Small Business Size Standards: Construction, 42197-42211 [2012-17440]
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Federal Register / Vol. 77, No. 138 / Wednesday, July 18, 2012 / Proposed Rules
PART 107—EXEMPTIONS FROM
PREPARATION PURSUANT TO AN
UNSUSPENDED AND UNREVOKED
LICENSE
1. The authority citation for part 107
continues to read as follows:
Authority: 21 U.S.C. 151–159; 7 CFR 2.22,
2.80, and 371.4.
2. Section 107.1 is amended as
follows:
a. In the introductory text and in
paragraph (a)(1), by removing the word
‘‘establishments’’ and adding the word
‘‘facilities’’ in its place.
b. By redesignating paragraph (a)(2) as
paragraph (a)(3) and adding a new
paragraph (a)(2) to read as follows:
§ 107.1 Veterinary practitioners and animal
owners.
*
*
*
*
*
(a) * * *
(2) All steps in the preparation of
product being prepared under the
exemption in paragraph (a)(1) of this
section must be performed at the
facilities that the veterinarian utilizes
for the day-to-day activities associated
with the treatment of animals in the
course of his/her State-licensed
professional practice of veterinary
medicine. A veterinary assistant
employed by the veterinary practitioner
and working at the veterinary practice’s
facility under the veterinarian’s direct
supervision may perform the steps in
the preparation of product. Such
preparation may not be consigned to
any other party or sub-contracted to a
commercial laboratory/manufacturing
facility.
*
*
*
*
*
Done in Washington, DC, this 12th day of
July 2012.
Kevin Shea,
Acting Administrator, Animal and Plant
Health Inspection Service.
[FR Doc. 2012–17533 Filed 7–17–12; 8:45 am]
BILLING CODE 3410–34–P
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
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RIN 3245–AG37
Small Business Size Standards:
Construction
U.S. Small Business
Administration.
ACTION: Proposed rule.
AGENCY:
The U.S. Small Business
Administration (SBA) proposes to
increase small business size standards
for one industry and one sub-industry in
SUMMARY:
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North American Industry Classification
System (NAICS) Sector 23,
Construction. SBA proposes to increase
the size standard for NAICS 237210,
Land Subdivision, from $7 million to
$25 million and the size standard for
Dredging and Surface Cleanup
Activities, a sub-industry category (or an
‘‘exception’’) under NAICS 237990,
Other Heavy and Civil Engineering
Construction, from $20 million to $30
million in average annual receipts. As
part of its ongoing comprehensive size
standards review, SBA has evaluated all
size standards in NAICS Sector 23 to
determine whether they should be
retained or revised. This proposed rule
is one of a series of proposed rules that
will review 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 to advise the public
that the document is available on its
Web site at 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.
SBA must receive comments to
this proposed rule on or before
September 17, 2012.
DATES:
Identify your comments by
RIN 3245–AG37 and submit them by
one of the following methods: (1)
Federal eRulemaking Portal:
www.regulations.gov, following 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 www.regulations.gov.
If you wish to submit confidential
business information (CBI) as defined in
the User Notice at 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. 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
ADDRESSES:
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information and determine whether it
will make the information public.
FOR FURTHER INFORMATION CONTACT:
Jorge Laboy-Bruno, Ph.D., Economist,
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.
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 were limited
to a few specific industries in response
to requests from the public and Federal
agencies. SBA also adjusts its monetary
based size standards for inflation 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).
Given its importance in the Federal
Procurement market, SBA has studied
and reviewed the construction industry
over time. In 1985, SBA adopted a new
size standard for the Dredging subindustry (an exception within NAICS
industry 237990). The new size
standard was based on a 1984 study of
the industry structure, conducted in
cooperation with the Corps of Engineers
and members of the industry. The final
rule was published in the Federal
Register on November 8, 1985 (50 FR
46418). Finally, the industry’s
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definitions under the NAICS changed
significantly in 2002, requiring SBA to
adjust its size standards (including
those in NAICS Sector 23) accordingly
(67 FR 52633).
Because of changes in the Federal
marketplace and industry structure
since the last comprehensive size
standards 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 five
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 is reviewing size
standards on a Sector by Sector basis. A
NAICS Sector generally includes 25 to
75 industries, except for NAICS Sector
31–33, Manufacturing, which has
considerably more industries. Once SBA
completes its review of size standards
for industries in a NAICS Sector, it
issues a proposed rule to revise size
standards for those industries for which
it believes 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 recently developed a ‘‘Size
Standards Methodology’’ for
developing, reviewing, and modifying
size standards when necessary. SBA
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published the document on its Web site
at www.sba.gov/size for public review
and comments, and has included it as
a supporting document in the electronic
docket of this proposed rule at
www.regulations.gov. SBA does not
apply all features of its ‘‘Size Standards
Methodology’’ to all industries because
not all features are appropriate for every
industry. For example, since all
industries in NAICS Sector 23 have
receipts based size standards the
methodology described in this proposed
rule applies only to establishing receipts
based size standards. However, the
methodology is 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 concerning
its ‘‘Size Standards Methodology,’’ such
as whether there are other 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;
whether there are gaps in SBA’s
methodology because the data it uses
are not current or sufficiently
comprehensive; and whether there are
other data, facts, and/or issues that SBA
should consider. Comments on SBA’s
size standards methodology should be
submitted via: (1) The Federal
eRulemaking Portal:
www.regulations.gov, following the
instructions for submitting comments;
the docket number is SBA–2009–0008;
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 it will do with comments to
this and other proposed rules, SBA will
post all comments on its methodology
on www.regulations.gov. As of
December 29, 2011, SBA has received
14 comments to its ‘‘Size Standards
Methodology.’’ The comments are
available to the public at
www.regulations.gov. SBA continues to
welcome comments on its methodology
from interested parties. SBA will not
accept comments to its ‘‘Size Standards
Methodology’’ submitted by email.
Congress granted SBA’s Administrator
discretion to establish detailed small
business size standards. 15 U.S.C.
632(a)(2). Specifically, Section 3(a)(3) of
the Small Business Act (15 U.S.C.
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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 (as described below).
In addition, SBA considers current
economic conditions, its mission and
program objectives, 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 it used to
propose adjustments to size standards in
NAICS Sector 23. This proposed rule
affords the public an opportunity to
review and to comment on SBA’s
proposals to revise size standards in
NAICS Sector 23, as well as on the data
and methodology it used to evaluate and
revise the size standards.
Industry Analysis
For the current comprehensive size
standards review, SBA has established
three ‘‘base’’ or ‘‘anchor’’ size
standards—$7.0 million in average
annual receipts for industries that have
receipts based size standards, 500
employees for manufacturing and other
industries that have employee based
size standards (except for Wholesale
Trade), and 100 employees for
industries in the Wholesale Trade
Sector. SBA established 500 employees
as the anchor size standard for
manufacturing industries at its
inception in 1953. Shortly thereafter,
SBA established $1 million in average
annual receipts as the anchor size
standard for nonmanufacturing
industries. SBA has periodically
increased the receipts based anchor size
standard for inflation, and today it is $7
million. Since 1986, the size standard
for all industries in the Wholesale Trade
Sector for SBA financial assistance and
for most Federal programs has been 100
employees. However, NAICS codes for
the Wholesale Trade Sector and their
100 employee size standards do not
apply to Federal procurement programs.
Rather, for Federal procurement the size
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standard for all industries in Wholesale
Trade (NAICS Sector 42) 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 is neither a minimum nor a
maximum size standard. 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. SBA presumes
an anchor size standard is appropriate
for a particular industry unless that
industry displays economic
characteristics that are considerably
different from other industries with the
same anchor size standard.
When evaluating a size standard, SBA
compares the economic characteristics
of the industry under review to the
average characteristics of industries
with one of the three anchor size
standards (referred to as the ‘‘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 generally 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
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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 23, SBA has developed a
second comparison group consisting of
industries that have the highest of
receipts based size standards. To
determine 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; the weighted average
size standard for the group is $29
million. SBA refers to this comparison
group as the ‘‘higher level receipts based
size standard group.’’
The primary factors that SBA
evaluates to examine industry structure
include average firm size, startup costs
and entry barriers, industry
competition, and distribution of firms
by size. SBA evaluates, as an additional
primary factor, the impact that revised
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, other program
factors, etc.). SBA also considers
possible impacts of size standard
revisions on eligibility for Federal small
business assistance, current economic
conditions, the Administration’s
policies, and suggestions from industry
groups and Federal agencies. Public
comments on a proposed rule also
provide important additional
information. SBA thoroughly reviews all
public comments before making a final
decision on its proposed size standards.
Below are brief descriptions of each of
the five primary factors that SBA has
evaluated for each industry in NAICS
Sector 23. 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
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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
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 size
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
lower than those of the anchor
comparison group is likely to have
lower startup costs; this will support the
anchor standard or 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 fourfirm concentration ratio for an industry
to the average four-firm concentration
ratio for industries in the anchor
comparison group. If a significant share
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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
share of economic activity within the
industry is less than 40 percent. For an
industry with a four-firm concentration
ratio of 40 percent or more, SBA
examines the average size of the four
largest firms to determine 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 in assessing industry
competition. 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
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 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 with that for
industries in the anchor comparison
group. If the Gini coefficient value for
an industry is higher than it is for
industries in the anchor comparison
industry group this may, all else being
equal, warrant a size standard higher
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
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possible impact a size standard change
may have on Federal small business
assistance. This most often focuses on
the share of Federal contracting dollars
awarded to small businesses in the
industry in question. In general, if the
small business share of Federal
contracting in an industry with
significant Federal contracting is
appreciably less than the small business
share of the industry’s total receipts,
this could justify considering a size
standard higher than the existing size
standard. The disparity between the
small business Federal market share and
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 industrywide small business share, SBA
includes in its size standards analysis
the latest Federal contracting trends.
This analysis may support a size
standard larger than the current size
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
contracting opportunities to small
businesses.
Besides the impact on small business
Federal contracting, SBA also evaluates
the impact of a proposed size standard
revision on SBA’s loan programs. For
this, SBA examines the data on volume
and number of 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
current size standards have impeded
financial assistance to small businesses,
higher size standards may be
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
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assistance has been provided mainly to
businesses that are much smaller than
the existing size standards, SBA does
not consider this factor when
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 2007 Economic Census
(see www.census.gov/econ/census07/)
prepared by the U.S. Bureau of the
Census (Census Bureau) for SBA. The
2007 Economic Census data are the
latest available. 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
Industry (6-digit level), Industry Group
(4-digit level), Subsector (3-digit level),
and Sector (2-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), 3digit (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.
To calculate average assets, SBA used
sales to total assets ratios from the Risk
Management Association’s Annual
Statement Studies, 2008–2010.
To evaluate Federal contracting
trends, SBA examined data on Federal
contract awards for fiscal years 2008–
2010. The data are available from the
U.S. General Service Administration’s
Federal Procurement Data System—
Next Generation (FPDS–NG).
To assess the impact on financial
assistance to small businesses, SBA
examined data on its own guaranteed
loan programs for fiscal years 2008–
2010.
Data sources and estimation
procedures SBA uses in its size
standards analysis are documented in
detail in SBA’s ‘‘Size Standards
Methodology’’ White Paper, which is
available at www.sba.gov/size.
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Dominance in Field of Operation
Section 3(a) of the Small Business Act
(15 U.S.C. 632(a)) defines a small
business concern as one that is: (1)
Independently owned and operated; (2)
not dominant in its field of operation;
and (3) within a specific small business
definition or size standard established
by 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.
srobinson on DSK4SPTVN1PROD with PROPOSALS
Selection of Size Standards
To simplify 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 such a
large number of different small business
size standards is 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.
All size standards in NAICS Sector 23
are based on average annual receipts.
SBA proposes, therefore, to apply one of
eight receipts based size standards to
each industry in NAICS Sector 23. 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. SBA established these
eight receipts based size standard based
on the current minimum, the current
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maximum, and the most commonly
used current receipts based size
standards. At the start of the current
comprehensive review, the most
commonly used receipts based size
standards clustered around the
following—$2.5 million to $4.5 million,
$7 million, $9 million to $10 million,
$12.5 million to $14.0 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. 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 includes
those industries with 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: $10 million, $14
million, $25.5 million, and $35.5
million. Because of the 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 reflect roughly the same
proportional differences as between 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 separate size standard 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 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, NAICS 541519, and NAICS
811212), even though the industry data
might support a distinct size standard
for each industry (57 FR 27906 (June 23,
1992)). The SBA also, more recently,
established common size standards for
the industries in NAICS Industry Group
5411, Legal Services, and for the
industries in NAICS Industry Group
5412, Accounting Services (77 FR 7490
(February 10, 2012)). In NAICS Sector
23, currently all industries in NAICS
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42201
Subsector 236 (Construction of
Buildings), and all industries in NAICS
Industry Group 2371 (Utility System
Construction) have common size
standards. Similarly, all industries
within NAICS Subsector 238 (Specialty
Trade Contractors) also have a common
size standard. In this proposed rule,
SBA proposes to retain common size
standards for all industries within
NAICS Subsector 236 (Construction of
Buildings), NAICS Industry Group 2371
(Utility System Construction), and
NAICS Subsector 238 (Specialty Trade
Contractors). Whenever SBA proposes a
common size standard for closely
related industries it will provide its
justification.
Evaluation of Industry Structure
SBA evaluated all 31 industries and
one sub-industry in NAICS Sector 23,
Construction, to assess the
appropriateness of the current size
standards. As described above, SBA
compared data on the economic
characteristics of each industry to the
average characteristics of industries in
two comparison groups. The first
comparison group consists of all
industries with $7 million size
standards and is referred to as the
‘‘receipts based anchor comparison
group.’’ Because the goal of SBA’s
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 are
similar to the average characteristics of
industries in the anchor comparison
group, the anchor size standard is
generally appropriate for that industry.
If an industry’s structure is significantly
different from industries in the anchor
group, a size standard lower or higher
than the anchor size standard might be
appropriate. The proposed 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
$29 million. SBA refers to this group of
industries as the ‘‘higher level receipts
based size standard comparison group.’’
SBA determines differences in industry
structure between an industry under
review and the industries in the two
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comparison groups by comparing data
on each of the industry factors,
including average firm size, average
assets size, the four-firm concentration
ratio, and the Gini coefficient of
distribution of firms by size. Table 1,
Average Characteristics of Receipts
Based Comparison Groups, shows the
average firm size (both simple and
weighted), average assets size, four-firm
concentration ratio, average receipts of
the four largest firms, and the Gini
coefficient for both anchor level and
higher level comparison groups for
receipts based size standards.
TABLE 1—AVERAGE CHARACTERISTICS OF RECEIPTS BASED COMPARISON GROUPS
Avg. firm size
($ million)
Avg.
assets size
($ million)
Receipts based comparison group
Simple
average
Anchor Level ............................................
Higher Level .............................................
1.32
5.07
Weighted
average
19.63
116.84
Four-firm
concentration
ratio
(%)
Avg.
receipts of four
largest firms
($ million) *
16.6
32.1
196.4
1,376.0
0.84
3.20
Gini
coefficient
0.693
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, the $7 million
anchor size standard is appropriate for
that factor.
An industry factor significantly above
or below the anchor comparison group
will generally imply 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
(($3.30 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 $7.0 million to estimate
a size standard of $18.61 million
([{$29.0 million¥$7.0 million}* 0.528]
+ $7.0 million = $18.61 million). The
final step is to round the estimated
$18.61 million size standard to the
nearest fixed size standard, which in
this example is $19 million.
