Small Business Size Standards: Industries With Employee Based Size Standards Not Part of Manufacturing, Wholesale Trade, or Retail Trade, 53646-53667 [2014-20838]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 79, Number 175 (Wednesday, September 10, 2014)]
[Proposed Rules]
[Pages 53646-53667]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-20838]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG51


Small Business Size Standards: Industries With Employee Based 
Size Standards Not Part of Manufacturing, Wholesale Trade, or Retail 
Trade

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA) proposes to 
increase employee based small business

[[Page 53647]]

size standards for 30 industries and three sub-industries (i.e., 
exceptions in SBA's table of size standards) and decrease them for 
three industries that are not part of North American Industry 
Classification System (NAICS) Sector 31-33 (Manufacturing), Sector 42 
(Wholesale Trade), or Sector 44-45 (Retail Trade). SBA also proposes to 
eliminate the Information Technology Value Added Resellers sub-industry 
or ``exception'' under NAICS 541519 (Other Computer Related Services) 
and its 150-employee size standard. Similarly, SBA proposes to 
eliminate the Offshore Marine Air Transportation Services sub-industry 
or ``exception'' under NAICS 481211 and 481212 and Offshore Marine 
Services sub-industry or ``exception'' under NAICS Subsector 483 and 
their $28 million receipts based size standard. This proposed change 
includes removing Footnote 15 and Footnote 18 from the table of size 
standards. As part of its ongoing comprehensive size standards review, 
SBA evaluated employee based size standards for 57 industries and five 
sub-industries that are not in NAICS Sectors 31-33, 42, or 44-45 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.

DATES: SBA must receive comments to this proposed rule on or before 
November 10, 2014.

ADDRESSES: Identify your comments by RIN 3245-AG51 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: 

Introduction

    In an effort to remove possible public confusion, SBA would like to 
explain the changes made to the title of this rule. When SBA initially 
announced in the Fall 2012 Unified Agenda of Federal Regulatory and 
Deregulatory Actions, 78 FR 1636 at 1639 (January 8, 2013) (Item 
393) that it intended to propose this rule, it was titled 
``Small Business Size Standards for Other Industries With Employee 
Based Size Standards not Part of Manufacturing or Wholesale Trade.'' 
under Regulatory Information Number (RIN) 3245-AG51. SBA later realized 
that this proposed rule also does not address two industries with 
employee based size standards in Retail Trade (NAICS Sector 44-45). 
Those size standards will be addressed in a separate rule with 
industries in Wholesale Trade (NAICS Sector 42) under RIN 3245-AG49. As 
a result, the title of this proposed rule is changed to read ``Small 
Business Size Standards: Industries with Employee Based Size Standards 
Not Part of Manufacturing, Wholesale Trade, or Retail Trade.'' SBA 
believes that the title change of the rule will make it easier for 
affected parties to understand the scope of its coverage, and will 
engender more public comment and involvement.
    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 start of the SBA's current comprehensive size 
standards review when the size standards were based on NAICS 2007, 
there were 41 different size standards covering 1,141 NAICS industries 
and 18 subindustry 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. Presently, under NAICS 2012, there 
are 28 different size standards, covering 1,031 industries and 16 
``exceptions''. Of these, 533 are based on average annual receipts, 509 
on number of employees (one of which also includes barrels per day 
total capacity), and five on average assets.
    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 size standards review was during the 
late 1970s and early 1980s. Since then, most reviews of size standards 
were limited to a few specific industries, mostly with receipts based 
size standards, in response to requests from the public and Federal 
agencies. SBA reviews all monetary based size standards (except for 
statutorily set size standards in NAICS Sector 11) for inflation at 
least once every five years. SBA's latest inflation adjustment to size 
standards was published in the Federal Register on June 12, 2014 (79 FR 
33647). However, the vast majority of employee based size standards 
have not been reviewed since they were first established.
    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 review all size standards not 
less frequently than once every five years thereafter. Reviewing 
existing small business size standards and making appropriate 
adjustments based on the latest available data are also consistent with 
Executive Order 13563 on improving regulation and regulatory review.

[[Page 53648]]

    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. As stated above, 
this proposed rule covers industries with employee based size standards 
that are not part of NAICS Sector 31-33 (Manufacturing), Sector 42 
(Wholesale Trade), or Sector 44-45 (Retail Trade). These include one 
industry each in NAICS Sector 11 (Agriculture, Forestry, Fishing and 
Hunting), Sector 22 (Utilities) and Sector 52 (Finance and Insurance), 
25 industries in Sector 21 (Mining, Quarrying, and Oil and Gas 
Extraction), 15 industries in Sector 48-49 (Transportation and 
Warehousing), 12 industries in Sector 51 (Information), two industries 
and four sub-industries (``exceptions'') in Sector 54 (Professional, 
Scientific and Technical Services), and one sub-industry 
(``exception'') in Sector 56 (Administrative and Support, Waste 
Management and Remediation Services) that currently have employee based 
size standards. 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 based on latest industry and program 
data available and other relevant factors, such as current economic 
climate and SBA's and other government's programs and policies to help 
small businesses.
    Below is a discussion of SBA's size standards methodology for 
establishing employee based size standards that the Agency applied to 
this proposed rule, including analyses of industry structure, Federal 
contracting factors, the impact of the proposed revisions to size 
standards on SBA's financial assistance to small businesses, and the 
evaluation of whether a revised size standard would exclude dominant 
firms from being considered small.

Size Standards Methodology

    In conjunction with the current comprehensive size standards 
review, SBA developed a ``Size Standards Methodology'' (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 also included it as a supporting 
document in the electronic docket of this proposed rule at 
www.regulations.gov. It should be noted that SBA does not apply all 
features of its methodology to all industries because not all features 
are appropriate for every industry. For example, since all industries 
that are being reviewed in this proposed rule have employee based size 
standards, the methodology described in this proposed rule relates only 
to establishing employee 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 methodology and 
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,'' that the Agency has 
applied in this proposed rule, 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 April 30, 2014, SBA has received 17 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 
submitted by email.
    Congress granted SBA's Administrator the 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 
the latest available 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 proposed rules. 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, where 
necessary, to employee based size standards for 57 industries and five 
sub-industries (``exceptions'') covered by this rule. This proposed 
rule affords the public an opportunity to review and to comment on 
SBA's proposal to revise size standards for certain industries, 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 in nonmanufacturing sectors (except 
for Wholesale Trade and Retail 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's 
financial assistance and for most Federal programs has been 100 
employees. Presently, SBA also has employee based size standards for 
two industries in Retail Trade, namely NAICS 441110, New Car Dealers 
(200 employees) and NAICS 454310, Fuel Dealers (50 employees). However, 
NAICS codes for the Wholesale and Retail Trade Sectors and their size

[[Page 53649]]

standards do not apply to Federal procurement programs. Rather, for 
Federal procurement the size 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 the SBA's non-manufacturer 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 (i.e., more than 1,000). Furthermore, 
the data SBA analyzes are static, while the U.S. economy is not. Hence, 
absolute precision is impossible. Similarly, because of the disclosure 
problem in getting the distribution of firms by more granular size 
classes, the 2007 Economic Census tabulation (the latest available when 
this proposed rule was prepared) that SBA received from the U.S. Census 
Bureau for current size standards review would not allow an accurate 
regulatory impact analysis of size standards changes if precise, 
separate size standards were established for each industry. 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 employee based size standards reviewed in this 
proposed rule, SBA has developed a second comparison group consisting 
of industries that have the highest of employee based size standards. 
To determine a size standard above the 500-employee anchor size 
standard, SBA analyzes the characteristics of this second comparison 
group. The industries in this group have size standards of either 1,000 
employees or 1,500 employees; the weighted average size standard for 
the group is 1,323 employees. SBA refers to this comparison group as 
the ``higher level employee based size standard group.''
    To examine industry structure, SBA evaluates average firm size, 
startup costs and entry barriers, industry competition, and 
distribution of firms by size. SBA also evaluates the level and small 
business share of total Federal contracting dollars. These are, 
generally, the five primary 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 and sub-industry covered by 
this proposed rule. A more detailed description of these factors 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 employee 
based size standards, the simple average firm size is the total number 
of employees in an industry divided by the total number of firms in 
that industry. The weighted average firm size is the sum of weighted 
simple average firm sizes in different employee size classes, where 
weights are the shares of total industry employees for respective 
employee size classes. The simple average firm size weighs all firms 
within an industry equally regardless of their size. The weighted 
average firm size 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 eStatement 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.

[[Page 53650]]

    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. If a significant share of economic 
activity within the industry is concentrated among a few relatively 
large companies, all else being equal, SBA will establish a size 
standard higher than the anchor size standard. SBA does not consider 
the four-firm concentration ratio as an important factor in assessing a 
size standard if its share of economic activity of the largest four 
firms within the industry is less than 40 percent. For an industry with 
a four-firm concentration ratio of 40 percent or more, SBA compares the 
average employee size of the four largest firms in the industry with 
the four largest firms' average employee size for the anchor and higher 
level size comparison groups to determine an employee size standard for 
that industry.
    4. Distribution of firms by size. For employee based size 
standards, SBA examines the shares of industry total receipts accounted 
for by firms of various employment size classes in an industry. This is 
an additional factor SBA examines 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, generally, 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 by constructing the Lorenz curve. The 
Lorenz curve presents the cumulative percentages of units (firms) in 
various employee size classes along the horizontal axis and the 
cumulative percentages of receipts (or other measures of size) in the 
same employee size classes 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 level and 
small business share of total Federal contracting dollars in the 
industry in question. In general, if the small business share of total 
Federal contracting dollars 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. If the small business 
share of an industry's total Federal contracting dollars is similar to 
or higher than the small business share of its total receipts, this 
would support the existing size standard for that industry. By 
comparing the small business share in the Federal market with the small 
business share in the industry-wide market, SBA accounts for conditions 
in the Federal market in its size standards analysis. The disparity 
between the small business Federal market share and small business 
industry-wide 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. Data permitting, SBA will also examine these, as 
well as other factors that are likely to influence the type of firms 
within an industry that compete for Federal contracts.
    SBA considers the Federal contracting factor in an industry's size 
standards analysis only if the industry's total Federal contracting 
dollars average $100 million or more annually during the latest three 
fiscal years. SBA believes that this threshold reflects a significant 
level of contracting where a revision to a size standard may have an 
impact on contracting opportunities to small businesses. For industries 
where total contracting dollars average $100 million or more annually, 
SBA establishes a size standard higher than the existing size standard 
if the small business share of total industry receipts is 10 percent or 
higher than the small business share of total industry receipts. If 
this difference is less than 10 percent, this would support the 
existing size standard.
    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 its 
guaranteed loans within an industry and the size of firms obtaining 
those loans. This allows SBA to assess whether the existing, proposed, 
or revised size standard for a particular industry may restrict the 
level of financial assistance to small firms. If existing size 
standards are found to have impeded financial assistance to small 
businesses, higher size standards may be justified. However, if small 
businesses under existing 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 Economic 
Census data available at the time of drafting this proposed rule. SBA 
expects to receive the special tabulation from the 2012 Economic Census 
in 2016 for the next round of comprehensive size standards review. 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. It should be noted that 
the Economic Census tabulation data on the number of firms,

