Small Business Size Standards: Educational Services, 70667-70680 [2011-29445]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 76, Number 220 (Tuesday, November 15, 2011)]
[Proposed Rules]
[Pages 70667-70680]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29445]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG29


Small Business Size Standards: Educational 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 nine industries in North 
American Industry Classification System (NAICS) Sector 61, Educational 
Services. As part of its ongoing comprehensive size standards review, 
SBA has evaluated all size standards in NAICS Sector 61 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 NAICS Sector. SBA issued a White 
Paper entitled ``Size Standards Methodology'' and published a notice in 
the October 21, 2009 issue of the Federal Register 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 
January 17, 2012.

ADDRESSES: You may submit comments, identified by RIN 3245-AG29 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, Ph.D., Chief, Size 
Standards Division, 409 Third Street SW., Mail Code 6530, Washington, 
DC 20416. SBA will not accept comments to this proposed rule submitted 
by email.
    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, Ph.D., Chief, Size Standards 
Division, 409 Third Street SW., Mail Code 6530, Washington, DC 20416, 
or send an email 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, Ph.D., 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 size definitions 
(referred to as size standards) for private sector industries in the 
United States. SBA uses two primary measures of business size: average 
annual receipts and average number of employees. SBA uses financial 
assets, electric output, and refining capacity to measure the size for 
a few specialized industries. In addition, SBA's Small Business 
Investment Company (SBIC), Certified Development Company (504) 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. At the beginning of SBA's comprehensive size standards 
review, there were 41 different size standards, covering 1,141 NAICS 
industries and 18

[[Page 70668]]

sub-industry activities (``exceptions'' in SBA's table of size 
standards). Thirty-one of these size levels were based on average 
annual receipts, seven were based on average number of employees, and 
three were 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, in particular the changes 
in the Federal contracting marketplace and industry structure. The last 
time SBA conducted a comprehensive review of size standards was during 
the late 1970s and 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. 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 the 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, in 2007, 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. In addition, the 
Jobs Act requires that SBA conduct a 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 are 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 of reviewing a group of industries within an 
NAICS Sector. An NAICS Sector generally consists of 25 to 75 
industries, except for the manufacturing sector, which has considerably 
more. Once SBA completes its review of size standards for industries in 
an NAICS Sector, it will issue a proposed rule to revise size standards 
for those industries for which currently available data and other 
relevant factors support doing so.
    Below is a discussion of SBA's size standards methodology for 
establishing receipts based size standards, which SBA applied to this 
proposed rule, including analyses of industry structure, Federal 
procurement trends and other factors for industries reviewed in this 
proposed rule, the impact of the proposed revisions to size standards 
on Federal small business assistance, and the evaluation of whether a 
revised size standard would exclude dominant firms from being 
considered small.

Size Standards Methodology

    SBA has developed a ``Size Standards Methodology'' for developing, 
reviewing and modifying size standards when necessary. SBA has 
published the document on its Web site at https://www.sba.gov/size for 
public review and comments and included it, as a supporting document, 
in the electronic docket for this proposed rule at https://www.regulations.gov. 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 size standards in NAICS Sector 61, the 
methodology described here applies to establishing receipts based 
standards. However, the methodology is made 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 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 use of 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. 
Comments on SBA's 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, Ph.D., 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 November 15, 2011, SBA has received seven 
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 is the 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 when it 
establishes small business size standards, SBA 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. 
SBA also examines whether a size standard based on industry and other 
relevant data successfully excludes businesses that are dominant in the 
industry. This proposed rule affords the public an opportunity to 
review and comment on SBA's proposals to revise size standards in NAICS 
Sector 61, as well as on the data and methodology it 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 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

[[Page 70669]]

