Small Business Size Standards: Transportation and Warehousing, 27935-27952 [2011-11717]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 76, Number 93 (Friday, May 13, 2011)]
[Proposed Rules]
[Pages 27935-27952]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11717]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG08


Small Business Size Standards: Transportation and Warehousing

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

[[Page 27936]]

for 22 industries in North American Industry Classification System 
(NAICS) Sector 48-49, Transportation and Warehousing. As part of its 
ongoing initiative to review all size standards, SBA has evaluated all 
industries in NAICS Sector 48-49 that have receipts based size 
standards to determine whether the size standards should be retained or 
revised. This rule is one of a series of proposed rules that will 
examine industries grouped by a 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: You must submit your comments to this proposed rule on or before 
July 12, 2011.

ADDRESSES: You may submit comments, identified by RIN 3245-AG08 by one 
of the following methods: (1) Federal eRulemaking Portal: https://www.regulations.gov. 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.
    SBA will post all comments to this proposed rule 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, you must submit such information 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 send an e-mail to sizestandards@sba.gov. You should highlight the 
information that you consider to be CBI and explain why you believe SBA 
should hold this information as confidential. SBA will review your 
information and determine whether it will make the information public 
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 small 
business assistance, SBA establishes small business definitions 
(referred to as size standards) for private sector industries in the 
United States. SBA uses two primary measures of business size--receipts 
and number of employees. SBA uses financial assets, electric output and 
refining capacity as size measures for a few specialized industries. In 
addition, SBA's Small Business Investment Company (SBIC), Certified 
Development Company (CDC) and 7(a) Loan Programs use either the 
industry based size standards or net worth and net income based size 
standards to determine eligibility for those programs. Currently, SBA's 
size standards consist of 42 different size levels, covering 1,141 
NAICS industries and 18 sub-industry activities (``exceptions'' in 
SBA's table of size standards). 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 changes in the Federal 
contracting marketplace and industry structure. The last time SBA made 
an overall review of size standards was during the late 1970s to early 
1980s. Since then, most reviews of size standards have been limited to 
in-depth analyses of 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 SBA's latest 
inflation adjustment to size standards was published in the Federal 
Register on July 18, 2008 (73 FR 41237).
    Because of changes in Federal marketplace and industry structure 
since the last overall review, SBA recognizes that current data may no 
longer support some of its existing size standards. Accordingly, SBA 
began a comprehensive review of all size standards to determine if they 
are consistent with current data, and to adjust 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 believes a 
more manageable approach is a phased examination of a group of 
industries within a NAICS Sector. A NAICS Sector generally consists of 
25 to 75 industries, except for the manufacturing sector, which has 
considerably more industries. SBA will review the size standards for 
each industry in a NAICS Sector, and then will propose changing size 
standards for those industries for which currently available data and 
other relevant factors support doing so. Accordingly, this proposed 
rule affords the public an opportunity to review and comment on SBA's 
proposals to revise size standards in NAICS Sector 48-49 as well as on 
the data and methodology it uses to evaluate and revise a size 
standard.
    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 within NAICS Sector 
48-49, Transportation and Warehousing, and the impact of the proposed 
revisions to size standards on Federal small businesses assistance.

Size Standards Methodology

    SBA has prepared a ``Size Standards Methodology'' White Paper for 
establishing, reviewing and modifying size standards when necessary. 
This document is available on SBA's Web site at https://www.sba.gov/size. SBA has also included its methodology in the electronic docket of 
this proposed rule as a supporting document at https://www.regulations.gov. SBA does not apply every feature of its 
methodology to every size standard evaluation because not all features 
are appropriate for every industry. For example, since this proposed 
rule covers all industries with receipts based standards in NAICS 
Sector 48-49, 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 evaluating, establishing and modifying 
small business size standards. SBA always explains its analysis in 
individual proposed and