[[Page 53651]]

number of establishments, number of employees, annual payroll, and 
annual receipts for a particular NAICS Industry category relate to 
establishments and firms that are primarily engaged in that Industry. 
To mitigate this limitation of the Economic Census tabulation data, SBA 
also examines the data from the System of Award Management (SAM) 
(formerly Central Contractor Registration (CCR)) and FPDS-NG which 
provides more recent data on Federal contract awards by NAICS code and 
the actual size of the concerns receiving the contract awards.
    In some cases, where data are not available at the 6-digit industry 
level due to disclosure prohibitions in the Census Bureau's tabulation, 
SBA either estimates missing values using available relevant data or 
examines 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 is based only on those 
factors for which data are available or estimates of missing values are 
possible.
    The data from the Census Bureau's tabulation are limited to the 6-
digit NAICS industry level and hence do not provide economic 
characteristics at the sub-industry level. Thus, when establishing, 
reviewing, or modifying size standards at the sub-industry level (that 
is, one of the ``exceptions'' in SBA's table of size standards), SBA 
evaluates the data from the U.S. General Service Administration's (GSA) 
Federal Procurement Data System--Next Generation (FPDS-NG) and SAM 
(CCR) databases, following a two-step procedure. First, using FPDS-NG, 
SBA identifies product service codes (PSCs) that correspond to specific 
sub-industry activities or ``exceptions'' within the applicable NAICS 
code and then identifies firms that received Federal contracts in those 
PSCs. Then SBA obtains those firms' revenue and employment data from 
the SAM/CCR database. SBA uses that data to evaluate the 
characteristics of businesses that FPDS-NG identifies for those 
procurements. In this proposed rule, SBA applied this approach to 
determine industry and Federal contracting factors for ``Information 
Technology Value Added Resellers,'' which is an exception under NAICS 
541519, Other Computer Related Services, and for ``Environmental 
Remediation Services,'' which is an exception under NAICS 562910, 
Remediation Services.
    Certain industries are not covered by Economic Census and not shown 
in the special tabulation. For those industries, SBA first identifies 
companies that are registered in SAM/CCR under those industry NAICS 
codes and then evaluates their employment and revenue data obtained 
from their SAM/CCR profiles. SBA applied this approach to evaluate 
industry factors for two industries in NAICS Sector 48-49 that are not 
covered by Economic Census, namely Line-Haul Railroads (NAICS 482111), 
and Short Line Railroads (NAICS 482112).
    To calculate average assets, SBA used sales to total assets ratios 
from the Risk Management Association's Annual eStatement Studies, 2009-
2011, available at https://www.statementstudies.org.
    To evaluate the Federal contracting factor, SBA examined the data 
from FPDS-NG for fiscal years 2009-2011, available at https://www.fpds.gov and 2007 Economic Census tabulation, which is the latest 
available as stated elsewhere in the rule.
    To assess the impact on financial assistance to small businesses, 
SBA examined its internal data on 7(a) and 504 loan programs for fiscal 
years 2010-2012.
    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.

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: (1) Is independently owned and 
operated; (2) is not dominant in its field of operation; and (3) meets 
a specific small business definition or size standard established by 
SBA's Administrator. SBA considers as part of its evaluation whether a 
business concern at a proposed or revised 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 or revised 
standard. SBA also examines distribution of firms by size to ensure 
that a contemplated size standard derived from its size standards 
analysis excludes the largest firms within an industry. Market share, 
the size distribution 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 dominant or the largest firms 
in an industry, SBA will consider a lower size standard than the one 
suggested by the analytical results to exclude the dominant and largest 
firms from being defined as small.

Selection of Size Standards

    Among the industries with employee based size standards not in 
NAICS Sector 31-33 (Manufacturing), Sector 42 (Wholesale Trade), or 
Sector 44-45 (Retail Trade), currently there are four size standards 
clusters: 500 employees, 750 employees, 1,000 employees, and 1,500 
employees. In this proposed rule, SBA has applied its ``Size Standards 
Methodology'' for employee based size standards with two modifications. 
First, to be consistent with its policy of not lowering any size 
standards in all recent proposed and final rules on receipts based size 
standards, SBA is retaining the current 500-employee minimum and 1,500-
employee maximum size standards for all industries in the Manufacturing 
Sector and other industries not in the Wholesale and Retail Trade 
Sectors that have employee based size standards. In its ``Size 
Standards Methodology,'' SBA had proposed setting the minimum employee 
based size standard for these industries at 250 employees and the 
maximum size standard at 1,000 employees. However, doing so would mean 
lowering existing size standards, thereby making currently small 
businesses ineligible to continue their participation in Federal small 
business programs. This would run counter to what SBA and the 
Administration are doing to help small businesses to create jobs and 
boost economic growth. Second, SBA is proposing a new 1,250-employee 
size standard between 1,000 employees and 1,500 employees. This new 
size standard level maintains the same 250-employee increment between 
the two successive levels that SBA has below 1,000 employees (500, 750, 
1,000). SBA proposes, therefore, to apply one of these five employee 
based size standards to the analysis of employee based size standards 
for industries in the Manufacturing Sector and other industries not in 
the Wholesale and Retail Trade Sectors: 500 employees, 750 employees, 
1,000 employees, 1,250 employees, and 1,500 employees.
    To simplify size standards and for other reasons, 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

[[Page 53652]]

Federal marketplace. This might also make size standards among related 
industries more consistent than separate size standards for each of 
those industries. Whenever SBA proposes a common size standard for 
closely related industries it will provide its justification.

Evaluation of Industry Structure

    In this proposed rule, SBA evaluated 57 industries and five sub-
industries (``exceptions'') with employee based size standards that are 
not in NAICS Sectors 31-33, 42, or 44-45 to assess the appropriateness 
of their current size standards. As described above, SBA compared data 
on the economic characteristics of each of those industries and sub-
industries to the average characteristics of industries in two 
comparison groups. The first comparison group consists of all 
industries in Manufacturing and industries not in Wholesale Trade or 
Retail Trade with 500-employee size standards. SBA refers this group of 
industries to as the ``employee 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.
    As stated previously, 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 employee based 
standards consists of industries with either 1,000-employee or 1,500-
employee size standards. The weighted average size standard for this 
group is 1,323 employees. SBA refers this group of industries to as the 
``higher level employee based size standard comparison group.'' SBA 
determines differences in industry structure between an industry under 
review and the industries in the two comparison groups by comparing 
data on each of the industry factors, including average firm size, 
average assets size, the four-firm concentration ratio, and the Gini 
coefficient of distribution of firms by size. Table 1, Average 
Characteristics of Employee Based Comparison Groups, shows the average 
firm size (both simple and weighted), average assets size, four-firm 
concentration ratio, average employees of the four largest firms, and 
the Gini coefficient for both anchor level and higher level comparison 
groups for employee based size standards.

                                          Table 1--Average Characteristics of Employee Based Comparison Groups
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                 Average firm size  (number of                                             Average
                                                          employees)               Average assets    Four[dash]firm     employees of
       Employee based comparison group       ------------------------------------     size  ($        concentration     four largest    Gini coefficient
                                               Simple average   Weighted average      million)         ratio  (%)         firms \*\
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
Anchor Level................................                51               322              $6.4              35.9             1,267             0.765
Higher Level................................               136               602              37.0              64.3             2,033             0.808
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 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, Average Characteristics of 
Employee Based Comparison Groups, 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 500-employee 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 500-employee 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, an industry's simple average firm size of 75 employees 
will support a 750-employee size standard. The 75-employee level is 
28.2 percent between 51 employees for the anchor comparison group and 
136 employees for the higher level comparison group ((75 employees - 51 
employees) / (136 employees - 51 employees) = 0.282 or 28.2%). This 
proportional difference is applied to the difference between the size 
standard of 500 employees for the anchor level size standard group and 
average size standard of 1,323 employees for the higher level size 
standard group and then added to 500 employees to estimate a size 
standard of 733 employees ([{1,323 employees - 500 employees{time}  * 
0.282] + 500 employees = 733 employees). The final step is to round the 
estimated 733-employee size standard to the nearest size standard 
level, which in this example is 750 employees.
    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. As stated above, SBA has 
also included its ``Size Standards Methodology'' as a supporting 
document in the electronic docket of this proposed rule at 
www.regulations.gov. (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.