SBA applies the above calculation to
derive a size standard for each industry
factor. Detailed formulas involved in
these calculations are presented in
SBA’s ‘‘Size Standards Methodology’’
which is available on its Web site at
www.sba.gov/size. (However, it should
be noted that figures in the ‘‘Size
Standards Methodology’’ White Paper
are based on 2002 Economic Census
data and are different from those
presented in this proposed rule. That is
because when SBA prepared its ‘‘Size
Standards Methodology,’’ the 2007
Economic Census data were not yet
available). Table 2, Values of Industry
Factors and Supported Size Standards,
below, shows ranges of values for each
industry factor and the levels of size
standards supported by those values.
TABLE 2—VALUES OF INDUSTRY FACTORS AND SUPPORTED SIZE STANDARDS
If
Simple avg.
receipts size
($ million)
Or if
Weighted avg.
receipts size
($ million)
Or if
Avg. assets size
($ million)
Or if
Avg. receipts
of largest
four firms
($ million)
Or if
gini coefficient
<1.15 ..........................
1.15 to 1.57 ................
1.58 to 2.17 ................
2.18 to 2.94 ................
2.95 to 3.92 ................
3.93 to 4.86 ................
4.87 to 5.71 ................
>5.71 ..........................
<15.22 ........................
15.22 to 26.26 ............
26.27 to 41.73 ............
41.74 to 61.61 ............
61.62 to 87.02 ............
87.03 to 111.32 ..........
111.33 to 133.41 ........
>133.41 ......................
<0.73 ..........................
0.73 to 1.00 ................
1.01 to 1.37 ................
1.38 to 1.86 ................
1.87 to 2.48 ................
2.49 to 3.07 ................
3.08 to 3.61 ................
>3.61 ..........................
<142.8 ........................
142.8 to 276.9 ............
277.0 to 464.5 ............
464.6 to 705.8 ............
705.9 to 1,014.1 .........
1,014.2 to 1,309.0 ......
1,309.1 to 1,577.1 ......
>1,577.1 .....................
<0.686 ........................
0.686 to 0.702 ............
0.703 to 0.724 ............
0.725 to 0.752 ............
0.753 to 0.788 ............
0.789 to 0.822 ............
0.823 to 0.853 ............
>0.853 ........................
srobinson on DSK4SPTVN1PROD with PROPOSALS
Derivation of Size Standard Based on
Federal Contracting Factor
Besides industry structure, SBA also
evaluates Federal contracting data to
assess the success of small businesses in
getting Federal contracts under the
existing size standards. For industries
where the small business share of total
Federal contracting dollars is 10 to 30
percent lower than the small business
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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 the
small business share of total industry
receipts, SBA has designated a size
standard two levels higher than the
current size standard.
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Then Implied size
standard is
($ million)
5.0
7.0
10.0
14.0
19.0
25.5
30.0
35.5
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
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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
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 its size
standard analysis and suggestions for
alternative methods and other relevant
information on small business
experience in the Federal contract
market that SBA should consider.
Twenty of the 31 industries in NAICS
Sector 23 and the sub-industry category
(‘‘exception’’) under NAICS 237990
(Other Heavy and Civil Engineering
Construction),averaged $100 million or
more annually in Federal contracting
during fiscal years 2008–2010. The
Federal contracting factor was
significant (i.e., the difference between
the small business share of total
industry receipts and small business
share of Federal contracting dollars was
10 percentage points or more) in 9 of
those 20 industries and a separate size
standard was derived from that factor
for each of them.
New Size Standards Based on Industry
and Federal Contracting Factors
Table 3, Size Standards Supported by
Each Factor for Each Industry (millions
of dollars), shows the results of analyses
of industry and Federal contracting
factors for each industry covered by this
proposed rule. Many NAICS industries
in columns 2, 3, 4, 6, 7, and 8 show two
numbers. The upper number is the
value for the industry or federal
contracting factor shown on the top of
the column and the lower number is the
size standard supported by that factor.
For the four-firm concentration ratio,
SBA estimates a size standard only if its
value is 40 percent or more. If the fourfirm concentration ratio for an industry
is less than 40 percent, SBA does not
estimate a size standard for that factor.
If the four-firm concentration ratio is
more than 40 percent, SBA indicates in
column 6 the average size of the
industry’s four largest firms together
with a size standard based on that
average. Column 9 shows a calculated
new size standard for each industry.
This is the average of the size standards
supported by each factor, rounded to the
nearest fixed size level. Analytical
details involved in the averaging
procedure are described in SBA’s ‘‘Size
Standard Methodology.’’ For
comparison with the new standards, the
current size standards are in column 10
of Table 3, Size Standards Supported by
Each Factor for Each Industry (millions
of dollars).
TABLE 3—SIZE STANDARDS SUPPORTED BY EACH FACTOR FOR EACH INDUSTRY
[Millions of dollars]
NAICS Code/NAICS industry title
Simple
average
firm size
($ million)
Weighted
average
firm size
($ million)
Average
assets
size
($ million)
Four-firm
ratio
(%)
Four-firm
average
size
($ million)
Gini
coefficient
Federal
contract
factor
(%)
Calculated
size
standard
($ million)
Current
size
standard
($ million)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
236115 New Single-Family Housing Construction
(except Operative Builders) .....................................
236116 New Multifamily Housing Construction (except Operative Builders) ..........................................
236117
New Housing Operative Builders ................
236118
Residential Remodelers ..............................
236210
Industrial Building Construction ...................
236220 Commercial and Institutional Building Construction ...................................................................
237110 Water and Sewer Line and Related Structures Construction ...................................................
237120 Oil and Gas Pipeline and Related Structures Construction ...................................................
237130 Power and Communication Line and Related Structures Construction ..................................
237210
Land Subdivision .........................................
237310
Highway, Street and Bridge Construction ...
237990 Other Heavy and Civil Engineering Construction, Except Dredging and Surface Cleanup
Activities ...................................................................
srobinson on DSK4SPTVN1PROD with PROPOSALS
237990
Dredging and Surface Cleanup Activities ...
238110 Poured Concrete Foundation and Structure
Contractors ..............................................................
238120 Structural Steel and Precast Concrete Contractors .....................................................................
238130
Framing Contractors ....................................
238140
Masonry Contractors ...................................
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PO 00000
$1.5
7.0
$22.3
7.0
$1.2
10.0
2.7
................
$599.2
................
0.670
$5.0
¥62.8
$35.5
..................
$14.0
................
$33.5
11.7
35.5
5.2
30.0
0.71
5.0
9.2
35.5
119.2
30.0
291.5
35.5
9.0
5.0
71.1
19.0
6.0
35.5
4.8
35.5
0.2
5.0
3.2
30.0
17.8
................
17.9
................
2.6
................
14.4
................
1,547.0
................
8,097.5
................
337.8
................
629.5
................
0.833
$30.0
0.874
$35.5
0.566
$5.0
0.802
$25.5
¥27.1
$35.5
4.2
................
¥77.1
$35.5
¥3.2
................
..................
35.5
..................
35.5
..................
14.0
..................
25.5
................
33.5
................
33.5
................
33.5
................
33.5
10.1
35.5
161.3
35.5
3.2
30.0
5.7
................
5,311.1
................
0.839
$30.0
¥0.9
................
..................
30.0
................
33.5
4.5
25.5
44.9
14.0
2.1
19.0
4.3
................
520.0
................
0.765
$19.0
¥10.6
$35.5
..................
25.5
................
33.5
16.9
35.5
150.0
35.5
7.8
35.5
17.6
................
1,362.9
................
0.840
$30.0
¥0.1
................
..................
35.5
................
33.5
6.8
35.5
3.6
19.0
10.6
35.5
129.6
30.0
38.0
10.0
96.0
25.5
2.9
25.5
11.9
35.5
5.0
35.5
20.8
................
12.1
................
5.2
................
1,767.4
................
690.2
................
1,393.9
................
0.864
$35.5
0.796
$25.5
0.811
$25.5
10.5
................
................
................
5.7
................
..................
30.0
..................
25.5
..................
30.0
................
33.5
................
7.0
................
33.5
5.0
30.0
44.0
35.5
59.9
14.0
542.1
35.5
2.5
19.0
21.6
35.5
10.7
................
52.5
................
476.2
................
976.0
19.0
0.812
$25.5
0.797
$25.5
¥9.9
................
9.8
................
..................
19.0
..................
30.0
................
33.5
................
20.0
1.9
10.0
32.5
10.0
0.75
7.0
4.5
................
535.5
................
0.739
$14.0
¥18.0
$19.0
..................
14.0
................
14.0
4.1
25.5
0.9
5.0
1.1
7.0
26.1
7.0
13.6
5.0
11.5
5.0
1.7
14.0
0.3
5.0
0.4
5.0
7.0
................
3.8
................
2.3
................
258.2
................
170.8
................
155.9
................
0.725
$14.0
0.657
$5.0
0.685
$5.0
¥23.5
$19.0
1.6
................
¥6.4
..................
14.0
..................
5.0
..................
5.0
................
14.0
................
14.0
................
14.0
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TABLE 3—SIZE STANDARDS SUPPORTED BY EACH FACTOR FOR EACH INDUSTRY—Continued
[Millions of dollars]
NAICS Code/NAICS industry title
Simple
average
firm size
($ million)
Weighted
average
firm size
($ million)
Average
assets
size
($ million)
Four-firm
ratio
(%)
Four-firm
average
size
($ million)
Gini
coefficient
Federal
contract
factor
(%)
Calculated
size
standard
($ million)
Current
size
standard
($ million)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
238150
Glass and Glazing Contractors ...................
238160
Roofing Contractors .....................................
238170
2.1
10.0
1.8
10.0
0.7
5.0
Siding Contractors .......................................
238290
Other Building Equipment Contractors ........
238310
Drywall and Insulation Contractors .............
238320
Painting and Wall Covering Contractors .....
238330
Flooring Contractors ....................................
238340
Tile and Terrazzo Contractors .....................
238350
Finish Carpentry Contractors ......................
238390
Other Building Finishing Contractors ..........
238910
Site Preparation Contractors .......................
238990
All Other Specialty Trade Contractors ........
srobinson on DSK4SPTVN1PROD with PROPOSALS
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 might suggest 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’’ for Information Technology
Value Added Resellers), and NAICS
811212. Another example is the
common size standard for certain
Architectural, Engineering (A&E) and
Related Services. These include NAICS
541310, NAICS 541330 (excluding the
‘‘exceptions’’), Map Drafting (an
150.4
................
263.5
................
46.7
................
0.686
$5.0
0.684
$5.0
0.556
$5.0
8.1
................
17.0
................
¥7.5
................
..................
7.0
..................
5.0
..................
5.0
................
14.0
................
14.0
................
14.0
13.3
5.0
0.5
5.0
10.4
................
176.6
................
0.680
$5.0
¥34.8
$25.5
..................
10.0
................
14.0
36.6
10.0
0.6
5.0
3.5
................
1,128.6
................
0.738
$14.0
12.1
................
..................
10.0
................
14.0
1.8
10.0
4.2
25.5
2.1
10.0
0.6
5.0
1.1
5.0
0.9
5.0
0.7
5.0
1.4
7.0
1.9
10.0
1.4
7.0
238220 Plumbing, Heating, and Air-Conditioning
Contractors ..............................................................
5.6
................
3.6
................
2.6
................
1.8
10.0
238210 Electrical Contractors and Other Wiring Installation Contractors ...............................................
0.7
5.0
0.6
5.0
................
................
1.4
7.0
238190 Other Foundation, Structure, and Building
Exterior Contractors .................................................
16.7
7.0
14.3
5.0
5.0
5.0
34.4
10.0
97.5
25.5
42.3
14.0
7.3
5.0
17.8
7.0
8.7
5.0
7.9
5.0
8.7
5.0
25.0
7.0
15.5
7.0
0.6
5.0
1.4
14.0
0.7
5.0
0.2
5.0
0.3
5.0
0.3
5.0
0.2
5.0
0.5
5.0
1.0
7.0
0.5
5.0
4.0
................
27.6
................
6.3
................
2.2
................
5.9
................
2.9
................
2.7
................
3.8
................
1.7
................
4.9
................
1,623.6
................
1,689.8
................
679.6
................
121.6
................
231.6
................
74.3
................
178.4
................
80.9
................
349.0
................
473.7
................
0.720
$10.0
0.818
$25.5
0.762
$19.0
0.578
$5.0
0.694
$7.0
0.634
$5.0
0.597
$5.0
0.673
$5.0
0.728
$14.0
0.673
$5.0
19.3
................
21.9
................
18.6
................
¥7.3
................
5.3
................
¥1.8
................
¥2.7
................
¥28.8
................
¥12.1
$19.0
¥23.9
$19.0
..................
7.0
..................
19.0
..................
14.0
..................
5.0
..................
7.0
..................
5.0
..................
5.0
..................
5.0
..................
14.0
..................
10.0
................
14.0
................
14.0
................
14.0
................
14.0
................
14.0
................
14.0
................
14.0
................
14.0
................
14.0
................
14.0
‘‘exception’’ under NAICS 541340),
NAICS 541360, and NAICS 541370
(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)). The SBA also, more recently,
established common size standards for
the industries in NAICS Industry Group
5411, Legal Services, and for the
industries in NAICS Industry Group
5412, Accounting Services (77 FR 7490
(February 10, 2012)). Similarly, SBA
proposed common size standards for
several other industries in NAICS Sector
48–49, Transportation and Warehousing
(see 76 FAR 27935 (May 13, 2011)),
NAICS Sector 56, Administrative and
Support, Waste Management and
Remediation Services (see 76 FR 63510
(October 12, 2011), and NAICS Sector
53, Real Estate and Rental and Leasing
(see 76 FR 70680 (November 15, 2011)).
For NAICS Sector 23, SBA derives, as
an alternative to a separate size standard
for each industry, common size
standards for industries in two NAICS
Subsectors and one NAICS Industry
Group, as shown in Table 4, Subsectors
and Industry for Common Sized
Standards. SBA evaluated industry and
Federal contracting factors and derived
a common size standard for each
Industry Group and Subsector using the
same method as described above. The
results are in Table 5, Size Standards
Supported by Each Factor for NAICS
Subsectors 236 and 238, and Industry
Group 2371, which immediately follows
Table 4, Subsectors and Industry Groups
for Common Size Standards, below.
TABLE 4—SUBSECTORS AND INDUSTRY GROUPS FOR COMMON SIZE STANDARDS
NAICS Subsector or industry
group code *
NAICS Subsector or industry group title
Industries: 6-digit NAICS codes
236 .............................................
Construction of Buildings ..............................................................
2371 ...........................................
Utility System Construction ...........................................................
236115, 236116, 236117, 236118, 236210,
236220.
237110, 237120, 237130.
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TABLE 4—SUBSECTORS AND INDUSTRY GROUPS FOR COMMON SIZE STANDARDS—Continued
NAICS Subsector or industry
group code *
NAICS Subsector or industry group title
238 .............................................
Specialty Trade Contractors .........................................................
Industries: 6-digit NAICS codes
238110, 238120, 238130, 238140,
238160, 238170, 238190,
238220, 238290, 238310,
238330, 238340, 238350,
238910, 238990.
238150,
238210,
238320,
238390,
* Industries in these Subsectors and Industry Group currently have common size standards. SBA proposes to retain these standards.
TABLE 5—SIZE STANDARDS SUPPORTED BY EACH FACTOR FOR NAICS SUBSECTORS 236 AND 238, AND INDUSTRY
GROUP 2371
NAICS Code/subsector or industry group title
Simple
average
firm size
($ million)
Weighted
average
firm size
($ million)
Average
assets size
($ million)
Four-firm
ratio (%)
Four-firm
average
size
($ million)
Gini
coeffi-cient
Federal
contract
factor (%)
Calculated
size standard
($ million)
Current size
standard
($million)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
236
Construction of Buildings
2371 Utility System Construction .........................................
238 Specialty Trade Contractors .........................................
$3.6
19.0
$141.1
35.5
$1.5
14.0
4.8
$9,010.7
0.846
$30.0
¥10.8
$35.5
....................