[[Page 27937]]

final rules relating to size standards for specific industries. This 
proposed rule includes information regarding the factors SBA evaluated 
and the criteria the Agency used to propose any adjustments to size 
standards in NAICS Sector 48-49. It also explains why SBA has proposed 
to adjust some size standards in that sector but not others.
    SBA welcomes comments from the public on a number of issues that it 
raises in its ``Size Standards Methodology,'' such as suggestions on 
alternative approaches to establishing and modifying size standards; 
whether there are alternative or additional factors 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 SBA's methodology should be submitted 
via (1) the Federal eRulemaking Portal: https://www.regulations.gov; the 
docket number is SBA-2009-0008; 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 
and other proposed rules, SBA will post all comments on its methodology 
on https://www.regulations.gov. As of May 13, 2011, SBA has received 
four comments to its ``Size Standards Methodology.'' The comments are 
available to the public at https://www.regulations.gov. SBA continues to 
welcome comments on its methodology from interested parties.
    Congress granted SBA's Administrator discretion to establish 
detailed 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)) requires that 
``* * * the [SBA] Administrator shall ensure that the size standard 
varies from industry to industry to the extent necessary to reflect the 
differing characteristics of the various industries and consider other 
factors deemed to be relevant by the Administrator.'' Accordingly, the 
economic structure of an industry 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 
also considers current economic conditions, together with its own 
mission, program objectives, and 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 loan and Federal 
procurement programs, and the evaluation of whether a revised size 
standard would exclude dominant firms 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 current comprehensive size standards review, SBA has 
established three ``base'' or ``anchor'' size standards--$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 manufacturing 
industries at its inception in 1953. Shortly thereafter SBA established 
$1 million in average annual receipts as the anchor size standard for 
nonmanufacturing industries. SBA has periodically increased the 
receipts based anchor size standard for inflation, and it stands today 
at $7 million. Since 1986, SBA has set 100 employees as the size 
standard for all industries in the Wholesale Trade Sector for SBA 
financial assistance programs. For Federal procurement purposes, 
however, the size standard for all firms in both the Wholesale Trade 
(NAICS Sector 42) and 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 stood the test of 
time and 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 precise small business size 
standards for each industry. Otherwise, theoretically, the number of 
size standards might be as high as the number of industries (1,141) for 
which SBA establishes size standards. Furthermore, the data SBA 
analyzes are static, but the U.S. economy is not. Hence, absolute 
precision is impossible. Therefore, SBA presumes an anchor size 
standard is appropriate for a particular industry unless that industry 
displays economic characteristics that are considerably different from 
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. To determine a size standard above the anchor size standard, 
SBA analyzes the characteristics of a second comparison group. For 
industries with receipts based size standards, including those in NAICS 
Sector 48-49 that are reviewed in this proposed rule, this second 
comparison group consists of industries with the highest receipts based 
size standards that range from $23 million to $35.5 million in average 
receipts, with the weighted average being $29 million. SBA refers to 
this comparison group as

[[Page 27938]]

