Small Business Size Standards: Real Estate and Rental and Leasing, 58747-58755 [2012-23389]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 77, Number 185 (Monday, September 24, 2012)]
[Rules and Regulations]
[Pages 58747-58755]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-23389]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG28


Small Business Size Standards: Real Estate and Rental and Leasing

AGENCY: U.S. Small Business Administration.

ACTION: Final rule.

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SUMMARY: The United States Small Business Administration (SBA) is 
increasing the small business size standards for 21 industries and one 
sub-industry in North American Industry Classification System (NAICS) 
Sector 53, Real Estate and Rental and Leasing, and retaining the 
current standards for the remaining four industries in that Sector. As 
part of its ongoing comprehensive review of all size standards, SBA 
evaluated all size standards for industries in NAICS Sector 53 to 
determine whether they should be retained or revised.

DATES: This rule is effective October 24, 2012.

FOR FURTHER INFORMATION CONTACT: Jon Haitsuka, Program Analyst, Size 
Standards Division, (202) 205-6618 or sizestandards@sba.gov.

SUPPLEMENTARY INFORMATION: To determine eligibility for Federal small 
business assistance programs, SBA establishes small business size 
definitions (referred to as size standards) for private sector 
industries in the United States. The SBA's existing size standards use 
two primary measures of business size, average annual receipts and 
number of employees. Financial assets, electric output and refining 
capacity are used as size measures for a few specialized industries. In 
addition, SBA's Small Business Investment Company (SBIC), 7(a), and 
Certified Development Company (CDC or 504) Loan Programs determine 
small business eligibility using either the industry based size 
standards or alternative net worth and net income size based standards. 
At the start of the current comprehensive review of SBA's small 
business size standards, there were 41 different size standards levels, 
covering 1,141 NAICS industries and 18 sub-industry activities. Of 
these, 31 were based on average annual receipts, seven based on number 
of employees, and three based on other measures.
    Over the years, SBA has received comments that its size standards 
have not kept up with changes in the economy, and in particular, that 
they do not reflect changes in the Federal contracting marketplace and 
industry structure. The last comprehensive review of 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 makes periodic 
inflation adjustments to its monetary based size standards. The latest 
inflation adjustment to size standards was published in the Federal 
Register on July 18, 2008 (73 FR 41237).
    SBA recognizes that changes in industry structure and the Federal 
marketplace since the last overall review 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 determine whether existing size standards have supportable 
bases relative to the current data, and to revise them, where 
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 every18-month period 
from the date of its enactment and review of all size standards not 
less frequently than once every 5 years thereafter. Reviewing existing 
small business size standards and making appropriate adjustments based 
on current data are also consistent with Executive Order 13563 on 
improving regulation and regulatory review.
    SBA has chosen not to review all size standards at one time. 
Rather, it is reviewing groups of related industries on a Sector by 
Sector basis.
    As part of SBA's comprehensive review of size standards, the Agency 
reviewed all size standards in NAICS Sector 53, Real Estate and Rental 
and Leasing, to determine whether the existing size standards should be 
retained or revised. After its review, SBA published a proposed rule 
for public comment in the November 15, 2011 issue of the Federal 
Register (76 FR 70680) on its proposal to increase the size standards 
for 20 industries and one sub-industry in NAICS Sector 53. The rule was 
one of a series of proposed rules that examines industries grouped by 
NAICS Sector.
    SBA 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 also included it as a supporting 
document in the electronic docket of the proposed rule at 
www.regulations.gov.
    In evaluating an industry's size standard, SBA examines its 
characteristics (such as average firm size, startup costs, industry 
competition and distribution of firms by size) and the level and small 
business share of Federal contract dollars in that industry. SBA also 
examines the potential impact a size standard revision might have on 
its financial assistance programs, and whether a business concern under 
a revised size standard would be dominant in its industry. SBA analyzed 
the characteristics of each industry in NAICS Sector 53, mostly using a 
special tabulation obtained from the U.S. Bureau of the Census from its 
2007 Economic Census (the latest available). SBA also evaluated the 
level and small business share of Federal contracts in each of those 
industries using the data from the Federal Procurement Data System--
Next Generation (FPDS-NG) for fiscal years 2008-2010. To evaluate the 
impact of changes to size standards on its loan programs, SBA analyzed 
internal data on its guaranteed loan programs for fiscal years 2008-
2010.
    SBA's ``Size Standards Methodology'' provides a detailed 
description of its analyses of various industry and program factors and 
data sources, and how the Agency uses the results to establish and 
revise size standards. In the proposed rule itself, SBA detailed how it 
applied its ``Size Standards Methodology'' to review and modify where 
necessary, the existing size standards for industries in NAICS Sector 
53. SBA sought comments from the public on a number of issues about its 
``Size Standards Methodology,'' such as whether there are alternative 
methodologies that SBA should consider; whether there are alternative 
or additional factors or data sources that SBA should evaluate; whether 
SBA's approach to establishing small business size standards makes 
sense in the current economic environment; whether SBA's application of 
anchor size standards is appropriate in the current economy; whether 
there are gaps in SBA's methodology because of the lack of 
comprehensive data; and whether

[[Page 58748]]

there are other facts or issues that SBA should consider.
    SBA sought comments on its proposal to increase size standards for 
20 industries and one sub-industry in NAICS Sector 53 (Real Estate and 
Rental and Leasing) and retain the existing size standards for the 
remaining four industries in that Sector. Specifically, SBA requested 
comments on whether the size standards should be revised as proposed 
and whether the proposed revisions are appropriate. SBA also invited 
comments on whether its proposed eight fixed size standard levels are 
appropriate and whether it should adopt common size standards for 
several Industry Groups in NAICS Sector 53.
    The SBA's analyses supported lowering existing receipts based 
standards for one industry. However, as SBA pointed out in the proposed 
rule, lowering size standards will reduce the number of firms eligible 
to participate in Federal small business assistance programs and this 
is counter to what the Federal government and SBA are doing to help 
small businesses. Therefore, SBA proposed to retain the current size 
standards for that industry and requested comments on whether the 
Agency should lower size standards for which its analyses might support 
lowering them.