25.5
....................
$33.5
6.5
35.50
96.9
25.5
3.0
25.5
7.9
2,231.6
0.828
$30.0
0.5
30.0
33.5
1.5
7.0
27.0
10.0
0.5
5.0
1.6
2,807.0
0.721
$10.0
¥1.1
7.0
14.0
srobinson on DSK4SPTVN1PROD with PROPOSALS
Special Considerations: Dredging and
Surface Cleanup Activities
The Dredging and Surface Cleanup
Activities (Dredging) size standard is a
sub-industry category (or an
‘‘exception’’) established by SBA within
the 6-digit NAICS 237990 (Other Heavy
and Civil Engineering Construction).
Data from the Census Bureau’s special
tabulation are limited to the 6-digit
NAICS industry level, and hence, do not
provide separate data at the subindustry level. As such, SBA relied
upon data from other sources to
evaluate the current $20 million size
standard for Dredging. Firms engaged in
the Dredging sub-industry were
identified from contracting activity
reported in FPDS–NG during fiscal
years 2008–2010. Dredging contracts
can be identified as those classified
within NAICS 237990 and by four
Product Service Codes (PSCs): Y216
(Construction of Dredging), Z216
(Maintenance, Repair or Alteration of
Dredging), Y217 (Dredging, Incl.
Dustpan and Sea-Going Hoppers), and
Z217 (Dredging, Incl. Dustpan and SeaGoing Hoppers). SBA also looked at
Dredging contracting data from the
Corps of Engineers’ Navigation Data
Center (www.ndc.iwr.usace.army.mil/
dredge/dredge.htm) for the same period.
SBA obtained receipts and employment
data from the Central Contractor
Registration (CCR) for the identified
Dredging firms to develop the size
standards evaluation factors. Based on
the analysis of the resultant data, a
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different size standard for Dredging than
for other heavy construction activities in
NAICS 237990 continues to be
appropriate. Table 3, Size Standards
Supported by Each Factor for Each
Industry (millions of dollars), above,
shows the results from the analysis of
the Dredging sub-industry, which
supported a $30 million size standard
instead of the current $20 million.
Evaluation of SBA Loan Data
Before deciding on an industry’s size
standard, SBA also considers the impact
of new or revised size standards on
SBA’s loan programs. Accordingly, SBA
examined its 7(a) and 504 Loan Program
data for fiscal years 2008–2010 to assess
whether the proposed size standards
need further adjustments to ensure
credit opportunities for small businesses
through those programs. For the
industries reviewed in this rule, the data
show that it is mostly businesses much
smaller than the current size standards
that use SBA’s 7(a) and 504 loans.
Furthermore, the Jobs Act established
an alternative size standard for SBA’s
7(a) and 504 Loan Programs.
Specifically, an applicant exceeding an
NAICS industry size standard may still
be eligible if its maximum tangible net
worth does not exceed $15 million and
its average net income after Federal
income taxes (excluding any carry-over
losses) for the 2 full fiscal years before
the date of the application is not more
than $5 million.
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Therefore, no size standard in NAICS
Sector 23, Construction, needs an
adjustment based on this factor.
Proposed Changes to Size Standards
Table 6, Summary of Size Standards
Analysis, below, summarizes the results
of SBA analyses of industry specific size
standards from Table 3, Size Standards
Supported by Each Factor for Each
Industry (millions of dollars), above,
and the results for common size
standards from Table 5, Size Standards
Supported by Each Factor for NAICS
Subsectors 236 and 238, and Industry
Group 2371, above. In terms of industry
specific size standards, the results in
Table 3, Size Standards Supported by
Each Factor for Each Industry (millions
of dollars), might support increases in
size standards for five industries and
one sub-industry, decreases for 22
industries and no changes for four
industries. Based on common size
standards for certain NAICS Industry
Groups and Subsectors as explained
earlier, the results in Table 5, Size
Standards Supported by Each Factor for
Subsectors 236 and 238 and Industry
Group 2371, above, appear to support
increases in size standards for one
industry and one sub-industry,
decreases for 28 industries and no
changes for two industries.
However, SBA believes that lowering
small business size standards is not in
the best interest of small businesses in
the current economic environment. The
U.S. economy was in recession from
December 2007 to June 2009, the longest
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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 into
law 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 is still
high at 8.2 percent in June 2012 and is
forecast to remain around this level at
least through the end of 2012. In June
2012, unemployment data by industry
and class of workers showed that
construction workers experience the
worst unemployment rate of all
industries at 12.8 percent.
Recently, Congress passed and the
President signed the Jobs Act to promote
small business job creation. The Jobs
Act puts more capital into the hands of
entrepreneurs and small business
owners; strengthens small businesses’
ability to compete for contracts;
includes recommendations from the
President’s Task Force on Federal
Contracting Opportunities for Small
Business; creates a better playing field
for small businesses; promotes small
business exporting, building on the
President’s National Export Initiative;
expands training and counseling; and
provides $12 billion in tax relief to help
small businesses invest in their firms
and create jobs. A proposal to reduce
size standards will have an immediate
impact on jobs, and it would be contrary
to the expressed will of the President
and the Congress.
TABLE 6—SUMMARY OF SIZE STANDARDS ANALYSIS
NAICS Code
srobinson on DSK4SPTVN1PROD with PROPOSALS
236115
236116
236117
236118
236210
236220
237110
237120
237130
237210
237310
237990
Except,
238110
238120
238130
238140
238150
238160
238170
238190
238210
238220
238290
238310
238320
238330
238340
238350
238390
238910
238990
NAICS Industry title
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
New Single-Family Housing Construction (except Operative Builders) .....
New Multifamily Housing Construction (except Operative Builders) ..........
New Housing Operative Builders ...............................................................
Residential Remodelers .............................................................................
Industrial Building Construction ..................................................................
Commercial and Institutional Building Construction ...................................
Water and Sewer Line and Related Structures Construction ....................
Oil and Gas Pipeline and Related Structures Construction .......................
Power and Communication Line and Related Structures Construction .....
Land Subdivision ........................................................................................
Highway, Street and Bridge Construction ..................................................
Other Heavy and Civil Engineering Construction .......................................
Dredging and Surface Cleanup Activities ...................................................
Poured Concrete Foundation and Structure Contractors ...........................
Structural Steel and Precast Concrete Contractors ...................................
Framing Contractors ...................................................................................
Masonry Contractors ..................................................................................
Glass and Glazing Contractors ..................................................................
Roofing Contractors ....................................................................................
Siding Contractors ......................................................................................
Other Foundation, Structure, and Building Exterior Contractors ...............
Electrical Contractors and Other Wiring Installation Contractors ...............
Plumbing, Heating, and Air-Conditioning Contractors ................................
Other Building Equipment Contractors .......................................................
Drywall and Insulation Contractors .............................................................
Painting and Wall Covering Contractors ....................................................
Flooring Contractors ...................................................................................
Tile and Terrazzo Contractors ....................................................................
Finish Carpentry Contractors ......................................................................
Other Building Finishing Contractors ..........................................................
Site Preparation Contractors ......................................................................
All Other Specialty Trade Contractors ........................................................
Lowering size standards would
decrease the number of firms that
participate in Federal financial and
procurement assistance programs for
small businesses. It would also affect
small businesses that are now exempt
from or receive some form of relief from
myriad other Federal regulations that
use SBA’s size standards. That impact
could take the form of increased fees,
paperwork, or other compliance
requirements for small businesses.
Furthermore, size standards based
solely on analytical results without any
other considerations can cut off
VerDate Mar<15>2010
Current
size standard
($ million)
17:18 Jul 17, 2012
Jkt 226001
currently eligible small firms from those
programs and benefits. In NAICS Sector
23, more than 7,000 businesses would
lose their small business eligibility if
size standards were lowered based
solely on results from industry specific
analysis. Similarly, more than 10,000
businesses would lose small business
eligibility if size standards were lowered
based solely on results from common
size standards analysis. That would run
counter to what SBA and the Federal
government are doing to help small
businesses. Reducing size eligibility for
Federal procurement opportunities,
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$33.5
33.5
33.5
33.5
33.5
33.5
33.5
33.5
33.5
7.0
33.5
33.5
20.0
14.0
14.0
14.0
14.0
14.0
14.0
14.0
14.0
14.0
14.0
14.0
14.0
14.0
14.0
14.0
14.0
14.0
14.0
14.0
Calculated
industry
specific size
standard
($ million)
$14.0
35.5
35.5
14.0
25.5
30.0
25.5
35.5
30.0
25.5
30.0
19.0
30.0
14.0
14.0
5.0
5.0
7.0
5.0
5.0
10.0
10.0
7.0
19.0
14.0
5.0
7.0
5.0
5.0
5.0
14.0
10.0
Calculated
common
size
standard
($ million)
$25.5
25.5
25.5
25.5
25.5
25.5
30.0
30.0
30.0
........................
........................
........................
........................
7.0
7.0
7.0
7.0
7.0
7.0
7.0
7.0
7.0
7.0
7.0
7.0
7.0
7.0
7.0
7.0
7.0
7.0
7.0
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 intend to
reduce size standards for any industries.
For industries where analyses might
seem to support lowering size
standards, SBA proposes to retain the
current size standards.
Furthermore, as stated previously, the
Small Business Act requires the
Administrator to ‘‘* * * consider other
factors deemed to be relevant * * *’’ to
establishing small business size
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standards. The current economic
conditions and the impact on job
creation are quite relevant factors when
establishing small business 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.
Based on comparisons between
industry specific size standards and
common size standards within each
Industry Group or Subsector, SBA finds
that for several industries, as shown in
Table 4, Subsectors and Industry Groups
for Common Size Standards, above,
common size standards are more
appropriate for several reasons. First,
analyzing industries at the more
aggregated Industry Group or Subsector
levels simplifies size standards analysis,
and the results will be more consistent
among related industries. Second, in
NAICS Sector 23, industries within each
Industry Group or Subsector currently
have the same size standards and SBA
believes it is better to keep the revised
size standards also same unless
industries are significantly different.
Third, within each Industry Group or
Subsector many of the same businesses
tend to operate in the same multiple
industries. SBA believes that common
size standards reflect the Federal
marketplace in those industries better
than different size standards for each
industry.
For industries where both industry
specific size standards and common size
standards have been calculated, for the
above reasons, SBA proposes to apply
common size standards. For industries
and one sub-industry (Dredging) where
SBA has not estimated common size
standards it proposes to apply industry
specific size standards. As discussed
above, lowering small business size
standards is inconsistent with what the
Federal government is doing to
stimulate the economy and would
discourage job growth for which
Congress established the Recovery Act
and Jobs Act. In addition, it would be
inconsistent with the Small Business
Act requiring the Administrator to
establish size standards based on
industry analysis and other relevant
factors such as current economic
conditions. Thus, SBA proposes to
increase size standards for one industry
and one sub-industry in NAICS Sector
23 and retain the current size standards
for all other industries in that Sector.
The SBA’s proposed increases are in
Table 7, Summary of Proposed Size
Standards Revisions, (below).
In addition, retaining current
standards when the analytical results
42207
suggested lowering them 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) that 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’s recently issued proposed rule
(76 FR 14323 (March 16, 2011)) and
final rule (77 FR 7490 (February 10,
2012)) for NAICS Sector 54,
Professional, Scientific and Technical
Services, NAICS Sector 48–49,
Transportation and Warehousing (76 FR
27935 (May 13, 2011)), NAICS Sector
51, Information (76 FR 63216 (October
12, 2011)), NAICS Sector 56,
Administrative and Support, Waste
Management and Remediation Services
(76 FR 63510 (October 12, 2011)),
NAICS Sector 61, Educational Services
(76 FR 70667 (November 15, 2011)), and
NAICS Sector 53, Real Estate and Rental
and Leasing (76 FR 70680 (November
15, 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 7—SUMMARY OF PROPOSED SIZE STANDARDS REVISIONS
Current
size standard
($ million)
NAICS code
NAICS Industry title
237210 ................................
237990 Except ...................
Land Subdivision ....................................................................................................
Dredging and Surface Cleanup Activities ...............................................................
srobinson on DSK4SPTVN1PROD with PROPOSALS
Evaluation of Dominance in Field of
Operation
SBA has determined that for the
industries in NAICS Sector 23,
Construction, for which it has proposed
to increase size standards, no individual
firm at or below the proposed size
standard will be large enough to
dominate its field of operation. At the
proposed individual size standards, if
adopted, the small business share of
total industry receipts among those
industries is, on average, 0.1 percent,
varying from 0.01 percent to 0.3 percent.
These market shares effectively
preclude a firm at or below the
proposed size standards from exerting
control on any of the industries.
Request for Comments
SBA invites public comments on this
proposed rule, especially on the
following issues:
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1. To simplify size standards, SBA
proposes eight fixed levels for receipts
based size standards: $5 million, $7
million, $10 million, $14 million, $19
million, $25.5 million, $30 million, and
$35.5 million. SBA invites comments on
whether this is necessary and whether
the proposed fixed size levels are
appropriate. SBA welcomes suggestions
on alternative approaches to simplifying
small business size standards.
2. SBA seeks feedback on whether
SBA’s proposal to increase two size
standards and retain the remaining 30
size standards in NAICS Sector 23 is
appropriate given the economic
characteristics of each industry
reviewed in this proposed rule. SBA
also seeks feedback and suggestions on
alternative standards, if they would be
more appropriate, including whether
the number of employees is a more
suitable measure of size for certain
PO 00000
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Proposed
size standard
($ million)
$7.0
$20.0
$25.5
$30.0
industries and what that employee level
should be.
3. SBA proposes common size
standards for industries within NAICS
Subsectors 236 and 238, and NAICS
Industry Group 2371 (Utility System
Construction). SBA invites comments or
suggestions along with supporting
information with respect to the
following:
a. Whether SBA should adopt
common size standards for those
industries or establish a separate size
standard for each industry; and
b. Whether the proposed common size
standards for those industries are at the
correct levels or what would be more
appropriate if what SBA has proposed
are not appropriate.
4. SBA’s proposed size standards are
based on five primary factors—average
firm size, average assets size (as a proxy
of startup costs and entry barriers), four-
E:\FR\FM\18JYP1.SGM
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firm concentration ratio, distribution of
firms by size, and the total share and
small business share of Federal
contracting dollars of the evaluated
industries. SBA welcomes comments on
these factors and/or suggestions of other
factors that it should consider when
evaluating or revising size standards.
SBA also seeks information on relevant
data sources, other than what it uses, if
available.
5. SBA gives equal weight to each of
the five primary factors in all industries.
SBA seeks feedback on whether it
should continue giving equal weight to
each factor or whether it should give
more weight to one or more factors for
certain industries. Recommendations to
weigh some factors more than others
should include suggested weights for
each factor along with supporting
information.
6. For NAICS 237210, Land
Subdivision, based on its analysis of
industry and program data alone, SBA
proposes to increase the existing size
standards by a large amount, while it
proposes to retain the current size
standards for most other industries in
NAICS Sector 23. SBA seeks feedback
on whether, as a policy, it should limit
the increase to a size standard or
establish minimum or maximum values
for its size standards. SBA seeks
suggestions on appropriate levels of
changes to size standards and on their
minimum or maximum levels.
7. In addition to comments on its
proposal to increase the size standard
for Dredging and Surface Cleanup
Activities from current $20 million to
$30 million, SBA also seeks comments
regarding the requirement for a dredging
concern to qualify as small on a Federal
procurement that it must perform at
least 40 percent of the volume dredged
with its own equipment or equipment
owned by another small dredging
concern (see Footnote 2 in 13 CFR
121.201). This requirement has been in
SBA’s small business size regulations
since 1974 (see 30 FR 24669, July 5,
1974 and 39 FR 31302, August 28,
1974). This proposed rule retains the
requirement set forth in Footnote 2 in
order to ensure that small Dredging
firms perform a significant and
meaningful portion of a Dredging
project set aside for small business.
