Small Business Size Standards: Professional, Scientific and Technical Services, 14323-14341 [2011-5876]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 76, Number 51 (Wednesday, March 16, 2011)]
[Proposed Rules]
[Pages 14323-14341]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-5876]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG07


Small Business Size Standards: Professional, Scientific and 
Technical Services

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA) proposes to 
increase small business size standards for 35 industries and one sub-
industry in North American Industry Classification System (NAICS) 
Sector 54, Professional, Scientific and Technical Services and one 
industry in NAICS Sector 81, Other Services. As part of its ongoing 
comprehensive review of all size standards, SBA has evaluated 45 
industries and three sub-industries in NAICS Sector 54 and one industry 
in NAICS Sector 81 to determine whether the existing size standards 
should be retained or revised. This proposed rule is one of a series of 
proposals that will examine size standards of industries grouped by an 
NAICS Sector. SBA has issued a White Paper entitled ``Size Standards 
Methodology'' and published in the October 21, 2009 issue of the 
Federal Register a notice that ``Size Standards Methodology'' is 
available on its Web site at https://www.sba.gov/size for public review 
and comments. The ``Size Standards Methodology'' White Paper explains 
how SBA establishes, reviews and modifies its receipts based and 
employee based small business size standards. In this proposed rule, 
SBA has applied its methodology that pertains to establishing, 
reviewing and modifying a receipts based size standard.

DATES: SBA must receive comments to this proposed rule on or before May 
16, 2011.

ADDRESSES: You may submit comments, identified by RIN 3245-AG07 by one 
of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments; or
     Mail/Hand Delivery/Courier: Khem R. Sharma, PhD, Chief, 
Size Standards Division, 409 Third Street, SW., Mail Code 6530, 
Washington, DC 20416.
    SBA will post all comments on https://www.regulations.gov. If you 
wish to submit confidential business information (CBI) as defined in 
the User Notice at https://www.regulations.gov,

[[Page 14324]]

please submit the information by mail to U.S. Small Business 
Administration, Khem R. Sharma, PhD, Chief, Size Standards Division, 
409 Third Street, SW., Mail Code 6530, Washington, DC 20416, or by e-
mail to sizestandards@sba.gov. Highlight the information that you 
consider to be CBI and explain why you believe SBA should hold this 
information as confidential. SBA will review the information and make 
the final determination of whether it will publish the information or 
not.

FOR FURTHER INFORMATION CONTACT: Khem R. Sharma, PhD, Chief, Size 
Standards Division, (202) 205-6618 or sizestandards@sba.gov.

SUPPLEMENTARY INFORMATION: To determine eligibility for Federal 
government small business assistance programs, SBA establishes small 
business size definitions (referred to as size standards) for most 
private sector industries in the U.S. SBA's existing size standards use 
two primary measures of business size--receipts and number of 
employees. Financial assets, electric output and refining capacity are 
used as size measures for a few specialized industries. In addition, 
SBA's Small Business Investment Company (SBIC) and the Certified 
Development Company (CDC) Programs determine small business eligibility 
using either the industry based size standards or net worth and net 
income based size standards. Currently, SBA's size standards consist of 
42 different levels, covering 1,141 NAICS industries and 18 sub-
industry activities. Thirty-one of these size levels are based on 
average annual receipts, eight are based on number of employees and 
three are based on other measures. In addition, SBA has established 11 
other size standards for its financial and procurement programs.
    Over the years, SBA has received comments that its size standards 
have not kept up with changes in the economy and, in particular, that 
they do not reflect the changes in the Federal contracting marketplace. 
The last overall review of size standards occurred during the late 
1970s and early 1980s. Since then, most reviews of size standards have 
been limited to a few specific industries in response to requests from 
the public and Federal agencies. SBA also makes periodic inflation 
adjustments to its monetary based size standards. The latest inflation 
adjustment to size standards was published in the Federal Register on 
July 18, 2008 (73 FR 41237).
    SBA recognizes that changes in industry structure and the Federal 
marketplace over time have rendered existing size standards for some 
industries no longer supportable by current data. Accordingly, SBA has 
begun a comprehensive review of its size standards to ensure that 
existing size standards have supportable bases and to revise them when 
necessary.
    In addition, on September 27, 2010 the President of the United 
States signed the Small Business Jobs Act of 2010 (Jobs Act). The Jobs 
Act directs SBA to conduct a detailed review of all size standards and 
to make appropriate adjustments to reflect market conditions. 
Specifically, the Jobs Act requires SBA to conduct a detailed review of 
at least one-third of all size standards during every 18-month period 
from the date of its enactment and do a complete review of all size 
standards not less frequently than once every 5 years thereafter. 
Reviewing existing small business size standards and making appropriate 
adjustments based on current data is also consistent with Executive 
Order 13563 on improving regulation and regulatory review.
    Rather than review all size standards at one time, SBA has adopted 
a more manageable approach to reviewing a group of related industries 
within an NAICS Sector. Except for manufacturing, an NAICS Sector 
generally consists of 25 to 75 industries. Once SBA completes its 
review of size standards for industries in an NAICS Sector, it will 
issue a proposed rule to revise the size standards for industries whose 
data support doing so.
    Below is a discussion of SBA's size standards methodology for 
establishing receipts based size standards that was applied to this 
proposed rule, including analyses of industry structure, Federal 
procurement trends and other factors for industries reviewed in this 
proposed rule and the impact of the proposed revisions to size 
standards on Federal small business assistance.