Summary of Comments

    SBA received eight comments on the proposed rule. These comments 
are summarized below.
    Two commenters addressed SBA's proposed size standard for NAICS 
532291, Home Health Equipment Rental. SBA had proposed to increase the 
size standard for that NAICS code from $7 million in average annual 
receipts to $30 million. Both commenters generally supported the SBA's 
proposed increase. One of the commenters stated the $7 million size 
standard has not kept up with changes in industry structure and the 
Federal marketplace and that more small businesses will become eligible 
for Federal government programs under the proposed, higher size 
standard, thereby helping both small businesses and the Federal 
government. However, both suggested that SBA adopt a 500-employee 
standard instead of the proposed $30 million receipts based size 
standard. Both argued that services provided under NAICS 532291 are 
similar to those under NAICS 339112 (Air and Gas Compressor 
Manufacturing), which has a 500-employee size standard. However, they 
did not provide any industry data and analyses supporting the 
similarities between the two industries. To support the recommendation 
for a 500-employee size standard for NAICS 532291, one of the 
commenters highlighted two Veterans Administration solicitations for 
the same service and product (oxygen supplies) for which the Agency 
used NAICS 532291 at one location and NAICS 339112 at another. The 
commenters argued such inconsistent practice would not occur if SBA 
adopted the 500-employee size standard for NAICS 532291. They added 
that the 500-employee size standard applies to all manufacturing 
industries as well as to SBA's non-manufacturer's rule. They also 
argued that employment is a more suitable and stable measure of 
business size as it is not influenced by inflation and changes in 
economic conditions.
    SBA disagrees with the commenters' arguments that companies 
involved in NAICS 532291 are similar to those in NAICS 339112. NAICS 
532291 comprises establishments primarily engaged in renting home-type 
health equipment, such as wheel chairs, hospital beds, oxygen tanks, 
walkers, and crutches, while NAICS 339112 comprises establishments 
primarily engaged in manufacturing medical, surgical, ophthalmic, and 
veterinary instruments and apparatus (except electrotherapeutic, 
electro-medical and irradiation apparatus), such as syringes, 
hypodermic needles, anesthesia apparatus, blood transfusion equipment, 
catheters, surgical clamps, and medical thermometers (see 
www.census.gov/naics). Two other related codes are NAICS 325120 
(Industrial Gas Manufacturing) and NAICS 332420 (Metal Tank (Heavy 
Gauge) Manufacturing). NAICS 325120 includes manufacturing oxygen and 
NAICS 332420 includes manufacturing oxygen tanks. The Small Business 
Size Regulations require Federal agencies to designate the proper NAICS 
code and size standard in a solicitation, selecting the NAICS code 
which best describes the principal purpose of the product or service 
being acquired. See 13 CFR 121.402(b). Accordingly, if a solicitation 
is for renting health equipment (such as oxygen tanks), Federal 
agencies should apply NAICS 532291 and its corresponding size standard. 
Similarly, if a solicitation involves purchasing health equipment and 
supplies (such as oxygen tanks and oxygen), the contracting officers 
should apply an appropriate manufacturing NAICS code and its 
corresponding size standard. In a rental situation, the Federal 
government is procuring a service. On the other hand, if the Federal 
government is purchasing the products themselves, then the 
manufacturing NAICS codes and accompanying size standards apply. An 
entity that qualifies under the nonmanufacturer rule (13 CFR 
121.406(b)) may also supply products it did not produce. However, it is 
important to note that the nonmanufacturer rule does not apply to 
service contracts. The regulations also provide that any interested 
party adversely affected by a NAICS code designation for a specific 
Federal procurement may appeal the designation to the Office of 
Hearings and Appeals. See 13 CFR 121.1102-121.1103.
    For the reasons explained in its ``Size Standards Methodology,'' 
SBA uses employment as the measure of size for manufacturing industries 
and average annual receipts for most service industries, including all 
industries in NAICS Sector 53. SBA recognizes that employment is less 
influenced by inflationary factors than receipts, but it is not immune 
to changes in economic conditions. For example, businesses shed 
millions of employees during and after the recent economic recession. 
Because receipts are sensitive to inflation, SBA defines annual 
receipts as the average over a firm's three most recently completed 
fiscal years. See 13 CFR 121.104. In addition, SBA adjusts its monetary 
based size standards for inflation at least once every five years.
    For the above reasons, SBA is not adopting the commenter's 
recommendation to adopt a 500-employee size standard for NAICS 532291. 
Instead, it is adopting the $30 million receipts based size standard, 
as proposed.
    SBA received one comment concerning the proposed size standard for 
NAICS 531311, Residential Property Management. SBA had proposed to 
increase the size standard for this NAICS code from $2 million to $7 
million in average annual receipts. Opposing the SBA's proposed $7 
million size standard, the commenter suggested a much higher $15 
million size standard for NAICS 531313. He argued that services offered 
by small businesses in this NAICS code are quite diverse and involve 
services from several industries within NAICS Subsectors 541 and 561, 
including NAICS 541310, 561622, 561710, 561720, 561730, and 561790. The 
commenter contended that most of these industries have size standards 
higher than $7 million. However, except for NAICS 561720, all of them 
have a $7 million size standard currently. Furthermore, except for 
NAICS 561710, current industry and Federal contracting data for those 
industries do not support