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. SBA also evaluates, as an additional primary factor, 
the possible impact that revising size standards might have on Federal 
contracting assistance to small businesses. These are, generally, the 
five most important factors SBA examines when 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, growth trends, SBA financial 
assistance and other program factors, etc.). SBA also considers 
possible impacts of size standard revisions on eligibility for Federal 
small business assistance, current economic conditions, the 
Administration's policies, and suggestions from industry groups and 
Federal agencies. Public comments on a proposed rule also provide 
important additional information. SBA thoroughly reviews all public 
comments before making a final decision on its proposed size standard. 
Below are brief descriptions of each of the five primary factors that 
SBA has evaluated in each industry in NAICS Sector 48-49 being reviewed 
in this proposed rule. A more detailed description of this analysis is 
provided in the SBA ``Size Standards Methodology,'' available at https://www.sba.gov/size.
    1. Average firm size. SBA computes two measures of average firm 
size: simple average and weighted average. For industries with receipts 
based size standards the simple average is the total receipts of the 
industry divided by the total number of firms in the industry. The 
weighted average firm size is the sum of weighted simple averages in 
different receipts size classes, where weights are the shares of total 
industry receipts for respective size classes. The simple average 
weighs all firms within an industry equally regardless of their size. 
The weighted average overcomes that limitation by giving more weight to 
larger firms.
    If the average firm size of an industry under review is 
significantly higher than the average firm size of industries 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 new firms entering a particular industry have greater 
capital requirements than firms in industries in the anchor comparison 
group, this can be 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.
    To calculate average assets size, SBA begins with the sales to 
total assets ratio for an industry from the Risk Management 
Association's Annual Statement Studies. 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 generated by the largest firms 
in an industry. SBA generally evaluates the share of industry receipts 
generated by the four largest firms in each industry. This is referred 
to as the ``four-firm concentration ratio,'' a commonly used economic 
measure of market competition. SBA compares the four-firmconcentration 
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 companies, all else being 
equal, SBA will establish a size standard higher than the anchor size 
standard. SBA does not consider the four-firm concentration ratio as an 
important factor in assessing a size standard if its value for an 
industry under review is less than 40 percent. For industries in which 
the four-firm concentration ratio is 40 percent or more, 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 total receipts accounted for by firms of different receipts 
and employment size classes in an industry. This is an additional 
factor that SBA evaluates 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 will support 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 the cumulative percentages 
of receipts (or other measures of size) in the vertical axis. (For 
further detail, please refer to SBA's ``Size Standards Methodology'' on 
the SBA's 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 Gini coefficient value for an industry under 
review with that for industries in the anchor comparison group. If an 
industry shows a higher Gini coefficient value than industries in the 
anchor comparison industry group this may, all else being equal, 
warrant a higher size standard than the anchor. Conversely, if an 
industry shows a similar or lower Gini coefficient than industries in 
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 Federal 
small business assistance. This most often focuses on the share of 
Federal contracting dollars awarded to small businesses in the industry 
in question. In general, if the small business share of Federal 
contracting in an industry with significant Federal contracting is 
appreciably less than the small business share of the industry's total 
receipts, there is justification for considering a size standard higher 
than the existing size standard. The disparity between the

[[Page 27939]]

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. By 
comparing the small business Federal contracting share with the 
industry-wide small business share, SBA includes in its size standards 
analysis the latest Federal contracting trends. This analysis may 
indicate a size standard larger than the current standard.
    SBA considers Federal procurement trends in the 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 the latest three 
fiscal years. These thresholds 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 influence of a proposed size standard on SBA's loan 
programs. To do 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, higher size 
standards are supportable. However, if small businesses have 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 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 the 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. The data reflects 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 Census 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. 
Furthermore, the data are not available below the 6-digit NAICS 
Industry level and hence do not provide economic characteristics for 
sub-industry activities (``exceptions'' in SBA's table of size 
standards).
    Thus, when establishing, reviewing, or modifying size standards at 
the sub-industry levels (``exceptions'') with significant Federal 
contracting (i.e., $100 million or more in Federal contract dollars 
annually), SBA evaluates data from FPDS-NG and the Central Contractor 
Registration (CCR) using a two-step procedure. First, using FPDS-NG SBA 
identifies product service codes (PSCs) that correspond to specific 
activities or ``exceptions.'' SBA then identifies firms that are active 
in Federal contracting involving those PSCs. Then, SBA evaluates for 
those firms revenue and employment data from CCR and 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 at https://www.sba.gov/size.
    To calculate average assets 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 data 
representing Federal contract awards for fiscal years 2007-2009. The 
data are available from the U.S. General Service Administration's 
Federal Procurement Data System--Next Generation (FPDS-NG).
    To assess the impact on financial assistance to small businesses 
SBA examined data on its own guaranteed loan programs for fiscal years 
2008-2010.

Dominance in Field of Operation

    Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) requires 
a small business concern to be one that is (1) independently owned and 
operated, and (2) not dominant in its field of operation. SBA 
establishes size standards for the various industries at levels that 
would ensure that no firm qualifying as ``small'' 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 can exercise a major controlling 
influence on a national basis in an industry where a significant number 
of business concerns are engaged. If a contemplated size standard would 
include a dominant firm, SBA would consider a lower size standard to 
exclude the dominant firm from being defined as small.