Size Standards Methodology

    SBA has recently developed a ``Size Standards Methodology'' that it 
uses for developing, reviewing and modifying size standards when 
necessary. SBA has published the document on its Web site at https://www.sba.gov/size. SBA does not apply all features of its ``Size 
Standards Methodology'' to all industries because not all are 
appropriate. For example, since this proposed rule covers all 
industries with receipts based standards in NAICS Sector 54, the 
methodology described here mostly applies to establishing receipts 
based standards. However, SBA makes the methodology available in its 
entirety for parties who have an interest in SBA's overall approach to 
establishing, evaluating and modifying small business size standards. 
SBA always explains its analysis in individual proposed and final rules 
relating to size standards for specific industries.
    SBA welcomes comments from the public on a number of issues 
regarding its ``Size Standards Methodology,'' such as suggestions on 
alternative approaches to establishing, reviewing and modifying size 
standards; whether there are alternative or additional factors or data 
sources that SBA should consider; whether SBA's approach to small 
business size standards makes sense in the current economic 
environment; whether SBA's using anchor size standards is appropriate 
in the current economy; whether there are gaps in SBA's methodology 
because of the lack of comprehensive data; and whether there are other 
facts or issues that SBA should consider in its methodology. Comments 
on the ``Size Standards Methodology'' should be submitted via (1) the 
Federal eRulemaking Portal: https://www.regulations.gov; the docket 
number is SBA-2009-0008. Follow the instructions for submitting 
comments; or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, PhD, 
Chief, Size Standards Division, 409 Third Street, SW., Mail Code 6530, 
Washington, DC 20416. As with comments received to this proposed rule, 
SBA will post all comments on ``Size Standards Methodology'' on https://www.regulations.gov. As of March 16, 2011, SBA has received two 
comments on ``Size Standards Methodology.'' The comments have been 
published and are available to the public at https://www.regulations.gov. SBA continues to welcome comments on its 
methodology from interested parties.
    Congress has authorized SBA's Administrator to establish small 
business size standards. 15 U.S.C. 632(a)(2). Section 3(a)(3) of the 
Small Business Act (15 U.S.C. 632(a)(3)) states 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 serves as the underlying basis for developing 
and modifying small business size standards. SBA identifies the small 
business segment of an industry by examining data on the economic 
characteristics defining the industry structure itself (as described 
below). In addition to analyzing an industry's structure, SBA considers

[[Page 14325]]

current economic conditions, together with its own mission, program 
objectives, the Administration's current policies, suggestions from 
industry groups and Federal Agencies, and public comments on the 
proposed rule when it establishes small business size standards. SBA 
also examines whether a size standard based on industry and other 
relevant data successfully excludes businesses that are dominant in the 
industry. Below is a discussion on SBA's analysis of the economic 
characteristics of each industry reviewed in this proposed rule, the 
impact of proposed size standards revisions on SBA programs and on 
Federal procurement programs and whether a revised size standard 
excludes dominant firms in the industry from being considered small. 
This proposed rule affords the public an opportunity to review and 
comment on the data and methodology SBA uses to evaluate and revise a 
size standard.

Industry Analysis

    For the ongoing comprehensive size standards review, SBA has 
established three ``base'' or ``anchor'' size standards that apply to 
most industries--$7.0 million in average annual receipts for industries 
that have receipts based size standards, 500 employees for 
manufacturing and other industries that have employee based size 
standards (except for Wholesale Trade) and 100 employees for industries 
in the Wholesale Trade Sector. SBA established 500 employees as the 
anchor size standard for the manufacturing industries at its inception 
in 1953. Shortly thereafter SBA established $1 million in average 
annual receipts as the anchor size standard for the nonmanufacturing 
industries. The receipts based anchor size standard has been adjusted 
periodically for inflation. Over the years, SBA has increased the 
anchor for inflation, which stands at $7.0 million today. Since 1986, 
all industries in the Wholesale Trade Sector have had the 100 employee 
size standard for non-procurement SBA programs. For Federal procurement 
purposes, the size standard for all industries in both the Wholesale 
Trade (NAICS Sector 42) and the Retail Trade (NAICS Sector 44-45) is 
500 employees under the SBA's nonmanufacturer rule. 13 CFR 121.406(b).
    These long standing anchor size standards have gained legitimacy 
through practice and general public acceptance. An anchor size standard 
is neither a minimum nor a maximum. It is a common size standard for a 
large number of industries that have similar economic characteristics 
and serves as a reference point in evaluating size standards for 
individual industries. SBA uses the anchor in lieu of trying to 
establish a unique small business size standard for each industry. 
Otherwise, theoretically, the number of size standards might be as high 
as the number of industries at the 6-digit NAICS level (1,141) for 
which SBA establishes size standards. The data SBA analyzes are 
generally static, but the U.S. economy is not. Hence, absolute 
precision is impossible. Based on historical but static data, 
therefore, SBA presumes an anchor size standard is appropriate for a 
particular industry unless that industry displays economic 
characteristics that are considerably different from those of others 
with the same anchor size standard.
    When evaluating a size standard, SBA compares the economic 
characteristics of the specific industry under review to the average 
characteristics of industries with one of the three anchor size 
standards (referred to as ``anchor comparison group''). This allows SBA 
to assess the industry structure and to determine whether the industry 
is appreciably different from the other industries in the anchor 
comparison group. If the characteristics of a specific industry under 
review are similar to the average characteristics of the anchor 
comparison group, the anchor size standard is considered appropriate 
for that industry. SBA may consider adopting a size standard below the 
anchor when (1) all or most of the industry characteristics are 
significantly smaller than the average characteristics of the anchor 
comparison group, or (2) other industry considerations strongly suggest 
that the anchor size standard would be an unreasonably high size 
standard for the industry.
    If the specific industry's characteristics are significantly higher 
than those of the anchor comparison group, a size standard higher than 
the anchor size standard may be appropriate. The larger the differences 
are between the characteristics of the industry under review and those 
in the anchor comparison group, the larger will be the difference 
between the appropriate industry size standard and the anchor size 
standard. For industries with receipts based size standards, including 
those in NAICS Sector 54 that are reviewed in this proposed rule, SBA 
has developed a second comparison group consisting of industries with 
the highest levels of receipts based size standards. To determine the 
level of a size standard above the anchor size standard, SBA analyzes 
the characteristics of this second comparison group. The size standards 
for this group of industries range from $23 million to $35.5 million in 
average receipts, with the weighted average size standard for the group 
being $29 million. SBA refers to this comparison group as the ``higher 
level receipts based size standard group.''
    The primary factors that SBA evaluates when analyzing the 
structural characteristics of an industry include average firm size, 
startup costs and entry barriers, industry competition and distribution 
of firms by size. 13 CFR 121.102(a) and (b). As an additional factor, 
SBA evaluates the possible impact that revising size standards might 
have on Federal contracting assistance to small businesses. These five 
factors are generally the most important ones for establishing or 
revising a size standard for an industry. However, SBA will also 
consider and evaluate other information that it believes is relevant to 
a particular industry (such as technological changes, industry growth 
trends, SBA financial assistance and other program objectives, etc.). 
SBA also considers possible impacts of size standard revisions on 
eligibility for Federal small business assistance, current economic 
conditions and the Administration's policies. Public comments on a 
proposed size standard rule also provide important additional 
information. SBA thoroughly reviews all public comments on proposed 
rules and makes adjustments to proposed size standards if necessary 
before making a final decision on a revised size standard. Below is a 
brief description of each of the five primary factors that SBA has 
evaluated in each industry in NAICS Sector 54 being reviewed in this 
proposed rule. A more detailed description of this analysis is provided 
in the ``SBA Size Standard Methodology'' White Paper, available on its 
Web site at https://www.sba.gov/size.
    1. Average firm size. SBA computes two measures of average firm 
size: Simple average firm size and weighted average firm size. For 
industries with receipts based size standards the simple average firm 
size is the total receipts of an industry divided by the total number 
of firms in that industry. The weighted average firm size is the sum of 
weighted simple average firm sizes in different receipts size classes, 
where weights are the shares of total industry receipts for respective 
size classes. The simple average firm size weighs all firms within an 
industry equally regardless of their size. The weighted average 
overcomes that limitation by giving more weights to larger firms.
    If the average firm size of an industry under review is 
significantly higher than the average firm size of industries