[[Page 53653]]



                        Table 2--Values of Industry Factors and Supported Size Standards
----------------------------------------------------------------------------------------------------------------
                                                                 Or if average
                               Or if weighted   Or if average        number                        Then implied
 If simple average firm size    average firm   assets size  ($    employees of      Or if Gini     size standard
    (number of employees)      size  (number       million)       largest four     coefficient     is (number of
                               of employees)                         firms                          employees)
----------------------------------------------------------------------------------------------------------------
< 63.9......................  < 364.5........  < 11.1.........  < 1,383.3......  < 0.772........             500
63.9 to < 89.7..............  364.5 to <       11.1 to < 20.3.  1,383.3 to <     0.772 to <                  750
                               449.6.                            1,616.0.         0.785.
89.7 to < 115.6.............  449.6 to <       20.3 to < 29.6.  1,616.0 to <     0.785 to <                1,000
                               534.6.                            1,848.7.         0.798.
115.6 to < 141.4............  534.6 to <       29.6 to < 38.9.  1,848.7 to <     0.798 to <                1,250
                               619.7.                            2,081.4.         0.811.
>= 141.4....................  >= 619.7.......  >= 38.9........  >= 2,081.4.....  >= 0.811.......           1,500
----------------------------------------------------------------------------------------------------------------

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 
Federal contract dollars average $100 million or more annually and 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. For 
industries, where this difference is less than 10 percent, SBA applies 
the existing size standard for the Federal contracting factor.
    Because of the complex relationships among several variables 
affecting small business participation in the Federal marketplace, SBA 
has chosen not to designate a size standard for the Federal contracting 
factor alone that is more than two levels above the current size 
standard. SBA believes that a larger adjustment to size standards based 
on Federal contracting activity should be based on a more detailed 
analysis of the impact of any subsequent revision to the current size 
standard. In limited situations, however, SBA may conduct a more 
extensive examination of Federal contracting experience. This may 
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.
    Of the 57 industries reviewed in this proposed rule, 14 averaged 
$100 million or more annually in Federal contracting during fiscal 
years 2009-2011 and thus, the Federal contracting factor for those 
industries was significant. Of the 14 industries, the difference 
between the small business share of total industry receipts and small 
business share of Federal contracting dollars was less than 10 percent 
for seven industries and, in this proposed rule, SBA applied the 
existing size standard to each. The difference was between 10 and 30 
percent for three industries for which a size standard one level higher 
than the existing size standard was applied. Finally, in four 
industries, this difference was more than 30 percent and a size 
standard that was two levels higher than the existing size standard was 
applied.

New Size Standards Based on Industry and Federal Contracting Factors

    Table 3, Size Standards Supported by Each Factor for Each Industry 
(No. of Employees), below, 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, and 7 show 
two numbers. The upper number is the value for the industry 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 40 percent or more, 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. However, the size standards for the simple average 
and weighted average firm size are averaged together, and therefore 
receive a single weight. Analytical details involved in the averaging 
procedure are described in SBA's ``Size Standards Methodology.'' For 
comparison with the new standards, the current size standards are in 
column 10 of Table 3.

                                  Table 3--Size Standards Supported by Each Factor for Each Industry (No. of Employees)
                                        [Upper Value = Calculated Factor, Lower Value = Size Standard Supported]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Four-firm                           Calculated
                                               Simple     Weighted     Average                 average                  Federal      size       Current
                                               average     average     assets     Four-firm     size         Gini      contract    standard      size
      NAICS Code NAICS industry title         firm size   firm size   size  ($     ratio %   (number of  coefficient    factor    (number of   standard
                                             (number of  (number of   million)                                            (%)                 (number of
                                             employees)  employees)                          employees)                           employees)  employees)
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1)                                                 (2)         (3)         (4)         (5)         (6)          (7)         (8)         (9)        (10)
--------------------------------------------------------------------------------------------------------------------------------------------------------
113310 Logging.............................           6          31        $0.5  ..........  ..........        0.332  ..........  ..........  ..........
                                                    500         500         500  ..........  ..........          500  ..........         500         500
211111 Crude Petroleum and Natural Gas               28         790       $70.5        31.1  ..........        0.910        -3.3  ..........  ..........
 Extraction................................         500       1,500       1,500  ..........  ..........        1,500         500       1,250         500
211112 Natural Gas Liquid Extraction.......          65         175      $234.1        50.7         588        0.702  ..........  ..........  ..........
                                                    750         500       1,500  ..........         500          500  ..........         750         500

[[Page 53654]]

 
212111 Bituminous Coal and Lignite Surface           99         712       $34.6        36.5  ..........        0.844  ..........  ..........  ..........
 Mining....................................       1,000       1,500       1,250  ..........  ..........        1,500  ..........       1,250         500
212112 Bituminous Coal Underground Mining..         163       1,062       $40.3        42.5       3,490        0.853  ..........  ..........  ..........
                                                  1,500       1,500       1,500  ..........       1,500        1,500  ..........       1,500         500
212113 Anthracite Mining...................          12          29        $4.5        54.2          46        0.429  ..........  ..........  ..........
                                                    500         500         500  ..........         500          500  ..........         500         500
212210 Iron Ore Mining.....................         356       2,352  ..........        99.1       1,220        0.716  ..........  ..........  ..........
                                                  1,500       1,500  ..........  ..........         500          500  ..........         750         500
212221 Gold Ore Mining.....................         114       2,207  ..........  ..........  ..........        0.896  ..........  ..........  ..........
                                                  1,000       1,500  ..........  ..........  ..........        1,500  ..........       1,500         500
212222 Silver Ore Mining...................          69         124  ..........  ..........  ..........        0.368  ..........  ..........  ..........
                                                    750         500  ..........  ..........  ..........          500  ..........         750         500
212231 Lead Ore and Zinc Ore Mining........         251         457  ..........        89.6         436        0.457  ..........  ..........  ..........
                                                  1,500       1,000  ..........  ..........         500          500  ..........         750         500
212234 Copper Ore and Nickel Ore Mining....         472       2,215  ..........        93.0       2,369        0.818  ..........  ..........  ..........
                                                  1,500       1,500  ..........  ..........       1,500        1,500  ..........       1,500         500
212291 Uranium-Radium-Vanadium Ore Mining..          20          62  ..........        92.7          85        0.603  ..........  ..........  ..........
                                                    500         500  ..........                     500          500  ..........         500         500
212299 All Other Metal Ore Mining..........         218         569  ..........        91.8         913        0.680  ..........  ..........  ..........
                                                  1,500       1,250  ..........  ..........         500          500  ..........         750         500
212311 Dimension Stone Mining and Quarrying          15          44  ..........        12.3  ..........        0.463  ..........  ..........  ..........
                                                    500         500  ..........  ..........  ..........          500  ..........         500         500
212312 Crushed and Broken Limestone Mining           53         398       $15.7        37.1  ..........        0.789  ..........  ..........  ..........
 and Quarrying.............................         500         750         750  ..........  ..........        1,000  ..........         750         500
212313 Crushed and Broken Granite Mining             50         361  ..........        62.1       1,026        0.822  ..........  ..........  ..........
 and Quarrying.............................         500         500  ..........  ..........         500        1,500  ..........         750         500
212319 Other Crushed and Broken Stone                24          94        $6.1        28.5  ..........        0.693  ..........  ..........  ..........
 Mining and Quarrying......................         500         500         500  ..........  ..........          500  ..........         500         500
212321 Construction Sand and Gravel Mining.          19          96        $4.1        25.5  ..........        0.683  ..........  ..........  ..........
                                                    500         500         500  ..........  ..........          500  ..........         500         500
212322 Industrial Sand Mining..............          36         183  ..........        66.5         425        0.652  ..........  ..........  ..........
                                                    500         500  ..........  ..........         500          500  ..........         500         500
212324 Kaolin and Ball Clay Mining.........         126         258  ..........        80.5         499        0.435  ..........  ..........  ..........
                                                  1,250         500  ..........  ..........         500          500  ..........         750         500
212325 Clay and Ceramic and Refractory               34         218  ..........        48.2         286        0.637  ..........  ..........  ..........
 Minerals Mining...........................         500         500  ..........  ..........         500          500  ..........         500         500
212391 Potash, Soda, and Borate Mineral             245         410  ..........        76.0         537        0.295  ..........  ..........  ..........
 Mining....................................       1,500         750  ..........  ..........         500          500  ..........         750         500
212392 Phosphate Rock Mining...............         283         389  ..........  ..........  ..........        0.370  ..........  ..........  ..........
                                                  1,500         750  ..........  ..........  ..........          500  ..........       1,000         500
212393 Other Chemical and Fertilizer                 47         170  ..........  ..........  ..........        0.721  ..........  ..........  ..........
 Mineral Mining............................         500         500  ..........  ..........  ..........          500  ..........  ..........         500
212399 All Other Nonmetallic Mineral Mining          21          59  ..........        29.0  ..........        0.558  ..........  ..........  ..........
                                                    500         500  ..........  ..........  ..........          500  ..........         500         500
213111 Drilling Oil and Gas Wells..........          59       1,559        $9.6        28.4  ..........        0.883  ..........  ..........  ..........
                                                    500       1,500         500  ..........  ..........        1,500  ..........       1,000         500
221210 Natural Gas Distribution............         187       1,260      $192.6        24.6  ..........        0.771        -0.1  ..........  ..........
                                                  1,500       1,500       1,500  ..........  ..........          500         500       1,000         500
481111 Scheduled Passenger Air                    1,197      18,348      $188.6        52.3      51,290        0.923  ..........  ..........  ..........
 Transportation............................       1,500       1,500       1,500  ..........       1,500        1,500  ..........       1,500       1,500
481112 Scheduled Freight Air Transportation          43         311  ..........        53.2         671        0.778       -50.3  ..........  ..........
                                                    500         500  ..........  ..........         500          750       1,500         750       1,500
481211 Nonscheduled Chartered Passenger Air          18         130        $4.0        38.9  ..........        0.731       -52.2  ..........  ..........
 Transportation............................         500         500         500  ..........  ..........          500       1,500         750       1,500
481212 Nonscheduled Chartered Freight Air            25         535  ..........        49.7         568        0.820       -81.8  ..........  ..........
 Transportation............................         500       1,000  ..........                     500        1,500       1,500       1,000       1,500
482111 Line-Haul Railroads.................       2,046      36,622  ..........        54.4     111,250        0.898  ..........  ..........  ..........
                                                  1,500       1,500  ..........  ..........       1,500        1,500  ..........       1,500       1,500

[[Page 53655]]