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, the size 
standard for all industries in the Wholesale Trade Sector has been 100 
employees for SBA financial assistance and for most other Federal 
programs. However, NAICS codes for Wholesale Trade Industries (NAICS 
Sector 42) and their 100 employee size standards do not apply to 
Federal procurement programs. Rather, for Federal procurement the size 
standard for all industries in Wholesale Trade and for all industries 
in Retail Trade (NAICS Sector 44-45) is 500 employees under 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 for which 
SBA establishes size standards (1,141). Furthermore, the data SBA 
analyzes are static, while 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, then 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 61 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 annual 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. SBA also evaluates, as an additional 
primary factor, the 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. In addition, 
SBA considers and evaluates 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.). The SBA also considers 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 standards. Below are brief descriptions of each of the 
five primary factors that SBA has evaluated for each industry in NAICS 
Sector 61 being reviewed in this proposed rule. A more detailed 
description of this analysis is provided in 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 as a proxy to measure the capital requirements for new 
entrants to an industry.
    To calculate average assets, SBA begins with the total 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 of firms in that industry. An industry with 
average assets that are significantly higher than those of the anchor 
comparison group is likely to have higher startup costs; this in turn 
will

[[Page 70670]]

support a size standard higher than the anchor. Conversely, an industry 
with average assets that are similar to or significantly lower than 
those of the anchor comparison group is likely to have lower startup 
costs; this in turn will support adoption of the anchor size standard, 
or in rare cases, one lower than the anchor.
    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-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 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 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 is a measure of inequality of distribution. To 
determine the degree of inequality of distribution in an industry, SBA 
computes the Gini coefficient, using the Lorenz curve. The Lorenz curve 
presents the cumulative percentages of units (firms) along the 
horizontal axis and the cumulative percentages of receipts (or other 
measures of size) along the vertical axis. (For further detail, please 
refer to SBA's ``Size Standards Methodology'' on 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's Gini coefficient is similar to or lower than that for 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 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 small 
business Federal market share and the industry-wide small business 
share may have a variety of causes, such as extensive administrative 
and compliance requirements associated with Federal contracts, 
different skill set requirements for Federal contracts as compared to 
typical commercial contracting work, and the size of Federal contracts. 
These, as well as other factors, are likely to influence the type of 
firms within an industry that compete for Federal contracts. By 
comparing the Federal contracting small business 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) total Federal contracting averages $100 
million or more during the latest three fiscal years. These thresholds 
reflect a significant level of contracting where 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 proposed size standard 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 have impeded financial assistance to small businesses, higher 
size standards are supportable. However, if under current size 
standards 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, this factor is not considered for 
determining the size standard.

Sources of Industry and Program Data

    SBA's primary source of industry data for most industries covered 
by this proposed rule was a special tabulation of the 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 three 
industries, namely NAICS 611110, NAICS 611210, and NAICS 611310, are 
not covered by the Economic Census. The data for these industries were 
based on the 2007 County Business Patterns (see https://www.census.gov/econ/cbp/). The special tabulation provides SBA with data on the number 
of firms, number of establishments, number of employees, annual 
payroll, and annual receipts of companies by NAICS Sector (2-digit 
level), Subsector (3-digit level), Industry Group (4-digit level), 
Industry (6-digit level). These data are arrayed by various classes of 
firms' size based on the overall number of employees and receipts of 
the entire enterprise (all establishments and affiliated firms) from 
all industries. The special tabulation 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 data were not available due to disclosure 
prohibitions, 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

[[Page 70671]]

(Subsector), or 4-digit (Industry Group) level. In some instances, SBA 
analysis was based 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 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 (GSA) 
Federal Procurement Data System--Next Generation (FPDS-NG) and Central 
Contractor Registration (CCR) databases 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 ``Job Corps Centers,'' which is an 
exception under NAICS 611519, Other Technical and Trade Schools.
    To calculate average assets, SBA used total sales to total assets 
ratios from the Risk Management Association's Annual Statement Studies 
from years 2007 to 2009.
    To evaluate Federal contracting trends, SBA examined data on 
Federal contract awards for fiscal years 2007 to 2009. The data are 
available from the GSA's FPDS-NG database.
    To assess the impact on financial assistance to small businesses, 
SBA examined data on its own guaranteed loan programs for fiscal years 
2008 to 2010.
    Data sources and estimation procedures that SBA uses in its size 
standards analysis are documented in detail in the SBA's ``Size 
Standards Methodology'' White Paper, which is available at https://www.sba.gov/size.