However, SBA has heard from small
dredging firms that believe they should
be able to lease equipment from any size
firm as long as employees from the
small firm perform the work on the
contract. SBA specifically request
comments as to whether the footnote is
necessary. Comments pertaining to this
requirement should address: (1)
Whether there continues to be a need to
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17:18 Jul 17, 2012
Jkt 226001
retain the current 40 percent equipment
requirement; (2) whether the 40 percent
equipment requirement should be
revised, and if so, the rationale for an
alternative percentage; and (3) whether
a different and more verifiable
requirement based on an alternative
measure (such as value of contract or
personnel involved) may achieve the
same objective of ensuring that small
businesses perform significant and
meaningful work on Dredging contracts.
8. For analyzing the dredging size
standard, a sub-industry (‘‘exception’’)
within NAICS 237990, SBA used PSCs
within NAICS 237990 to identify
contracting activity reported in FPDS–
NG, and firms in the dredging subindustry during fiscal years 2008–2010.
Using the receipts and employment data
for those identified firms from CCR,
SBA analyzed the industry factors for
this sub-industry. SBA seeks
suggestions or comments on the use of
the data sources and the proposed size
standard.
9. SBA is also interested in comments
on the elimination of the sub-industry
category for Dredging, and the
application of the same size standard as
for the rest of the NAICS 237990.
Comments on applying the same NAICS
237990 size standard for Dredging
should address the basis for why that
industry size standard is more suitable
than a specific dredging sub-industry
size standard or why dredging firms
should continue to be evaluated as a
discrete sub-industry for SBA’s size
standards purposes.
10. For analytical simplicity and
efficiency, in this proposed rule, SBA
has refined its size standard
methodology to obtain a single value as
a proposed size standard instead of a
range of values, as in its past size
regulations. SBA welcomes any
comments on this procedure and
suggestions on alternative methods.
Public comments on the above issues
are very valuable to SBA for validating
its size standard methodology and its
proposed size standards revisions in
this proposed rule. This will help SBA
to move forward with its review of size
standards for other NAICS Sectors.
Commenters addressing size standards
for a specific industry or a group of
industries should include relevant data
and/or other information supporting
their comments. If comments relate to
using size standards for Federal
procurement programs, SBA suggests
that commenters provide information on
the size of contracts in their industries,
the size of businesses that can undertake
the contracts, start-up costs, equipment
and other asset requirements, the
amount of subcontracting, other direct
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and indirect costs associated with the
contracts, the use of mandatory sources
of supply for products and services, and
the degree to which contractors can
mark up those costs.
Compliance With Executive Orders
12866, 13563, 12988, and 13132, the
Paperwork Reduction Act (44 U.S.C.
Ch. 35) and the Regulatory Flexibility
Act (5 U.S.C. 601–612)
Executive Order 12866
The Office of Management and Budget
(OMB) has determined that this
proposed rule is a ‘‘significant’’
regulatory action for purposes of
Executive Order 12866. Accordingly,
the next section contains SBA’s
Regulatory Impact Analysis. This is not
a ‘‘major’’ rule, however, under the
Congressional Review Act, 5 U.S.C. 800.
Regulatory Impact Analysis
1. Is there a need for the regulatory
action?
SBA believes that proposed size
standards revisions in NAICS Sector 23,
Construction, will better reflect the
economic characteristics of small
businesses in this Sector and the
Federal government marketplace. SBA’s
mission is to aid and assist small
businesses through a variety of
financial, procurement, business
development, and advocacy programs.
To determine the intended beneficiaries
of these programs, SBA must establish
distinct definitions of which businesses
are deemed small businesses. The Small
Business Act (15 U.S.C. 632(a))
delegates to SBA’s Administrator the
responsibility for establishing small
business size definitions. The Act also
requires that small business definitions
vary to reflect industry differences. The
recently enacted Jobs Act also requires
SBA to review all size standards and
make necessary adjustments to reflect
market conditions. The supplementary
information section of this proposed
rule explains SBA’s methodology for
analyzing a size standard for a particular
industry.
2. What are the potential benefits and
costs of this regulatory action?
The most significant benefit to
businesses obtaining small business
status because of this rule is gaining
eligibility for Federal small business
assistance programs. These include
SBA’s financial assistance programs,
economic injury disaster loans, and
Federal procurement programs intended
for small businesses. Federal
procurement programs provide targeted
opportunities for small businesses
under SBA’s business development
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programs, such as 8(a), Small
Disadvantaged Businesses (SDB), small
businesses located in Historically
Underutilized Business Zones
(HUBZone), women-owned small
businesses (WOSB), and servicedisabled veteran-owned small business
concerns (SDVO SBC). Federal agencies
may also use SBA’s size standards for a
variety of other regulatory and program
purposes. These programs assist small
businesses to become more
knowledgeable, stable, and competitive.
SBA estimates that in one industry and
one sub-industry for which SBA has
proposed to increase size standards
more than 400 firms in NAICS 23, not
small under the existing size standards,
will become small under the proposed
size standards and therefore become
eligible for these programs. That is
about 0.1 percent of all firms classified
as small under the current size
standards in NAICS Sector 23. If
adopted as proposed, this will increase
the small business share of total receipts
in all industries within NAICS Sector 23
from about 49.7 percent to 50 percent.
In addition, as stated above, there will
be reduced fees, less paperwork, and
fewer compliance requirements for more
businesses.
Three groups will benefit from the
proposed size standards revisions in
this rule, if they are adopted as
proposed: (1) Some businesses that are
above the current size standards may
gain small business status under the
higher size standards, thereby enabling
them to participate in Federal small
business assistance programs; (2)
growing small businesses that are close
to exceeding the current size standards
will be able to retain their small
business status under the higher size
standards, thereby enabling them to
continue their participation in the
programs; and (3) Federal agencies will
have a larger pool of small businesses
from which to draw for their small
business procurement programs.
SBA estimates that firms gaining
small business status under the
proposed size standards could receive
Federal contracts totaling $17 million to
$20 million annually under SBA’s small
business, 8(a), SDB, HUBZone, WOSB,
and SDVO SBC Programs, and other
unrestricted procurements. The added
competition for many of these
procurements can also result in lower
prices to the Government for
procurements reserved for small
businesses, but SBA cannot quantify
this benefit.
Under SBA’s 7(a) and 504 Loan
Programs, based on the fiscal years
2008–2010 data, SBA estimates about
up to five additional loans totaling
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about $0.5 million to $1 million in
Federal loan guarantees could be made
to these newly defined small businesses
under the proposed standards.
Increasing the size standards will likely
result in more small business
guaranteed loans to businesses in these
industries, but it is be impractical to try
to estimate exactly the number and total
amount of loans. There are two reasons
for this: (1) Under the Jobs Act, SBA can
now guarantee substantially larger loans
than in the past; and, (2) as described
above, the Jobs Act established an
alternative size standard ($15 million in
tangible net worth and $5 million in net
income after income taxes) for business
concerns that do not meet the size
standards for their industry. Therefore,
SBA finds it difficult to quantify the
actual impact of these proposed size
standards on its 7(a) and 504 Loan
Programs.
Newly defined small businesses will
also benefit from SBA’s Economic Injury
Disaster Loan (EIDL) Program. Since this
program is contingent on the occurrence
and severity of a disaster, SBA cannot
make a meaningful estimate of this
impact.
To the extent that those 400 newly
defined additional small firms could
become active in Federal procurement
programs, the proposed changes, if
adopted, may entail some additional
administrative costs to the government
associated with there being more
bidders on small business procurement
opportunities. In addition, there will be
more firms seeking SBA’s guaranteed
loans, more firms eligible for enrollment
in the Central Contractor Registration
(CCR)’s Dynamic Small Business Search
database, and more firms seeking
certification as 8(a) or HUBZone firms
or qualifying for small business, WOSB,
SDVO SBC, and SDB status. Among
those newly defined small businesses
seeking SBA assistance, there could be
some additional costs associated with
compliance and verification of small
business status and protests of small
business status. SBA believes that these
added administrative costs will be
minimal because mechanisms are
already in place to handle these
requirements.
Additionally, Federal government
contracts may have higher costs. With a
greater number of businesses defined as
small, Federal agencies may choose to
set aside more contracts for competition
among small businesses rather than
using full and open competition. The
movement from unrestricted to small
business set-aside contracting might
result in competition among fewer total
bidders, although there will be more
small businesses eligible to submit
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42209
offers. However, the additional costs
associated with fewer bidders are
expected to be minor since, by law,
procurements may be set aside for small
businesses or reserved for the 8(a),
HUBZone, WOSB, or SDVO SBC
Programs only if awards are expected to
be made at fair and reasonable prices. In
addition, there may be higher costs
when more full and open contracts are
awarded to HUBZone businesses that
receive price evaluation preferences.
The proposed size standards
revisions, if adopted, may have some
distributional effects among large and
small businesses. Although SBA cannot
estimate with certainty the actual
outcome of the gains and losses among
small and large businesses, it can
identify several probable impacts. There
may be a transfer of some Federal
contracts to small businesses from large
businesses. Large businesses may have
fewer Federal contract opportunities as
Federal agencies decide to set aside
more Federal contracts for small
businesses. In addition, some Federal
contracts may be awarded to HUBZone
concerns instead of large businesses
since these firms may be eligible for a
price evaluation preference for contracts
when they compete on a full and open
basis.
Similarly, currently defined small
businesses may obtain fewer Federal
contracts due to the increased
competition from more businesses
defined as small. This transfer may be
offset by a greater number of Federal
procurements set aside for all small
businesses. The number of newly
defined and expanding small businesses
that are willing and able to sell to the
Federal Government will limit the
potential transfer of contracts from large
and currently defined small businesses.
SBA cannot estimate the potential
distributional impacts of these transfers
with any degree of precision. The
proposed revisions to the existing size
standards for one industry and one-subindustry in NAICS Sector 23,
Construction, are consistent with SBA’s
statutory mandate to assist small
business. This regulatory action
promotes the Administration’s
objectives. One of SBA’s goals in
support of the Administration’s
objectives is to help individual small
businesses succeed through fair and
equitable access to capital and credit,
Government contracts, and management
and technical assistance. Reviewing and
modifying size standards, when
appropriate, ensures that intended
beneficiaries have access to small
business programs designed to assist
them.
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Executive Order 13563
A description of the need for this
regulatory action and benefits and costs
associated with this action including
possible distributional impacts that
relate to Executive Order 13563 is
included above in the Regulatory Impact
Analysis under Executive Order 12866.
In an effort to engage interested
parties in this action, SBA has presented
its size standards methodology
(discussed above under Supplementary
Information) to various industry
associations and trade groups. SBA also
met with a number of industry groups
to get their feedback on its methodology
and other size standards issues. In
addition, SBA presented its size
standards methodology to businesses in
13 cities in the U.S. and sought their
input as part of Jobs Act tours. The
presentation also included information
on the latest status of the
comprehensive size standards review
and on how interested parties can
provide SBA with input and feedback
on size standards review.
Additionally, SBA sent letters to the
Directors of the Offices of Small and
Disadvantaged Business Utilization
(OSDBU) at several Federal agencies
with considerable procurement
responsibilities requesting their
feedback on how the agencies use SBA’s
size standards and whether current size
standards meet their programmatic
needs (both procurement and nonprocurement). SBA gave appropriate
consideration to all input, suggestions,
recommendations, and relevant
information obtained from industry
groups, individual businesses, and
Federal agencies in preparing this
proposed rule.
The review of size standards in
NAICS Sector 23, Construction, is
consistent with Executive Order 13563,
Sec 6, calling for retrospective analyses
of existing rules. The last
comprehensive review of size standards
occurred during the late 1970s and early
1980s. Since then, except for periodic
adjustments for monetary based size
standards, most reviews of size
standards were limited to a few specific
industries in response to requests from
the public and Federal agencies. SBA
recognizes that changes in industry
structure and the Federal marketplace
over time have rendered existing size
standards for some industries no longer
supportable by current data.
Accordingly, in 2007, SBA began a
comprehensive review of its size
standards to ensure that existing size
standards have supportable bases and to
revise them when necessary. In
addition, the Jobs Act requires SBA to
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conduct a detailed review of all size
standards and to make appropriate
adjustments to reflect market
conditions. Specifically, the Jobs Act
requires SBA to conduct a detailed
review of at least one-third of all size
standards during every 18 month period
from the date of its enactment and do a
complete review of all size standards
not less frequently than once every
5 years thereafter.
Executive Order 12988
This action meets applicable
standards set forth in Sections 3(a) and
3(b)(2) of Executive Order 12988, Civil
Justice Reform, to minimize litigation,
eliminate ambiguity, and reduce
burden. The action does not have
retroactive or preemptive effect.
Executive Order 13132
For purposes of Executive Order
13132, SBA has determined that this
proposed rule will not have substantial,
direct effects on the States, on the
relationship between the national
government and the States, or on the
distribution of power and
responsibilities among the various
levels of government. Therefore, SBA
has determined that this proposed rule
has no federalism implications
warranting preparation of a federalism
assessment.
Paperwork Reduction Act
For the purpose of the Paperwork
Reduction Act, 44 U.S.C. Ch. 35, SBA
has determined that this rule will not
impose any new reporting or record
keeping requirements.
Initial Regulatory Flexibility Analysis
Under the Regulatory Flexibility Act
(RFA), this proposed rule, if adopted,
may have a significant impact on a
substantial number of small businesses
in NAICS Sector 23, Construction. As
described above, this rule may affect
small businesses seeking Federal
contracts, loans under SBA’s 7(a), 504
and Economic Injury Disaster Loan
Programs, and assistance under other
Federal small business programs.
Immediately below, SBA sets forth an
initial regulatory flexibility analysis
(IRFA) of this proposed rule addressing
the following questions: (1) What are the
need for and objective of the rule?; (2)
What are SBA’s description and
estimate of the number of small
businesses to which the rule will
apply?; (3) What are the projected
reporting, recordkeeping, and other
compliance requirements of the rule?;
(4) What are the relevant Federal rules
that may duplicate, overlap, or conflict
with the rule?; and (5) What alternatives
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will allow the Agency to accomplish its
regulatory objectives while minimizing
the impact on small businesses?
1. What are the need for and objective
of the rule?
Changes in industry structure,
technological changes, productivity
growth, mergers and acquisitions, and
updated industry definitions have
changed the structure of many
industries in NAICS Sector 23. Such
changes can be sufficient to support
revisions to current size standards for
some industries. Based on the analysis
of the latest data available, SBA believes
that the revised standards in this
proposed rule more appropriately reflect
the size of businesses that need Federal
assistance. The recently enacted Jobs
Act also requires SBA to review all size
standards and make necessary
adjustments to reflect market
conditions.
2. What are SBA’s description and
estimate of the number of small
businesses to which the rule will apply?
If the proposed rule is adopted in its
present form, SBA estimates that more
than 400 additional firms will become
small because of increased size
standards one industry and one subindustry in NAICS Sector 23. That
represents 0.1 percent of total firms that
are small under current size standards
in all industries within that Sector. This
will result in an increase in the small
business share of total industry receipts
for the Sector from 49.7 percent under
the current size standards to 50 percent
under the proposed size standards. The
proposed size standards, if adopted, will
enable more small businesses to retain
their small business status for a longer
period. Many firms may have lost their
eligibility and find it difficult to
compete at current size standards with
companies that are significantly larger
than they are. SBA believes the
competitive impact will be positive for
existing small businesses and for those
that exceed the size standards but are on
the very low end of those that are not
small. They might otherwise be called
or referred to as mid-sized businesses,
although SBA only defines what is
small; other entities are other than
small.
3. What are the projected reporting,
record keeping and other compliance
requirements of the rule?