 
482112 Short Line Railroads................       1,777      38,435  ..........        49.6     102,744        0.850  ..........  ..........  ..........
                                                  1,500       1,500  ..........  ..........       1,500        1,500  ..........       1,500         500
483111 Deep Sea Freight Transportation.....          55         270  ..........        40.0         654        0.738       -14.8  ..........  ..........
                                                    500         500  ..........  ..........         500          500         750         500         500
483112 Deep Sea Passenger Transportation...         379       3,322  ..........        92.8       4,276        0.869  ..........  ..........  ..........
                                                  1,500       1,500  ..........  ..........       1,500        1,500  ..........       1,500         500
483113 Coastal and Great Lakes Freight               58         302       $42.1        28.3  ..........        0.750  ..........  ..........  ..........
 Transportation............................         500         500       1,500  ..........  ..........          500  ..........         750         500
483114 Coastal and Great Lakes Passenger             20         140  ..........        39.6  ..........        0.679  ..........  ..........  ..........
 Transportation............................         500         500  ..........  ..........  ..........          500  ..........         500         500
483211 Inland Water Freight Transportation.          53         284       $17.6        46.1       1,187        0.815  ..........  ..........  ..........
                                                    500         500         750  ..........         500        1,500  ..........         750         500
483212 Inland Water Passenger                        12          57  ..........        28.1  ..........        0.604  ..........  ..........  ..........
 Transportation............................         500         500  ..........  ..........  ..........          500  ..........         500         500
486110 Pipeline Transportation of Crude Oil         146         324       $41.9        55.1         917        0.360  ..........  ..........  ..........
                                                  1,500         500       1,500  ..........         500          500  ..........       1,000       1,500
486910 Pipeline Transportation of Refined           113         292  ..........        53.3         764        0.198  ..........  ..........  ..........
 Petroleum Products........................       1,000         500  ..........  ..........         500          500  ..........         500       1,500
492110 Couriers and Express Delivery                149      63,035        $4.5        94.0     119,867        0.973         7.8  ..........  ..........
 Services..................................       1,500       1,500         500  ..........       1,500        1,500       1,500       1,250       1,500
511110 Newspaper Publishers................          67       3,938        $5.5        29.4  ..........        0.929  ..........  ..........  ..........
                                                    750       1,500         500  ..........  ..........        1,500  ..........       1,000         500
511120 Periodical Publishers...............          25         373        $3.7        26.7  ..........        0.861       -14.0  ..........  ..........
                                                    500         750         500  ..........  ..........        1,500         750       1,000         500
511130 Book Publishers.....................          37       1,230        $6.6        33.4  ..........        0.898  ..........  ..........  ..........
                                                    500       1,500         500  ..........  ..........        1,500  ..........       1,000         500
511140 Directory and Mailing List                    55       1,583        $7.0        73.8       8,777        0.915  ..........  ..........  ..........
 Publishers................................         500       1,500         500  ..........       1,500        1,500  ..........       1,250         500
511191 Greeting Card Publishers............         138       2,981  ..........        90.9       2,512        0.947  ..........  ..........  ..........
                                                  1,250       1,500  ..........  ..........       1,500        1,500  ..........       1,500         500
511199 All Other Publishers................          15         254        $1.3        33.7  ..........        0.726        -5.2  ..........  ..........
                                                    500         500         500  ..........  ..........          500         500         500         500
512220 Integrated Record Production/                 25       1,451  ..........        90.4       1,888        0.947  ..........  ..........  ..........
 Distribution..............................         500       1,500  ..........  ..........       1,250        1,500  ..........       1,250         750
512230 Music Publishers....................           9         135  ..........        57.1         386        0.862  ..........  ..........  ..........
                                                    500         500  ..........  ..........         500        1,500  ..........         750         500
517110 Wired Telecommunications Carriers...         255      16,436       $69.8        56.8     137,817        0.961        20.2  ..........  ..........
                                                  1,500       1,500       1,500  ..........       1,500        1,500       1,500       1,500       1,500
517210 Wireless Telecommunications Carriers         172      10,785       $50.9        80.2      55,047        0.976        10.0  ..........  ..........
 (except Satellite)........................       1,500       1,500       1,500  ..........       1,500        1,500       1,500       1,500       1,500
517911 Telecommunications Resellers........          14         117        $2.4        30.2  ..........        0.731       -69.5  ..........  ..........
                                                    500         500         500  ..........  ..........          500       1,500         750       1,500
519130 Internet Publishing and Broadcasting          23         375        $4.0        51.6       5,407        0.889  ..........  ..........  ..........
 and Web Search Portals....................         500         750         500  ..........       1,500        1,500  ..........       1,000         500
524126 Direct Property and Casualty                 241       5,593      $358.1        31.9  ..........        0.934  ..........  ..........  ..........
 Insurance Carriers........................       1,500       1,500       1,500  ..........  ..........        1,500  ..........       1,500       1,500
541711 Research and Development in                   43         413  ..........        35.8  ..........        0.802       -16.4  ..........  ..........
 Biotechnology.............................         500         750  ..........  ..........  ..........        1,250         750       1,000         500
541712 Research and Development in the               61         942        $4.4        21.5  ..........        0.814        -2.2  ..........  ..........
 Physical, Engineering, and Life Sciences           500       1,500         500  ..........  ..........        1,500         500       1,000         500
 (except Biotechnology)....................
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 53656]]

Special Considerations

The Information Technology Value Added Resellers Sub-Industry 
(``Exception'') Under NAICS 541519, Other Computer Related Services

    For Federal contracts that combine substantial services with the 
acquisition of computer hardware and software, in 2002, SBA proposed to 
establish a new industry category ``Information Technology Value Added 
Resellers (ITVAR)'' under NAICS 541519, Other Computer Related 
Services, with a size standard of 500 employees (67 FR 48419 (July 24, 
2002)). In the final rule, SBA adopted the ITVAR industry category, as 
proposed, with a size standard of 150 employees (68 FR 74833 (December 
29, 2003)). Presently, the size standard for rest of NAICS 541519 and 
other industries in NAICS Industry Group 5415, Computer Systems Design 
and Related Services, is $25.5 million in average annual receipts.
    As stated in Footnote 18 to SBA's table of size standards, for a 
Federal contract to be classified under the ITVAR sub-industry or 
``exception'' and its 150-employee size standard, it must consist of at 
least 15 percent but not more than 50 percent of value added services 
as measured by the total price less cost of computer hardware and 
software, and profit. If the contract consists of less than 15 percent 
of value added services, it must be classified under the appropriate 
manufacturing industry. If the contract consists of more than 50 
percent of value added services, it must be classified under the NAICS 
industry that best describes the principal nature of service being 
procured.
    SBA is proposing to eliminate the ITVAR 150-employee size standard 
exception under NAICS 541519 because it has created some 
inconsistencies, confusion, and misuse. First, contracting officers are 
not able to identify size standard exceptions in the FPDS-NG. Thus, the 
public often believes that a firm that received a contract as a small 
business under NAICS 541519 and has revenue in excess of the $25.5 
million receipts based size standard was not eligible for the award, 
when in fact the firm may have been eligible if the contracting officer 
used the 150-employee size standard of the ITVAR exception. This leads 
to misunderstandings and questions concerning the small business 
goaling report that SBA must issue every year. Second, SBA's evaluation 
of FPDS-NG data and solicitations shows many cases where Federal 
agencies have applied the 150-employee size standard, instead of the 
receipts based size standard, for contracts that were predominantly for 
services. This may have benefited more successful, mid-size companies 
at the expense of those below the receipts based size standard. 
Additionally, as stated elsewhere in this proposed rule, the data from 
the Census Bureau's tabulation are limited to the 6-digit NAICS 
industry level and hence do not provide economic characteristics of 
firms that are involved in the ITVAR activities. Furthermore, data are 
not available on Federal ITVAR contracts, as there is no ITVAR PSC in 
FPDS-NG. The lack of data on characteristics of firms involved in ITVAR 
activities to evaluate the current 150-employee size standard also 
justifies SBA's proposal to eliminate the ITVAR sub-industry category.
    Moreover, the use of the ITVAR exception size standard is also 
purely discretionary. Under the terms of the exception as stated in 
Footnote 18 in SBA's table of size standards, it is clear that the 
majority of the cost of the contract that qualify under the ITVAR 150-
employee size standard will be incurred for supplies. Thus, instead of 
using the ITVAR 150-employee size standard under NAICS 541519, a 
contracting officer could use a manufacturing NAICS code and size 
standard, such as NAICS 334111 (Electronic Computer Manufacturing) with 
1,000-employee size standard, to which the non-manufacturer size 
standard of 500 employees would also apply. Thus, firms may or may not 
be eligible as a small business for the exact same purchase simply 
based on the contracting officer's selection of the NAICS code and size 
standard. This is inconsistent with SBA's small business regulations 
that the contracting officer must select the NAICS code that best 
describes the principal purpose of the acquisition (see 13 CFR 
121.402(b)). The selection of a NAICS code should never be based on the 
contracting officer's desire for a particular size standard or firm 
size.
    In addition, the combination of services and supplies in an 
acquisition is not unique to the information technology industry. 
Acquisitions across many industries combine supplies and services, yet 
SBA has not created exceptions to the size standards for these 
industries. The general principle is that agencies classify 
procurements based on the principal purpose of the acquisition. Based 
on the analysis of available industry and Federal contracting data for 
NAICS Industry Group 5415 and comments to the proposed rule (76 FR 
14323 (March 16, 2011)), in 2012, SBA established the appropriate size 
standard for that industry group, including NAICS 541519, at $25.5 
million in average annual receipts (77 FR 7490 (February 10, 2012)). 
Moreover, it is also unclear from the terms of exception itself whether 
a contract using the ITVAR 150-employee size standard should be 
classified as a service contract or a supply contract. This is 
important because if the contract is a service contract, the offeror 
must perform at least 50 percent of the cost of the contract incurred 
for personnel with its own employees, whereas if it is a supply 
contract the firm must perform at least 50 percent of the cost of 
manufacturing the supplies, or supply the product of a small 
manufacturer, unless a waiver is granted under the non-manufacturer 
rule.
    For these reasons, SBA proposes to eliminate the ITVAR sub-industry 
category (``exception'') under NAICS 541519 and its 150-employee size 
standard and apply only the $25.5 million receipts based size standard 
to NAICS 541519. Elimination of the exception will provide clarity to 
small businesses, contracting officers and the public. If a procuring 
agency seeks to acquire computer integration, maintenance and other 
computer related services as well as some computer hardware and it 
determines that the principal nature of procurement is for services, 
the agency can classify the contract as a service contract under an 
appropriate service NAICS code. Similarly, if an agency seeks to 
procure computer hardware as well as computer integration, maintenance 
and other computer related services and it determines that the 
principal nature of procurement is for supplies, the agency can 
classify the contract as a supply contract under an appropriate 
manufacturing NAICS code, and the non-manufacturer rule will apply.
    SBA's analysis of 2007 Economic Census data shows that 150 
employees is more or less equivalent to $25.5 million receipts in NAICS 
541519 and that more than 99 percent of firms below the 150-employee 
level will continue to qualify as small under the $25.5 million 
receipts based size standard. Thus, the proposed elimination of the 
ITVAR sub-industry category and its 150-employee size standard, if 
adopted, will have very minimal impact on businesses below 150 
employees. Moreover, these firms would continue to qualify as small 
businesses for supply contracts for computer hardware and equipment 
under the manufacturing size standard or under the 500-employee size 
standard under the non-manufacturer rule.