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 size 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 can exercise a major controlling 
influence on a national basis in an industry where a significant number 
of business concerns are engaged. If a contemplated size standard 
includes a dominant firm, SBA will consider a lower size standard to 
exclude the dominant firm from being defined as small.

Selection of Size Standards

    To simplify size standards, for the ongoing comprehensive review of 
receipts based size standards, SBA has proposed to select size 
standards 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)). At 
the beginning of the current comprehensive size standards review, there 
were 31 different levels of receipts based size standards. They ranged 
from $0.75 million to $35.5 million, and many of them applied 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.
    SBA proposes, therefore, to apply one of eight receipts based size 
standards to each industry in NAICS Sector 61. All size standards in 
NAICS Sector 61 are based on annual receipts. The eight ``fixed'' 
receipts based size standard levels are $5 million, $7 million, $10 
million, $14 million, $19 million, $25.5 million, $30 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 million to $10 
million, $12.5 million to $14 million, $25 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 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 and those based on commissions (such as real estate 
brokers and travel agents), $5 million will include those industries 
that at the start of the comprehensive size standards review had the 
lowest receipts based standards, which ranged from $2 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 some 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 levels reflect 
roughly the same proportional differences as between the other two 
successive levels.

Evaluation of Industry Structure

    SBA evaluated the structure of each of the 17 industries and one 
sub-industry in NAICS Sector 61, Educational Services, to assess the 
appropriateness of the current size standards. As described above, SBA 
compared data on the economic characteristics of each industry in NAICS 
Sector 61 to the average characteristics of industries in two 
comparison groups. The first comparison group consists of all 
industries with $7 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 industries 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 based on the difference between the characteristics of 
the anchor comparison group and a second industry comparison group. As 
described above, the second comparison

[[Page 70672]]

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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                Average firm size  ($ million)                                             Average
                                             ------------------------------------  Average assets       Four-firm     receipts of four
       Receipts based comparison group                              Weighted          size  ($        concentration     largest firms   Gini coefficient
                                               Simple average        average          million)         ratio  (%)*      ($ million)*
--------------------------------------------------------------------------------------------------------------------------------------------------------
Anchor Level................................              1.32             19.63              0.84              16.6             196.4             0.693
Higher Level................................              5.07            116.84              3.20              32.1           1,376.0             0.830
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 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 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 million 
anchor size standard appropriate for that factor.
    An industry factor significantly above or below the anchor 
comparison group will generally warrant a size standard for that 
industry above or below the $7 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 are $3.3 
million, that would support a $19 million size standard. The $3.3 
million level is 52.8 percent between the average firm size of $1.32 
million for the anchor comparison group and $5.07 million for the 
higher level comparison group (($3.30 million-$1.32 million) / ($5.07 
million-$1.32 million) = 0.528 or 52.8%). This proportional difference 
is applied to the difference between the $7 million anchor size 
standard and average size standard of $29 million for the higher level 
size standard group and then added to $7 million to estimate a size 
standard of $18.62 million ([{$29.0 million-$7.0 million{time}  * 
0.528] + $7.0 million = $18.62 million). The final step is to round the 
estimated $18.62 million size standard to the nearest fixed size 
standard, 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's 
``Size Standards Methodology,'' which is available on its Web site at 
https://www.sba.gov/size. (However, it should be noted that the 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. That is because when SBA prepared its ``Size Standards 
Methodology,'' the 2007 Economic Census data were not yet available). 
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 average
                               Or if weighted   Or if average     receipts of                        Then size
 If simple average receipts       average       assets size is    largest four      Or if Gini      standard is
    size is  ($ million)       receipts size     ($ million)      firms is  ($    coefficient is    ($ million)
                              is  ($ million)                       million)
----------------------------------------------------------------------------------------------------------------
< 1.15......................  < 15.22........  < 0.73.........  < 142.8........  < 0.686........             5.0
1.15 to 1.57................  15.22 to 26.26.  0.73 to 1.00...  142.8 to 276.9.  0.686 to 0.702.             7.0
1.58 to 2.17................  26.27 to 41.73.  1.01 to 1.37...  277.0 to 464.5.  0.703 to 0.724.            10.0
2.18 to 2.94................  41.74 to 61.61.  1.38 to 1.86...  464.6 to 705.8.  0.725 to 0.752.            14.0
2.95 to 3.92................  61.62 to 87.02.  1.87 to 2.48...  705.9 to         0.753 to 0.788.            19.0
                                                                 1,014.1.
3.93 to 4.86................  87.03 to 111.32  2.49 to 3.07...  1,014.2 to       0.789 to 0.822.            25.5
                                                                 1,309.0.
4.87 to 5.71................  111.33 to        3.08 to 3.61...  1,309.1 to       0.823 to 0.853.            30.0
                               133.41.                           1,577.1.
> 5.71......................  > 133.41.......  > 3.61.........  > 1,577.1......  > 0.853........            35.5
----------------------------------------------------------------------------------------------------------------

