Small Business Size Standards: Real Estate and Rental and Leasing, 70680-70694 [2011-29448]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 76, Number 220 (Tuesday, November 15, 2011)]
[Proposed Rules]
[Pages 70680-70694]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29448]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG28


Small Business Size Standards: Real Estate and Rental and Leasing

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 20 industries and one sub-
industry in North American Industry Classification System (NAICS) 
Sector 53, Real Estate and Rental and Leasing. As part of its ongoing 
comprehensive review of all size standards, SBA has evaluated all size 
standards in NAICS Sector 53 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 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-AG28, 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 of 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 alternative size standards to determine 
eligibility for those programs. At the beginning of the current 
comprehensive size standards review, there were 41 different size 
standards covering 1,141 NAICS industries and 18 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 all 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 
reviews the effect of inflation on its standards and makes necessary 
adjustments to its monetary based size standards at least once every 
five years. 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 no 
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 a 
NAICS Sector. A NAICS Sector generally

[[Page 70681]]

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 a 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 that 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 of 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 all industries in NAICS Sector 53 have 
receipts based size standards, the methodology described in this 
proposed rule applies to establishing receipts based size 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 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. 
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 includes information regarding the factors SBA 
evaluated and the criteria the Agency used to propose any adjustments 
to size standards in NAICS Sector 53. It also explains why SBA has 
proposed to adjust some size standards in NAICS Sector 53 but not 
others. This proposed rule affords the public an opportunity to review 
and comment on SBA's proposals to revise size standards in NAICS Sector 
53, 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 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

[[Page 70682]]

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 53 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. The size standards 
for this group of industries range from $23 million to $35.5 million in 
average receipts, with the weighted average size standard for the group 
being $29 million. SBA refers to this comparison group as the ``higher 
level receipts based size standard group.''
    The primary factors that SBA evaluates when analyzing the 
structural characteristics of an industry include average firm size, 
startup costs and entry barriers, industry competition, and 
distribution of firms by size. 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. 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 the potential impact 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 53 being reviewed in this proposed rule. A more detailed 
description of this analysis is provided in SBA's ``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 actual startup cost data, 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 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 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 the anchor 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-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 generally indicates that small businesses are competitive 
in that industry. This can support 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 can support adopting a size standard above the anchor.
    Concentration is a measure of inequality of distribution. To 
determine

[[Page 70683]]

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 its 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 be due to various factors, such as extensive administrative 
and compliance requirements associated with Federal contracts, the 
different skill set required 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 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 contracting 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 significant levels of 
contracting where a revision to a size standard may have an impact on 
expanding contracting opportunities to small businesses.
    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 and number 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 small 
businesses under current size standards 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 used in this proposed rule is 
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 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 various receipts, and employment size 
classes.
    In some cases, where data were not available due to disclosure 
prohibitions in the Census Bureau's tabulation, SBA either estimated 
missing values using available relevant data or examined data at a 
higher level of industry aggregation, such as at the NAICS 2-digit 
(Sector), 3-digit (Subsector) or 4-digit (Industry Group) level. In 
some instances, SBA's analysis was based only on those factors for 
which data were available or estimates of missing values were possible.
    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 the 
Central Contractor Registration (CCR) following a two-step procedure. 
First, using FPDS-NG, SBA identifies product service codes (PSCs) that 
correspond to specific sub-industry activities or ``exceptions'' and 
then identifies firms that are active in Federal contracting involving 
those PSCs. Then, SBA obtains those firms' revenue and employment data 
from the CCR database. SBA uses that data to evaluate the actual size 
of businesses that FPDS-NG identifies for those procurements. In this 
proposed rule, SBA applied this approach to evaluate industry and 
Federal contracting factors for ``Leasing of Building Space to Federal 
Government by Owners,'' which is an exception under NAICS 531190, 
Lessors of Other Real Estate Property.
    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 on 
Federal contract awards for fiscal years 2007-2009. The data are 
available from GSA's 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.
    Data sources and estimation procedures that SBA uses in its size 
standards analysis are documented in detail in 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,