[[Page 53657]]

    In view of the proposed elimination of the ITVAR exception under 
NAICS 541519, SBA also proposes to eliminate Footnote 18 in its 
entirety from SBA's table of size standards.

Exceptions Under NAICS 541712, Research and Development in the 
Physical, Engineering, and Life Sciences (except Biotechnology)

    NAICS 541712, Research and Development in the Physical, 
Engineering, and Life Sciences (except Biotechnology), has three sub-
industries or ``exceptions''. As stated in Footnote 11 to SBA's table 
of size standards, for research and development (R&D) contracts 
requiring the delivery of a manufactured product, the appropriate size 
standard is that of the corresponding manufacturing industry. The three 
``exceptions'' under NAICS 541712 and their corresponding manufacturing 
industry counterparts and their size standards are shown in Table 4, 
NAICS 541712 Exceptions and Corresponding Manufacturing Industries and 
Size Standards, below.

         Table 4--NAICS 541712 Exceptions and Corresponding Manufacturing Industries and Size Standards
----------------------------------------------------------------------------------------------------------------
                                                                                                 Calculated size
                                                                                Current size    standard (number
                  Exception                    NAICS code and industry title  standard (number    of employees)
                                                                                of employees)          \1\
----------------------------------------------------------------------------------------------------------------
Aircraft....................................  336411 Aircraft Manufacturing.             1,500             1,500
Aircraft Parts and Auxiliary Equipment, and   336412 Aircraft Engine and                 1,000             1,500
 Aircraft Engine Parts.                        Engine Parts Manufacturing.
                                              336413 Other Aircraft Part and             1,000             1,250
                                               Auxiliary Equipment.
Space Vehicles and Guided Missiles, Their     336414 Guided Missile and                  1,000             1,250
 Propulsion Units Parts, and Their Auxiliary   Space Vehicle Manufacturing.
 Equipment and Parts.
                                              336415 Guided Missile and                  1,000             1,250
                                               Space Vehicle Propulsion Unit
                                               and Propulsion Parts
                                               Manufacturing.
                                              336419 Other Guided Missile                1,000             1,000
                                               and Space Vehicle Parts and
                                               Auxiliary Equipment
                                               Manufacturing.
----------------------------------------------------------------------------------------------------------------
\1\ From Table 3 of the proposed rule ``Small Business Size Standards for Manufacturing'' (RIN 3245-AG50),
  published concurrently in the current issue of the Federal Register.

    To better match the exceptions to the corresponding calculated 
industry specific size standards in manufacturing, SBA proposes to 
modify the three exceptions as shown in Table 5, Modified Exceptions 
and Their Proposed Size Standards, below.

                         Table 5--Modified Exceptions and Their Proposed Size Standards
----------------------------------------------------------------------------------------------------------------
                            Current                                                 Proposed
----------------------------------------------------------------------------------------------------------------
                                                Size standard                                     Size standard
                  Exception                      (number of                Exception               (number of
                                                 employees)                                        employees)
----------------------------------------------------------------------------------------------------------------
Aircraft....................................             1,500  Aircraft, Aircraft Engine, and             1,500
                                                                 Engine Parts.
Aircraft Parts and Auxiliary Equipment, and              1,000  Other Aircraft Parts and                   1,250
 Aircraft Engine Parts.                                          Auxiliary Equipment.
Space Vehicles and Guided Missiles, Their                1,000  Guided Missiles and Space                  1,250
 Propulsion Units Parts, and Their Auxiliary                     Vehicles, Their Propulsion
 Equipment and Parts.                                            Units and Propulsion Parts.
----------------------------------------------------------------------------------------------------------------

    Other Guided Missile and Space Vehicle Parts and Auxiliary 
Equipment category has been dropped from the third exception because 
the proposed size standard for the corresponding manufacturing industry 
(NAICS 336419) is the same as the calculated size standard for rest of 
NAICS 541712.
    Footnote 11 to SBA's table of size standards concerning NAICS codes 
541711and 541712 consists of an introductory paragraph and three sub-
paragraphs numbered as (a), (b), and (c). The introductory paragraph 
states that for research and development contracts requiring the 
delivery of a manufactured product, the appropriate size standard is 
that of the manufacturing industry. Sub-paragraph (a) concerns with 
what SBA generally means by ``Research and Development'' (R&D) under 
NAICS codes 541712 and 541712, while sub-paragraph (b) and (c) relate 
to the R&D definitions for Small Business Innovation Research program 
and ``guided missiles and space vehicles'', respectively. SBA has 
received some public inquiries on whether the requirement under the 
introductory paragraph is independent or it also applies to the three 
sub-paragraphs. While the introductory paragraph only applies to R&D 
contracts requiring the delivery of a manufactured product, the three 
sub-paragraphs can include R&D contracts that do not require the 
delivery of the manufactured product. However, to eliminate possible 
confusion and provide more clarity, SBA proposes to amend Footnote 11 
by converting the introductory paragraph to a new sub-paragraph (b) and 
renaming existing sub-paragraphs (b) and (c) to sub-paragraphs (c) and 
(d), respectively, as follows:
    \11\ NAICS code 541711 and 541712:
    (a) ``Research and Development'' means laboratory or other physical 
research and development. It does not include economic, educational,

[[Page 53658]]

engineering, operations, systems, or other nonphysical research; or 
computer programming, data processing, commercial and/or medical 
laboratory testing.
    (b) For research and development contracts requiring the delivery 
of a manufactured product, the appropriate size standard is that of the 
manufacturing industry.
    (c) For purposes of the Small Business Innovation Research (SBIR) 
program only, a different definition has been established by law. See 
Sec.  121.701 of these regulations.
    (d) ``Research and Development'' for guided missiles and space 
vehicles includes evaluations and simulation, and other services 
requiring thorough knowledge of complete missiles and spacecraft.

The Environmental Remediation Services Sub-Industry (``Exception'') 
Under NAICS 562910, Remediation Services

    In 1994, SBA established a 500-employee based size standard for 
Environmental Remediation Services (ERS) for Federal procurements 
involving three or more services related to restoring a contaminated 
environment, such as preliminary assessment, site inspection, testing, 
remedial investigation, remedial action, containment, and removal and 
storage of contaminated materials (FR 59 47236 (September 15, 1994)). 
At that time, ERS was designated as a sub-industry category or 
``exception'' under the Standard Industrial Classification (SIC) code 
8744, Facilities Support Management Services. Currently, it is a sub-
industry or ``exception'' under NAICS code 562910, Remediation 
Services. The requirements that apply to the ERS exception and its 500-
employee size standard for Federal procurement and SBA's assistance are 
defined in Footnote 14 to SBA's table of size standards (13 CFR 
121.201).
    As explained previously in the Sources of Industry and Program Data 
section, the data from the Census Bureau's tabulation are limited to 
the 6-digit NAICS industry level and hence do not provide economic 
characteristics for the ERS sub-industry. Thus, SBA evaluated the data 
from FPDS-NG and the SAM/CCR databases. First, using FPDS-NG data for 
fiscal years 2009 to 2011, SBA identified product service codes (PSCs) 
within NAICS 562910 that correspond to the ERS activity or exception 
and firms that participated in Federal contracts under those PSCs. 
Then, SBA obtained those firms' revenue and employment data from the 
SAM/CCR database.
    The ERS contracts were predominantly classified under the three 
PSCs as shown in Table 6, PSCs for ERS Contracts, below.

                     Table 6--PSCs for ERS Contracts
------------------------------------------------------------------------
          PSC                            PSC Description
------------------------------------------------------------------------
F108...................  Environmental Systems Protection--Environmental
                          Remediation Includes: Toxic and Hazardous
                          Substance Removal, Cleanup, and Disposal;
                          Asbestos and Lead Abatement.
                         Excludes: Remediation of Oil Spills (PSC F112).
F112...................  Environmental Systems Protection--Oil Spill
                          Response Includes: Cleanup, Removal, Disposal
                          and Operational Support.
F999...................  Other Environmental Services.
------------------------------------------------------------------------

    Among these three PSCs, F108 and F999 accounted for about 98 
percent of nearly $1.9 billion in total contracts dollars awarded 
annually under these three PSCs during fiscal years 2009-2011. Thus, 
for this proposed rule, SBA's analysis focused only on firms that 
received contracts in PSCs F108 and F999. Based on FPDS-NG data for 
fiscal years 2009-2011, SBA identified 783 businesses receiving Federal 
contracts under those two PSCs. Of these, 18 identified themselves as 
manufacturers in SAM/CCR and were excluded from the analysis. Of the 
remainder, SBA was able to match about 670 firms in SAM/CCR database 
and obtain the data on their annual receipts and employees. The matched 
firms accounted for 96 percent of total contract dollars awarded in the 
two PSCs. The data on those firms were analyzed to evaluate industry 
and Federal contracting factors of the ERS sub-industry. These results 
and size standards supported by each of those factors are shown in 
Table 7, Size Standards Supported by Each Factor for the ERS Sub-
industry (No. of Employees), below.