Derivation of Size Standard Based on Federal Contracting Factor

    Besides industry structure, SBA also evaluates Federal contracting 
data to assess how successful small businesses are in getting Federal 
contracts under existing size standards. For the current comprehensive 
size standards review, for industries where the small business share of 
total Federal contracting dollars is between 10 and 30 percent lower 
than their shares in total industry receipts, SBA has designated 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 more than 30 percent lower than their shares in total 
industry receipts, SBA has designated a size standard at two levels 
higher than the current size standard.
    Because of the complex relationships among a number of variables 
affecting small business participation in the

[[Page 70673]]

Federal marketplace, SBA has chosen not to designate a size standard 
for the Federal contracting factor alone that is more 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 may enable 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 for 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 17 industries reviewed in this proposed rule, seven 
industries averaged $100 million or more annually in Federal 
contracting during fiscal years 2007 to 2009. Also, a review of Federal 
contracts awarded to the sub-industry Job Corps Centers during fiscal 
year 2009 indicates that the sub-industry received more than $100 
million in Federal contracts as well. The Federal contracting factor 
was significant (i.e., the difference between the small business share 
of total industry receipts and the small business share of Federal 
contracting dollars was 10 percentage points or more) in three of those 
seven industries and a separate size standard was derived for that 
factor for each of them.

