants affected by inflation impacting
the value of their net worth (NW), adjusted gross income (AGI), and
total assets (TA) will be approved into these programs. The inflation
adjusted thresholds would also help current SBA ED participants who are
about to exceed their NW, AGI, or TA thresholds to retain ED
eligibility for Federal programs for a longer period.
Internal data on applicants to the 8(a) BD program from fiscal
years 2019-2021 showed that since the ED thresholds were increased for
new applicants in mid-2020 (see Table 7, Increases in ED Thresholds
Adopted on July 15, 2020, in the November 2022 rule), the number of
approvals increased by 3.2 percent, and the number of denials for
economic-disadvantage reasons decreased by 36.8 percent. The same data
also showed that since 2019, the applicants' average net worth
increased by 50 percent, the average AGI by about 20 percent, and the
average total assets by 40 percent.
SBA's inflation adjustment to the ED thresholds provides current
program participants with a longer runway to maintain eligibility and
allows SBA to approve new applicants to the ED programs who may have
been ineligible due to the impacts of the current inflation rate. SBA
believes that finalizing the inflation adjustment of the ED thresholds
helps to preserve the real value of the current thresholds.
For the above reasons, SBA estimates that the added administrative
costs associated with SBA's adopted changes will be de minimis because
necessary mechanisms are already in place to handle these added
requirements.
Congressional Review Act
Subtitle E of the Small Business Regulatory Enforcement Fairness
Act of 1996 (codified at 5 U.S.C. 801-808), also known as the
Congressional Review Act or CRA, generally provides that before a rule
may take effect, the agency promulgating the rule must submit a rule
report, which includes a copy of the rule, to each House of the
Congress and to the Comptroller General of the United States. SBA will
submit a report containing this rule and other required information to
the U.S. Senate, the U.S. House of Representatives, and the Comptroller
General of the United States. A major rule under the CRA cannot take
effect until 60 days after it is published in the Federal Register.
OMB's Office of Information and Regulatory Affairs has determined that
this rule is not a ``major rule'' as defined by 5 U.S.C. 804(2).
Final Regulatory Flexibility Analysis
Under the Regulatory Flexibility Act (RFA), this final rule may
have a significant impact on a substantial number of small businesses
in the industries and subindustries with monetary size standards. As
described above, this rule may affect small businesses in those
industries seeking Federal contracts, loans under SBA's 7(a), 504 and
EIDL Programs, and assistance under other Federal small business
programs.
Immediately below, SBA sets forth a final regulatory flexibility
analysis (FRFA) of this final rule addressing the following questions:
(1) What are the need for and objective of the rule?; (2) What are
SBA's description and estimate of the number of small businesses to
which the rule will apply?; (3) What are the projected reporting,
record keeping, and other compliance requirements of the rule?; (4)
What are the relevant Federal rules that may duplicate, overlap, or
conflict with the rule?; and (5) What alternatives will allow the
Agency to accomplish its regulatory objectives while minimizing the
impact on small businesses?
1. What are the need for and objective of the rule?
As discussed in the supplemental information, the revision to the
monetary-based size standards for inflation more appropriately defines
small businesses. This final rule is a procedural step that merely
finalizes the changes already in place since December 19, 2022 (the
effective date of SBA's November 2022 rule), that restored small
business eligibility in real terms to businesses that exceeded the size
standard due to inflation-led revenue growth rather than due to
increased business activity.
Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) gives SBA
the authority to establish and change size standards. Within its
administrative discretion, SBA implemented a policy in its regulations
to review the effect of inflation on size standards at least once every
five years (13 CFR 121.102(c)) and make any changes as appropriate. A
review of the latest data indicated that inflation had increased a
sufficient amount since the 2019 adjustment to warrant another
inflation adjustment to
[[Page 46054]]
the monetary-based size standards. Adjusting size standards for
inflation is also consistent with a statutory requirement to review all
size standards and make adjustments to reflect current market
conditions every five years under the Jobs Act.
2. What are SBA's description and estimate of the number of small
businesses to which the rule will apply?
Based on the 2017 Economic Census tabulations, in the November 2022
rule, SBA estimated that the changes would enable approximately 17,713
firms in industries and subindustries with receipts-based size
standards and about 170 firms in industries with assets-based size
standards, above SBA's size standards, to gain small business status
and become eligible for these programs. SBA estimated that this change
would increase the small business share of total receipts in industries
and subindustries with receipts-based size standards from 29 percent to
30 percent and the small business share of total assets in industries
with assets-based size standards from 5.4 percent to 5.9 percent. The
size standards adopted in the November 2022 rule enabled businesses
that have exceeded the size standards for their industries to regain
small business status. It also helped advanced small businesses to
retain their small business status, and associated benefits, for a
longer period.
3. What are the projected reporting, record keeping and other
compliance requirements of the rule?