Selection of Size Standards

    To simplify size standards, for the ongoing comprehensive review of 
receipts based size standards, SBA has proposed 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. This will also result in 
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 Sector 48-49 that has a receipts 
based standard. In this proposed rule, SBA has not

[[Page 27940]]

reviewed the 15 employee based size standards in NAICS Sector 48-49. 
Those employee based size standards will remain in 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 the 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 it is also an anchor standard for 
receipts based standards. The lowest or minimum receipts based size 
level will be $5 million. Other than the standards for agriculture 
(which are statutory) 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 level size 
clusters, SBA has set four fixed levels, namely $10 million, $14 
million, $25.5 million, and $35.5 million. Because there are large 
intervals between the two of the fixed levels, SBA also established two 
intermediate levels, namely $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 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 same multiple industries, 
establishing a common size standard for those industries 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 information technology (IT) services 
industries (NAICS 541511, NAICS 541112, NAICS 541513, and NAICS 
541519), even though the industry data might support a distinct size 
standard for each industry (57 FR 27906 (June 23, 1992)). Within NAICS 
Sector 48-49, several industries currently have common size standards, 
some at the 3-digit NAICS (Subsector) level and others at 4-digit NAICS 
(Industry Group) level. In this rule, SBA proposes to retain the common 
size standards for those industries even if the data may support 
separate size standards for individual industries. Whenever SBA 
proposes a common size standard for closely related industries it will 
provide a justification for that in the proposed rule.

Evaluation of Industry Structure

    SBA evaluated the structure of 42 industries and one sub-industry 
(``exception'') in NAICS Sector 48-49, Transportation and Warehousing, 
to assess the appropriateness of the current receipts based size 
standards. As described above, SBA compared data on the economic 
characteristics of each 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 standards 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 considered 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 this group is $29 million. SBA 
refers to this group of industries as the ``higher level receipts based 
size standard comparison group.'' SBA determines differences in 
industry structure between an industry under review and the industries 
in the two comparison groups by comparing data on each of the industry 
factors, including average firm size, average assets size, the 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, the 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   Four[dash]firm      of four
             Receipts based comparison group                                                 size  ($      concentration   largest firms       Gini
                                                          Simple average     Weighted        million)        ratio (%)      ($ million)     coefficient
                                                                              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.


[[Page 27941]]

Derivation of Size Standards Based on Industry Factors

    For each industry factor 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, an industry's simple average receipts of $4.0 million 
supports a $19 million size standard. The $4.0 million level is at the 
52.5 percent point 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 the 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 $18.52 million ([{$29.0 million - $7.0 million{time}  * 
0.525] + $7.0 million = $18.52 million). The final step is to round the 
estimated size standard of $18.52 million to the nearest fixed size 
standard level, which in this example is $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 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 (below) 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     avg. receipts   assets size  ($    largest four      Or if Gini    standard is ($
      size ($ 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 Standard Based on Federal Contracting Factor

    Besides industry structure, SBA evaluates Federal contracting data 
to assess, under current size standards, the extent to which small 
businesses are successful in getting Federal contracts. However, the 
available data on Federal contracting only identify businesses as small 
or other than small, and do not provide the exact size of the 
businesses receiving Federal contracts; this hinders SBA's attempts to 
conduct more precise analyses.
    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.
    Given the limitations of the FPDS data and the complex 
relationships among a number of variables affecting small business 
participation in the Federal marketplace, 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. SBA believes 
that a larger adjustment to size standards based on Federal contracting 
activity should be based on 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. This enables SBA to support a different 
size standard than indicated by this general rule and take into 
consideration significant and unique aspects of small business 
competitiveness in the Federal contract market. SBA welcomes comments 
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 42 industries reviewed in this proposed rule, 9 industries 
averaged $100 million or more annually in Federal contracting 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) in four of those nine 
industries and a separate size standard was derived for that factor for 
each of them. Because the small business share of total Federal 
contracting dollars was already higher than the small business share of 
total industry receipts for the other five industries, the Federal 
procurement factor was not considered in determining the level of size 
standard for them. Thus, the latest data show that Federal contracting 
activity is insignificant for most of the industries in NAICS Sector 
48-49 and, for the majority of those industries where it is 
significant, small businesses seem to be doing well in terms of their 
share in Federal marketplace relative to their share of industry's 
total sales.