[[Page 58749]]

a size standard higher than $7 million (see 77 FR 7490 (February 10, 
2012) and 76 FR 63510 (October 12, 2011)). The commenter maintained 
that a higher size standard would enable his business to remain 
eligible for SBA's 8(a) Program; however, the commenter did not provide 
other information to support why $15 million is a more appropriate size 
standard for NAICS 531311 than the proposed $7 million. For the above 
reasons, SBA is adopting the proposed $7 million size standard for 
NAICS 531311, as proposed.
    SBA received one comment on the proposed size standard for NAICS 
531320, Offices of Real Estate Appraisers. The commenter supported 
SBA's proposed increase from the current $2 million to $7 million in 
average annual receipts. The commenter contended that the current size 
standard has both prevented small businesses from participating in 
government contracts and kept Federal agencies from receiving quality 
services to meet their needs. The commenter stated that both small 
businesses and the Federal government will benefit under the higher $7 
million size standard. SBA is adopting the $7 million size standard, as 
proposed.
    SBA received one comment concerning the proposed size standards for 
NAICS 532111, Passenger Car Rental, and NAICS 532112, Passenger Car 
Leasing. For both industries, SBA had proposed to increase the size 
standard from $25.5 million to $35.5 million, which is the highest 
level of receipts based size standards. Arguing that SBA's proposed 
increase to $35.5 million is inadequate and that it would not create a 
level playing field for small businesses, the commenter suggested 
increasing it to $150 million. He contended that his business and 
others with fewer than 500 employees are not dominant and should be 
able to qualify as small. He argued that SBA's current $25.5 million or 
proposed $35.5 million size standard for the rental car industry makes 
it difficult for small businesses to grow and develop and increase 
their market share. To support his argument, the commenter provided 
copies of testimony he presented at SBA's June 2005 Public Hearings on 
Size Standards and previous correspondence with SBA. His comment also 
included data on the rental car industry from 2000 to 2011, showing the 
increasing market dominance of the industry by the largest companies 
and high degree of industry concentration. In addition, the commenter 
argued that national networks operated by large companies make 
competition more limited and restrictive for his company and other 
local competitors.
    SBA recognizes that although the proposed $35.5 million size 
standard would include 98 percent of firms in NAICS 532111 and 93 
percent of firms in NAICS 532112, it includes a small percentage of 
total industry receipts. However, to be consistent with SBA's size 
standards methodology and with proposed and final rules for other NAICS 
Sectors that SBA has issued to date, $35.5 million is the highest 
receipts based size standards that SBA will propose or adopt. Thus, SBA 
is adopting the $35.5 million size standard for NAICS 532111, Passenger 
Car Rental and NAICS 532112, Passenger Car Leasing, as proposed.
    SBA received a comment from an association representing the U.S. 
equipment rental industry. The association's comments concerned the 
proposed size standards for three NAICS codes: NAICS 532310 (General 
Rental Centers), NAICS 532412 (Construction, Mining and Forestry 
Machinery and Equipment Rental and Leasing), and NAICS 532490 (Other 
Commercial and Industrial Machinery and Equipment Rental and Leasing). 
The association fully supported SBA's proposal to increase the size 
standard for NAICS 532412 and NAICS 532490 from the current $7 million 
to $30 million. It also fully supported the SBA's proposal to establish 
a common $30 million size standard for all industries within NAICS 
Industry Group 5324, Commercial and Industrial Machinery and Equipment 
Rental and Leasing. However, the association opposed the SBA's proposal 
to retain the current $7 million size standard for NAICS 532310 and 
recommended the same $30 million size standard as proposed for the 
other two codes. To support its suggestion, the association argued that 
many rental companies maintain a wide variety of rental goods in their 
inventories to meet the needs of their customers and that they should 
be treated equally for SBA's size standards.
    The association provided several reasons supporting the proposed 
increase to the size standard for NAICS 532412 and NAICS 532490. First, 
as it stated, the equipment rental industry has undergone significant 
structural changes, thereby warranting a significant increase to the 
current size standard. Second, as the association pointed out, the 
equipment rental industry has larger capital requirements and higher 
barriers to entry than the construction industry, and yet the size 
standard for most equipment rental industries is only $7 million as 
compared to $33.5 million for most construction related industries. 
Third, it added that since equipment rental companies derive a 
significant portion of their revenue from the construction equipment 
rental sector, the size standards for the equipment rental industries 
should be in line with those for construction industries. Fourth, the 
association noted that small businesses at the current $7 million size 
standard lack resources and equipment to compete with their larger 
counterparts and that they will be able to more effectively compete 
with large companies under the proposed, higher size standard.
    SBA recognizes that many companies operating under NAICS 532310 may 
also be engaging in activities within one or more of the other 
equipment rental NAICS codes, including NAICS 532412 and NAICS 532490. 
However, based on the industry and Federal procurement data, there 
exist significant differences between the companies that are primarily 
engaged in NAICS 532310, General Rental Centers, and those that are 
primarily engaged in one of the industries within NAICS Industry Group 
5324. For example, companies primarily engaged in industries within 
NAICS Industry Group 5324 have four times the average revenues and six 
times the average assets (proxy for start-up costs entry barriers) than 
companies primarily engaged in NAICS 532310. In addition, during fiscal 
years 2008 to 2010, Federal contracting dollars averaged less than $5 
million for NAICS 532310 as compared to $675 million for industries 
within NAICS Industry Group 5324.
    The association generally supported the five factors SBA evaluates 
in reviewing a size standard, but suggested giving more weight to 
average assets size and Federal procurement factor for the equipment 
rental industry. However, it did not provide any specific values.
    For the above reasons, SBA is adopting the proposed $30 million 
common size standard for all industries within NAICS Industry Group 
5324 (including NAICS 532412 and 532490) and the proposed $7 million 
size standard for NAICS 532310.
    A national association representing recreational vehicle rental 
companies commented on the proposed size standard for NAICS 532120, 
Truck, Utility Trailer and RV (Recreational Vehicle) Rental and 
Leasing. SBA had proposed to increase the size standard for NAICS 
532120 from $25.5 million to $35.5 million. The association fully 
supported the proposed increase and noted that this increase is 
consistent with the $30 million size standard that