The inflation adjustment to size standards imposes no additional
reporting or record keeping requirements on small businesses. However,
qualifying for Federal procurement and a number of other programs
requires that businesses register in the SAM database and certify in
SAM that they are small at least once annually. Therefore, any newly-
eligible small businesses opting to participate in those programs would
have had to comply with SAM requirements. However, SBA estimates that
there are no additional costs associated with SAM registration or
certification. While changing size standards alters the access to SBA's
programs that assist small businesses, it does not impose a regulatory
burden because such actions on the part of SBA neither regulate nor
control business behavior.
4. What are the relevant Federal rules, which may duplicate, overlap,
or conflict with the rule?
Under section 3(a)(2)(C) of the Small Business Act, 15 U.S.C.
632(a)(2)(c), Federal agencies must use SBA's size standards to define
a small business, unless specifically authorized by statute to do
otherwise. In 1995, SBA published in the Federal Register a list of
statutory and regulatory size standards that identified the application
of SBA's size standards as well as other size standards used by Federal
agencies (60 FR 57982; November 24, 1995). SBA is not aware of any
Federal rule that would duplicate or conflict with establishing size
standards.
However, the Small Business Act and SBA's regulations allow Federal
agencies to develop different size standards if they believe that SBA's
size standards are not appropriate for their programs, with the
approval of SBA's Administrator (13 CFR 121.903). The Regulatory
Flexibility Act authorizes an Agency to establish an alternative small
business definition for Regulatory Flexibility Analysis purposes, after
consultation with the Office of Advocacy of the U.S. Small Business
Administration (5 U.S.C. 601(3)).
5. What alternatives will allow the Agency to accomplish its regulatory
objectives while minimizing the impact on small entities?
By law, SBA is required to develop numerical size standards for
establishing eligibility for Federal small business assistance
programs. Other than varying size standards by industry and changing
the size measures, no practical alternative exists to the systems of
numerical size standards.
SBA's only other consideration was whether to adopt the size
standards presented in the November 2022 rule with no further increase
for the inflation. However, SBA believes that the 13.65 percent
inflation increase since the previous inflation adjustment in July 2019
sufficiently affects the real value of the size standards to warrant
applying an increase at this time. SBA also believes that its inflation
adjustments to the dollar limit for combined total 8(a) contracts and
the economic disadvantaged thresholds applicable to 8(a) BD and EDWOSB
are appropriate, as well as the adjustments to three program-specific
monetary size standards: namely, the size standards for sales or leases
of government property, the size standards for stockpile purchases, and
alternative size standard based on tangible net worth and net income
for the Small Business Investment Company (SBIC) program.
Executive Order 13563
E.O. 13563 emphasizes the importance of quantifying both costs and
benefits, reducing costs, harmonizing rules, and promoting flexibility.
A description of the need for this regulatory action and benefits and
costs associated with this action including possible distributional
impacts that relate to Executive Order 13563 is included above in the
Benefit-Cost Analysis under Executive Order 12866 and in greater detail
in the November 2022 rule which adopted the size standards effective
December 19, 2022. Additionally, section 6 of E.O. 13563 calls for
retrospective analyses of existing rules.
SBA updated the Small Business Procurement Advisory Council (SBPAC)
on its November 15, 2022, and December 13, 2022, meetings about
upcoming rules on size standards, including inflation adjustment. SBA
also presented a similar update to the small business audience at the
Small Business Alliance of Government Contractors and at various other
industry events.
Executive Order 12988
This action meets applicable standards set forth in sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. This rule does not
have retroactive or preemptive effect.
Executive Order 13132
For purposes of Executive Order 13132, SBA has determined that this
final rule will not have substantial, direct effects on the States, on
the relationship between the National Government and the States, or on
the distribution of power and responsibilities among the various levels
of government. Therefore, SBA has determined that this final rule has
no federalism implications warranting preparation of a federalism
assessment.
Paperwork Reduction Act
For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA has determined that this final rule will not impose any new
reporting or record keeping requirements.
List of Subjects
13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Individuals with
disabilities, Loan programs--business, Reporting and recordkeeping
requirements, Small businesses.
[[Page 46055]]
13 CFR Part 124
Administrative practice and procedure, Government procurement,
Government property, Small businesses.
13 CFR Part 127
Government contracts, Reporting and recordkeeping requirements,
Small businesses.
PART 121--SMALL BUSINESS SIZE REGULATIONS
PART 124--8(a) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS
STATUS DETERMINATIONS
PART 127--WOMEN-OWNED SMALL BUSINESS FEDERAL CONTRACT PROGRAM
0
For the reasons set forth in the preamble, the interim final provisions
amending 13 CFR parts 121, 124, and 127, published on November 17, 2022
(87 FR 69118), are adopted as a final rule without change.
Isabella Casillas Guzman,
Administrator.
[FR Doc. 2023-15078 Filed 7-18-23; 8:45 am]
BILLING CODE 8026-09-P
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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.