[[Page 14326]]

in the anchor comparison industry group, this will generally support a 
size standard higher than the anchor size standard. Conversely, if the 
industry's average firm size is similar to or significantly lower than 
that of the anchor comparison industry group, it will be a basis to 
adopt the anchor size standard or, in rare cases, a standard lower than 
the anchor.
    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 a particular industry have greater capital 
requirements than firms in industries in the anchor comparison group, 
this is a basis for establishing a size standard higher than the anchor 
standard. In lieu of data on actual startup costs, SBA uses average 
assets size as a proxy measure to assess the levels of capital 
requirements for new entrants to an industry.
    SBA begins with the sales to total assets ratios from the Risk 
Management Association's Annual Statement Studies, 2007-2009. SBA then 
applies these ratios to the average receipts size of firms in that 
industry. An industry with a significantly higher level of average 
assets than that of the anchor comparison group is likely to have 
higher startup costs; this in turn will support a size standard higher 
than the anchor. Conversely, if the industry has a significantly 
smaller average assets size compared to the anchor comparison group, 
the anchor size standard, or in rare cases one lower than the anchor, 
may be appropriate.
    3. Industry competition. Industry competition is generally measured 
by the share of total industry receipts obtained by firms that are 
among the largest in an industry. In this proposed rule, SBA evaluates 
the share of industry receipts generated by the four largest firms in 
the industry. This is referred to as the ``four-firm concentration 
ratio.'' SBA compares the four-firm concentration ratio for an industry 
under review to the average four-firm concentration ratio for 
industries in the anchor comparison group. If a significant share of 
economic activity within the industry is concentrated among a few 
relatively large firms, SBA will establish a size standard relatively 
higher than the anchor size standard. The four-firm concentration ratio 
is not an important factor if its value for an industry under review is 
less than 40 percent. For industries in which the four largest firms 
account for 40 percent or more of an industry's total receipts, SBA 
examines the average size of the four largest firms in determining a 
size standard.
    4. Distribution of firms by size. SBA examines the shares of 
industry receipts accounted for by firms of different receipts and 
employment size classes in the industry. SBA evaluates this factor in 
assessing competition within an industry. If most of an industry's 
economic activity is attributable to smaller firms, this indicates that 
small businesses are competitive in that industry. This supports 
adopting the anchor size standard. If most of an industry's economic 
activity is attributable to larger firms, this indicates that small 
businesses are not competitive in that industry. This supports adopting 
a size standard above the anchor.
    Concentration among firms is a measure of inequality of 
distribution. To evaluate the degree of inequality of distribution 
within an industry, SBA computes the Gini coefficient by constructing 
the Lorenz curve. The Lorenz curve presents the cumulative percentages 
of units (firms) in the horizontal axis and cumulative percentages of 
receipts (or other measures of size) in the vertical axis. (For further 
detail, please refer to SBA's ``Size Standards Methodology'' White 
Paper on the SBA Web site at https://www.sba.gov/size.) Gini coefficient 
values vary from zero to one. If receipts are distributed equally among 
all the firms in an industry, the value of the Gini coefficient will 
equal zero. If an industry's total receipts are attributed to a single 
firm, the Gini coefficient will equal one.
    SBA compares the degree of inequality of distribution for an 
industry under review with that for industries in the anchor comparison 
group. If an industry shows a higher degree of inequality of 
distribution (i.e., higher Gini coefficient) compared to industries in 
the anchor comparison industry group this will, all else being equal, 
warrant a higher size standard than the anchor. Conversely, for 
industries with similar or more equal distribution (i.e., similar or 
lower Gini coefficient values) than the anchor group, the anchor 
standard, or in some cases a standard lower than the anchor, may be 
adopted.
    5. Impact on Federal contracting and SBA loan programs. SBA 
examines the possible impact a size standard change may have on the 
level of Federal small business assistance. This assessment primarily 
focuses on the share of Federal contracting dollars awarded to small 
businesses in the industry in question. In general, if the share of 
Federal contracting dollars awarded to small businesses in an industry 
that receives a significant amount of Federal contracting dollars is 
significantly less than the small business share of the industry's 
total receipts, this will be justification to consider a size standard 
higher than the existing size standard. The disparity between the small 
business Federal market share and industry-wide share may have a 
variety of causes, such as extensive administrative and compliance 
requirements associated with Federal contracts, the different skill set 
required on Federal contracts as compared to typical commercial 
contracting work and the size of contracting requirements of Federal 
customers. These, as well as other factors, are likely to influence the 
type of firms within an industry that compete for Federal contracts 
and, hence, the firms receiving such contracts are expected to possess 
different characteristics than the average characteristics for all 
firms in that industry. To compare the small business Federal 
contracting share with the industry-wide small business share, SBA 
analyzes the latest Federal contracting trends. This analysis may 
indicate a size standard larger than the current standard.
    SBA considers Federal procurement trends in its size standards 
analysis only if (1) the small business share of Federal contracting 
dollars is at least 10 percent lower than the small business share of 
total industry receipts and (2) the amount of total Federal contracting 
averages $100 million or more during fiscal years 2007-2009 (the latest 
years for which complete Federal procurement data are available). SBA 
selected these thresholds because they reflect a significant level of 
contracting in which a revision to a size standard may have an impact 
on expanding small business opportunities.
    Besides the impact on small business Federal contracting, SBA also 
evaluates the impact of a size standard revision on SBA's loan 
programs. For this SBA examines the volume of SBA guaranteed loans 
within an industry and the size of firms obtaining those loans. This 
allows SBA to assess whether the existing or the proposed size standard 
for a particular industry may restrict the level of financial 
assistance to small firms. If the analysis shows that the current size 
standards reduce financial assistance to small businesses, a higher 
size standard would be supportable. However, if small businesses have 
already been receiving significant amounts of financial assistance 
through SBA's loan programs, or if the financial assistance has been 
provided mainly to businesses that are much smaller than the existing 
size