[[Page 58750]]

SBA adopted for NAICS 441210, Recreational Vehicle Dealers, in 2010. It 
stated that changes in industry structure since SBA first established a 
size standard for the RV industry in the 1980s warranted an increase to 
the current size standard. The association argued that a higher size 
standard would create opportunity for businesses that have either 
exceeded or may be about to exceed the current size standard for 
Federal small business loans and contracts. Accordingly, SBA is 
adopting the proposed $35.5 million size standard for NAICS 532120.
    SBA received two comments on its proposal to increase the size 
standard for NAICS 531210, Offices of Real Estate Agents and Brokers, 
from $2 million to $7 million. Both commenters generally supported the 
SBA's proposed increase to the size standard for NAICS 531210 as it 
would help small businesses better compete with large businesses, but 
they recommended a higher increase. Specifically, one commenter 
recommended at least $19 million, while the other suggested $10 
million.
    One commenter argued that there is a gap between the current $2 
million, or proposed $7 million size standard, and revenues of large 
real estate brokerage firms receiving Federal contracts, thereby 
hurting small businesses with revenues above the size standard but way 
below the size of large firms. The commenter pointed out that the 
General Services Administration (GSA) recently awarded four prime 
contracts to large firms with revenues ranging from $225 million to $4 
billion, but provided no information on whether those contracts could 
have been awarded to small businesses if the size standard were much 
higher than the current $2 million or proposed $7 million. He added 
that because of the low size standard, many otherwise small businesses 
must compete with large firms as a large business. As a result, the 
commenter stated, large brokerage firms continue to increase their 
Federal market share at the expense of qualified small businesses. The 
commenter contended that currently GSA does not have small business set 
aside contracts for real estate brokerage services, because of its 
perception that companies below the current $2 million size standard 
are too small to be sufficiently qualified to complete the work. He 
argued that raising the size standard to $19 million would increase the 
pool of eligible of small businesses for Federal contracting 
opportunities and encourage Federal agencies to set aside more 
contracts for small businesses. The commenter, who suggested a higher 
$10 million size standard for NAICS 531210, added that small firms must 
grow much larger to compete with largest firms in the industry, some of 
which exceed $1 billion in sales.
    SBA recognizes that many mid-sized companies face challenges in the 
Federal market for brokerage and real estate services when they outgrow 
the size standard. Under the $7 million size standard, more than 98 
percent of firms will qualify as small. SBA did not propose a higher 
standard because it is very concerned that ``smaller'' small firms 
cannot compete effectively with ``larger'' small businesses for Federal 
small business contracts when the size standards are too large, such as 
$19 million or $10 million as suggested by the commenters. SBA is also 
very aware that the small business share of Federal contracts in NAICS 
531210 is very low under the current $2 million size standard. However, 
SBA estimates that about 5,700 more businesses above the current $2 
million threshold will now qualify as small under the $7 million size 
standard. This will not only provide more opportunities for small 
businesses and increase small business share in the Federal market, but 
it will also encourage Federal agencies to set aside more contracts for 
small businesses because there will be a much larger pool of more 
qualified small businesses. Small businesses will also be able to grow 
and still maintain their small business status under the higher $7 
million size standard.
    One of the commenters argued that raising the size standard for 
NAICS 531210 to $19 million would make small businesses providing real 
estate services to the Federal government at par with other 
professional and property/facility related services, such as 
Architectural Services (NAICS 541310), Landscape Architectural Services 
(NAICS 541320), Engineering Services (NAICS 541330), Building 
Inspection Services (NAICS 541350), Marketing Consulting Services 
(NAICS 541613), and Advertising Services (NAICS 541810). However, the 
commenter did not provide any reasons or supporting information on why 
NAICS 531210 should have the same size standard as these industries. In 
fact, in the recently published Final Rule, Small Business Size 
Standards: Professional, Technical, and Scientific Services, SBA 
adopted the $7 million size standard for NAICS 541310, 541320 and 
541350 (see 77 FR 7490 (February 10, 2012)).
    One commenter suggested continuing the SBA's exclusion of funds 
received in trust for an unaffiliated third party from the calculation 
of annual receipts for NAICS 531210. SBA did not propose to discontinue 
the exclusion of funds received in trust for unaffiliated third 
parties, and is continuing the exclusion under this rule. In addition, 
the commenter proposed to add to the exclusion commissions paid to 
third party brokers, independent contractors, or third party firms. SBA 
is not adopting this recommendation for two reasons. First, commissions 
shared with third party brokers, independent contractors, or third 
party firms are not the same as the funds received in trust for an 
unaffiliated third party. When brokers or independent contractors work 
for or with a brokerage firm, the firm earns income by sharing a 
certain percentage of their commissions. SBA treats commissions paid 
out to brokers and independent contractors as costs of doing business, 
similar to subcontractor costs (such as fees paid to a third-party or 
independent agent), employee based costs (such as wages and payroll 
taxes), and material costs. For SBA's size standards, receipts means 
``total income'' plus ``costs of goods sold.'' The definition of 
receipts (see 13 CFR 121.104) provides a number of exclusions, but 
``cost of doing business'' is not one of them. Second, SBA is concerned 
that very large brokerage firms with hundreds of brokers and 
contractors may qualify as small if the firms are allowed to exclude 
commissions paid out to brokers and contractors, thereby causing 
competitive disadvantage to small firms with fewer brokers and 
contractors. Thus, SBA is not adopting the commenter's proposal.
    For the above reasons, SBA is adopting the $7 million size standard 
for NAICS 531210, as proposed, and retaining the current definition of 
receipts without modification.
    SBA received no comments on the SBA's proposal to revise size 
standards for other industries in NAICS Sector 53. SBA also received no 
comments on its proposal to retain the current size standards where 
analyses suggested lowering them.
    All comments to the proposed rule are available for public review 
at https://www.regulations.gov, using RIN-3245-AG28 or docket number 
SBA-2011-0020.