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 industry covered by this proposed rule. 
Many of the NAICS

[[Page 27942]]

industries in columns 2, 3, 4, 6, 7, and 8 show two numbers. The upper 
number is the value for the industry or Federal contracting factor 
shown on the top of the column and the lower number is the size 
standard supported by that factor. For the four-firm concentration 
ratio, SBA estimates a size standard if its value is 40 percent or 
more. If the four-firm concentration ratio for an industry is less than 
40 percent, there is no estimated size standard for that factor. If the 
four-firm concentration ratio is more than 40 percent, SBA indicates in 
column 6 the average size of the industry's top four firms together 
with a size standard based on that average. Column 9 shows a calculated 
new size standard for each industry. This is the average of the 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.'' For comparison with 
the new standards, the current size standards are in column 10 of Table 
3.

                                                Table 3--Size Standards Supported by Each Industry Factor
                                                                  [Millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                (1)                      (2)          (3)          (4)          (5)          (6)          (7)          (8)          (9)          (10)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Simple      Weighted                              Four-firm                  Federal     Calculated    Current
               NAICS                   average      average      Average     Four-firm     average        Gini       contract     new size       size
                                      firm size    firm size   assets size   ratio (%)       size     coefficient   factor (%)    standard     standard
--------------------------------------------------------------------------------------------------------------------------------------------------------
481219, Other Non[dash]Scheduled            $2.9        $31.4         $2.1         33.7       $115.9        0.793  ...........        $14.0         $7.0
 Air Transportation................         14.0          7.0         19.0                                  $19.0
484110, General Freight Trucking--           1.0          7.8          0.3  ...........  ...........        0.694  ...........          5.0         25.5
 Local.............................          5.0          5.0          5.0                                   $5.0
484121, General Freight, Trucking,           3.0         64.7          1.1         13.0      2,761.9        0.857        -37.1         25.5         25.5
 Long[dash]Distance, Truckload.....         14.0         19.0         10.0                                  $35.5        $35.5
484122, General Freight, Trucking,          10.8        335.7          4.2         51.2      4,670.3        0.939  ...........         35.5         25.5
 Long[dash]Distance, Less Than              35.5         35.5        $35.5                      35.5         35.5
 Truckload.........................
484210, Used Household and Office            2.0         70.5          0.7         27.6      1,059.8        0.799  ...........         14.0         25.5
 Goods Moving......................         10.0         19.0          5.0                                  $19.0
484220, Specialized Freight (except          1.0          7.7          0.4          3.3        257.9        0.669  ...........          5.0         25.5
 Used Goods) Trucking, Local.......          5.0          5.0          5.0                                   $5.0
484230, Specialized Freight (except          2.7         28.8          1.1          8.0        541.3        0.811        -29.1         19.0         25.5
 Used Goods) Trucking,                      14.0          7.0         10.0                                  $25.5        $30.0
 Long[dash]Distance................
485111, Mixed Mode Transit Systems.          2.4         22.7  ...........         65.6         21.3        0.739  ...........          7.0          7.0
                                            10.0          5.0                                    5.0         $7.0
485112, Commuter Rail Systems......          6.1         17.4  ...........         83.2         21.7        0.644  ...........         10.0          7.0
                                            30.0          5.0                                    5.0         $5.0
485113, Bus and Other Motor Vehicle          5.5         86.1  ...........         46.3        306.0        0.877  ...........         25.5          7.0
 Transit Systems...................         25.5         25.5                                    7.0        $35.5
485119, Other Urban Transit Systems          6.8         78.8  ...........         86.6         63.3        0.884  ...........         25.5          7.0
                                            30.0         25.5                                    5.0        $35.5
485210, Interurban and Rural Bus             7.1        131.3  ...........         60.2        249.3        0.873  ...........         25.5          7.0
 Transportation....................         35.5         35.5                                    7.0        $35.5
485310, Taxi Service...............          0.7         16.2          0.3  ...........  ...........        0.704  ...........          5.0          7.0
                                             5.0          5.0          5.0                                   $5.0
485320, Limousine Service..........          0.9         17.7          0.4         14.3        138.3        0.698  ...........          5.0          7.0
                                             5.0          5.0          5.0                                   $5.0
485410, School and Employee Bus              3.3        338.8          2.0  ...........  ...........        0.880  ...........         25.5          7.0
 Transportation....................         14.0         35.5         19.0                                  $35.5
485510, Charter Bus Industry.......          1.9         12.1          1.4         15.0         82.5        0.657  ...........          7.0          7.0
                                            10.0          5.0         10.0                                   $5.0
485991, Special Needs                        1.3         11.1  ...........  ...........  ...........        0.698  ...........          5.0          7.0
 Transportation....................          5.0          5.0                                                $5.0
485999, All Other Transit and                1.0          9.1          0.4         15.9         42.9        0.686  ...........          5.0          7.0
 Ground Passenger Transportation...          5.0          5.0          5.0                                   $5.0
486210, Pipeline Transportation of         165.1        406.7  ...........         46.9      2,438.7        0.601  ...........         25.5          7.0
 Natural Gas.......................         35.5         35.5                                   35.5         $5.0
486990, All Other Pipeline                  39.7         56.0  ...........         77.5        207.5        0.305  ...........         14.0         34.5
 Transportation....................         35.5         14.0                                    7.0         $5.0