The proposed size standard changes
impose no additional reporting or
record keeping requirements on small
businesses. However, qualifying for
Federal procurement and a number of
other programs requires that businesses
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register in the CCR database and certify
in the Online Representations and
Certifications Application (ORCA) that
they are small at least once annually.
Therefore, businesses opting to
participate in those programs must
comply with CCR and ORCA
requirements. There are no costs
associated with either CCR registration
or ORCA certification. Changing size
standards alters the access to SBA’s
programs that assist small businesses,
but does not impose a regulatory burden
because they neither regulate nor
control business behavior.
4. What are the relevant Federal rules,
which may duplicate, overlap or
conflict with the rule?
Under § 3(a)(2)(C) of the Small
Business Act, 15 U.S.C. 632(a)(2)(c),
Federal agencies must use SBA’s size
standards to define a small business,
unless specifically authorized by statute
to do otherwise. In 1995, SBA published
in the Federal Register a list of statutory
and regulatory size standards that
identified the application of SBA’s size
standards as well as other size standards
used by Federal agencies (60 FR 57988
(November 24, 1995)). SBA is not aware
of any Federal rule that would duplicate
or conflict with establishing size
standards.
However, the Small Business Act and
SBA’s regulations allow Federal
agencies to develop different size
standards if they believe that SBA’s size
standards are not appropriate for their
programs, with the approval of SBA’s
Administrator (13 CFR 121.903). The
Regulatory Flexibility Act authorizes an
Agency to establish an alternative small
business definition, after consultation
with the Office of Advocacy of the U.S.
Small Business Administration (5 U.S.C.
601(3)).
5. What alternatives will allow the
Agency to accomplish its regulatory
objectives while minimizing the impact
on small entities?
By law, SBA is required to develop
numerical size standards for
establishing eligibility for Federal small
business assistance programs. Other
than varying size standards by industry
and changing the size measures, no
practical alternative exists to the
systems of numerical size standards.
List of Subjects in 13 CFR Part 121
Administrative practice and
procedure, Government procurement,
Government property, Grant programs—
business, Individuals with disabilities,
Loan programs—business, Reporting
and recordkeeping requirements, Small
businesses.
For the reasons set forth in the
preamble, SBA proposes to amend part
13 CFR part 121 as follows:
PART 121—SMALL BUSINESS SIZE
REGULATIONS
1. The authority citation for part 121
continues to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 662,
and 694a(9).
2. In § 121.201, in the table, revise the
entries for ‘‘237210’’, and ‘‘Except’’
under entry ‘‘237990’’, to read as
follows:
§ 121.201 What size standards has SBA
identified by North American Industry
Classification System codes?
*
*
*
*
*
SMALL BUSINESS SIZE STANDARDS BY NAICS INDUSTRY
NAICS
Codes
Size standards
in millions of
dollars
NAICS U.S. Industry title
*
237210
*
Except,
*
*
*
*
Land Subdivision ....................................................................................................................................
*
*
*
*
*
Dredging and Surface Cleanup Activities 2 ............................................................................................
*
*
*
*
*
*
Size standards
in number of
employees
*
$25.5
*
2 30.0
*
*
*
*
*
*
*
*
*
code 237990—Dredging: To be considered small for purposes of Government procurement, a firm must perform at least 40 percent of
the volume dredged with its own equipment or equipment owned by another small dredging concern.
2 NAICS
*
*
*
*
*
Dated: February 28, 2012.
Karen G. Mills,
Administrator.
[FR Doc. 2012–17440 Filed 7–17–12; 8:45 am]
BILLING CODE 8025–01–P
SMALL BUSINESS ADMINISTRATION
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13 CFR Part 121
RIN 3245–AG36
Small Business Size Standards: Arts,
Entertainment, and Recreation
U.S. Small Business
Administration.
ACTION: Proposed rule.
AGENCY:
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The U.S. Small Business
Administration (SBA) proposes to
increase the small business size
standards for 17 industries in North
American Industry Classification
System (NAICS) Sector 71, Arts,
Entertainment, and Recreation. As part
of its ongoing comprehensive review of
all size standards, SBA has evaluated all
size standards in NAICS Sector 71 to
determine whether the existing size
standards should be retained or revised.
This proposed rule is one of a series of
proposed rules that examines 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 the document is
SUMMARY:
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available on its Web site at
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.
SBA must receive comments to
this proposed rule on or before
September 17, 2012.
DATES:
You may submit comments,
identified by RIN 3245–AF36, by one of
the following methods: (1) Federal
ADDRESSES:
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]]>Agencies
[Federal Register Volume 77, Number 138 (Wednesday, July 18, 2012)]
[Proposed Rules]
[Pages 42197-42211]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17440]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AG37
Small Business Size Standards: Construction
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The U.S. Small Business Administration (SBA) proposes to
increase small business size standards for one industry and one sub-
industry in North American Industry Classification System (NAICS)
Sector 23, Construction. SBA proposes to increase the size standard for
NAICS 237210, Land Subdivision, from $7 million to $25 million and the
size standard for Dredging and Surface Cleanup Activities, a sub-
industry category (or an ``exception'') under NAICS 237990, Other Heavy
and Civil Engineering Construction, from $20 million to $30 million in
average annual receipts. As part of its ongoing comprehensive size
standards review, SBA has evaluated all size standards in NAICS Sector
23 to determine whether they should be retained or revised. This
proposed rule is one of a series of proposed rules that will review
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 to advise
the public that the document is available on its Web site at
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
September 17, 2012.
ADDRESSES: Identify your comments by RIN 3245-AG37 and submit them by
one of the following methods: (1) Federal eRulemaking Portal:
www.regulations.gov, following 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
www.regulations.gov. If you wish to submit confidential business
information (CBI) as defined in the User Notice at 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. 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.
FOR FURTHER INFORMATION CONTACT: Jorge Laboy-Bruno, Ph.D., Economist,
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.
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 were limited to a few specific industries in response to
requests from the public and Federal agencies. SBA also adjusts its
monetary based size standards for inflation 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).
Given its importance in the Federal Procurement market, SBA has
studied and reviewed the construction industry over time. In 1985, SBA
adopted a new size standard for the Dredging sub-industry (an exception
within NAICS industry 237990). The new size standard was based on a
1984 study of the industry structure, conducted in cooperation with the
Corps of Engineers and members of the industry. The final rule was
published in the Federal Register on November 8, 1985 (50 FR 46418).
Finally, the industry's
[[Page 42198]]
definitions under the NAICS changed significantly in 2002, requiring
SBA to adjust its size standards (including those in NAICS Sector 23)
accordingly (67 FR 52633).
Because of changes in the Federal marketplace and industry
structure since the last comprehensive size standards 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 five 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 is reviewing
size standards on a Sector by Sector basis. A NAICS Sector generally
includes 25 to 75 industries, except for NAICS Sector 31-33,
Manufacturing, which has considerably more industries. Once SBA
completes its review of size standards for industries in a NAICS
Sector, it issues a proposed rule to revise size standards for those
industries for which it believes 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 recently developed a ``Size Standards Methodology'' for
developing, reviewing, and modifying size standards when necessary. SBA
published the document on its Web site at www.sba.gov/size for public
review and comments, and has included it as a supporting document in
the electronic docket of this proposed rule at www.regulations.gov. SBA
does not apply all features of its ``Size Standards Methodology'' to
all industries because not all features are appropriate for every
industry. For example, since all industries in NAICS Sector 23 have
receipts based size standards the methodology described in this
proposed rule applies only to establishing receipts based size
standards. However, the methodology is 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
concerning its ``Size Standards Methodology,'' such as whether there
are other 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; whether there are gaps in SBA's
methodology because the data it uses are not current or sufficiently
comprehensive; and whether there are other data, facts, and/or issues
that SBA should consider. Comments on SBA's size standards methodology
should be submitted via: (1) The Federal eRulemaking Portal:
www.regulations.gov, following the instructions for submitting
comments; the docket number is SBA-2009-0008; 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 it will do with comments to this and other proposed rules, SBA will
post all comments on its methodology on www.regulations.gov. As of
December 29, 2011, SBA has received 14 comments to its ``Size Standards
Methodology.'' The comments are available to the public at
www.regulations.gov. SBA continues to welcome comments on its
methodology from interested parties. SBA will not accept comments to
its ``Size Standards Methodology'' submitted by email.
Congress granted SBA's Administrator discretion to establish
detailed small business size standards. 15 U.S.C. 632(a)(2).
Specifically, 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
(as described below). In addition, SBA considers current economic
conditions, its mission and program objectives, 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 it used to propose adjustments to size
standards in NAICS Sector 23. This proposed rule affords the public an
opportunity to review and to comment on SBA's proposals to revise size
standards in NAICS Sector 23, as well as on the data and methodology it
used to evaluate and revise the size standards.
Industry Analysis
For the current comprehensive size standards review, SBA has
established three ``base'' or ``anchor'' size standards--$7.0 million
in average annual receipts for industries that have receipts based size
standards, 500 employees for manufacturing and other industries that
have employee based size standards (except for Wholesale Trade), and
100 employees for industries in the Wholesale Trade Sector. SBA
established 500 employees as the anchor size standard for manufacturing
industries at its inception in 1953. Shortly thereafter, SBA
established $1 million in average annual receipts as the anchor size
standard for nonmanufacturing industries. SBA has periodically
increased the receipts based anchor size standard for inflation, and
today it is $7 million. Since 1986, the size standard for all
industries in the Wholesale Trade Sector for SBA financial assistance
and for most Federal programs has been 100 employees. However, NAICS
codes for the Wholesale Trade Sector and their 100 employee size
standards do not apply to Federal procurement programs. Rather, for
Federal procurement the size
[[Page 42199]]
standard for all industries in Wholesale Trade (NAICS Sector 42) 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 is neither a minimum nor a maximum size standard.
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. SBA presumes an anchor size standard is
appropriate for a particular industry unless that industry displays
economic characteristics that are considerably different from other
industries with the same anchor size standard.
When evaluating a size standard, SBA compares the economic
characteristics of the industry under review to the average
characteristics of industries with one of the three anchor size
standards (referred to as the ``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 generally 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 23, SBA has developed a second comparison group
consisting of industries that have the highest of receipts based size
standards. To determine 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; the weighted average size
standard for the group is $29 million. SBA refers to this comparison
group as the ``higher level receipts based size standard group.''
The primary factors that SBA evaluates to examine industry
structure include average firm size, startup costs and entry barriers,
industry competition, and distribution of firms by size. SBA evaluates,
as an additional primary factor, the impact that revised 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, other program factors, etc.).
SBA also considers possible impacts of size standard revisions on
eligibility for Federal small business assistance, current economic
conditions, the Administration's policies, and suggestions from
industry groups and Federal agencies. Public comments on a proposed
rule also provide important additional information. SBA thoroughly
reviews all public comments before making a final decision on its
proposed size standards. Below are brief descriptions of each of the
five primary factors that SBA has evaluated for each industry in NAICS
Sector 23. 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 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 size 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 lower than those of the anchor
comparison group is likely to have lower startup costs; this will
support the anchor standard or 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 to the average four-firm concentration ratio for
industries in the anchor comparison group. If a significant share
[[Page 42200]]
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 share of economic activity within the
industry is less than 40 percent. For an industry with a four-firm
concentration ratio of 40 percent or more, SBA examines the average
size of the four largest firms to determine 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 in assessing industry competition. 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 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
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 with that
for industries in the anchor comparison group. If the Gini coefficient
value for an industry is higher than it is for industries in the anchor
comparison industry group this may, all else being equal, warrant a
size standard higher 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 possible impact a size standard change may have on Federal
small business assistance. This most often focuses on the share of
Federal contracting dollars awarded to small businesses in the industry
in question. In general, if the small business share of Federal
contracting in an industry with significant Federal contracting is
appreciably less than the small business share of the industry's total
receipts, this could justify considering a size standard higher than
the existing size standard. The disparity between the small business
Federal market share and 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 support a size standard
larger than the current size 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
contracting opportunities to small businesses.
Besides the impact on small business Federal contracting, SBA also
evaluates the impact of a proposed size standard revision on SBA's loan
programs. For this, SBA examines the data on volume and number of
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 current size standards have
impeded financial assistance to small businesses, higher size standards
may be 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 standards, SBA does not consider this factor when
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 2007 Economic Census (see www.census.gov/econ/census07/) prepared by the U.S. Bureau of the Census (Census
Bureau) for SBA. The 2007 Economic Census data are the latest
available. 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 Industry (6-digit level),
Industry Group (4-digit level), Subsector (3-digit level), and Sector
(2-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.
To calculate average assets, SBA used sales to total assets ratios
from the Risk Management Association's Annual Statement Studies, 2008-
2010.
To evaluate Federal contracting trends, SBA examined data on
Federal contract awards for fiscal years 2008-2010. The data are
available from the U.S. General Service Administration's Federal
Procurement Data System--Next Generation (FPDS-NG).
To assess the impact on financial assistance to small businesses,
SBA examined data on its own guaranteed loan programs for fiscal years
2008-2010.
Data sources and estimation procedures SBA uses in its size
standards analysis are documented in detail in SBA's ``Size Standards
Methodology'' White Paper, which is available at www.sba.gov/size.
[[Page 42201]]
Dominance in Field of Operation
Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a
small business concern as one that is: (1) Independently owned and
operated; (2) not dominant in its field of operation; and (3) within a
specific small business definition or size standard established by 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 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 such a
large number of different small business size standards is 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.
All size standards in NAICS Sector 23 are based on average annual
receipts. SBA proposes, therefore, to apply one of eight receipts based
size standards to each industry in NAICS Sector 23. 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. SBA established these eight receipts based size standard
based on the current minimum, the current maximum, and the most
commonly used current receipts based size standards. At the start of
the current comprehensive review, the most commonly used receipts based
size standards clustered around the following--$2.5 million to $4.5
million, $7 million, $9 million to $10 million, $12.5 million to $14.0
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. 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 includes those
industries with 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: $10 million, $14 million, $25.5 million, and
$35.5 million. Because of the 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 reflect
roughly the same proportional differences as between 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 separate size standard 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 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, NAICS 541519, and NAICS 811212), even though the industry
data might support a distinct size standard for each industry (57 FR
27906 (June 23, 1992)). The SBA also, more recently, established common
size standards for the industries in NAICS Industry Group 5411, Legal
Services, and for the industries in NAICS Industry Group 5412,
Accounting Services (77 FR 7490 (February 10, 2012)). In NAICS Sector
23, currently all industries in NAICS Subsector 236 (Construction of
Buildings), and all industries in NAICS Industry Group 2371 (Utility
System Construction) have common size standards. Similarly, all
industries within NAICS Subsector 238 (Specialty Trade Contractors)
also have a common size standard. In this proposed rule, SBA proposes
to retain common size standards for all industries within NAICS
Subsector 236 (Construction of Buildings), NAICS Industry Group 2371
(Utility System Construction), and NAICS Subsector 238 (Specialty Trade
Contractors). Whenever SBA proposes a common size standard for closely
related industries it will provide its justification.
Evaluation of Industry Structure
SBA evaluated all 31 industries and one sub-industry in NAICS
Sector 23, Construction, to assess the appropriateness of the current
size standards. As described above, SBA compared data on the economic
characteristics of each industry to the average characteristics of
industries in two comparison groups. The first comparison group
consists of all industries with $7 million size standards and is
referred to as the ``receipts based anchor comparison group.'' Because
the goal of SBA's 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 are similar to the average
characteristics of industries in the anchor comparison group, the
anchor size standard is generally appropriate for that industry. If an
industry's structure is significantly different from industries in the
anchor group, a size standard lower or higher than the anchor size
standard might be appropriate. The proposed 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 $29 million. SBA refers to this group of industries as the ``higher
level receipts based size standard comparison group.'' SBA determines
differences in industry structure between an industry under review and
the industries in the two
[[Page 42202]]
comparison groups by comparing data on each of the industry factors,
including average firm size, average assets size, the four-firm
concentration ratio, and the Gini coefficient of distribution of firms
by size. Table 1, Average Characteristics of Receipts Based Comparison
Groups, shows the average firm size (both simple and weighted), average
assets size, four-firm concentration ratio, average receipts of the
four largest firms, and the Gini coefficient for both anchor level and
higher level comparison groups for receipts based size standards.