Conclusion

    Based on the analyses of relevant industry and program data and 
evaluation of public comments it received on the proposed rule, SBA has 
decided to increase the small business size standards for the 20 
industries and one sub-industry in NAICS Sector 53 to the levels it 
proposed. Those industries and their revised size standards are

[[Page 58751]]

shown in Table 1, Summary of Size Standards Revisions, below.

                                  Table 1--Summary of Size Standards Revisions
----------------------------------------------------------------------------------------------------------------
                                                                                   Current size    Revised size
               NAICS Codes                          NAICS Industry title           standard  ($    standard  ($
                                                                                     million)        million)
----------------------------------------------------------------------------------------------------------------
531110...................................  Lessors of Residential Buildings and             $7.0           $25.5
                                            Dwellings.
531120...................................  Lessors of Nonresidential Buildings               7.0            25.5
                                            (except Miniwarehouses).
531190...................................  Lessors of Other Real Estate Property             7.0            25.5
Except,..................................  Leasing of Building Space to Federal             20.5            35.5
                                            Government by Owners.
531210...................................  Offices of Real Estate Agents and                 2.0             7.0
                                            Brokers.
531311...................................  Residential Property Managers........             2.0             7.0
531312...................................  Nonresidential Property Managers.....             2.0             7.0
531320...................................  Offices of Real Estate Appraisers....             2.0             7.0
531390...................................  Other Activities Related to Real                  2.0             7.0
                                            Estate.
532111...................................  Passenger Car Rental.................            25.5            35.5
532112...................................  Passenger Car Leasing................            25.5            35.5
532120...................................  Truck, Utility Trailer, and RV                   25.5            35.5
                                            (Recreational Vehicle) Rental and
                                            Leasing.
532210...................................  Consumer Electronics and Appliances               7.0            35.5
                                            Rental.
532220...................................  Formal Wear and Costume Rental.......             7.0            19.0
532230...................................  Video Tape and Disc Rental...........             7.0            25.5
532291...................................  Home Health Equipment and Rental.....             7.0            30.0
532411...................................  Commercial, Air, Rail, and Water,                 7.0            30.0
                                            Transportation Equipment and Rental.
532412...................................  Construction, Mining and Forestry                12.5            30.0
                                            Machinery and Equipment Rental and
                                            Leasing.
532420...................................  Office Machinery and Equipment Rental            25.5            30.0
                                            and Leasing.
532490...................................  Other Commercial, and Industrial                  7.0            30.0
                                            Machinery and Equipment Rental and
                                            Leasing.
533110...................................  Lessors of Nonfinancial Intangible                7.0            35.5
                                            Assets (except Copyrighted Works).
----------------------------------------------------------------------------------------------------------------

    For the reasons as stated above in this rule and in the proposed 
rule, SBA has decided to retain the current receipts based size 
standards for one industry for which analytical results suggested lower 
size standards. Not lowering size standards in NAICS Sector 53 is 
consistent with SBA's recent final rules on NAICS Sector 44-45, Retail 
Trade (75 FR 61597 (October 6, 2010)), NAICS Sector 72, Accommodation 
and Food Services (75 FR 61604 (October 6, 2010)), NAICS Sector 81, 
Other Services (75 FR 61591 (October 6, 2010)), NAICS Sector 54, 
Professional, Scientific and Technical Services (77 FR 7490 (February 
10, 2012)), and NAICS Sector 48-49, Transportation and Warehousing (77 
FR 10943 (February 24, 2012)). In each of those final rules, SBA 
adopted its proposal not to reduce small business size standards for 
the same reasons. SBA is also retaining the existing receipts based 
size standards for three industries for which the results supported 
them at their current levels.