[[Page 14327]]

standard, consideration of this factor for determining the size 
standard may not be necessary.

Sources of Industry and Program Data

    SBA's primary source of industry data used in this proposed rule is 
a special tabulation of the 2007 County Business Patterns (see https://www.census.gov/econ/cbp/) and data from 2007 Economic Census (see 
https://www.census.gov/econ/census07/) prepared by the U.S. Bureau of 
the Census (Census Bureau) for SBA. The Census tabulation provided SBA 
with industry-specific data on the number of firms, number of 
establishments and number of employees for companies by the size of 
firm based on the 2007 County Business Patterns and estimated annual 
payroll and estimated annual receipts of companies by the size of firm 
based on the 2007 Census. That is, the data are by the size class of 
the total company; however, the data itself, within a particular size 
class, represents the company's total data for a specific industry 
only. The special tabulation enables SBA to evaluate average firm size, 
the four-firm concentration ratio and distribution of firms by receipts 
and employment size.
    In some cases, where industry 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 2-digit 
(Sector), 3-digit (Subsector), or 4-digit (Industry Group) level. In 
some instances, SBA had to base its analysis only on those factors for 
which data were available or estimates of missing values were possible.
    The data from the Census Bureau's tabulation are limited down only 
to the 6-digit NAICS industry level and hence do not provide economic 
characteristics at the sub-industry level. Thus, when establishing, 
reviewing, or modifying size standards at the sub-industry level (that 
is, one of the ``exceptions'' in SBA's table of size standards), SBA 
evaluates the data from the U.S. General Service Administration's 
Federal Procurement Data System--Next Generation (FPDS-NG) and Central 
Contractor Registration (CCR) following a two-step procedure. First, 
using FPDS-NG SBA identifies product service codes (PSCs) that 
correspond to specific sub-industry activities or ``exceptions'' and 
then identifies firms that are active in Federal contracting involving 
those PSCs. Then, SBA obtains those firms' revenue and employment data 
from the CCR database. SBA uses that data to evaluate the actual size 
of businesses that FPDS-NG identifies for those procurements. In this 
proposed rule, SBA applied this approach to determine industry and 
Federal contracting factors for ``exceptions'' under NAICS 541330, 
Engineering Services.
    To calculate average assets size, SBA used sales to total assets 
ratios from the Risk Management Association's Annual Statement Studies, 
2007-2009.
    To evaluate Federal contracting trends, SBA examined Federal 
contract award data for fiscal years 2007-2009 from FPDS-NG.
    Data sources and estimation procedures SBA uses in its size 
standards analysis are documented in detail in the ``SBA Size Standards 
Methodology'' White Paper, which is available on its Web site at https://www.sba.gov/size.
    To assess the impact on financial assistance to small businesses 
SBA examined data on its own guaranteed loan programs for fiscal years 
2007-2009.

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 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 standard. Market share and other 
factors may indicate whether a firm would or could exercise a major 
controlling influence at the national level in an industry that 
includes a significant number of business concerns. If a contemplated 
size standard would include a dominant firm, SBA would consider a lower 
size standard to exclude the dominant firm from the definition of 
small.

Selection of Size Standards

    To simplify size standards, for the ongoing comprehensive size 
standards review of receipts based size standards, SBA proposes to 
select size standards for industries from a limited number of levels. 
For many years, SBA has been concerned about the complexity of 
determining small business status caused by a large number of varying 
receipts based size standards (see 69 FR 13130 (March 4, 2004) and 57 
FR 62515 (December 31, 1992)). Currently, there are 31 different levels 
of receipts based size standards. They range from $0.75 million to 
$35.5 million and many of them apply to one or only a few industries. 
SBA believes that size standards with such a large number of small 
variations among them are both unnecessary and difficult to justify 
analytically. To simplify managing and using size standards SBA 
proposes that there be fewer size standard levels. This will produce 
more common size standards for businesses operating in related 
industries. There will also be greater consistency among the size 
standards for industries that have similar economic characteristics.
    The SBA proposes, therefore, to apply one of eight receipts based 
size standards to each industry in NAICS Sector 54 that has a receipts 
based standard. In this proposed rule, SBA has not reviewed the six 
employee based size standards in NAICS Sector 54. Those employee based 
size standards will remain on effect until SBA reviews industries that 
have employee based size standards. The eight ``fixed'' receipts based 
size standard levels are $5 million, $7 million, $10 million, $14 
million, $19 million, $25.5 million, $30.0 million and $35.5 million. 
To establish these eight receipts based size standard levels SBA 
considered the current minimum, the current maximum and most commonly 
used current receipts based size standards. Currently, the most 
commonly used receipts based size standards cluster around the 
following--$2.5 million to $4.5 million, $7 million, $9.0 million to 
$10 million, $12.5 million to $14.0 million, $25.0 million to $25.5 
million, and $33.5 million to $35.5 million. SBA selected $7 million as 
one of eight fixed levels of receipts based size standards because this 
is an anchor standard for receipts based standards. The lowest or 
minimum receipts based size level that SBA is proposing will be $5 
million. Other than the size standards for agriculture and those based 
on commissions (such as real estate brokers and travel agents), $5 
million will include those industries with the currently lowest 
receipts based standards, which range from $2.0 million to $4.5 
million. Among the higher levels size clusters, SBA has selected $10 
million, $14 million, $25.5 million, and $35.5 million as the other 
four levels of fixed size standards. Because of a large gap between two 
of the size standard intervals, SBA established intermediate levels of 
$19 million between $14 million and $25.5 million and $30 million 
between $25.5 million and $35.5 million. These two intermediate size 
levels reflect roughly