Table 1--Average Characteristics of Receipts Based Comparison Groups
--------------------------------------------------------------------------------------------------------------------------------------------------------
Avg. firm size ($ million) Avg. receipts
-------------------------------- Avg. assets Four-firm of four Gini
Receipts based comparison group Simple Weighted size ($ concentration largest firms coefficient
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, the $7 million anchor size standard is
appropriate for that factor.
An industry factor significantly above or below the anchor
comparison group will generally imply 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 (($3.30
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 $7.0 million to estimate a size standard of $18.61 million ([{$29.0
million-$7.0 million{time} * 0.528] + $7.0 million = $18.61 million).
The final step is to round the estimated $18.61 million size standard
to the nearest fixed size standard, which in this example is $19
million.
SBA applies the above calculation to derive a size standard for
each industry factor. Detailed formulas involved in these calculations
are presented in SBA's ``Size Standards Methodology'' which is
available on its Web site at www.sba.gov/size. (However, it should be
noted that figures in the ``Size Standards Methodology'' White Paper
are based on 2002 Economic Census data and are different from those
presented in this proposed rule. That is because when SBA prepared its
``Size Standards Methodology,'' the 2007 Economic Census data were not
yet available). Table 2, Values of Industry Factors and Supported Size
Standards, below, shows ranges of values for each industry factor and
the levels of size standards supported by those values.
Table 2--Values of Industry Factors and Supported Size Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
Or if Weighted avg. Or if Avg. receipts Then Implied size
If Simple avg. receipts size ($ receipts size ($ Or if Avg. assets of largest four firms Or if gini standard is ($
million) million) size ($ million) ($ million) coefficient 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 1,309.0.... 0.789 to 0.822........ 25.5
4.87 to 5.71........................ 111.33 to 133.41...... 3.08 to 3.61.......... 1,309.1 to 1,577.1.... 0.823 to 0.853........ 30.0
>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 the success of small businesses in getting Federal
contracts under the existing size standards. For industries where the
small business share of total Federal contracting dollars is 10 to 30
percent lower than the small business 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 the
small business 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
[[Page 42203]]
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 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
its size standard analysis and suggestions for alternative methods and
other relevant information on small business experience in the Federal
contract market that SBA should consider.
Twenty of the 31 industries in NAICS Sector 23 and the sub-industry
category (``exception'') under NAICS 237990 (Other Heavy and Civil
Engineering Construction),averaged $100 million or more annually in
Federal contracting during fiscal years 2008-2010. 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 9 of those 20 industries and a separate size standard was derived
from that factor for each of them.
New Size Standards Based on Industry and Federal Contracting Factors
Table 3, Size Standards Supported by Each Factor for Each Industry
(millions of dollars), shows the results of analyses of industry and
Federal contracting factors for each industry covered by this proposed
rule. Many 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 only if its value is
40 percent or more. If the four-firm concentration ratio for an
industry is less than 40 percent, SBA does not estimate a size standard
for that factor. If the four-firm concentration ratio is more than 40
percent, SBA indicates in column 6 the average size of the industry's
four largest 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, 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, Size Standards Supported by Each
Factor for Each Industry (millions of dollars).
Table 3--Size Standards Supported by Each Factor for Each Industry
[Millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple Weighted Calculated Current
average average Average Four-firm Four-firm Federal size size
NAICS Code/NAICS industry title firm size firm size assets ratio average Gini contract standard standard
($ ($ size ($ (%) size ($ coefficient factor ($ ($
million) million) million) million) (%) million) million)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
--------------------------------------------------------------------------------------------------------------------------------------------------------
236115 New Single-Family Housing Construction $1.5 $22.3 $1.2 2.7 $599.2 0.670 -62.8 .......... .........
(except Operative Builders)...................... 7.0 7.0 10.0 ......... ......... $5.0 $35.5 $14.0 $33.5
236116 New Multifamily Housing Construction 11.7 119.2 6.0 17.8 1,547.0 0.833 -27.1 .......... .........
(except Operative Builders)...................... 35.5 30.0 35.5 ......... ......... $30.0 $35.5 35.5 33.5
236117 New Housing Operative Builders............. 5.2 291.5 4.8 17.9 8,097.5 0.874 4.2 .......... .........
30.0 35.5 35.5 ......... ......... $35.5 ......... 35.5 33.5
236118 Residential Remodelers..................... 0.71 9.0 0.2 2.6 337.8 0.566 -77.1 .......... .........
5.0 5.0 5.0 ......... ......... $5.0 $35.5 14.0 33.5
236210 Industrial Building Construction........... 9.2 71.1 3.2 14.4 629.5 0.802 -3.2 .......... .........
35.5 19.0 30.0 ......... ......... $25.5 ......... 25.5 33.5
236220 Commercial and Institutional Building 10.1 161.3 3.2 5.7 5,311.1 0.839 -0.9 .......... .........
Construction..................................... 35.5 35.5 30.0 ......... ......... $30.0 ......... 30.0 33.5
237110 Water and Sewer Line and Related Structures 4.5 44.9 2.1 4.3 520.0 0.765 -10.6 .......... .........
Construction..................................... 25.5 14.0 19.0 ......... ......... $19.0 $35.5 25.5 33.5
237120 Oil and Gas Pipeline and Related Structures 16.9 150.0 7.8 17.6 1,362.9 0.840 -0.1 .......... .........
Construction..................................... 35.5 35.5 35.5 ......... ......... $30.0 ......... 35.5 33.5
237130 Power and Communication Line and Related 6.8 129.6 2.9 20.8 1,767.4 0.864 10.5 .......... .........
Structures Construction.......................... 35.5 30.0 25.5 ......... ......... $35.5 ......... 30.0 33.5
237210 Land Subdivision........................... 3.6 38.0 11.9 12.1 690.2 0.796 ......... .......... .........
19.0 10.0 35.5 ......... ......... $25.5 ......... 25.5 7.0
237310 Highway, Street and Bridge Construction.... 10.6 96.0 5.0 5.2 1,393.9 0.811 5.7 .......... .........
35.5 25.5 35.5 ......... ......... $25.5 ......... 30.0 33.5
237990 Other Heavy and Civil Engineering 5.0 59.9 2.5 10.7 476.2 0.812 -9.9 .......... .........
Construction, Except Dredging and Surface Cleanup 30.0 14.0 19.0 ......... ......... $25.5 ......... 19.0 33.5
Activities.......................................
237990 Dredging and Surface Cleanup Activities.... 44.0 542.1 21.6 52.5 976.0 0.797 9.8 .......... .........
35.5 35.5 35.5 ......... 19.0 $25.5 ......... 30.0 20.0
238110 Poured Concrete Foundation and Structure 1.9 32.5 0.75 4.5 535.5 0.739 -18.0 .......... .........
Contractors...................................... 10.0 10.0 7.0 ......... ......... $14.0 $19.0 14.0 14.0
238120 Structural Steel and Precast Concrete 4.1 26.1 1.7 7.0 258.2 0.725 -23.5 .......... .........
Contractors...................................... 25.5 7.0 14.0 ......... ......... $14.0 $19.0 14.0 14.0
238130 Framing Contractors........................ 0.9 13.6 0.3 3.8 170.8 0.657 1.6 .......... .........
5.0 5.0 5.0 ......... ......... $5.0 ......... 5.0 14.0
238140 Masonry Contractors........................ 1.1 11.5 0.4 2.3 155.9 0.685 -6.4 .......... .........
7.0 5.0 5.0 ......... ......... $5.0 5.0 14.0
[[Page 42204]]
238150 Glass and Glazing Contractors.............. 2.1 16.7 0.7 5.6 150.4 0.686 8.1 .......... .........
10.0 7.0 5.0 ......... ......... $5.0 ......... 7.0 14.0
238160 Roofing Contractors........................ 1.8 14.3 0.6 3.6 263.5 0.684 17.0 .......... .........
10.0 5.0 5.0 ......... ......... $5.0 ......... 5.0 14.0
238170 Siding Contractors......................... 0.7 5.0 ......... 2.6 46.7 0.556 -7.5 .......... .........
5.0 5.0 ......... ......... ......... $5.0 ......... 5.0 14.0
238190 Other Foundation, Structure, and Building 1.4 13.3 0.5 10.4 176.6 0.680 -34.8 .......... .........
Exterior Contractors............................. 7.0 5.0 5.0 ......... ......... $5.0 $25.5 10.0 14.0
238210 Electrical Contractors and Other Wiring 1.8 36.6 0.6 3.5 1,128.6 0.738 12.1 .......... .........
Installation Contractors......................... 10.0 10.0 5.0 ......... ......... $14.0 ......... 10.0 14.0
238220 Plumbing, Heating, and Air-Conditioning 1.8 34.4 0.6 4.0 1,623.6 0.720 19.3 .......... .........
Contractors...................................... 10.0 10.0 5.0 ......... ......... $10.0 ......... 7.0 14.0
238290 Other Building Equipment Contractors....... 4.2 97.5 1.4 27.6 1,689.8 0.818 21.9 .......... .........
25.5 25.5 14.0 ......... ......... $25.5 ......... 19.0 14.0
238310 Drywall and Insulation Contractors......... 2.1 42.3 0.7 6.3 679.6 0.762 18.6 .......... .........
10.0 14.0 5.0 ......... ......... $19.0 ......... 14.0 14.0
238320 Painting and Wall Covering Contractors..... 0.6 7.3 0.2 2.2 121.6 0.578 -7.3 .......... .........
5.0 5.0 5.0 ......... ......... $5.0 ......... 5.0 14.0
238330 Flooring Contractors....................... 1.1 17.8 0.3 5.9 231.6 0.694 5.3 .......... .........
5.0 7.0 5.0 ......... ......... $7.0 ......... 7.0 14.0
238340 Tile and Terrazzo Contractors.............. 0.9 8.7 0.3 2.9 74.3 0.634 -1.8 .......... .........
5.0 5.0 5.0 ......... ......... $5.0 ......... 5.0 14.0
238350 Finish Carpentry Contractors............... 0.7 7.9 0.2 2.7 178.4 0.597 -2.7 .......... .........
5.0 5.0 5.0 ......... ......... $5.0 ......... 5.0 14.0
238390 Other Building Finishing Contractors....... 1.4 8.7 0.5 3.8 80.9 0.673 -28.8 .......... .........
7.0 5.0 5.0 ......... ......... $5.0 ......... 5.0 14.0
238910 Site Preparation Contractors............... 1.9 25.0 1.0 1.7 349.0 0.728 -12.1 .......... .........
10.0 7.0 7.0 ......... ......... $14.0 $19.0 14.0 14.0
238990 All Other Specialty Trade Contractors...... 1.4 15.5 0.5 4.9 473.7 0.673 -23.9 .......... .........
7.0 7.0 5.0 ......... ......... $5.0 $19.0 10.0 14.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
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 might suggest
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'' for Information Technology Value
Added Resellers), and NAICS 811212. Another example is the common size
standard for certain Architectural, Engineering (A&E) and Related
Services. These include NAICS 541310, NAICS 541330 (excluding the
``exceptions''), Map Drafting (an ``exception'' under NAICS 541340),
NAICS 541360, and NAICS 541370 (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)). The SBA also, more recently, established
common size standards for the industries in NAICS Industry Group 5411,
Legal Services, and for the industries in NAICS Industry Group 5412,
Accounting Services (77 FR 7490 (February 10, 2012)). Similarly, SBA
proposed common size standards for several other industries in NAICS
Sector 48-49, Transportation and Warehousing (see 76 FAR 27935 (May 13,
2011)), NAICS Sector 56, Administrative and Support, Waste Management
and Remediation Services (see 76 FR 63510 (October 12, 2011), and NAICS
Sector 53, Real Estate and Rental and Leasing (see 76 FR 70680
(November 15, 2011)).
For NAICS Sector 23, SBA derives, as an alternative to a separate
size standard for each industry, common size standards for industries
in two NAICS Subsectors and one NAICS Industry Group, as shown in Table
4, Subsectors and Industry for Common Sized Standards. SBA evaluated
industry and Federal contracting factors and derived a common size
standard for each Industry Group and Subsector using the same method as
described above. The results are in Table 5, Size Standards Supported
by Each Factor for NAICS Subsectors 236 and 238, and Industry Group
2371, which immediately follows Table 4, Subsectors and Industry Groups
for Common Size Standards, below.
Table 4--Subsectors and Industry Groups for Common Size Standards
----------------------------------------------------------------------------------------------------------------
NAICS Subsector or industry NAICS Subsector or
group code * industry group title Industries: 6-digit NAICS codes
----------------------------------------------------------------------------------------------------------------
236............................ Construction of 236115, 236116, 236117, 236118, 236210, 236220.
Buildings.
2371........................... Utility System 237110, 237120, 237130.
Construction.
[[Page 42205]]
238............................ Specialty Trade 238110, 238120, 238130, 238140, 238150, 238160,
Contractors. 238170, 238190, 238210, 238220, 238290, 238310,
238320, 238330, 238340, 238350, 238390, 238910,
238990.
----------------------------------------------------------------------------------------------------------------
* Industries in these Subsectors and Industry Group currently have common size standards. SBA proposes to retain
these standards.
Table 5--Size Standards Supported by Each Factor for NAICS Subsectors 236 and 238, and Industry Group 2371
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple Weighted Average Four-firm Calculated Current
NAICS Code/subsector or industry average average assets size Four-firm average Gini Federal size size
group title firm size firm size ($ ratio (%) size ($ coeffi- contract standard standard
($ million) ($ million) million) million) cient factor (%) ($ million) ($million)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
--------------------------------------------------------------------------------------------------------------------------------------------------------
236 Construction of Buildings...... $3.6 $141.1 $1.5 4.8 $9,010.7 0.846 -10.8 ........... ...........
19.0 35.5 14.0 $30.0 $35.5 25.5 $33.5
2371 Utility System Construction... 6.5 96.9 3.0 7.9 2,231.6 0.828 0.5 30.0 33.5
35.50 25.5 25.5 $30.0
238 Specialty Trade Contractors.... 1.5 27.0 0.5 1.6 2,807.0 0.721 -1.1 7.0 14.0
7.0 10.0 5.0 $10.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Special Considerations: Dredging and Surface Cleanup Activities
The Dredging and Surface Cleanup Activities (Dredging) size
standard is a sub-industry category (or an ``exception'') established
by SBA within the 6-digit NAICS 237990 (Other Heavy and Civil
Engineering Construction). Data from the Census Bureau's special
tabulation are limited to the 6-digit NAICS industry level, and hence,
do not provide separate data at the sub-industry level. As such, SBA
relied upon data from other sources to evaluate the current $20 million
size standard for Dredging. Firms engaged in the Dredging sub-industry
were identified from contracting activity reported in FPDS-NG during
fiscal years 2008-2010. Dredging contracts can be identified as those
classified within NAICS 237990 and by four Product Service Codes
(PSCs): Y216 (Construction of Dredging), Z216 (Maintenance, Repair or
Alteration of Dredging), Y217 (Dredging, Incl. Dustpan and Sea-Going
Hoppers), and Z217 (Dredging, Incl. Dustpan and Sea-Going Hoppers). SBA
also looked at Dredging contracting data from the Corps of Engineers'
Navigation Data Center (www.ndc.iwr.usace.army.mil/dredge/dredge.htm)
for the same period. SBA obtained receipts and employment data from the
Central Contractor Registration (CCR) for the identified Dredging firms
to develop the size standards evaluation factors. Based on the analysis
of the resultant data, a different size standard for Dredging than for
other heavy construction activities in NAICS 237990 continues to be
appropriate. Table 3, Size Standards Supported by Each Factor for Each
Industry (millions of dollars), above, shows the results from the
analysis of the Dredging sub-industry, which supported a $30 million
size standard instead of the current $20 million.