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 
final rule is not a ``significant regulatory action'' for purposes of 
Executive Order 12866. In order to help explain the need for this rule 
and the rule's potential benefits and costs, SBA is providing a Cost 
Benefit Analysis in this section of the rule. This is also not a 
``major rule'' under the Congressional Review Act, 5 U.S.C. 800.

Cost Benefit Analysis

1. Is there a need for the regulatory action?

    SBA believes that the revised changes to small business size 
standards for 20 industries and one sub-industry in NAICS Sector 53, 
Real Estate and Rental and Leasing, reflect changes in economic 
characteristics of small businesses in those industries and the Federal 
procurement market. SBA's mission is to aid and assist small businesses 
through a variety of financial, procurement, business development, and 
advocacy programs. To assist the intended beneficiaries of these 
programs effectively, SBA establishes distinct definitions to determine 
which businesses are deemed small businesses. The Small Business Act 
(15 U.S.C. 632(a)) delegated to the SBA's Administrator the 
responsibility for establishing definitions for small business. The Act 
also requires that small business definitions vary to reflect industry 
differences. The Jobs Act requires the Administrator to review at least 
one-third of all size standards within each 18-month period from the 
date of its enactment, and review all size standards at least every 
five years thereafter. The SUPPLEMENTARY INFORMATION section of the May 
13, 2011 proposed rule and this rule explained in detail 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 as a result of this rule is gaining eligibility for Federal 
small business assistance programs, including SBA's financial 
assistance programs, economic injury disaster loans, and Federal 
procurement opportunities intended for small businesses. Federal small 
business programs provide targeted opportunities for small businesses 
under SBA's various business development and contracting programs. 
These include the 8(a), small disadvantaged businesses (SDB), small 
businesses located in Historically Underutilized Business Zones 
(HUBZone), women owned small businesses (WOSB), and the service 
disabled veteran owned small business (SDVOSB) Programs. Other Federal 
agencies also may use SBA's size standards for a variety of regulatory 
and program purposes. These programs help small businesses become more 
knowledgeable, stable, and competitive. In the 20 industries and one 
sub-industry in NAICS Sector 53 for which SBA has decided to increase 
size standards, SBA estimates that about 13,000 additional firms will 
gain small business status and become eligible for

[[Page 58752]]

these programs. That number is 5 percent of the total number of firms 
in industries in NAICS Sector 53 that have receipts based size 
standards. SBA estimates that this would increase the small business 
share of total industry receipts in those industries from 27 percent 
under the current size standards to 39 percent.
    The benefits of increasing size standards to a more appropriate 
level will accrue to three groups: (1) Some businesses that are above 
the current size standards will 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.
    Based on the data for fiscal years 2008-2010, more than 99 percent 
of total Federal contracting dollars spent in industries reviewed in 
this proposed rule were accounted for by the 20 industries and one sub-
industry for which SBA is increasing size standards. The SBA estimates 
that additional firms gaining small business status in those industries 
under the revised size standards could potentially obtain Federal 
contracts totaling up to $75 million to $80 million per year under the 
small business, 8(a), SDB, HUBZone, WOSB, and SDVOSB Programs and other 
unrestricted procurements. The added competition for many of these 
procurements may also result in lower prices to the Government for 
procurements reserved for small businesses, although SBA cannot 
quantify this benefit.
    Under SBA's 7(a) Business Loan and 504 Programs, based on the 2008-
2010 data, SBA estimates that approximately 50 to 60 additional loans 
totaling $15 million to $20 million in new Federal loan guarantees 
could be made to the newly defined small businesses under the revised 
size standards. Under the Jobs Act, SBA can now guarantee substantially 
larger loans than in the past. In addition, the Jobs Act established an 
alternative size standard for SBA's 7(a) and 504 Loan Programs for 
those applicants that do not meet the size standards for their 
industries. That is, under the Jobs Act, if a firm applies for a 7(a) 
or 504 loan but does not meet the size standard for its industry, it 
might still qualify if, including its affiliates, it has a tangible net 
worth that does not exceed $15 million and also has average net income 
after Federal income taxes (excluding any carry-over losses) for its 
preceding two completed fiscal years that do not exceed $5 million. 
Thus, increasing the size standards may result in an increase in small 
business guaranteed loans to small businesses in these industries, but 
it would be impractical to try to estimate the extent of their number 
and the total amount loaned.
    Newly defined small businesses will also benefit from SBA's 
Economic Injury Disaster Loan Program. Since this program is contingent 
on the occurrence and severity of a disaster, SBA cannot make a 
meaningful estimate of benefits for future disasters.
    To the extent that all 13,000 newly defined small firms under the 
revised size standards could become active in Federal procurement 
programs, this may entail some additional administrative costs to the 
Federal Government associated with additional bidders for Federal small 
business procurement opportunities, additional firms seeking SBA 
guaranteed lending programs, additional firms eligible for enrollment 
in the Central Contractor Registration's Dynamic Small Business Search 
database and additional firms seeking certification as 8(a) or HUBZone 
firms or those qualifying for small business, WOSB, SDVOSB, and SDB 
status. Among businesses in this group seeking SBA assistance, there 
could be some additional costs associated with compliance and 
verification of small business status and protests of small business 
status. These added costs are likely to be minimal because mechanisms 
are already in place to handle these administrative requirements.
    The costs to the Federal Government may be higher on some Federal 
contracts under the higher revised size standards. 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 
set-aside contracting will likely result in competition among fewer 
total bidders, although there will be more small businesses eligible to 
submit offers. In addition, higher costs may result when additional 
full and open contracts are awarded to HUBZone businesses because of a 
price evaluation preference. The additional costs associated with fewer 
bidders, however, will likely be minor since, as a matter of law, 
procurements may be set aside for small businesses or reserved for the 
small business, 8(a), HUBZone, WOSB, or SDVOSB Programs only if awards 
are expected to be made at fair and reasonable prices.
    The revised size standards may have some distributional effects 
among large and small businesses. Although SBA cannot estimate with 
certainty the actual outcome of gains and losses among small and large 
businesses, there are several likely impacts. There may be a transfer 
of some Federal contracts from large businesses to small 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 agencies may award more Federal contracts 
to HUBZone concerns instead of large businesses since HUBZone concerns 
may be eligible for price evaluation adjustments when they compete on 
full and open bidding opportunities. Similarly, currently defined small 
businesses may obtain fewer Federal contracts due to the increased 
competition from more businesses defined as small under the revised 
size standards. This transfer may be offset by more 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 away from large and small businesses under the existing size 
standards. The SBA cannot estimate with precision the potential 
distributional impacts of these transfers.
    The revisions to the existing size standards for Sector 53, Real 
Estate and Rental and Leasing, 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.