[[Page 70684]]

and (3) within a specific small business definition or size standard 
established by the SBA Administrator. SBA considers as part of its 
evaluation whether a business concern at a proposed size standard would 
be dominant in its field of operation. For this, SBA generally examines 
the industry's market share of firms at the proposed standard. Market 
share and other factors may indicate whether a firm 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 SBA's 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 and sub-industry in NAICS Sector 53. In 
NAICS Sector 53, all size standards 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 size standards for agriculture and those based 
on commissions (such as real estate brokers and travel agents), $5 
million will include those industries with the currently lowest 
receipts based standards, which range from $2 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 
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 represent roughly the same 
proportional differences as in the other two successive 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 always be appropriate. For example, in cases 
where many of the same businesses operate in the same multiple 
industries, a common size standard for those industries might better 
reflect the Federal marketplace. This might also make size standards 
among closely related industries more consistent than separate size 
standards for each of those industries. This led SBA to establish a 
common size standard for the information technology (IT) services 
(NAICS 541511, NAICS 541112, NAICS 541513, and NAICS 541519), even 
though the industry data might support a distinct size standard for 
each industry (see 57 FR 27906, June 23, 1992). Within NAICS Sector 53, 
all industries in NAICS Industry Group 5313, Activities Related to Real 
Estate; all industries in NAICS Industry Group 5321, Automotive 
Equipment Rental and Leasing; and all industries in NAICS Industry 
Group 5322, Consumer Goods Rental, have common size standards of $2 
million, $25.5 million, and $7 million, respectively. In this rule, 
except for NAICS 5322, SBA proposes to retain common size standards for 
those industries and establish common size standards for similar 
industries in other NAICS Industry Groups as well. Whenever SBA 
proposes a common size standard for closely related industries it will 
provide its justification.

Evaluation of Industry Structure

    SBA evaluated the structure of the 24 industries and one sub-
industry in NAICS Sector 53, Real Estate and Rental and Leasing, to 
assess the appropriateness of the current size standards. As described 
above, SBA compared data on the economic characteristics of each 
industry and sub-industry to the average characteristics of industries 
in two comparison groups. The first comparison group consists of all 
industries with a $7 million size standard 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 appropriate. 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 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

[[Page 70685]]

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)                                         Average receipts
                                             ------------------------------------  Avgerage assets   Four[dash]firm    of four largest
       Receipts based comparison group                              Weighted          Size  ($        concentration       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 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 can support a $19 million size standard. The $3.3 million 
level is 52.8 percent between $1.32 million for the anchor comparison 
group and $5.07 million for the higher level comparison group (($3.3 
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 
million-$7 million{time}  * 0.528] + $7 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 at https://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. 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                       Then
                                 Or if weighted     Or if average      receipts of                        size
  If simple average receipts    average receipts   assets size  ($    largest four       Or if Gini     standard
       size  ($ million)            size  ($          million)          firms  ($        coefficient     is  ($
                                    million)                            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 1,014.1  0.753 to 0.788..  19.0
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 133.41  3.08 to 3.61....  1,309.1 to        0.823 to 0.853..  30.0
                                                                     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 industries where the small 
business share of total Federal contracting dollars is 10 to 30 percent 
lower than their share of total industry receipts, SBA has designated a 
size standard 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 share of total 
industry receipts, SBA has designated a size standard two levels higher 
than the current size standard.
    Because of the complex relationships among several 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 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

[[Page 70686]]