[[Page 27943]]

 
487110, Scenic and Sightseeing               1.4         17.5          0.8  ...........  ...........        0.719  ...........          5.0          7.0
 Transportation, Land..............          7.0          5.0          5.0                                   $5.0
487210, Scenic and Sightseeing               0.8         11.5          0.5  ...........  ...........        0.638  ...........          5.0          7.0
 Transportation, Water.............          5.0          5.0          5.0                                   $5.0
487990, Scenic and Sightseeing               2.0         30.4  ...........  ...........  ...........        0.784  ...........         14.0          7.0
 Transportation, Other.............         10.0          7.0                                               $19.0
488111, Air Traffic Control........          9.7         49.8  ...........         94.2         59.5        0.741  ...........         14.0          7.0
                                            35.5         14.0                                    5.0         $7.0
488119, Other Airport Operations...          5.3         42.3          2.7         30.2        389.7        0.822  ...........         25.5          7.0
                                            25.5         10.0         25.5                                  $30.0
488190, Other Support Activities             4.7         78.7          2.2  ...........  ...........        0.869         -9.8         25.5          7.0
 for Air Transportation............         19.0         25.5         19.0                                  $35.5
488210, Support Activities for Rail          6.3         28.3  ...........         20.0        166.8        0.739  ...........         14.0          7.0
 Transportation....................         30.0          7.0                                                $7.0
488310, Port and Harbor Operations.          8.1         27.1  ...........  ...........  ...........        0.698  ...........         14.0         25.5
                                            35.5          7.0                                                $5.0
488320, Marine Cargo Handling......         30.4        189.6         20.2  ...........  ...........        0.824  ...........         35.5         25.5
                                            35.5         35.5         35.5                                  $30.0
488330, Navigational Services to             4.1         39.0          3.4         20.3        151.7        0.818         12.1         25.5          7.0
 Shipping..........................         19.0         10.0         35.5                                  $25.5
488390, Other Support Activities             2.7         21.2          2.0         22.7         97.5        0.793        -10.2         14.0          7.0
 for Water Transportation..........         14.0          5.0         19.0                                  $19.0        $10.0
488410, Motor Vehicle Towing.......          0.6          7.7          0.2  ...........  ...........        0.499  ...........          5.0          7.0
                                             5.0          5.0          5.0                                   $5.0
488490, Other Support Activities             1.7         15.1          0.7         23.3        128.8        0.770  ...........         10.0          7.0
 for Road Transportation...........          7.0          5.0          5.0                                  $14.0
488510, Freight Transportation               3.2         41.7          0.7          8.8        905.5        0.793  ...........         14.0          7.0
 Arrangement.......................         14.0         10.0          5.0                                  $19.0
Except Non-Vessel Owning Common      ...........  ...........  ...........  ...........  ...........  ...........  ...........  ...........         25.5
 Carriers and Household Goods
 Forwarders........................
488991, Packing and Crating........          2.0         24.9          0.7         30.1        199.3        0.796  ...........         10.0         25.5
                                            10.0          5.0          5.0                                  $19.0
488999, All Other Support                    0.7          4.8          0.3         52.0      2,105.0        0.679        -21.0          7.0          7.0
 Activities for Transportation.....          5.0          5.0          5.0                                   $5.0        $10.0
491110, Postal Service.............  ...........  ...........  ...........  ...........  ...........  ...........  ...........  ...........          7.0
492210, Local Messengers and Local           1.0         12.5  ...........         12.2        126.5        0.699  ...........          5.0         25.5
 Delivery..........................          5.0          5.0                                                $5.0
493110, General Warehousing and              5.4         14.4          4.0         33.3      2,265.5        0.626          7.8         19.0         25.5
 Storage...........................         25.5          5.0         35.5                                   $5.0
493120, Refrigerated Warehousing             5.8         15.9          6.2         30.7        307.3        0.627        -24.3         19.0         25.5
 and Storage.......................         25.5          5.0         35.5                                   $5.0        $30.0
493130, Farm Product Warehousing             3.6          7.3          1.7  ...........  ...........        0.505  ...........         10.0         25.5
 and Storage.......................         19.0          5.0         14.0                                   5.0$
493190, Other Warehousing and                5.0         10.7          3.2         30.7        554.8        0.554          6.4         19.0         25.5
 Storage...........................         25.5          5.0         35.5                                   $5.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