Executive Order 13563

    A description of the need for this regulatory action and benefits 
and costs associated with this action including possible distributions 
impacts that relate to Executive Order 13563 is included above in the 
Cost Benefit Analysis.
    In an effort to engage interested parties in this action, SBA has 
presented

[[Page 58753]]

its methodology (discussed under SUPPLEMENTARY INFORMATION in the 
proposed rule and this rule) to various industry associations and trade 
groups. The SBA also met with various industry groups to obtain their 
feedback on its methodology and other size standards issues. The SBA 
also presented its size standards methodology to businesses in 13 
cities in the U.S. and sought their input as part of the Jobs Act 
tours. The presentations also included information on the latest status 
of the comprehensive size standards review and how interested parties 
can provide SBA with input and feedback on the 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 size standards and whether 
current standards meet their programmatic needs (both procurement and 
non-procurement). The SBA gave appropriate consideration to all input, 
suggestions, recommendations, and relevant information obtained from 
industry groups, individual businesses, and Federal agencies in 
preparing the proposed rule for Sector 53.
    Furthermore, when SBA issued the proposed rule, it provided notice 
of its publication to individuals and companies that had in recent 
years exhibited an interest by letter, email, or phone, in size 
standards for NAICS Sector 53 so they could comment.
    The review of size standards in NAICS Sector 53, Real Estate and 
Rental and Leasing, is consistent with Section 6 of Executive Order 
13563 calling for retrospective analyses of existing rules. The last 
overall 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. The 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 all size 
standards to ensure that existing size standards have supportable bases 
and to revise them when necessary. In addition, the Jobs Act directs 
SBA to conduct a detailed review of all size standards and to make 
appropriate adjustments to reflect market conditions. Specifically, the 
Jobs Act requires SBA to conduct a detailed review of at least one-
third of all size standards during every 18 month period from the date 
of its enactment and do a complete review of all size standards not 
less frequently than once every 5 years thereafter.

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 
final 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 final 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 final rule would not impose any new 
reporting or record keeping requirements.

Final Regulatory Flexibility Analysis

    Under the Regulatory Flexibility Act (RFA), this rule may have a 
significant impact on a substantial number of small entities in NAICS 
Sector 53, Real Estate and Rental and Leasing. As described above, this 
rule may affect small entities seeking Federal contracts, SBA's 7(a) 
and 504 Guaranteed Loans, SBA's Economic Injury Disaster Loans, and 
various small business benefits under other Federal programs.
    Immediately below, SBA sets forth a final regulatory flexibility 
analysis of this final 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 entities to which the 
rule will apply? (3) What are the projected reporting, record keeping, 
and other compliance requirements of the rule? (4) What are the 
relevant Federal rules which 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 
entities?

(1) What are the need for and objective of the rule?

    Most of SBA's size standards for the Real Estate and Rental and 
Leasing industries had not been reviewed since the 1980s. Technological 
changes, productivity growth, international competition, mergers and 
acquisitions and updated industry definitions may have changed the 
structure of many industries in that Sector. Such changes can be 
sufficient to support a revision to size standards for some industries. 
Based on the analysis of the latest industry and program data 
available, SBA believes that the revised standards in this rule more 
appropriately reflect the size of businesses in those industries that 
need Federal assistance. Additionally, the Jobs Act requires SBA to 
review all size standards and make appropriate adjustments to reflect 
current data and market conditions.

(2) What are SBA's description and estimate of the number of small 
entities to which the rule will apply?