alternative methods and other relevant information on small business 
experience in the Federal contract market.
    Of the 24 industries and one sub-industry in NAICS Sector 53 
reviewed in this proposed rule, seven 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 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, no size standard is 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's ``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 title    average      average    assets size   firm ratio    average      (7) Gini     contract       size         size
                                      firm size    firm size        ($          (%)        size  ($   coefficient  factor  (%)    standard     standard
                                     ($ million)  ($ million)    million)                  million)                             ($ million)  ($ million)
--------------------------------------------------------------------------------------------------------------------------------------------------------
531110--Lessors of Residential              $1.3        $32.2         $6.6         11.0     $1,851.5        0.713         22.8  ...........  ...........
 Buildings and Dwellings...........
                                             7.0         10.0         35.5  ...........  ...........        $10.0  ...........        $19.0         $7.0
531120--Lessors of Nonresidential            3.3         80.7         16.5         14.3      3,600.4        0.861         30.7  ...........  ...........
 Buildings (except Miniwarehouses).
                                            19.0         19.0         35.5  ...........  ...........        $35.5  ...........         30.0          7.0
531130--Lessors of Miniwarehouses            0.7         24.8          3.5         34.4        562.6        0.584  ...........  ...........  ...........
 and Self Storage Units............
                                             5.0          7.0         30.0  ...........  ...........         $5.0  ...........         14.0         25.5
531190--Lessors of Other Real                0.7          7.3          3.7         15.0        228.4        0.563        -19.6  ...........  ...........
 Estate Property...................
                                             5.0          5.0         35.5  ...........  ...........         $5.0        $10.0         14.0          7.0
Except Leasing of Building Space to        144.6      2,930.8  ...........         83.0     12,603.0        0.950  ...........  ...........  ...........
 Federal Government by Owners......
                                            35.5         35.5  ...........  ...........         35.5        $35.5  ...........         35.5         20.5
531210--Offices of Real Estate               0.8         35.0          0.6         11.3      2,388.9        0.711        -29.6  ...........  ...........
 Agents and Brokers................
                                             5.0         10.0          5.0  ...........  ...........        $10.0         $7.0          7.0          2.0
531311--Residential Property                 1.0         14.5          1.6          6.8  ...........        0.701  ...........  ...........  ...........
 Managers..........................
                                             5.0          5.0         14.0  ...........        483.9         $7.0  ...........         10.0          2.0
531312--Nonresidential Property              1.1          7.9          5.3          6.7        266.3        0.682  ...........  ...........  ...........
 Managers..........................
                                             5.0          5.0         35.5  ...........  ...........         $5.0  ...........         14.0          2.0
531320--Offices of Real Estate               0.3          3.8  ...........          7.8         96.6        0.397  ...........  ...........  ...........
 Appraisers........................
                                             5.0          5.0  ...........  ...........  ...........         $5.0  ...........          5.0          2.0
531390--Other Activities Related to          1.0         32.4          3.1         26.0      1,049.2        0.768  ...........  ...........  ...........
 Real Estate.......................
                                             5.0           10         25.5  ...........  ...........        $19.0  ...........         19.0          2.0
532111--Passenger Car Rental.......         11.3        922.8         15.4         82.0      4,877.9        0.963  ...........  ...........  ...........
                                            35.5         35.5         35.5  ...........         35.5        $35.5  ...........         35.5         25.5
532112--Passenger Car Leasing......         10.1        153.7         21.7         63.6        864.5        0.844  ...........  ...........  ...........
                                            35.5         35.5         35.5  ...........         19.0        $35.5  ...........         30.0         25.5
532120--Truck, Utility Trailer, and          7.4        116.8          9.6         54.7      2,548.3        0.895  ...........  ...........  ...........
 RV (Recreational Vehicle) Rental
 and Leasing.......................
                                            35.5         30.0         35.5  ...........         35.5        $35.5  ...........         35.5         25.5
532210--Consumer Electronics and             5.2        468.7          3.2  ...........  ...........        0.904  ...........  ...........  ...........
 Appliances Rental.................
                                            30.0         35.5         30.0  ...........  ...........        $35.5  ...........         35.5          7.0
532220--Formal Wear and Costume              1.0        141.4  ...........  ...........  ...........        0.750  ...........  ...........  ...........
 Rental............................
                                             5.0         35.5  ...........  ...........  ...........        $14.0  ...........         19.0          7.0
532230--Video Tape and Disc Rental.          1.9        659.7          0.9         77.4      1,791.4        0.896  ...........  ...........  ...........
                                            10.0         35.5          7.0  ...........         35.5        $35.5  ...........         25.5          7.0

[[Page 70687]]