                              Table 7--Size Standards Supported by Each Factor for the ERS Sub-Industry (No. of Employees)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Simple     Weighted                            Four-firm                            Calculated
                                                          average     average     Average                 average                  Federal       size
                                                         firm size   firm size    assets     Four-firm     size     Gini coeffi-   contract    standard
                                                        (number of  (number of    size ($     ratio %   (number of     cient      factor (%)  (number of
                                                        employees)  employees)   million)               employees)                            employees)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Factor................................................         832      20,583          NA          47      48,022       0.9298         37.5  ..........
Size standard.........................................       1,500       1,500  ..........  ..........       1,500   1,500             500         1,250
--------------------------------------------------------------------------------------------------------------------------------------------------------
NA = data not available.

    Based on the above results, SBA is proposing to increase the size 
standard for the ERS sub-industry or exception under NAICS 562910 from 
the current 500 employees to 1,250 employees.

Offshore Marine Air Transportation Services and Offshore Marine 
Services

    Offshore Marine Air Transportation Services is a sub-industry or 
``exception'' under both NAICS 481211, Nonscheduled Chartered Passenger 
Air Transportation and NAICS 481212, Nonscheduled Chartered Freight Air 
Transportation. The size standards are 1,500 employees for both NAICS 
codes 481211 and 481212 and $28 million in average annual receipts for 
the Offshore Marine Air Transportation Services sub-industry or 
``exception. Similarly, as

[[Page 53659]]

indicated in Footnote 15 to SBA's table of size standards, Offshore 
Marine Services is a sub-industry or ``exception'' to all industries 
under NAICS Subsector 483, Water Transportation, with the size standard 
of $28 million in average annual receipts. All industries within 
Subsector 483 currently have a 500-employee size standard. SBA did not 
review the $28 million receipts exception size standard when it 
reviewed receipts based size standards in NAICS Sector 48-49.
    As mentioned earlier, the data from the Census Bureau's tabulation 
are limited to the 6-digit NAICS industry level and do not provide 
economic characteristics of firms at the sub-industry level. For sub-
industry or exception size standards, SBA generally evaluates the 
characteristics of firms receiving Federal contracts under product 
service codes (PSCs) that correspond to specific sub-industry 
activities or ``exceptions'' within the applicable NAICS code. However, 
the review of data from FPDS-NG shows no specific PSC associated with 
either the Offshore Marine Air Transportation Services or Offshore 
Marine Services sub-industries. Therefore, SBA cannot review the $28 
million revenue size standard for these sub-industries to determine 
whether it should be retained at the current level or adjusted.
    The sub-industry or ``exception'' size standards are primarily used 
for Federal government procurements of very specific products or 
services within a 6-digit NAICS industry and many of them account for a 
significant share of contract dollars within the industry. However, 
evaluations of data from FPDS-NG and a sample of solicitations from the 
Federal Business Opportunities Web site at www.fbo.gov show almost no 
federal contract awards to small businesses under the $28 million size 
standard exception to NAICS 481211 and 481212 and NAICS Subsector 483. 
SBA believes that contracting officers strongly favor a relatively much 
larger 1,500- or 500-employee size standard instead of the $28 million 
receipts based size standard.
    For the above reasons, SBA proposes to eliminate these sub-
industries or ``exceptions'' and their $28 million receipts based size 
standard under NAICS 481211 and 481212 and NAICS Subsector 483. SBA 
proposes to apply the applicable employee based size standard. SBA also 
proposes to eliminate Footnote 15 from SBA's table of size standards. 
This will not affect the eligibility of firms that are small under the 
$28 million receipts based size standard because they will continue to 
be eligible under the employee based size standard.

Proposed Changes to Size Standards

    Table 8, Summary of Size Standards Analysis, below, summarizes the 
results of SBA's analyses from Table 3, Size Standards Supported by 
Each Factor for Each Industry (No. of employees). The results might 
support increases in size standards for 31 industries, decreases for 
seven industries and no change for 19 industries.

                                   Table 8--Summary of Size Standards Analysis
----------------------------------------------------------------------------------------------------------------
                                                                                   Current size     Calculated
                                                                                     standard      size standard
                 NAICS Code                          NAICS Industry title           (number of      (number of
                                                                                    employees)      employees)
----------------------------------------------------------------------------------------------------------------
113310.....................................  Logging............................             500             500
211111.....................................  Crude Petroleum and Natural Gas                 500           1,250
                                              Extraction.
211112.....................................  Natural Gas Liquid Extraction......             500             750
212111.....................................  Bituminous Coal and Lignite Surface             500           1,250
                                              Mining.
212112.....................................  Bituminous Coal Underground Mining.             500           1,500
212113.....................................  Anthracite Mining..................             500             500
212210.....................................  Iron Ore Mining....................             500             750
212221.....................................  Gold Ore Mining....................             500           1,500
212222.....................................  Silver Ore Mining..................             500             750
212231.....................................  Lead Ore and Zinc Ore Mining.......             500             750
212234.....................................  Copper Ore and Nickel Ore Mining...             500           1,500
212291.....................................  Uranium-Radium-Vanadium Ore Mining.             500             500
212299.....................................  All Other Metal Ore Mining.........             500             750
212311.....................................  Dimension Stone Mining and                      500             500
                                              Quarrying.
212312.....................................  Crushed and Broken Limestone Mining             500             750
                                              and Quarrying.
212313.....................................  Crushed and Broken Granite Mining               500             750
                                              and Quarrying.
212319.....................................  Other Crushed and Broken Stone                  500             500
                                              Mining and Quarrying.
212321.....................................  Construction Sand and Gravel Mining             500             500
212322.....................................  Industrial Sand Mining.............             500             500
212324.....................................  Kaolin and Ball Clay Mining........             500             750
212325.....................................  Clay and Ceramic and Refractory                 500             500
                                              Minerals Mining.
212391.....................................  Potash, Soda, and Borate Mineral                500             750
                                              Mining.
212392.....................................  Phosphate Rock Mining..............             500           1,000
212393.....................................  Other Chemical and Fertilizer                   500             500
                                              Mineral Mining.
212399.....................................  All Other Nonmetallic Mineral                   500             500
                                              Mining.
213111.....................................  Drilling Oil and Gas Wells.........             500           1,000
221210.....................................  Natural Gas Distribution...........             500           1,000
481111.....................................  Scheduled Passenger Air                       1,500           1,500
                                              Transportation.
481112.....................................  Scheduled Freight Air                         1,500             750
                                              Transportation.
481211.....................................  Nonscheduled Chartered Passenger              1,500             750
                                              Air Transportation.
481212.....................................  Nonscheduled Chartered Freight Air            1,500           1,000
                                              Transportation.
482111.....................................  Line-Haul Railroads................           1,500           1,500
482112.....................................  Short Line Railroads...............             500           1,500
483111.....................................  Deep Sea Freight Transportation....             500             500
483112.....................................  Deep Sea Passenger Transportation..             500           1,500
483113.....................................  Coastal and Great Lakes Freight                 500             750
                                              Transportation.
483114.....................................  Coastal and Great Lakes Passenger               500             500
                                              Transportation.
483211.....................................  Inland Water Freight Transportation             500             750

[[Page 53660]]

 
483212.....................................  Inland Water Passenger                          500             500
                                              Transportation.
486110.....................................  Pipeline Transportation of Crude              1,500           1,000
                                              Oil.
486910.....................................  Pipeline Transportation of Refined            1,500             500
                                              Petroleum Products.
492110.....................................  Couriers and Express Delivery                 1,500           1,250
                                              Services.
511110.....................................  Newspaper Publishers...............             500           1,000
511120.....................................  Periodical Publishers..............             500           1,000
511130.....................................  Book Publishers....................             500           1,000
511140.....................................  Directory and Mailing List                      500           1,250
                                              Publishers.
511191.....................................  Greeting Card Publishers...........             500           1,500
511199.....................................  All Other Publishers...............             500             500
512220.....................................  Integrated Record Production/                   750           1,250
                                              Distribution.
512230.....................................  Music Publishers...................             500             750
517110.....................................  Wired Telecommunications Carriers..           1,500           1,500
517210.....................................  Wireless Telecommunications                   1,500           1,500
                                              Carriers (except Satellite).
517911.....................................  Telecommunications Resellers.......           1,500             750
519130.....................................  Internet Publishing and                         500           1,000
                                              Broadcasting and Web Search
                                              Portals.
524126.....................................  Direct Property and Casualty                  1,500           1,500
                                              Insurance Carriers.
541711.....................................  Research and Development in                     500           1,000
                                              Biotechnology.
541712.....................................  Research and Development in the                 500           1,000
                                              Physical, Engineering, and Life
                                              Sciences (except Biotechnology).
----------------------------------------------------------------------------------------------------------------

    Similarly, the results discussed under the Special Considerations 
section, above, support increasing the size standard for the second and 
third exceptions and retaining it for the first exception under NAICS 
541712 and increasing the Environmental Remediation Services exception 
under NAICS 562910. SBA is proposing to eliminate the Information 
Technology Value Added Resellers exception and its 150-employee size 
standard under NAICS 541519. SBA is also proposing to eliminate the 
Offshore Marine Air Transportation Services sub-industry or 
``exception'' under NAICS 481211 and 481212 and Offshore Marine 
Services sub-industry or ``exception'' under NAICS Subsector 483 and 
their $28 million receipts based size standard.
    To ensure that neither an existing nor a calculated size standard 
includes the largest or dominant firms in any industry, besides the 
calculation of the Gini coefficient, SBA further assessed the 
distribution of firms in each industry by employee size. The analytical 
results in Table 3 might appear to support retaining the existing size 
standard of 500 employees for NAICS codes 212113 and 212291 and 
increasing it to 750 employees for NAICS 212222. However, the firm size 
distribution showed that these levels would include all firms, 
including the largest and possibly dominant ones, as small in each of 
those industries. Moreover, these levels are almost the same as or 
higher than the total employees for the entire industry. Accordingly, 
SBA is proposing to set the size standard for each of these three NAICS 
codes at 250 employees. This would affect only the one or two largest 
firms in each of those industries.
    Except for lowering size standards to exclude the dominant firms, 
SBA believes that lowering 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 
and deepest of any recessions since before 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 6.2 percent in July 2014 (www.bls.gov) and is forecast to 
remain around this level at least through the end of 2014 (https://
www.federalreserve.gov/monetarypolicy/
mpr20140211part3.htm).
    In 2010, 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.
    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 or receive some form of relief from 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 the 
seven industries for which analytical results might have supported 
lowering their size standards, about 40 businesses would lose their 
small business eligibility if their size standards were lowered based 
solely on the analytical results. That would run counter to what SBA 
and the Federal government are doing to help small businesses and 
create jobs. 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, except for three industries 
for which SBA is proposing to lower their size standards to exclude