    The SBA estimates that approximately 13,000 additional firms will 
become small because of increases in size standards in 20 industries 
and one sub-industry in NAICS Sector 53. That represents 5 percent of 
total firms in industries in that Sector that have receipts based size 
standards. This will result in an increase in the small business share 
of total industry receipts in those industries from about 27 percent 
under the current size standards to nearly 39 percent under the revised 
size standards. The SBA does not anticipate a significant competitive 
impact on smaller businesses in these industries. The revised size 
standards will enable more small businesses to retain their small 
business status for a longer period. Under current size standards, many 
small businesses may have lost their eligibility or found it difficult 
to compete with companies that are significantly larger than they are 
and this final rule attempts to correct that impact. The SBA believes 
these changes will have a positive impact for existing small businesses 
and for those that have either exceeded or are about to exceed current 
size standards.

(3) What are the projected reporting, record keeping, and other 
compliance requirements of the rule and an estimate of the classes of 
small entities which will be subject to the requirements?

    Revising size standards does not impose any additional reporting or 
record keeping requirements on small entities. However, qualifying for 
Federal procurement and a number of other

[[Page 58754]]

Federal programs requires that entities register in the Central 
Contractor Registration (CCR) database and certify at least annually 
that they are small in the Online Representations and Certifications 
Application (ORCA). 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. 
Revising size standards alters the access to SBA programs that are 
designed to assist small businesses, but does not impose a regulatory 
burden as they neither regulate nor control business behavior.

(4) What are the relevant Federal rules which may duplicate, overlap, 
or conflict with the rule?

    Under section 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. 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 or revising 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 (see 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 existing 
system 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 reasons set forth in the preamble, SBA amends 13 CFR part 121 
as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

0
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).


0
2. In Sec.  121.201, amend the table ``Small Business Size Standards by 
NAICS Industry'' as follows:
0
a. Under the heading Sector 53 Real Estate and Rental and Leasing, 
revise the entries for ``531110'', ``531120'', ``531190'', ``Except'', 
``531210'', ``531311'', ``531312'', ``531320'', ``531390'', ``532111'', 
``532112'', ``532120'', ``532210'', ``532220'', ``532230'', ``532291'', 
``532411'', ``532412'', ``532420'', ``532490'', and ``533110'' to read 
as follows:
0
b. Revise footnote 9 as shown below after the table.


Sec.  121.201.  What size standards has SBA identified by North 
American Industry Classification System codes?

* * * * *

                                 Small Business Size Standards by NAICS Industry
----------------------------------------------------------------------------------------------------------------
                                                                                       Size            Size
                                                                                   standards  in   standards  in
               NAICS Codes                       NAICS U.S. Industry title         millions  of     number  of
                                                                                      dollars        employees
----------------------------------------------------------------------------------------------------------------
 
                                           .....................................
531110...................................  Lessors of Residential Buildings and            $25.5  ..............
                                            Dwellings.
531120...................................  Lessors of Nonresidential Buildings              25.5  ..............
                                            (except Miniwarehouses).
 
                                                  * * * * * * *
531190...................................  Lessors of Other Real Estate Property            25.5  ..............
Except,..................................  Leasing of Building Space to Federal         \9\ 35.5  ..............
                                            Government by Owners \9\.
531210...................................  Offices of Real Estate Agents and            \10\ 7.0  ..............
                                            Brokers\10\.
531311...................................  Residential Property Managers........             7.0  ..............
531312...................................  Nonresidential Property Managers.....             7.0  ..............
531320...................................  Offices of Real Estate Appraisers....             7.0  ..............
531390...................................  Other Activities Related to Real                  7.0  ..............
                                            Estate.
 
                                                  * * * * * * *
532111...................................  Passenger Car Rental.................            35.5  ..............
532112...................................  Passenger Car Leasing................            35.5  ..............
532120...................................  Truck, Utility Trailer, and RV                   35.5  ..............
                                            (Recreational Vehicle) Rental and
                                            Leasing.
532210...................................  Consumer Electronics and Appliances              35.5  ..............
                                            Rental.
532220...................................  Formal Wear and Costume Rental.......            19.0  ..............
532230...................................  Video Tape and Disc Rental...........            25.5  ..............
532291...................................  Home Health Equipment Rental.........            30.0  ..............
 
                                                  * * * * * * *
532411...................................  Commercial Air, Rail, and Water                  30.0  ..............
                                            Transportation Equipment Rental and
                                            Leasing.
532412...................................  Construction, Mining and Forestry                30.0  ..............
                                            Machinery and Equipment Rental and
                                            Leasing.
532420...................................  Office Machinery and Equipment Rental            30.0  ..............
                                            and Leasing.
532490...................................  Other Commercial and Industrial                  30.0  ..............
                                            Machinery and Equipment Rental and
                                            Leasing.
 

[[Page 58755]]

 
                                                  * * * * * * *
533110...................................  Lessors of Nonfinancial Intangible               35.5  ..............
                                            Assets (except Copyrighted Works).
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------

* * * * *

Footnotes

* * * * *
    9. NAICS code 531190--Leasing of building space to Federal 
Government by Owners: For Government procurement, a size standard of 
$35.5 million in gross receipts applies to the owners of building 
space leased to the Federal Government. The standard does not apply 
to an agent.
* * * * *

    Dated: June 22, 2012.
Karen G. Mills,
Administrator.
[FR Doc. 2012-23389 Filed 9-21-12; 8:45 am]
BILLING CODE 8025-01-P