[[Page 14328]]

similar proportional differences between the two successive size 
standard levels.
    To simplify size standards further, SBA may propose a common size 
standard for closely related industries. Although the size standard 
analysis may support a specific size standard level for each industry, 
SBA believes that establishing different size standards for closely 
related industries may not be appropriate. For example, in cases where 
many of the same businesses operate in the multiple industries, 
establishing a common size standard might better reflect the Federal 
marketplace. This might also make size standards among related 
industries more consistent than establishing separate size standards 
for each of those industries. This led SBA to establish a common size 
standard for the Computer Systems Design and Related Services 
industries (NAICS 541511, NAICS 541112, NAICS 541513, NAICS 541519 and 
NAICS 811212), even though the industry data might have supported a 
distinct size standard for each industry. 57 FR 27906 (June 23, 1992). 
Businesses engaged in computer related services typically perform 
activities in two or more other related industries. SBA has also 
established a common size standard for certain architectural and 
engineering (A&E) services industries (NAICS 541310, NAICS 541330 
(excluding the ``exceptions''), NAICS 541360, NAICS 541370 and Map 
Drafting which is an ``exception'' under NAICS 541340). As described 
below in this proposed rule SBA has considered additional common size 
standards for several related industries within NAICS Sector 54, as 
alternatives to industry specific separate size standards. Whenever SBA 
proposes a common size standard for closely related industries it will 
provide its justification in the proposed rule.

Evaluation of Industry Structure

    SBA has evaluated the structure of 45 industries and three sub-
industries in NAICS Sector 54, Professional, Scientific and Technical 
Services and one industry in NAICS Sector 81, Other Services, to assess 
the appropriateness of the current size standards. As described above, 
SBA compared data on the economic characteristics of each industry or 
sub-industry to the average characteristics of industries in two 
comparison groups. The first comparison group consists of all 
industries with $7.0 million size standards and is referred to as the 
``receipts based anchor comparison group.'' Because the goal of SBA's 
size review is to assess whether a specific industry's size standard 
should be the same as or different from the anchor size standard, this 
is the most logical group of industries to analyze. In addition, this 
group includes a sufficient number of firms to provide a meaningful 
assessment and comparison of industry characteristics.
    If the characteristics of an industry under review are similar to 
the average characteristics of industries in the anchor comparison 
group, the anchor size standard is generally appropriate for that 
industry. If an industry's structure is significantly different from 
the others in the anchor group, a size standard lower or higher than 
the anchor size standard might be selected. The level of the new size 
standard is determined based on the difference between the 
characteristics of the anchor comparison group and a second industry 
comparison group. As described above, the second comparison group for 
receipts based standards consists of industries with the highest 
receipts based size standards, ranging from $23 million to $35.5 
million. The average size standard for the group is $29 million. SBA 
refers to this group of industries as the ``higher level receipts based 
size standard comparison group.'' Differences in industry structure 
between an industry under review and the industries in the two 
comparison groups are determined by comparing data on each of the 
industry factors, including average firm size, average assets size, 
four-firm concentration ratio and the Gini coefficient of distribution 
of firms by size. Table 1 shows two measures of the average firm size 
(simple and weighted), average assets size, four-firm concentration 
ratio, average receipts of the four largest firms and the Gini 
coefficient for both anchor level and higher level comparison groups 
for receipts based size standards.

                                          Table 1--Average Characteristics of Receipts Based Comparison Groups
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Avg. firm size ($ million)                                     Avg. receipts
                                                         --------------------------------   Avg. assets   Avg. four-firm      of four
             Receipts based comparison group                                                  size ($      concentration   largest firms       Gini
                                                              Simple         Weighted        million)        ratio (%)      ($ million)     coefficient
                                                              average         average                                           \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Anchor Level............................................            1.55           28.91            0.94            18.4           249.3           0.740
Higher Level............................................            6.22           97.10            2.85            27.0         1,773.5          0.826
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ To be used for industries with a four-firm concentration ratio of 40% or greater.

Derivation of Size Standards Based on Industry Factors

    For each of the industry factors in Table 1, SBA derives a separate 
size standard based on the differences between the values for an 
industry under review and the values for the two comparison groups. If 
the industry value for a particular factor is near the corresponding 
factor for the anchor comparison group, SBA will consider the $7.0 
million anchor size standard appropriate for that factor.
    An industry factor with a value significantly above or below the 
anchor comparison group will generally warrant a size standard above or 
below the $7.0 million anchor. The level of the new size standard in 
these cases is based on the proportional difference between the 
industry value and the values for the two comparison groups.
    For example, if an industry's simple average receipts is $4.0 
million, that would support a $19 million size standard. The $4.0 
million level is 52.5 percent between the average firm size of $1.55 
million for the anchor comparison group and $6.22 million for the 
higher level comparison group (($4.00 million - $1.55 million) / ($6.22 
million - $1.55 million) = 0.525 or 52.5%). This proportional 
difference is applied to the difference between the $7.0 million anchor 
size standard and average size standard of $29 million for the higher 
level size standard group and then added to $7.0 million to estimate a 
size standard of $18.54 million ([{$29.0 million - $7.0 million{time}  
* 0.525] + $7.0 million = $18.54 million). The final step is to round 
the estimated $18.54 million size standard to the nearest fixed size 
standard level, in this example to $19 million.
    SBA applies the above calculation to derive a size standard for 
each industry factor. Detailed formulas involved in these calculations 
are presented in ``SBA Size Standards Methodology'' which is available 
on its Web site at https://

[[Page 14329]]

www.sba.gov/size. (However, it should be noted that figures in the 
``Size Standards Methodology'' White Paper are based on 2002 Economic 
Census data and are different from those presented in this proposed 
rule). Table 2 shows ranges of values for each industry factor and the 
levels of size standards supported by those values.