Evaluation of SBA Loan Data
Before deciding on an industry's size standard, SBA also considers
the impact of new or revised size standards on SBA's loan programs.
Accordingly, SBA examined its 7(a) and 504 Loan Program data for fiscal
years 2008-2010 to assess whether the proposed size standards need
further adjustments to ensure credit opportunities for small businesses
through those programs. For the industries reviewed in this rule, the
data show that it is mostly businesses much smaller than the current
size standards that use SBA's 7(a) and 504 loans.
Furthermore, the Jobs Act established an alternative size standard
for SBA's 7(a) and 504 Loan Programs. Specifically, an applicant
exceeding an NAICS industry size standard may still be eligible if its
maximum tangible net worth does not exceed $15 million and its average
net income after Federal income taxes (excluding any carry-over losses)
for the 2 full fiscal years before the date of the application is not
more than $5 million.
Therefore, no size standard in NAICS Sector 23, Construction, needs
an adjustment based on this factor.
Proposed Changes to Size Standards
Table 6, Summary of Size Standards Analysis, below, summarizes the
results of SBA analyses of industry specific size standards from Table
3, Size Standards Supported by Each Factor for Each Industry (millions
of dollars), above, and the results for common size standards from
Table 5, Size Standards Supported by Each Factor for NAICS Subsectors
236 and 238, and Industry Group 2371, above. In terms of industry
specific size standards, the results in Table 3, Size Standards
Supported by Each Factor for Each Industry (millions of dollars), might
support increases in size standards for five industries and one sub-
industry, decreases for 22 industries and no changes for four
industries. Based on common size standards for certain NAICS Industry
Groups and Subsectors as explained earlier, the results in Table 5,
Size Standards Supported by Each Factor for Subsectors 236 and 238 and
Industry Group 2371, above, appear to support increases in size
standards for one industry and one sub-industry, decreases for 28
industries and no changes for two industries.
However, SBA believes that lowering small business size standards
is not in the best interest of small businesses in the current economic
environment. The U.S. economy was in recession from December 2007 to
June 2009, the longest
[[Page 42206]]
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 into law 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 is still high at
8.2 percent in June 2012 and is forecast to remain around this level at
least through the end of 2012. In June 2012, unemployment data by
industry and class of workers showed that construction workers
experience the worst unemployment rate of all industries at 12.8
percent.
Recently, Congress passed and the President signed the Jobs Act to
promote small business job creation. The Jobs Act puts more capital
into the hands of entrepreneurs and small business owners; strengthens
small businesses' ability to compete for contracts; includes
recommendations from the President's Task Force on Federal Contracting
Opportunities for Small Business; creates a better playing field for
small businesses; promotes small business exporting, building on the
President's National Export Initiative; expands training and
counseling; and provides $12 billion in tax relief to help small
businesses invest in their firms and create jobs. A proposal to reduce
size standards will have an immediate impact on jobs, and it would be
contrary to the expressed will of the President and the Congress.
Table 6--Summary of Size Standards Analysis
----------------------------------------------------------------------------------------------------------------
Calculated
Current size industry Calculated
NAICS Code NAICS Industry title standard ($ specific size common size
million) standard ($ standard ($
million) million)
----------------------------------------------------------------------------------------------------------------
236115.................... New Single-Family Housing $33.5 $14.0 $25.5
Construction (except Operative
Builders).
236116.................... New Multifamily Housing 33.5 35.5 25.5
Construction (except Operative
Builders).
236117.................... New Housing Operative Builders..... 33.5 35.5 25.5
236118.................... Residential Remodelers............. 33.5 14.0 25.5
236210.................... Industrial Building Construction... 33.5 25.5 25.5
236220.................... Commercial and Institutional 33.5 30.0 25.5
Building Construction.
237110.................... Water and Sewer Line and Related 33.5 25.5 30.0
Structures Construction.
237120.................... Oil and Gas Pipeline and Related 33.5 35.5 30.0
Structures Construction.
237130.................... Power and Communication Line and 33.5 30.0 30.0
Related Structures Construction.
237210.................... Land Subdivision................... 7.0 25.5 ..............
237310.................... Highway, Street and Bridge 33.5 30.0 ..............
Construction.
237990.................... Other Heavy and Civil Engineering 33.5 19.0 ..............
Construction.
Except,................... Dredging and Surface Cleanup 20.0 30.0 ..............
Activities.
238110.................... Poured Concrete Foundation and 14.0 14.0 7.0
Structure Contractors.
238120.................... Structural Steel and Precast 14.0 14.0 7.0
Concrete Contractors.
238130.................... Framing Contractors................ 14.0 5.0 7.0
238140.................... Masonry Contractors................ 14.0 5.0 7.0
238150.................... Glass and Glazing Contractors...... 14.0 7.0 7.0
238160.................... Roofing Contractors................ 14.0 5.0 7.0
238170.................... Siding Contractors................. 14.0 5.0 7.0
238190.................... Other Foundation, Structure, and 14.0 10.0 7.0
Building Exterior Contractors.
238210.................... Electrical Contractors and Other 14.0 10.0 7.0
Wiring Installation Contractors.
238220.................... Plumbing, Heating, and Air- 14.0 7.0 7.0
Conditioning Contractors.
238290.................... Other Building Equipment 14.0 19.0 7.0
Contractors.
238310.................... Drywall and Insulation Contractors. 14.0 14.0 7.0
238320.................... Painting and Wall Covering 14.0 5.0 7.0
Contractors.
238330.................... Flooring Contractors............... 14.0 7.0 7.0
238340.................... Tile and Terrazzo Contractors...... 14.0 5.0 7.0
238350.................... Finish Carpentry Contractors....... 14.0 5.0 7.0
238390.................... Other Building Finishing 14.0 5.0 7.0
Contractors.
238910.................... Site Preparation Contractors....... 14.0 14.0 7.0
238990.................... All Other Specialty Trade 14.0 10.0 7.0
Contractors.
----------------------------------------------------------------------------------------------------------------
Lowering size standards would decrease the number of firms that
participate in Federal financial and procurement assistance programs
for small businesses. It would also affect small businesses that are
now exempt from or receive some form of relief from myriad other
Federal regulations that use SBA's size standards. That impact could
take the form of increased fees, paperwork, or other compliance
requirements for small businesses. Furthermore, size standards based
solely on analytical results without any other considerations can cut
off currently eligible small firms from those programs and benefits. In
NAICS Sector 23, more than 7,000 businesses would lose their small
business eligibility if size standards were lowered based solely on
results from industry specific analysis. Similarly, more than 10,000
businesses would lose small business eligibility if size standards were
lowered based solely on results from common size standards analysis.
That would run counter to what SBA and the Federal government are doing
to help small businesses. Reducing size eligibility for Federal
procurement opportunities, 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 intend to reduce size standards for any industries. For industries
where analyses might seem to support lowering size standards, SBA
proposes to retain the current size standards.
Furthermore, as stated previously, the Small Business Act requires
the Administrator to ``* * * consider other factors deemed to be
relevant * * *'' to establishing small business size
[[Page 42207]]
standards. The current economic conditions and the impact on job
creation are quite relevant factors when establishing small business
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.
Based on comparisons between industry specific size standards and
common size standards within each Industry Group or Subsector, SBA
finds that for several industries, as shown in Table 4, Subsectors and
Industry Groups for Common Size Standards, above, common size standards
are more appropriate for several reasons. First, analyzing industries
at the more aggregated Industry Group or Subsector levels simplifies
size standards analysis, and the results will be more consistent among
related industries. Second, in NAICS Sector 23, industries within each
Industry Group or Subsector currently have the same size standards and
SBA believes it is better to keep the revised size standards also same
unless industries are significantly different. Third, within each
Industry Group or Subsector many of the same businesses tend to operate
in the same multiple industries. SBA believes that common size
standards reflect the Federal marketplace in those industries better
than different size standards for each industry.
For industries where both industry specific size standards and
common size standards have been calculated, for the above reasons, SBA
proposes to apply common size standards. For industries and one sub-
industry (Dredging) where SBA has not estimated common size standards
it proposes to apply industry specific size standards. As discussed
above, lowering small business size standards is inconsistent with what
the Federal government is doing to stimulate the economy and would
discourage job growth for which Congress established the Recovery Act
and Jobs Act. In addition, it would be inconsistent with the Small
Business Act requiring the Administrator to establish size standards
based on industry analysis and other relevant factors such as current
economic conditions. Thus, SBA proposes to increase size standards for
one industry and one sub-industry in NAICS Sector 23 and retain the
current size standards for all other industries in that Sector. The
SBA's proposed increases are in Table 7, Summary of Proposed Size
Standards Revisions, (below).
In addition, retaining current standards when the analytical
results suggested lowering them 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) that 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's
recently issued proposed rule (76 FR 14323 (March 16, 2011)) and final
rule (77 FR 7490 (February 10, 2012)) for NAICS Sector 54,
Professional, Scientific and Technical Services, NAICS Sector 48-49,
Transportation and Warehousing (76 FR 27935 (May 13, 2011)), NAICS
Sector 51, Information (76 FR 63216 (October 12, 2011)), NAICS Sector
56, Administrative and Support, Waste Management and Remediation
Services (76 FR 63510 (October 12, 2011)), NAICS Sector 61, Educational
Services (76 FR 70667 (November 15, 2011)), and NAICS Sector 53, Real
Estate and Rental and Leasing (76 FR 70680 (November 15, 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 7--Summary of Proposed Size Standards Revisions
----------------------------------------------------------------------------------------------------------------
Current size Proposed size
NAICS code NAICS Industry title standard ($ standard ($
million) million)
----------------------------------------------------------------------------------------------------------------
237210................................... Land Subdivision..................... $7.0 $25.5
237990 Except............................ Dredging and Surface Cleanup $20.0 $30.0
Activities.
----------------------------------------------------------------------------------------------------------------
Evaluation of Dominance in Field of Operation
SBA has determined that for the industries in NAICS Sector 23,
Construction, for which it has proposed to increase size standards, no
individual firm at or below the proposed size standard will be large
enough to dominate its field of operation. At the proposed individual
size standards, if adopted, the small business share of total industry
receipts among those industries is, on average, 0.1 percent, varying
from 0.01 percent to 0.3 percent. These market shares effectively
preclude a firm at or below the proposed size standards from exerting
control on any of the industries.
Request for Comments
SBA invites public comments on this proposed rule, especially on
the following issues:
1. To simplify size standards, SBA proposes eight fixed levels for
receipts based size standards: $5 million, $7 million, $10 million, $14
million, $19 million, $25.5 million, $30 million, and $35.5 million.
SBA invites comments on whether this is necessary and whether the
proposed fixed size levels are appropriate. SBA welcomes suggestions on
alternative approaches to simplifying small business size standards.
2. SBA seeks feedback on whether SBA's proposal to increase two
size standards and retain the remaining 30 size standards in NAICS
Sector 23 is appropriate given the economic characteristics of each
industry reviewed in this proposed rule. SBA also seeks feedback and
suggestions on alternative standards, if they would be more
appropriate, including whether the number of employees is a more
suitable measure of size for certain industries and what that employee
level should be.
3. SBA proposes common size standards for industries within NAICS
Subsectors 236 and 238, and NAICS Industry Group 2371 (Utility System
Construction). SBA invites comments or suggestions along with
supporting information with respect to the following:
a. Whether SBA should adopt common size standards for those
industries or establish a separate size standard for each industry; and
b. Whether the proposed common size standards for those industries
are at the correct levels or what would be more appropriate if what SBA
has proposed are not appropriate.
4. SBA's proposed size standards are based on five primary
factors--average firm size, average assets size (as a proxy of startup
costs and entry barriers), four-
[[Page 42208]]
firm concentration ratio, distribution of firms by size, and the total
share and small business share of Federal contracting dollars of the
evaluated industries. SBA welcomes comments on these factors and/or
suggestions of other factors that it should consider when evaluating or
revising size standards. SBA also seeks information on relevant data
sources, other than what it uses, if available.
5. SBA gives equal weight to each of the five primary factors in
all industries. SBA seeks feedback on whether it should continue giving
equal weight to each factor or whether it should give more weight to
one or more factors for certain industries. Recommendations to weigh
some factors more than others should include suggested weights for each
factor along with supporting information.
6. For NAICS 237210, Land Subdivision, based on its analysis of
industry and program data alone, SBA proposes to increase the existing
size standards by a large amount, while it proposes to retain the
current size standards for most other industries in NAICS Sector 23.
SBA seeks feedback on whether, as a policy, it should limit the
increase to a size standard or establish minimum or maximum values for
its size standards. SBA seeks suggestions on appropriate levels of
changes to size standards and on their minimum or maximum levels.
7. In addition to comments on its proposal to increase the size
standard for Dredging and Surface Cleanup Activities from current $20
million to $30 million, SBA also seeks comments regarding the
requirement for a dredging concern to qualify as small on a Federal
procurement that it must perform at least 40 percent of the volume
dredged with its own equipment or equipment owned by another small
dredging concern (see Footnote 2 in 13 CFR 121.201). This requirement
has been in SBA's small business size regulations since 1974 (see 30 FR
24669, July 5, 1974 and 39 FR 31302, August 28, 1974). This proposed
rule retains the requirement set forth in Footnote 2 in order to ensure
that small Dredging firms perform a significant and meaningful portion
of a Dredging project set aside for small business. However, SBA has
heard from small dredging firms that believe they should be able to
lease equipment from any size firm as long as employees from the small
firm perform the work on the contract. SBA specifically request
comments as to whether the footnote is necessary. Comments pertaining
to this requirement should address: (1) Whether there continues to be a
need to retain the current 40 percent equipment requirement; (2)
whether the 40 percent equipment requirement should be revised, and if
so, the rationale for an alternative percentage; and (3) whether a
different and more verifiable requirement based on an alternative
measure (such as value of contract or personnel involved) may achieve
the same objective of ensuring that small businesses perform
significant and meaningful work on Dredging contracts.
8. For analyzing the dredging size standard, a sub-industry
(``exception'') within NAICS 237990, SBA used PSCs within NAICS 237990
to identify contracting activity reported in FPDS-NG, and firms in the
dredging sub-industry during fiscal years 2008-2010. Using the receipts
and employment data for those identified firms from CCR, SBA analyzed
the industry factors for this sub-industry. SBA seeks suggestions or
comments on the use of the data sources and the proposed size standard.
9. SBA is also interested in comments on the elimination of the
sub-industry category for Dredging, and the application of the same
size standard as for the rest of the NAICS 237990. Comments on applying
the same NAICS 237990 size standard for Dredging should address the
basis for why that industry size standard is more suitable than a
specific dredging sub-industry size standard or why dredging firms
should continue to be evaluated as a discrete sub-industry for SBA's
size standards purposes.
10. For analytical simplicity and efficiency, in this proposed
rule, SBA has refined its size standard methodology to obtain a single
value as a proposed size standard instead of a range of values, as in
its past size regulations. SBA welcomes any comments on this procedure
and suggestions on alternative methods.
Public comments on the above issues are very valuable to SBA for
validating its size standard methodology and its proposed size
standards revisions in this proposed rule. This will help SBA to move
forward with its review of size standards for other NAICS Sectors.