[[Page 53661]]

the largest and possibly the dominant firms from being small, SBA does 
not intend to reduce size standards for any industries. Accordingly, 
for seven 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 SBA's Administrator to ``. . . consider other factors deemed to be 
relevant . . .'' to establishing small business size 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.
    As discussed above, except to exclude the largest or dominant 
firms, lowering 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, of the 57 industries and five sub-industries reviewed 
in this rule, SBA proposes to increase size standards for 30 industries 
and three sub-industries, retain the current size standards for 24 
industries and one sub-industry and lower size standards for three 
industries to exclude the largest or dominant firms from being 
considered small. SBA also proposes to eliminate the Information 
Technology Value Added Resellers sub-industry or exception under NAICS 
541519 (Other Computer Related Services) and its 150-employee size 
standard. SBA also proposes to eliminate the Offshore Marine Air 
Transportation Services sub-industry or ``exception'' under NAICS 
481211 and 481212 and Offshore Marine Services sub-industry or 
``exception'' under NAICS Subsector 483 and their $28 million receipts 
based size standard. The SBA's proposed changes are in Table 9, Summary 
of Proposed Size Standards Revisions, below.

                              Table 9--Summary of Proposed Size Standards Revisions
----------------------------------------------------------------------------------------------------------------
                                                             Current size    Current size
                                                               standard        standard         Proposed size
           NAICS Code               NAICS Industry title     (millions of     (number of     standard (number of
                                                               dollars)       employees)         employees)
----------------------------------------------------------------------------------------------------------------
211111..........................  Crude Petroleum and       ..............             500  1,250
                                   Natural Gas Extraction.
211112..........................  Natural Gas Liquid        ..............             500  750
                                   Extraction.
212111..........................  Bituminous Coal and       ..............             500  1,250
                                   Lignite Surface Mining.
212112..........................  Bituminous Coal           ..............             500  1,500
                                   Underground Mining.
212113..........................  Anthracite Mining.......  ..............             500  250
212210..........................  Iron Ore Mining.........  ..............             500  750
212221..........................  Gold Ore Mining.........  ..............             500  1,500
212222..........................  Silver Ore Mining.......  ..............             500  250
212231..........................  Lead Ore and Zinc Ore     ..............             500  750
                                   Mining.
212234..........................  Copper Ore and Nickel     ..............             500  1,500
                                   Ore Mining.
212291..........................  Uranium-Radium-Vanadium   ..............             500  250
                                   Ore Mining.
212299..........................  All Other Metal Ore       ..............             500  750
                                   Mining.
212312..........................  Crushed and Broken        ..............             500  750
                                   Limestone Mining and
                                   Quarrying.
212313..........................  Crushed and Broken        ..............             500  750
                                   Granite Mining and
                                   Quarrying.
212324..........................  Kaolin and Ball Clay      ..............             500  750
                                   Mining.
212391..........................  Potash, Soda, and Borate  ..............             500  750
                                   Mineral Mining.
212392..........................  Phosphate Rock Mining...  ..............             500  1,000
213111..........................  Drilling Oil and Gas      ..............             500  1,000
                                   Wells.
221210..........................  Natural Gas Distribution  ..............             500  1,000
481211 Except...................  ........................           $30.5  ..............  Eliminate
481212 Except...................  ........................           $30.5  ..............  Eliminate
482112..........................  Short Line Railroads....  ..............             500  1,500
483112..........................  Deep Sea Passenger        ..............             500  1,500
                                   Transportation.
483113..........................  Coastal and Great Lakes   ..............             500  750
                                   Freight Transportation.
483211..........................  Inland Water Freight      ..............             500  750
                                   Transportation.
511110..........................  Newspaper Publishers....  ..............             500  1,000
511120..........................  Periodical Publishers...  ..............             500  1,000
511130..........................  Book Publishers.........  ..............             500  1,000
511140..........................  Directory and Mailing     ..............             500  1,250
                                   List Publishers.
511191..........................  Greeting Card Publishers  ..............             500  1,500
512220..........................  Integrated Record         ..............             750  1,250
                                   Production/Distribution.
512230..........................  Music Publishers........  ..............             500  750
519130..........................  Internet Publishing and   ..............             500  1,000
                                   Broadcasting and Web
                                   Search Portals.
541519 Except...................  Information Value Added   ..............             150  Eliminate
                                   Resellers.
541711..........................  Research and Development  ..............             500  1,000
                                   in Biotechnology.
541712..........................  Research and Development  ..............             500  1,000
                                   in the Physical,
                                   Engineering, and Life
                                   Sciences (except
                                   Biotechnology).
Except..........................  Aircraft Engine and       ..............           1,000  1,500
                                   Engine Parts.
Except..........................  Other Aircraft Parts and  ..............           1,000  1,250
                                   Auxiliary Equipment.
Except..........................  Guided Missiles and       ..............           1,000  1,250
                                   Space Vehicles, Their
                                   Propulsion Units and
                                   Propulsion Parts.
562910 Except...................  Environmental             ..............             500  1,250
                                   Remediation Services.
----------------------------------------------------------------------------------------------------------------


[[Page 53662]]

    Maintaining current size standards when the analytical results 
suggested lowering them 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)); NAICS Sector 48 49, 
Transportation and Warehousing (77 FR 10943 (February 24, 2012)); NAICS 
Sector 51, Information (77 FR 72702 (December 6, 2012)); NAICS Sector 
53, Real Estate and Rental and Leasing (77 FR 88747 (September 24, 
2012)); NAICS Sector 56, Administrative and Support, Waste Management 
and Remediation Services (77 FR 72691 (December 6, 2012)); NAICS Sector 
61, Educational Services (77 FR 58739 (September 24, 2012)); NAICS 
Sector 62, Health Care and Social Assistance (77 FR 58755 (September 
24, 2012)); NAICS Sector 11, Agriculture, Forestry, Fishing and Hunting 
(78 FR 37398 (June 20, 2013)); NAICS Subsector 213, Support Activities 
for Mining (78 FR 37404 (June 20, 2013)); NAICS Sector 52, Finance and 
Insurance and Sector 55, Management of Companies and Enterprises (78 FR 
37409 (June 20, 2013)); NAICS Sector 71, Arts, Entertainment and 
Recreation (78 FR 37417 (June 20, 2013)), and NAICS Sector 23, 
Construction (78 FR 77334 (December 23, 2013)). In each of those final 
rules, SBA retained the existing size standards for those that it could 
have reduced.

Evaluation of Dominance in Field of Operation

    SBA has determined that for the industries for which it has 
proposed revising size standards in this rule, no individual firm at or 
below the proposed size standard will be large enough to dominate its 
field of operation. At the proposed size standards, if adopted, the 
small business share of total industry receipts among those industries 
is, in average, 3.4 percent, with an interval showing a minimum of less 
than 0.01 percent to a maximum of 20.0 percent. These market shares 
effectively preclude a firm at or below the proposed size standards 
from exerting control over any of the industries.

Request for Comments

    SBA invites public comments on this proposed rule, especially on 
the following issues:
    1. SBA proposes five levels of employee based size standards for 
industries in Manufacturing and industries in other Sectors except for 
Wholesale Trade and Retail Trade that have employee based size 
standards: 500 employees, 750 employees, 1,000 employees, 1,250 
employees, and 1,500 employees. SBA invites comments on whether these 
proposed size levels are appropriate and suggestions on alternative 
levels, if they would be more appropriate.
    2. To be consistent with its policy of not lowering any size 
standards in all recent proposed and final rules on receipts based size 
standards in view of current economic conditions, SBA is retaining the 
current 500-employee minimum and 1,500-employee maximum size standards 
for all industries in the Manufacturing Sector and other industries not 
in the Wholesale and Retail Trade Sectors that have employee based size 
standards. In its ``Size Standards Methodology,'' available at 
www.sba.gov/size, SBA had proposed setting the minimum size standard 
for these industries at 250 employees and the maximum size standard at 
1,000 employees. This would have resulted in lowering the existing 
employee based size standards for some industries. SBA invites comments 
on whether should SBA maintain the minimum employee based size standard 
at 500 employees and the maximum at 1,500 employees or should it lower 
them to 250 employees and 1,000 employees, respectively, as proposed in 
``Size Standards Methodology'', and suggestions on alternative minimum 
and maximum levels, if they would be more appropriate. SBA also seeks 
feedback on whether it should adjust employee based size standards for 
labor productivity growth.
    3. SBA seeks feedback on whether SBA's proposal to increase size 
standards for 30 industries and three sub-industries, reduce size 
standards for three industries to exclude the largest firms, and retain 
current size standards for 24 industries and one sub-industry is 
appropriate, given the economic characteristics of each industry and 
sub-industry reviewed in this proposed rule. SBA also seeks feedback 
and suggestions on alternative size standards, if they would be more 
appropriate, including whether the average annual revenue is a more 
suitable measure of size for certain industries and what that revenue 
level should be.
    4. SBA invites comments on its proposal to eliminate the 
Information Technology Value Added Resellers sub-industry or exception 
under NAICS 541519 (Other Computer Related Services) and its 150-
employee size standard and apply the $25.5 million receipts based size 
standard that is current in place for the rest of the industry.
    5. SBA invites comments on its proposal to eliminate the Offshore 
Marine Air Transportation Services sub-industry or exception under 
NAICS 481211 (Nonscheduled Chartered Passenger Air Transportation) and 
under NAICS 481212 (Nonscheduled Chartered Freight Air Transportation) 
and its $28 million receipts size standard and apply the same 1,500 
employee size standard that is current in place for each of those 
industry. Similarly, SBA seeks comments on its proposal to eliminate 
the Offshore Marine Services sub-industry or ``exception'' under NAICS 
Subsector 483, and its $28 million receipts size standard and apply the 
applicable employee size standard that for each industry within that 
Subsector. If those exceptions are to be retained, SBA invites comments 
on whether the current $28 million revenue size standard is 
appropriate, and suggestions on an alternative level with supporting 
data and analysis.
    6. SBA has proposed to retain the current size standards for seven 
industries for which its analysis would support lowering them. SBA 
seeks comments on whether SBA should lower them solely based on its 
analysis or retain them at their current levels in view of current 
economic conditions.
    7. 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-firm concentration ratio, distribution 
of firms by size and, the level and small business share of Federal 
contracting dollars of the evaluated industries and sub-industries. SBA 
welcomes comments on these factors and/or suggestions on other factors 
that it should consider when evaluating or revising employee based size 
standards. SBA also seeks information on relevant data sources, other 
than what it uses, if available.
    8. 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 or less 
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.