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 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 size standard estimated 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 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 Factor for Each Industry
                                                                  [Millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      (3)                                 (6) Four-                                 (9)          (10)
                                      (2) Simple    Weighted   (4) Average   (5) Four-       firm                  (8) Federal   Calculated    Current
   (1) NAICS code/ NAICS industry      average      average       assets     firm ratio    average      (7) Gini     contract       size         size
               title                  firm size    firm size     size ($        (%)        size ($    coefficient   factor (%)  standard ($  standard ($
                                     ($ million)  ($ million)    million)                  million)                               million)     million)
--------------------------------------------------------------------------------------------------------------------------------------------------------
611110--Elementary and Secondary            $3.3        $14.7  ...........          1.7       $259.3        0.668  ...........        $10.0         $7.0
 Schools...........................
                                            19.0          5.0  ...........  ...........  ...........         $5.0  ...........  ...........  ...........
611210--Junior Colleges............         14.9         62.0  ...........         25.4        443.4        0.735  ...........         19.0          7.0
                                            35.5         19.0  ...........  ...........  ...........        $14.0  ...........  ...........  ...........
611310--Colleges, Universities and          67.5        324.3  ...........          9.6      3,959.4        0.779          0.8         25.5          7.0
 Professional Schools..............
                                            35.5         35.5  ...........  ...........  ...........        $19.0  ...........  ...........  ...........
611410--Business and Secretarial             1.3          6.2  ...........         19.8         20.2        0.668  ...........          7.0          7.0
 Schools...........................
                                             7.0          5.0  ...........  ...........  ...........         $5.0  ...........  ...........  ...........
611420--Computer Training..........          1.2         11.3  ...........         17.0        104.5        0.741         23.3         10.0          7.0
                                             7.0          5.0  ...........  ...........  ...........        $14.0  ...........  ...........  ...........
611430--Professional and Management          1.3         12.8          0.9          9.9        178.2        0.739        -17.7         10.0          7.0
 Development Training..............
                                             7.0          5.0          7.0  ...........  ...........        $14.0        $10.0  ...........  ...........
611511--Cosmetology and Barber               0.8          6.4  ...........         11.7         35.0        0.546  ...........          5.0          7.0
 Schools...........................
                                             5.0          5.0  ...........  ...........  ...........         $5.0  ...........  ...........  ...........
611512--Flight Training............          2.6         56.9  ...........         52.0        282.0        0.836        -17.3         19.0         25.5
                                            14.0         14.0  ...........  ...........         10.0        $30.0        $30.0  ...........  ...........
611513--Apprenticeship Training....          1.0          5.7  ...........         10.2         31.9        0.612  ...........          5.0          7.0
                                             5.0          5.0  ...........  ...........  ...........         $5.0  ...........  ...........  ...........
611519--Other Technical and Trade            1.8         19.4          1.2         17.8        267.4        0.778        -13.8         14.0          7.0
 Schools...........................
                                            10.0          7.0         10.0  ...........  ...........        $19.0        $10.0  ...........  ...........
Except--Job Corps Centers..........        585.8      1,907.3  ...........         94.0      2,891.2        0.690         20.0         30.0         35.5
                                            35.5         35.5  ...........  ...........         35.5         $7.0  ...........  ...........  ...........
611610--Fine Arts Schools..........          0.3          1.7          0.1          3.2         26.3        0.325  ...........          5.0          7.0
                                             5.0          5.0          5.0  ...........  ...........         $5.0  ...........  ...........  ...........
611620--Sports and Recreation                0.3          1.5  ...........          4.0         36.8        0.327  ...........          5.0          7.0
 Instruction.......................
                                             5.0          5.0  ...........  ...........  ...........         $5.0  ...........  ...........  ...........
611630--Language Schools...........          0.7         52.8  ...........         31.1         66.7        0.704  ...........         10.0          7.0
                                             5.0         14.0  ...........  ...........  ...........        $10.0  ...........  ...........  ...........
611691--Exam Preparation and                 0.6         43.9  ...........         29.5        259.1        0.642  ...........          7.0          7.0
 Tutoring..........................
                                             5.0         14.0  ...........  ...........  ...........         $5.0  ...........  ...........  ...........
611692--Automobile Driving Schools.          0.3          2.2  ...........          8.6         13.8        0.370  ...........          5.0          7.0

[[Page 70674]]

 
                                             5.0          5.0  ...........  ...........  ...........         $5.0  ...........  ...........  ...........
611699--All Other Miscellaneous              1.0         21.5          0.7         27.1        242.4        0.758          3.2         10.0          7.0
 Schools and Instruction...........
                                             5.0          7.0          7.0  ...........  ...........        $19.0  ...........  ...........  ...........
611710--Educational Support                  1.5         39.2          1.2         21.2        467.1        0.811         -5.1         14.0          7.0
 Services..........................
                                             7.0         10.0         10.0  ...........  ...........        $25.5  ...........  ...........  ...........
--------------------------------------------------------------------------------------------------------------------------------------------------------