                        Table 2--Values of Industry Factors and Supported Size Standards
----------------------------------------------------------------------------------------------------------------
                                                                   Or if avg.
                               Or if weighted     Or if avg.      receipts of                        Then size
If simple avg. receipts size   avg. receipts    assets size ($    largest four      Or if gini    standard is ($
         ($ million)              size ($          million)         firms ($       coefficient       million)
                                  million)                          million)
----------------------------------------------------------------------------------------------------------------
<1.34.......................  <25.81.........  <0.85..........  <180.0.........  <0.736.........             5.0
1.34 to 1.87................  25.81 to 33.56.  0.85 to 1.07...  180.0 to 353.2.  0.736 to 0.746.             7.0
1.88 to 2.61................  33.57 to 44.41.  1.08 to 1.37...  353.3 to 595.7.  0.747 to 0.759.            10.0
2.62 to 3.57................  44.42 to 58.35.  1.38 to 1.76...  595.8 to 907.5.  0.760 to 0.777.            14.0
3.58 to 4.79................  58.36 to 76.18.  1.77 to 2.26...  907.6 to         0.778 to 0.799.            19.0
                                                                 1,305.8.
4.80 to 5.96................  76.19 to 93.22.  2.27 to 2.74...  1,305.9 to       0.800 to 0.821.            25.5
                                                                 1,686.9.
5.97 to 7.02................  93.23 to 108.72  2.75 to 3.17...  1,687.0 to       0.822 to 0.840.            30.0
                                                                 2,033.2.
>7.02.......................  >108.72........  >3.17..........  >2,033.2.......  >0.840.........            35.5
----------------------------------------------------------------------------------------------------------------

Derivation of Size Standards Based on Federal Contracting Factor

    Besides industry structure, SBA also evaluates Federal contracting 
data to assess the extent to which small businesses are successful in 
getting Federal contracts under the existing size standards. However, 
the available data on Federal contracting are limited to identifying 
businesses as small or other than small, with no information on exact 
size of businesses receiving Federal contracts in order to conduct a 
more precise analysis.
    Given the above limitation of Federal contracting data, for the 
current comprehensive size standards review, SBA has decided to 
designate a size standard at one level higher than their current size 
standard for industries where the small business share of total Federal 
contracting dollars is between 10 and 30 percentage points lower than 
their shares in total industry receipts and at two levels higher than 
the current size standard if the difference is more than 30 percentage 
points.
    SBA has chosen not to designate a size standard for the Federal 
contracting factor alone that is higher than two levels above the 
current size standard. The FPDS-NG data have a number of limitations 
and there are also complex relationships among a number of variables 
affecting small business participation in the Federal marketplace. SBA 
believes, therefore, that a larger adjustment to size standards based 
on Federal contracting activity requires a more detailed analysis of 
the impact of any subsequent revision to the current size standard. In 
limited situations, however, SBA may conduct a more extensive 
examination of Federal contracting experience to support a different 
size standard than indicated by this general rule. That would involve 
SBA's taking into consideration significant and unique aspects of small 
business competitiveness in the Federal contract market. SBA welcomes 
comment on its methodology of incorporating the Federal contracting 
factor in the size standard analysis and suggestions for alternative 
methods and other relevant information on small business experience in 
the Federal contract market.
    Of the 46 industries reviewed in this proposed rule (including 45 
industries in NAICS Sector 54 and one industry in NAICS Sector 81), 26 
industries received an average of $100 million or more annually in 
Federal contracting dollars during fiscal years 2007-2009. The Federal 
contracting factor was significant (i.e., the difference between the 
small business share of total industry receipts and small business 
share of Federal contracting dollars was 10 percentage points or more) 
and a separate size standard was derived for that factor in 15 of those 
26 industries.

New Size Standards Based on Industry and Federal Contracting Factors

    Table 3 shows the results of analyses of industry and Federal 
contracting factors for each of the industries covered by this proposed 
rule. Each NAICS Industry in columns 2, 3, 4, 6, 7 and 8 shows two 
numbers. The upper number is the value for the industry or Federal 
contracting factor shown on the top of the column; the lower number is 
the size standard supported by that factor. For the four-firm 
concentration ratio, a size standard is estimated based on the average 
receipts of the top four firms if its value is 40 percent or more. If 
the four-firm concentration ratio for an industry (column 5) is less 
than 40 percent, no size standard is estimated for that factor. Column 
9 shows the new size standard for each industry, calculated as the 
average of size standards supported by each factor and rounded to the 
nearest fixed size level. Analytical details involved in the averaging 
procedure are described in the SBA ``Size Standard Methodology'' White 
Paper which is available on its Web site at https://www.sba.gov/size. 
For comparison, the current size standards are also shown in column 10 
of Table 3.