 
532291--Home Health Equipment                7.0        106.0          4.1         66.6        978.1        0.863  ...........  ...........  ...........
 Rental............................
                                            35.5         25.5         35.5  ...........         19.0        $35.5  ...........         30.0          7.0
532292--Recreational Goods Rental..          0.4          1.5  ...........          7.0         12.0        0.410  ...........  ...........  ...........
                                             5.0          5.0  ...........  ...........  ...........         $5.0  ...........          5.0          7.0
532299--All Other Consumer Goods             1.3         13.7          0.8         16.5        155.0        0.664  ...........  ...........  ...........
 Rental............................
                                             7.0          5.0          7.0  ...........  ...........         $5.0  ...........          7.0          7.0
532310--General Rental Centers.....          1.4         48.7          1.0         36.8        390.7        0.672  ...........  ...........  ...........
                                             7.0         14.0          7.0  ...........  ...........         $5.0  ...........          7.0          7.0
532411--Commercial, Air, Rail, and          14.0        147.4         23.3         69.2      1,567.5        0.866         37.9  ...........  ...........
 Water, Transportation Equipment
 and Rental........................
                                            35.5         35.5         35.5  ...........         30.0        $35.5  ...........         35.5          7.0
532412--Construction, Mining and             6.6         76.7          7.1         41.8      1,782.1        0.846  ...........  ...........  ...........
 Forestry Machinery and Equipment
 Rental and Leasing................
                                            35.5         19.0         35.5  ...........         35.5        $30.0  ...........         30.0          7.0
532420--Office Machinery and                 3.5         21.3          5.5         30.6        163.6        0.784        -23.3  ...........  ...........
 Equipment Rental and Leasing......
                                            19.0          7.0         35.5  ...........  ...........        $19.0        $30.0         25.5         25.5
532490--Other Commercial, and                4.2         51.7          4.5         22.7      1,101.6        0.826         -4.3  ...........  ...........
 Industrial Machinery and Equipment
 Rental and Leasing................
                                            25.5         14.0         35.5  ...........  ...........        $30.0  ...........         30.0          7.0
5333110--Lessors of Nonfinancial            14.2        118.6         17.0         33.5      2,757.2        0.862  ...........  ...........  ...........
 Intangible Assets (except
 Copyrighted Works)................
                                            35.5         30.0         35.5  ...........  ...........        $35.5  ...........         35.5          7.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

Common Size Standards

    When many of the same businesses operate in multiple industries, 
SBA believes that a common size standard can be appropriate for these 
industries even if the industry and relevant program data may support 
different size standards. For instance, in past rules, SBA has 
established a common size standard for Computer Systems Design and 
Related Services (NAICS 541511, NAICS 541112, NAICS 541513, NAICS 
541519 (excluding the ``exception''), and NAICS 811212). Another 
example is the common size standard for certain Architectural, 
Engineering and Related Services (NAICS 541310, NAICS 541330 (excluding 
the ``exceptions''), Map Drafting which is identified as ``exception'' 
under NAICS 541340, NAICS 541360, and NAICS 541370 (see 64 FR 28275, 
May 25, 1999). More recently, SBA established a common size standard 
for some of the industries in NAICS Sector 44-45, Retail Trade, as well 
(see 75 FR 61597, October 6, 2010). Similarly, SBA proposed common size 
standards for several other industries in NAICS Sector 54, 
Professional, Scientific and Technical Services (see 76 FAR 14323, 
March 16, 2011), NAICS Sector 48-49, Transportation and Warehousing 
(see 76 FAR 27935, May 13, 2011), and NAICS Sector 56, Administrative 
and Support, Waste Management and Remediation Services (see 76 FR 
63510, October 12, 2011).
    In this rule, SBA proposes, as an alternative to a separate size 
standard for each industry, common size standards for industries under 
several NAICS Industry Groups as shown in Table 4. SBA evaluated 
industry and Federal contracting factors and derived a common size 
standard for each Industry Group using the same method as described 
above. The results are in Table 5, which immediately follows Table 4, 
below. For two closely related NAICS Industry Groups, Real Estate 
Agents and Brokers (NAICS 5312) and Activities Related to Real Estate 
(NAICS 5313), SBA is also proposing to continue with a common size 
standard. The industries in these two Industry Groups were one industry 
under the former Standard Industrial Classification System. With the 
establishment of the NAICS in 1997, five industries were created for 
the various real estate related activities (see 62 FR 17288, April 9, 
1997). Firms in these two NAICS Industry Groups, however, often engage 
in related real estate activities of both Industry Groups, such as 
property sales, property rental, property management services, real 
estate consulting, real estate appraisal and relocations services. In 
consideration of the similar activities of firms within NAICS 5312 and 
NAICS 5312, and SBA's historical application of a common size standard 
for them, SBA has combined the data for the two NAICS Industry Groups 
in evaluating an appropriate size standard.