Common Size Standards

    When many of the same businesses operate in the same multiple 
industries, SBA believes that a common size standard is more 
appropriate than separate standards for these industries even if the 
industry and relevant program data would support different size 
standards. Within NAICS Sector 48-49, several industries currently have 
common size standards, some at the 3-digit NAICS (Subsector) level and 
others at 4-digit NAICS (Industry Group) level. For example, all 
industries within NAICS Subsector 484 (Truck Transportation) and those 
in NAICS Subsector 485 (Transit and Ground Transportation) have the 
common size standards of $25.5 million and $7.0 million, respectively. 
Similarly, industries within NAICS Subsector 487 (Scenic and Sight 
Seeing Transportation), NAICS Industry Group

[[Page 27944]]

4881 (Support Activities for Air Transportation), NAICS Industry Group 
4884 (Support Activities for Road Transportation), and NAICS Industry 
Group 493 (Warehousing and Storage) have the common size standards.
    On May 2, 2006, SBA proposed to increase the size standards for 
NAICS 488111 (Air Traffic Control), NAICS 488119 (Other Airport 
Operations), and NAICS 488190 (Other Support Activities for Air 
Transportation) from $6.5 million to $21 million in average annual 
receipts. Given that many firms operate in each of these three 
industries, SBA proposed establishing a common $21 million size 
standard for this Industry Group (see 71 FR 28604). For the same 
reason, also in this rule, SBA has proposed a common size standard for 
all three industries for this NAICS Industry Group.
    Besides the above industries, because of similarities among 
industries within NAICS Industry Group 4883 (Support Activities for 
Water Transportation), in this rule, SBA also proposes a common size 
standard for that Industry Group. Table 4 (below) shows these 
Subsectors and Industry Groups, along with the 6-digit NAICS industries 
under them. SBA evaluated industry and Federal contracting factors and 
derived a common size standard for each Subsector and each Industry 
Group using the same method as described above. These results are 
provided in Table 5 (immediately following Table 5).

                        Table 4--Subsectors and Industry Groups for Common Size Standards
----------------------------------------------------------------------------------------------------------------
 Subsector/industry group: NAICS
              codes                Subsector/industry group title         Industries: 6-digit NAICS codes
----------------------------------------------------------------------------------------------------------------
484..............................  Truck Transportation..........  484110, 484121, 484122, 484210, 484220,
                                                                    484230.
485..............................  Transit and Ground Passenger    485111, 485112, 485113, 485119, 485210,
                                    Transportation.                 485310, 485320, 485410, 485510, 485991,
                                                                    485999.
487..............................  Scenic and Sightseeing          487110, 487210, 487990.
                                    Transportation.
4881.............................  Support Activities for Air      488111, 488119, 488190.
                                    Transportation.
4883.............................  Support Activities for Water    488310, 488320, 48830, 488390.
                                    Transportation.
4884.............................  Support Activities for Road     488410, 488490.
                                    Transportation.
493..............................  Warehousing and Storage.......  493110, 493120, 493130, 493190.
----------------------------------------------------------------------------------------------------------------


                               Table 5--Size Standards Supported by Each Factor for Each Subsector and Each Industry Group
                                                                  [Millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                (1)