Special Considerations

Job Corps Centers

    The current size standard for Federal contracts for Job Corps 
Centers (``exception'' to NAICS code 611519) is $35.5 million in 
average annual receipts. For Federal procurement programs, this size 
standard applies to Federal contracts that meet specific criteria. The 
criteria that constitute a Jobs Corps Center contract or company are 
detailed in Footnote 16 to SBA's table of size standards (13 CFR 
121.201): ``For classifying a Federal Procurement, the purpose of the 
solicitation must be for the management and operation of a U.S. 
Department of Labor Job Corps Centers. The activities involved include 
admissions activities, life skills training, educational activities, 
comprehensive career preparation activities, career development 
activities, career transition activities, as well as the management and 
support functions and services needed to operate and maintain the 
facility. For SBA assistance as a small business concern, other than 
for Federal Government procurements, a concern must be primarily 
engaged in providing the services to operate and maintain Federal Job 
Corps Centers.''
    To determine if the current $35.5 million size standard is 
appropriate, SBA evaluated average firm size, market concentration, and 
size distribution of firms involved in the Job Corps Centers sub-
industry using the data from FPDS-NG and CCR and the procedure 
described under the section of this rule entitled ``Sources of Industry 
and Program Data.'' Based on the data for fiscal year 2009, Federal 
contracts averaged more than $100 million annually, but the small 
business share of Federal contracting dollars was larger than the small 
business share of total receipts. Therefore, the Federal contracting 
factor was not important for the evaluation of this sub-industry. The 
results, as shown in Table 3, support decreasing the current size 
standard to $30 million. However, for reasons discussed below, SBA has 
proposed to retain the $35.5 million size standard.

Evaluation of SBA Loan Data

    Before deciding on an industry's size standard, SBA also considers 
the impact of new or revised standards on SBA's loan programs. 
Accordingly, SBA examined its 7(a) and 504 Loan Program data for fiscal 
years 2008 to 2010 to assess whether the existing or proposed size 
standards need further adjustments to ensure credit opportunities for 
small businesses through those programs. For the industries reviewed, 
the data show that it is mostly businesses much smaller than the 
current size standards that utilize SBA's 7(a) and 504 loans. 
Therefore, no size standard in NAICS Sector 61, Educational Services, 
needs an adjustment based on this factor.

Proposed Changes to Size Standards

    Table 4 (below) summarizes the results of SBA analyses of industry 
and federal procurement factors from Table 3. The results support 
increases in size standards for nine industries, decreases for six 
industries and one sub-industry (exception to NAICS 611519, Job Corps 
Centers), and no changes for two industries.
    However, lowering small business size standards is not in the best 
interests of small businesses under the current economic environment. 
The U.S. economy was in recession from December 2007 to June 2009, the 
longest and deepest of any recessions since World War II. The economy 
lost more than eight million non-farm jobs during 2008-2009. In 
response, Congress passed and the President signed the American 
Recovery and Reinvestment Act of 2009 (Recovery Act) to promote 
economic recovery and to preserve and create jobs. Although the 
recession officially ended in June 2009, the unemployment rate was 9.4 
percent or higher from May 2009 to December 2010. It somewhat moderated 
to 8.8 percent in March 2011, but it has been 9 percent or higher for 
the May-July quarter. The unemployment rate is forecast to remain at 
around 9 percent through the end of 2011. More recently, Congress 
passed and the President signed the Small Business Jobs Act of 2010 
(Jobs Act) to promote small business job creation. The Jobs Act puts 
more capital into the hands of entrepreneurs and small business owners; 
includes recommendations from the President's Task Force on Federal 
Contracting Opportunities for Small Business that strengthens small 
businesses' ability to compete for contracts and creates a better 
playing field for small businesses; building on the President's 
National Export Initiative, promotes small business exporting; expands 
training and counseling for small businesses; and provides $12 billion 
in tax relief to help small businesses invest in their firms and create 
jobs.
    Reducing the size standard for Job Corps Centers (the exception to 
NAICS 511619) would result in significant jobs losses in that industry, 
and it would adversely affect those unemployed and underemployed people 
that Job Corps Centers serve. This is another reason why SBA is not 
lowering the size standard for this industry.

[[Page 70675]]