Commenters addressing size standards for a specific industry or a group
of industries should include relevant data and/or other information
supporting their comments. If comments relate to using size standards
for Federal procurement programs, SBA suggests that commenters provide
information on the size of contracts in their industries, the size of
businesses that can undertake the contracts, start-up costs, equipment
and other asset requirements, the amount of subcontracting, other
direct and indirect costs associated with the contracts, the use of
mandatory sources of supply for products and services, and the degree
to which contractors can mark up those costs.
Compliance With Executive Orders 12866, 13563, 12988, and 13132, the
Paperwork Reduction Act (44 U.S.C. Ch. 35) and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
proposed rule is a ``significant'' regulatory action for purposes of
Executive Order 12866. Accordingly, the next section contains SBA's
Regulatory Impact Analysis. This is not a ``major'' rule, however,
under the Congressional Review Act, 5 U.S.C. 800.
Regulatory Impact Analysis
1. Is there a need for the regulatory action?
SBA believes that proposed size standards revisions in NAICS Sector
23, Construction, will better reflect the economic characteristics of
small businesses in this Sector and the Federal government marketplace.
SBA's mission is to aid and assist small businesses through a variety
of financial, procurement, business development, and advocacy programs.
To determine the intended beneficiaries of these programs, SBA must
establish distinct definitions of which businesses are deemed small
businesses. The Small Business Act (15 U.S.C. 632(a)) delegates to
SBA's Administrator the responsibility for establishing small business
size definitions. The Act also requires that small business definitions
vary to reflect industry differences. The recently enacted Jobs Act
also requires SBA to review all size standards and make necessary
adjustments to reflect market conditions. The supplementary information
section of this proposed rule explains SBA's methodology for analyzing
a size standard for a particular industry.
2. What are the potential benefits and costs of this regulatory action?
The most significant benefit to businesses obtaining small business
status because of this rule is gaining eligibility for Federal small
business assistance programs. These include SBA's financial assistance
programs, economic injury disaster loans, and Federal procurement
programs intended for small businesses. Federal procurement programs
provide targeted opportunities for small businesses under SBA's
business development
[[Page 42209]]
programs, such as 8(a), Small Disadvantaged Businesses (SDB), small
businesses located in Historically Underutilized Business Zones
(HUBZone), women-owned small businesses (WOSB), and service-disabled
veteran-owned small business concerns (SDVO SBC). Federal agencies may
also use SBA's size standards for a variety of other regulatory and
program purposes. These programs assist small businesses to become more
knowledgeable, stable, and competitive. SBA estimates that in one
industry and one sub-industry for which SBA has proposed to increase
size standards more than 400 firms in NAICS 23, not small under the
existing size standards, will become small under the proposed size
standards and therefore become eligible for these programs. That is
about 0.1 percent of all firms classified as small under the current
size standards in NAICS Sector 23. If adopted as proposed, this will
increase the small business share of total receipts in all industries
within NAICS Sector 23 from about 49.7 percent to 50 percent. In
addition, as stated above, there will be reduced fees, less paperwork,
and fewer compliance requirements for more businesses.
Three groups will benefit from the proposed size standards
revisions in this rule, if they are adopted as proposed: (1) Some
businesses that are above the current size standards may gain small
business status under the higher size standards, thereby enabling them
to participate in Federal small business assistance programs; (2)
growing small businesses that are close to exceeding the current size
standards will be able to retain their small business status under the
higher size standards, thereby enabling them to continue their
participation in the programs; and (3) Federal agencies will have a
larger pool of small businesses from which to draw for their small
business procurement programs.
SBA estimates that firms gaining small business status under the
proposed size standards could receive Federal contracts totaling $17
million to $20 million annually under SBA's small business, 8(a), SDB,
HUBZone, WOSB, and SDVO SBC Programs, and other unrestricted
procurements. The added competition for many of these procurements can
also result in lower prices to the Government for procurements reserved
for small businesses, but SBA cannot quantify this benefit.
Under SBA's 7(a) and 504 Loan Programs, based on the fiscal years
2008-2010 data, SBA estimates about up to five additional loans
totaling about $0.5 million to $1 million in Federal loan guarantees
could be made to these newly defined small businesses under the
proposed standards. Increasing the size standards will likely result in
more small business guaranteed loans to businesses in these industries,
but it is be impractical to try to estimate exactly the number and
total amount of loans. There are two reasons for this: (1) Under the
Jobs Act, SBA can now guarantee substantially larger loans than in the
past; and, (2) as described above, the Jobs Act established an
alternative size standard ($15 million in tangible net worth and $5
million in net income after income taxes) for business concerns that do
not meet the size standards for their industry. Therefore, SBA finds it
difficult to quantify the actual impact of these proposed size
standards on its 7(a) and 504 Loan Programs.
Newly defined small businesses will also benefit from SBA's
Economic Injury Disaster Loan (EIDL) Program. Since this program is
contingent on the occurrence and severity of a disaster, SBA cannot
make a meaningful estimate of this impact.
To the extent that those 400 newly defined additional small firms
could become active in Federal procurement programs, the proposed
changes, if adopted, may entail some additional administrative costs to
the government associated with there being more bidders on small
business procurement opportunities. In addition, there will be more
firms seeking SBA's guaranteed loans, more firms eligible for
enrollment in the Central Contractor Registration (CCR)'s Dynamic Small
Business Search database, and more firms seeking certification as 8(a)
or HUBZone firms or qualifying for small business, WOSB, SDVO SBC, and
SDB status. Among those newly defined small businesses seeking SBA
assistance, there could be some additional costs associated with
compliance and verification of small business status and protests of
small business status. SBA believes that these added administrative
costs will be minimal because mechanisms are already in place to handle
these requirements.
Additionally, Federal government contracts may have higher costs.
With a greater number of businesses defined as small, Federal agencies
may choose to set aside more contracts for competition among small
businesses rather than using full and open competition. The movement
from unrestricted to small business set-aside contracting might result
in competition among fewer total bidders, although there will be more
small businesses eligible to submit offers. However, the additional
costs associated with fewer bidders are expected to be minor since, by
law, procurements may be set aside for small businesses or reserved for
the 8(a), HUBZone, WOSB, or SDVO SBC Programs only if awards are
expected to be made at fair and reasonable prices. In addition, there
may be higher costs when more full and open contracts are awarded to
HUBZone businesses that receive price evaluation preferences.
The proposed size standards revisions, if adopted, may have some
distributional effects among large and small businesses. Although SBA
cannot estimate with certainty the actual outcome of the gains and
losses among small and large businesses, it can identify several
probable impacts. There may be a transfer of some Federal contracts to
small businesses from large businesses. Large businesses may have fewer
Federal contract opportunities as Federal agencies decide to set aside
more Federal contracts for small businesses. In addition, some Federal
contracts may be awarded to HUBZone concerns instead of large
businesses since these firms may be eligible for a price evaluation
preference for contracts when they compete on a full and open basis.
Similarly, currently defined small businesses may obtain fewer
Federal contracts due to the increased competition from more businesses
defined as small. This transfer may be offset by a greater number of
Federal procurements set aside for all small businesses. The number of
newly defined and expanding small businesses that are willing and able
to sell to the Federal Government will limit the potential transfer of
contracts from large and currently defined small businesses. SBA cannot
estimate the potential distributional impacts of these transfers with
any degree of precision. The proposed revisions to the existing size
standards for one industry and one-sub-industry in NAICS Sector 23,
Construction, are consistent with SBA's statutory mandate to assist
small business. This regulatory action promotes the Administration's
objectives. One of SBA's goals in support of the Administration's
objectives is to help individual small businesses succeed through fair
and equitable access to capital and credit, Government contracts, and
management and technical assistance. Reviewing and modifying size
standards, when appropriate, ensures that intended beneficiaries have
access to small business programs designed to assist them.
[[Page 42210]]
Executive Order 13563
A description of the need for this regulatory action and benefits
and costs associated with this action including possible distributional
impacts that relate to Executive Order 13563 is included above in the
Regulatory Impact Analysis under Executive Order 12866.
In an effort to engage interested parties in this action, SBA has
presented its size standards methodology (discussed above under
Supplementary Information) to various industry associations and trade
groups. SBA also met with a number of industry groups to get their
feedback on its methodology and other size standards issues. In
addition, SBA presented its size standards methodology to businesses in
13 cities in the U.S. and sought their input as part of Jobs Act tours.
The presentation also included information on the latest status of the
comprehensive size standards review and on how interested parties can
provide SBA with input and feedback on size standards review.
Additionally, SBA sent letters to the Directors of the Offices of
Small and Disadvantaged Business Utilization (OSDBU) at several Federal
agencies with considerable procurement responsibilities requesting
their feedback on how the agencies use SBA's size standards and whether
current size standards meet their programmatic needs (both procurement
and non-procurement). SBA gave appropriate consideration to all input,
suggestions, recommendations, and relevant information obtained from
industry groups, individual businesses, and Federal agencies in
preparing this proposed rule.
The review of size standards in NAICS Sector 23, Construction, is
consistent with Executive Order 13563, Sec 6, calling for retrospective
analyses of existing rules. The last comprehensive review of size
standards occurred during the late 1970s and early 1980s. Since then,
except for periodic adjustments for monetary based size standards, most
reviews of size standards were limited to a few specific industries in
response to requests from the public and Federal agencies. SBA
recognizes that changes in industry structure and the Federal
marketplace over time have rendered existing size standards for some
industries no longer supportable by current data. Accordingly, in 2007,
SBA began a comprehensive review of its size standards to ensure that
existing size standards have supportable bases and to revise them when
necessary. In addition, the Jobs Act requires SBA to conduct a detailed
review of all size standards and to make appropriate adjustments to
reflect market conditions. Specifically, the Jobs Act requires SBA to
conduct a detailed review of at least one-third of all size standards
during every 18 month period from the date of its enactment and do a
complete review of all size standards not less frequently than once
every 5 years thereafter.
Executive Order 12988
This action meets applicable standards set forth in Sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.
Executive Order 13132
For purposes of Executive Order 13132, SBA has determined that this
proposed rule will not have substantial, direct effects on the States,
on the relationship between the national government and the States, or
on the distribution of power and responsibilities among the various
levels of government. Therefore, SBA has determined that this proposed
rule has no federalism implications warranting preparation of a
federalism assessment.
Paperwork Reduction Act
For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA has determined that this rule will not impose any new reporting or
record keeping requirements.
Initial Regulatory Flexibility Analysis
Under the Regulatory Flexibility Act (RFA), this proposed rule, if
adopted, may have a significant impact on a substantial number of small
businesses in NAICS Sector 23, Construction. As described above, this
rule may affect small businesses seeking Federal contracts, loans under
SBA's 7(a), 504 and Economic Injury Disaster Loan Programs, and
assistance under other Federal small business programs.
Immediately below, SBA sets forth an initial regulatory flexibility
analysis (IRFA) of this proposed rule addressing the following
questions: (1) What are the need for and objective of the rule?; (2)
What are SBA's description and estimate of the number of small
businesses to which the rule will apply?; (3) What are the projected
reporting, recordkeeping, and other compliance requirements of the
rule?; (4) What are the relevant Federal rules that may duplicate,
overlap, or conflict with the rule?; and (5) What alternatives will
allow the Agency to accomplish its regulatory objectives while
minimizing the impact on small businesses?
1. What are the need for and objective of the rule?
Changes in industry structure, technological changes, productivity
growth, mergers and acquisitions, and updated industry definitions have
changed the structure of many industries in NAICS Sector 23. Such
changes can be sufficient to support revisions to current size
standards for some industries. Based on the analysis of the latest data
available, SBA believes that the revised standards in this proposed
rule more appropriately reflect the size of businesses that need
Federal assistance. The recently enacted Jobs Act also requires SBA to
review all size standards and make necessary adjustments to reflect
market conditions.
2. What are SBA's description and estimate of the number of small
businesses to which the rule will apply?
If the proposed rule is adopted in its present form, SBA estimates
that more than 400 additional firms will become small because of
increased size standards one industry and one sub-industry in NAICS
Sector 23. That represents 0.1 percent of total firms that are small
under current size standards in all industries within that Sector. This
will result in an increase in the small business share of total
industry receipts for the Sector from 49.7 percent under the current
size standards to 50 percent under the proposed size standards. The
proposed size standards, if adopted, will enable more small businesses
to retain their small business status for a longer period. Many firms
may have lost their eligibility and find it difficult to compete at
current size standards with companies that are significantly larger
than they are. SBA believes the competitive impact will be positive for
existing small businesses and for those that exceed the size standards
but are on the very low end of those that are not small. They might
otherwise be called or referred to as mid-sized businesses, although
SBA only defines what is small; other entities are other than small.
3. What are the projected reporting, record keeping and other
compliance requirements of the rule?
The proposed size standard changes impose no additional reporting
or record keeping requirements on small businesses. However, qualifying
for Federal procurement and a number of other programs requires that
businesses
[[Page 42211]]
register in the CCR database and certify in the Online Representations
and Certifications Application (ORCA) that they are small at least once
annually. Therefore, businesses opting to participate in those programs
must comply with CCR and ORCA requirements. There are no costs
associated with either CCR registration or ORCA certification. Changing
size standards alters the access to SBA's programs that assist small
businesses, but does not impose a regulatory burden because they
neither regulate nor control business behavior.
4. What are the relevant Federal rules, which may duplicate, overlap or
conflict with the rule?
Under Sec. 3(a)(2)(C) of the Small Business Act, 15 U.S.C.
632(a)(2)(c), Federal agencies must use SBA's size standards to define
a small business, unless specifically authorized by statute to do
otherwise. In 1995, SBA published in the Federal Register a list of
statutory and regulatory size standards that identified the application
of SBA's size standards as well as other size standards used by Federal
agencies (60 FR 57988 (November 24, 1995)). SBA is not aware of any
Federal rule that would duplicate or conflict with establishing size
standards.
However, the Small Business Act and SBA's regulations allow Federal
agencies to develop different size standards if they believe that SBA's
size standards are not appropriate for their programs, with the
approval of SBA's Administrator (13 CFR 121.903). The Regulatory
Flexibility Act authorizes an Agency to establish an alternative small
business definition, after consultation with the Office of Advocacy of
the U.S. Small Business Administration (5 U.S.C. 601(3)).
5. What alternatives will allow the Agency to accomplish its regulatory
objectives while minimizing the impact on small entities?
By law, SBA is required to develop numerical size standards for
establishing eligibility for Federal small business assistance
programs. Other than varying size standards by industry and changing
the size measures, no practical alternative exists to the systems of
numerical size standards.
List of Subjects in 13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Individuals with
disabilities, Loan programs--business, Reporting and recordkeeping
requirements, Small businesses.
For the reasons set forth in the preamble, SBA proposes to amend
part 13 CFR part 121 as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
1. The authority citation for part 121 continues to read as
follows:
Authority: 15 U.S.C. 632, 634(b)(6), 662, and 694a(9).
2. In Sec. 121.201, in the table, revise the entries for
``237210'', and ``Except'' under entry ``237990'', to read as follows:
Sec. 121.201 What size standards has SBA identified by North American
Industry Classification System codes?
* * * * *
Small Business Size Standards by NAICS Industry
------------------------------------------------------------------------
Size standards Size standards
NAICS Codes NAICS U.S. Industry in millions of in number of
title dollars employees
------------------------------------------------------------------------
* * * * * * *
237210 Land Subdivision........ $25.5
* * * * * * *
Except, Dredging and Surface \2\ 30.0
Cleanup Activities \2\.
* * * * * * *
------------------------------------------------------------------------
* * * * * * *
\2\ NAICS code 237990--Dredging: To be considered small for purposes of
Government procurement, a firm must perform at least 40 percent of the
volume dredged with its own equipment or equipment owned by another
small dredging concern.
* * * * *
Dated: February 28, 2012.
Karen G. Mills,
Administrator.
[FR Doc. 2012-17440 Filed 7-17-12; 8:45 am]
BILLING CODE 8025-01-P