                                           Table 3--Size Standards Supported by Each Factor for Each Industry
                                                                  [millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
             (1)                  (2)          (3)          (4)          (5)          (6)          (7)          (8)          (9)             (10)
NAICS code/                        Simple     Weighted      Average    Four-firm    Four-firm         Gini      Federal   Calculated  Current size
NAICS industry title              average      average  assets size    ratio (%)      average  coefficient     contract         size   standard
                                firm size    firm size                                   size                factor (%)     standard
--------------------------------------------------------------------------------------------------------------------------------------------------------
541110                               $1.4       $105.8         $0.3          2.5     $1,423.1        0.758  ...........        $10.0  $7.0
Offices of Lawyers..........          7.0         30.0          5.0  ...........  ...........        $10.0
541191                                1.0         24.2          0.4  ...........  ...........        0.700  ...........          5.0  7.0
Title Abstract and                    5.0          5.0          5.0  ...........  ...........         $5.0
 Settlement Offices.
541199                                0.9         18.3  ...........         29.0        176.3        0.730        -21.5          7.0  7.0

[[Page 14330]]

 
All Other Legal Services....          5.0          5.0  ...........  ...........  ...........         $5.0        $10.0
541211                                1.2        116.1          0.4         32.8      5,227.3        0.747        -11.7         14.0  8.5
Offices of Certified Public           5.0         35.5          5.0  ...........  ...........        $10.0        $14.0
 Accountants.
541213                                0.5        131.5  ...........  ...........  ...........        0.681  ...........         14.0  7.0
Tax Preparation Services....          5.0         35.5  ...........  ...........  ...........         $5.0
541214                                7.7        113.9          6.6  ...........  ...........        0.886  ...........         35.5  8.5
Payroll Services............         35.5         35.5         35.5  ...........  ...........        $35.5
541219                                0.5          6.1          0.2  ...........  ...........        0.618        -22.4          7.0  8.5
Other Accounting Services...          5.0          5.0          5.0  ...........  ...........         $5.0        $14.0
541310                                1.6         25.1          0.6          5.2        489.3        0.727        -13.3          7.0  4.5
Architectural Services......          7.0          5.0          5.0  ...........  ...........         $5.0         $7.0
541320                                0.8          6.3          0.3          6.1         80.6        0.586  ...........          5.0  7.0
Landscape Architectural               5.0          5.0          5.0  ...........  ...........         $5.0
 Services.
541330                                4.0        112.0          1.5  ...........  ...........        0.868         -0.1         25.5  4.5
Engineering Services........         19.0         35.5         14.0  ...........  ...........        $35.5
Except Military and               3,086.3      9,073.4      1,187.1         36.0    149,375.0        0.660  ...........         25.5  27.0
 Aerospace Equipment and             35.5         35.5         35.5                                   $5.0
 Military Weapons.
Except Contracts and                   NA           NA           NA           NA           NA           NA           NA           NA  27.0
 Subcontracts for                      NA           NA           NA           NA           NA           NA           NA           NA
 Engineering Services
 Awarded Under the National
 Energy Policy Act of 1992.
Except Marine Engineering         4,088.8     12,295.3      1,572.6         38.5     64,100.0        0.668  ...........         25.5  18.5
 and Naval Architecture.             35.5         35.5         35.5                                  $25.0
541340                                0.8         68.0  ...........  ...........  ...........        0.752  ...........         14.0  7.0
Drafting Services...........          5.0         19.0  ...........  ...........  ...........        $10.0
Except Map Drafting.........           NA           NA           NA           NA           NA           NA           NA           NA  4.5
                                       NA           NA           NA           NA           NA           NA           NA           NA
541350                                0.4          6.4  ...........         13.7         72.8        0.569        -31.1          7.0  7.0
Building Inspection Services          5.0          5.0  ...........  ...........  ...........         $5.0        $14.0
541360                                2.7         60.4  ...........         37.4        256.1        0.853  ...........         25.5  4.5
Geophysical Surveying and            14.0         19.0  ...........  ...........  ...........        $35.5
 Mapping Services.
541370                                0.7          6.5          0.3          7.6        120.9        0.554        -25.4          5.0  4.5
Surveying and Mapping                 5.0          5.0          5.0  ...........  ...........         $5.0         $7.0
 (except Geophysical)
 Services.
541380                                2.6         19.2          1.2  ...........  ...........        0.759          1.0         10.0  12.0
Testing Laboratories........         10.0          5.0        $10.0  ...........  ...........        $10.0
541410                                0.8          5.1          0.2  ...........  ...........        0.557  ...........          5.0  7.0
Interior Design Services....          5.0          5.0          5.0  ...........  ...........         $5.0
541420                                1.3          9.5  ...........  ...........  ...........        0.714  ...........          5.0  7.0
Industrial Design Services..          5.0          5.0  ...........  ...........  ...........         $5.0
541430                                0.6          4.1          0.2          3.3         79.7        0.560  ...........          5.0  7.0
 Graphic Design Services....          5.0          5.0          5.0  ...........  ...........         $5.0
541490                                0.8          6.0  ...........         11.1         45.7        0.623  ...........          5.0  7.0
 Other Specialized Design             5.0          5.0  ...........  ...........  ...........         $5.0
 Services.
541511                                2.0         51.0          0.7          7.4      1,862.3        0.839         -5.2         14.0  25.0
Custom Computer Programming          10.0         14.0          5.0  ...........  ...........        $30.0
 Services.
541512                                2.9        145.9          1.0         20.0      6,243.2        0.885         -7.3         25.5  25.0
Computer Systems Design              14.0         35.5          7.0  ...........  ...........        $35.5
 Services.
541513                                7.2        150.6  ...........  ...........  ...........        0.918         23.0         35.5  25.0
Computer Facilities                  35.5         35.5  ...........  ...........  ...........        $35.5
 Management Services.
541519                                2.6        100.0          0.9         28.6      1,912.1        0.893         15.2         19.0  25.0
Other Computer Related               14.0         30.0          7.0  ...........  ...........        $35.5
 Services.
Except Information                     NA           NA           NA           NA           NA           NA           NA           NA  150 employees
 Technology Value Added                NA           NA           NA           NA           NA           NA           NA           NA
 Resellers.
541611                                1.4         59.9          0.5         17.2      3,482.1        0.817        -12.8         14.0  7.0
Administrative Management             7.0         19.0          5.0  ...........  ...........        $25.5        $10.0
 and General Management
 Consulting Services.
541612                                1.7         56.3          0.4         23.6      1,365.4        0.803         -5.3         14.0  7.0
Human Resources Consulting            7.0         14.0          5.0  ...........  ...........        $25.5
 Services.