                                   Table 4--Summary of Size Standards Analysis
----------------------------------------------------------------------------------------------------------------
                                                                                    Calculated     Current size
               NAICS code                          NAICS industry title            size standard    standard ($
                                                                                    ($ million)      million)
----------------------------------------------------------------------------------------------------------------
611110..................................  Elementary and Secondary Schools......           $10.0            $7.0
611210..................................  Junior Colleges.......................            19.0             7.0
611310..................................  Colleges, Universities and                        25.5             7.0
                                           Professional Schools.
611410..................................  Business and Secretarial Schools......             7.0             7.0
611420..................................  Computer Training.....................            10.0             7.0
611430..................................  Professional and Management                       10.0             7.0
                                           Development Training.
611511..................................  Cosmetology and Barber Schools........             5.0             7.0
611512..................................  Flight Training.......................            19.0            25.5
611513..................................  Apprenticeship Training...............             5.0             7.0
611519..................................  Other Technical and Trade Schools.....            14.0             7.0
Except..................................  Job Corps Centers.....................            30.0            35.5
611610..................................  Fine Arts Schools.....................             5.0             7.0
611620..................................  Sports and Recreation Instruction.....             5.0             7.0
611630..................................  Language Schools......................            10.0             7.0
611691..................................  Exam Preparation and Tutoring.........             7.0             7.0
611692..................................  Automobile Driving Schools............             5.0             7.0
611699..................................  All Other Miscellaneous Schools and               10.0             7.0
                                           Instruction.
611710..................................  Educational Support Services..........            14.0             7.0
----------------------------------------------------------------------------------------------------------------

    Further, lowering size standards would decrease the number of firms 
that could participate in Federal financial and procurement assistance 
for small businesses. Size standards based solely on analytical results 
without any other considerations would cut off currently eligible small 
firms from those programs. That would run counter to what SBA and the 
Federal government are doing to help small businesses. Reducing size 
eligibility for Federal assistance, especially under current economic 
conditions, would not preserve or create more jobs; rather, it would 
have the opposite effect. Therefore, in this proposed rule, SBA does 
not propose to reduce size standards for any industries. For six 
industries and one sub-industry for which analyses might support 
lowering size standards, SBA proposes to retain the current size 
standards. SBA nevertheless invites comments and suggestions on whether 
it should lower size standards as suggested by analyses of industry and 
program data or retain the current standards for those industries in 
view of current economic conditions.
    As discussed above, SBA has decided that lowering small business 
size standards would be inconsistent with what the Federal government 
is doing to stimulate the economy and encourage job growth through the 
Recovery Act and Jobs Act. Therefore, for those industries for which 
its analyses suggested decreasing their size standards, SBA proposes to 
retain the current size standards. Thus, of the 17 industries and one 
sub-industry in NAICS Sector 61 that SBA reviewed in this proposed 
rule, the Agency proposes to increase size standards for nine 
industries and retain the current standards for eight industries and 
one sub-industry. Industries for which SBA has proposed to increase 
their size standards and proposed standards are in Table 5 (below).
    In addition, not lowering size standards in NAICS Sector 61 is 
consistent with SBA's prior actions for NAICS Sector 44-45 (Retail 
Trade), NAICS Sector 72 (Accommodation and Food Services), and NAICS 
Sector 81 (Other Services), which the Agency proposed (74 FR 53924, 74 
FR 53913, and 74 FR 53941, October 21, 2009) and adopted in its final 
rules (75 FR 61597, 75 FR 61604, and 75 FR 61591, October 6, 2010). It 
is also consistent with the Agency' recently proposed rules for NAICS 
Sector 54, Professional, Technical, and Scientific Services (76 FR 
14323, March 16, 2011), NAICS Sector 48-49, Transportation and 
Warehousing (76 FR 27935, May 13, 2011), NAICS Sector 51, Information 
(See 76 FR 63216, October 12, 2011), and NAICS Sector 56, 
Administrative and Support, Waste Management and Remediation Services 
(See 76 FR 63510, October 12, 2011). In each of those final and 
proposed rules, SBA opted not to reduce small business size standards 
for the same reasons it has provided above in this proposed rule.

                              Table 5--Summary of Proposed Size Standard Revisions
----------------------------------------------------------------------------------------------------------------
                                                                                   Proposed size   Current size
               NAICS code                          NAICS industry title            standard  ($    standard  ($
                                                                                     million)        million)
----------------------------------------------------------------------------------------------------------------
611110..................................  Elementary and Secondary Schools......           $10.0            $7.0
611210..................................  Junior Colleges.......................            19.0             7.0
611310..................................  Colleges, Universities and                        25.5             7.0