                               Table 4--Industry Groups for Common Size Standards
----------------------------------------------------------------------------------------------------------------
    Industry group: NAICS codes         Industry group titles            Industries: 6-digit NAICS codes
----------------------------------------------------------------------------------------------------------------
5311...............................  Lessors of Real Estate....  531110, 531120, 531130, 531190.

[[Page 70688]]

 
5312 & 5313........................  Real Estate Agents and      531210, 531311, 531312, 531320, 531390.
                                      Brokers, and Activities
                                      Related to Real Estate.
5321...............................  Automotive Equipment        532111, 532112, 532120.
                                      Rental and Leasing.
5324...............................  Commercial and Industrial   532411, 532412, 532420, 532490.
                                      Machinery and Equipment
                                      Rental and Leasing.
----------------------------------------------------------------------------------------------------------------


                                        Table 5--Size Standards Supported by Each Factor for Each Industry Group
                                                                  [Millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   (3)                                 (6)  Four-                   (8)          (9)
                                                  (2)  Simple    Weighted       (4)       (5)  Four-      firm      (7)  Gini     Federal     Calculated
         (1)  NAICS code/Industry title             average      average      Average     firm ratio    average    coefficient    contract       size
                                                   firm size    firm size   assets size      (%)          size                  factor  (%)    standard
--------------------------------------------------------------------------------------------------------------------------------------------------------
5311--Lessors of Real Estate....................         $1.8        $61.0         $9.2          8.1     $3,643.3        0.795         19.3        $25.5
                                                         10.0         14.0         35.5                                  $25.5
5312 & 5313--Real Estate Agents and Brokers               0.9         23.4          0.8  ...........  ...........        0.707        -13.4          7.0
 Activities, and Related to Real Estate.........          5.0          7.0          7.0                                   10.0          5.0
5321--Automotive Equipment Rental and Leasing...          9.4        276.7         13.2         47.4      5,335.8        0.931         20.8         35.5
                                                         35.5         35.5         35.5                      35.5         35.5
5324--Commercial and Industrial Machinery and             5.6         75.8          6.6         22.8      2,724.2        0.854          8.9         30.0
 Equipment Rental and Leasing...................         30.0         19.0         35.5                                   35.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

Special Considerations

Leasing of Building Space to Federal Government by Owners

    The current size standard for Federal contracts for Leasing of 
Building Space to Federal Government by Owners (``exception'' to NAICS 
531190) is $20.5 million. This size standard applies only to certain 
Federal contracting opportunities that meet specific criteria. Footnote 
9 of SBA's table of size standards (13 CFR 121.201) reads: ``For 
Government procurement, a size standard of $20.5 million in gross 
receipts applies to the owners of building space leased to the Federal 
Government. This size standard does not apply to an agent.''
    To determine if the current $20.5 million size standard is 
appropriate, SBA evaluated average firm size, market concentration, and 
size distribution of firms involved in Leasing of Building Space to 
Federal Government by Owners. SBA used data from FPDS-NG and CCR and 
followed the procedure described under the section ``Sources of 
Industry and Program Data'' (above). Based on the data for fiscal years 
2007-2009, Federal contracts averaged less than $100 million annually. 
Therefore, the Federal contracting factor was not an important factor 
for evaluating this sub-industry. The results, as shown in Table 3, 
support increasing the current size standard to $35.5 million.

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 2008-2010 to as