[[Page 14331]]

 
541613                                1.1         20.6          0.4          7.3        489.1        0.753        -26.1          7.0  7.0
Marketing Consulting                  5.0          5.0          5.0  ...........  ...........        $10.0        $10.0
 Services.
541614                                3.4         86.6          0.9  ...........  ...........        0.886         -0.5         19.0  7.0
Process, Physical                    14.0         25.5          7.0  ...........  ...........        $35.5
 Distribution and Logistics
 Consulting Services.
541618                                0.8         19.5          0.3         17.5        226.2        0.698        -39.3          7.0  7.0
Other Management Consulting           5.0          5.0          5.0  ...........  ...........         $5.0        $14.0
 Services.
541620                                1.3         16.5          0.5          6.1        160.6        0.727         -8.9          5.0  7.0
Environmental Consulting              5.0          5.0          5.0  ...........  ...........         $5.0
 Services.
541690                                1.1         54.3          0.4  ...........  ...........        0.775        -13.6         10.0  7.0
 Other Scientific and                 5.0         14.0          5.0  ...........  ...........        $14.0        $10.0
 Technical Consulting
 Services.
541720                                2.9         24.5          1.8         26.6        451.3        0.811          1.5         19.0  7.0
Research and Development in          14.0          5.0         14.0  ...........  ...........        $25.5
 the Social Sciences and
 Humanities.
541810                                2.5         53.0          0.7         26.5      2,156.7        0.812        -13.4         14.0  7.0
Advertising Agencies........         10.0         14.0          5.0  ...........  ...........        $25.5        $10.0
541820                                1.2         13.7          0.4         19.3        403.7        0.698        -21.6          7.0  7.0
Public Relations Agencies...          5.0          5.0          5.0  ...........  ...........         $5.0        $10.0
541830                                4.3         65.3  ...........         36.0        320.1        0.834  ...........         25.5  7.0
Media Buying Agencies.......         19.0         19.0  ...........  ...........  ...........        $30.0
541840                                1.9         18.2          0.8  ...........  ...........        0.758  ...........          7.0  7.0
Media Representatives.......         10.0          5.0          5.0  ...........  ...........        $10.0
541850                                3.9        134.2          2.2         44.9        928.8        0.881  ...........         25.5  7.0
Display Advertising.........         19.0         35.5         19.0  ...........         19.0        $35.5
541860                                4.0         45.7          1.4  ...........  ...........        0.799  ...........         19.0  7.0
Direct Mail Advertising.....         19.0         14.0         14.0  ...........  ...........        $19.0
541870                                3.2         52.4          1.3         32.7        201.1        0.849  ...........         19.0  7.0
Advertising Material                 14.0         14.0         10.0  ...........  ...........        $35.5
 Distribution Services.
541890                                1.6         26.2          0.5         12.5        383.0        0.746  ...........          7.0  7.0
 Other Services Related to            7.0          7.0          5.0  ...........  ...........        $10.0
 Advertising.
541910                                3.2         51.7          1.1  ...........  ...........        0.832          5.4         19.0  7.0
Marketing Research and               14.0         14.0          7.0  ...........  ...........        $30.0
 Public Opinion Polling.
541921                                0.5         50.9          0.2  ...........  ...........        0.563  ...........          7.0  7.0
Photography Studios,                  5.0         14.0          5.0  ...........  ...........         $5.0
 Portrait.
541922                                0.5          3.3          0.2          6.5         31.8        0.494  ...........          5.0  7.0
Commercial Photography......          5.0          5.0          5.0  ...........  ...........         $5.0
541930                                1.0         23.8  ...........         26.9        123.8        0.752          1.6          7.0  7.0
Translation and                       5.0          5.0  ...........  ...........  ...........        $10.0
 Interpretation Services.
541940                                0.9         17.4          0.2  ...........  ...........        0.431  ...........          5.0  7.0
Veterinary Services.........          5.0          5.0          5.0  ...........  ...........         $5.0
541990                                0.9         24.1          0.3         16.7        696.2        0.740        -34.7         $7.0  $7.0
All Other Professional,               5.0          5.0          5.0  ...........  ...........         $7.0        $14.0
 Scientific and Technical
 Services.
811212                                1.7         49.0          0.5  ...........  ...........        0.832        -11.2        $19.0  $25.0
Computer and Office Repair            7.0         14.0          5.0  ...........  ...........        $30.0        $30.0
 and Maintenance.
--------------------------------------------------------------------------------------------------------------------------------------------------------

Common Size Standards

    When many of the same businesses operate in multiple industries, 
SBA believes that a common size standard can be appropriate for these 
industries even if the industry and relevant program data support 
different size standards. SBA has established a common size standard 
for Computer Systems Design and Related Services industries (NAICS 
541511, NAICS 541112, NAICS 541513, NAICS 541519 (excluding the 
``exception''), and NAICS 811212.
    In response to public comments to its 1998 proposed rule (63 FR 
5480), SBA also established a common size standard for certain 
Architectural, Engineering (A&E) and Related Services industries (NAICS 
541310, NAICS 541330 (excluding the ``exceptions''), Map Drafting which 
is identified as ``exception'' under NAICS 541340, NAICS 541360 and 
NAICS 541370). It is very likely that firms that have expertise in 
architectural, engineering and surveying activities are also likely to 
be capable of performing drafting work. Similarly, general 
architectural firms are very likely to have expertise in

[[Page 14332]]

landscape architectural services. Industry data also show a lot of 
similarities among architectural, landscape architectural, engineering, 
drafting and surveying industries. Therefore, in this proposed rule, 
SBA applies the A&E common size standard to the rest of the industries 
in the A&E Industry Group (NAICS 5413), including NAICS 541320, NAICS 
541340, NAICS 541350 and NAICS 541380.
    In addition to Computer Systems Design and Related Services and A&E 
and Related Services, in this proposed rule, SBA considers, as an 
alternative to a separate size standard for each industry, common size 
standards for industries under several other NAICS Industry Groups as 
shown in Table 4. SBA evaluated industry and Federal contracting 
factors and derived a common size standard for each Industry Group 
using the same method as described above. These results are provided in 
Table 5.

           Table 4--Industry Groups for Common Size Standards
------------------------------------------------------------------------
                                                     Industries: 6-digit
 Industry group: NAICS codes  Industry group title       NAICS codes
------------------------------------------------------------------------
5411........................  Legal Services......  541110, 451191,
                                                     541199.
5412........................  Accounting, Tax       541211, 541213,
                               Preparation,