[[Page 53663]]

    9. 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 ensure 
that size standards reflect industry structure and Federal market 
conditions. Commenters addressing SBA's proposed size standard 
revisions 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, startup 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, in the next section, SBA provides a 
Regulatory Impact Analysis of this proposed rule. However, this rule is 
not a ``major rule'' 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 this 
proposed rule will better reflect the economic characteristics of small 
businesses in the affected industries 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 establishes 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 definitions. The Act also requires that small business 
definitions vary to reflect industry differences. The 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 proposed rule is gaining or retaining 
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 programs, such as 8(a), 
Small Disadvantaged Businesses (SDB), small businesses located in 
Historically Underutilized Business Zones (HUBZone), women-owned small 
businesses (WOSB), economically disadvantaged women-owned small 
businesses (EDWOSB), and service-disabled veteran-owned small 
businesses (SDVOSB). 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 30 industries and three sub-
industries (``exceptions'') for which it has proposed to increase size 
standards more than 380 firms, not small under the existing size 
standards, will become small under the proposed size standards, if 
adopted, and therefore become eligible for these programs. That is 
about 0.6 percent of all firms classified as small under the current 
size standards in all industries and sub-industries reviewed in this 
proposed rule. If adopted as proposed, this will increase the small 
business share of total receipts in those industries from 18.3 percent 
to 21.3 percent. In three industries for which SBA has proposed to 
reduce their size standards, only the one or two largest firms will be 
impacted in each of those industries.
    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 $165 
million to $175 million annually under SBA's small business, 8(a), SDB, 
HUBZone, WOSB, EDWOSB, and SDVOSB 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 
2010-2012 data, SBA estimates up to about five SBA's 7(a) and 504 loans 
totaling about $1.0 million could be made to these newly defined small 
businesses under the proposed size 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 a higher 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 in the future, 
SBA cannot make a meaningful estimate of this impact.
    In addition, newly defined small businesses will also benefit 
through reduced fees, less paperwork, and fewer compliance requirements 
that are available to small businesses through Federal government.

[[Page 53664]]

    To the extent that those 380 newly defined additional small firms 
could become active in Federal procurement programs, the proposed 
changes to size standards, if adopted, may entail some additional 
administrative costs to the government as a result of more businesses 
being eligible for Federal small business programs. For example, there 
will be more firms seeking SBA's guaranteed loans, more firms eligible 
for enrollment in the System of Award Management (SAM) database, and 
more firms seeking certification as 8(a) or HUBZone firms or qualifying 
for small business, WOSB, EDWOSB, SDVOSB, and SDB status. Among those 
newly defined small businesses seeking SBA's assistance, there could be 
some additional costs associated with compliance and verification of 
small business status and protests of small business status. However, 
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 only 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, EDWOSB, or SDVOSB 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 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, some businesses defined small under the current size 
standards may obtain fewer Federal contracts due to the increased 
competition from more businesses defined as small under the proposed 
size standards. 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 employee based size 
standards for 33 industries and three sub-industries 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

    Descriptions 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 are 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 and individual 
businesses 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 industries and sub-industries 
covered in this proposed rule is consistent with Executive Order 13563, 
Section 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. The majority of employee based size 
standards have not been reviewed since they were first established. 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

[[Page 53665]]

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 proposed 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 the industries and sub-industries covered by this rule. 
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, record keeping, 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 reviewed in this proposed 
rule. 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 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 about 380 additional firms will become small because of increased 
size standards for 30 industries and three sub-industries not in NAICS 
Sectors 31-33, 42 and 44-45. That represents 0.6 percent of total firms 
that are small under current size standards in all industries reviewed 
by SBA in this proposed rule. This will result in an increase in the 
small business share of total industry receipts for those industries 
from 18.3 percent under the current size standards to 21.3 percent 
under the proposed size standards. In the three industries for which 
SBA has proposed to reduce their size standards, only the one or two 
largest firms will be impacted in each of those industries. 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 register in the SAM database and certify in SAM that they 
are small at least once annually. Therefore, businesses opting to 
participate in those programs must comply with SAM requirements. 
However, there are no costs associated with SAM registration or 
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

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. Revise the entries for ``211111'', ``211112'', ``212111'', 
``212112'', ``212113'', ``212210'', ``212221'', ``212222'', ``212231'', 
``212234'', ``212291'', ``212299'', ``212312'', ``212313'', ``212324'', 
``212391'', ``212392'', ``213111'', ``221210'',

[[Page 53666]]

''482112'', ``483112'', ``483113'', ``483211'', ``511110'', ``511120'', 
``511130'', ``511140'', ``511191'', ``512220'', ``512230'', ``519130'', 
``541711'', ``541712 introductory entry and first, second and third 
sub-entry, and ``562910 sub-entry''.
0
b. Amend the entry for ``481211'' by removing its sub-entry ``Except,'' 
``Offshore Marine Air Transportation Services'' ``$30.5''.
0
c. Amend the entry for ``481212'' by removing the sub-entry ``Except,'' 
``Offshore Marine Air Transportation Services'' ``$30.5''.
0
d. Amend the entry for ``541519'' by removing the subentry ``Except,'' 
``Value Added Resellers \18\'', ``150 \18\''.
0
e. Revise Footnote 11.
0
f. Remove and reserve Footnote 15.
0
g. Remove and reserve Footnote 18.
0
h. Footnote 14 is republished.
    The revisions 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 title       in millions of   in number of
                                                                                      dollars        employees
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
211111.....................................  Crude Petroleum and Natural Gas      ..............           1,250
                                              Extraction.
211112.....................................  Natural Gas Liquid Extraction......  ..............             750
 
                                                  * * * * * * *
212111.....................................  Bituminous Coal and Lignite Surface  ..............           1,250
                                              Mining.
212112.....................................  Bituminous Coal Underground Mining.  ..............           1,500
212113.....................................  Anthracite Mining..................  ..............             250
212210.....................................  Iron Ore Mining....................  ..............             750
212221.....................................  Gold Ore Mining....................  ..............           1,500
212222.....................................  Silver Ore Mining..................  ..............             250
212231.....................................  Lead Ore and Zinc Ore Mining.......  ..............             750
212234.....................................  Copper Ore and Nickel Ore Mining...  ..............           1,500
212291.....................................  Uranium-Radium-Vanadium Ore Mining.  ..............             250
212299.....................................  All Other Metal Ore Mining.........  ..............             750
 
                                                  * * * * * * *
212312.....................................  Crushed and Broken Limestone Mining  ..............             750
                                              and Quarrying.
212313.....................................  Crushed and Broken Granite Mining    ..............             750
                                              and Quarrying.
 
                                                  * * * * * * *
212324.....................................  Kaolin and Ball Clay Mining........  ..............             750
 
                                                  * * * * * * *
212391.....................................  Potash, Soda, and Borate Mineral     ..............             750
                                              Mining.
212392.....................................  Phosphate Rock Mining..............  ..............           1,000
 
                                                  * * * * * * *
213111.....................................  Drilling Oil and Gas Wells.........  ..............           1,000
 
                                                  * * * * * * *
221210.....................................  Natural Gas Distribution...........  ..............           1,000
 
                                                  * * * * * * *
481211.....................................  Nonscheduled Chartered Passenger     ..............           1,500
                                              Air Transportation.
481212.....................................  Nonscheduled Chartered Freight Air   ..............           1,500
                                              Transportation.
 
                                                  * * * * * * *
482112.....................................  Short Line Railroads...............  ..............           1,500
----------------------------------------------------------------------------------------------------------------
                                       Subsector 483--Water Transportation
================================================================================================================
 
                                                  * * * * * * *
483112.....................................  Deep Sea Passenger Transportation..  ..............           1,500
483113.....................................  Coastal and Great Lakes Freight      ..............             750
                                              Transportation.
 
                                                  * * * * * * *
483211.....................................  Inland Water Freight Transportation  ..............             750
 
                                                  * * * * * * *
511110.....................................  Newspaper Publishers...............  ..............           1,000
511120.....................................  Periodical Publishers..............  ..............           1,000
511130.....................................  Book Publishers....................  ..............           1,000
511140.....................................  Directory and Mailing List           ..............           1,250
                                              Publishers.
511191.....................................  Greeting Card Publishers...........  ..............           1,500
 

[[Page 53667]]

 
                                                  * * * * * * *
512220.....................................  Integrated Record Production/        ..............           1,250
                                              Distribution.
512230.....................................  Music Publishers...................  ..............             750
 
                                                  * * * * * * *
519130.....................................  Internet Publishing and              ..............           1,000
                                              Broadcasting and Web Search
                                              Portals.
 
                                                  * * * * * * *
541711.....................................  Research and Development in          ..............      \11\ 1,000
                                              Biotechnology \11\.
541712.....................................  Research and Development in the      ..............      \11\ 1,000
                                              Physical, Engineering, and Life
                                              Sciences (except Biotechnology)
                                              \11\.
Except.....................................  Aircraft, Aircraft Engine, and       ..............           1,500
                                              Engine Parts.
Except.....................................  Other Aircraft Parts and Auxiliary   ..............           1,250
                                              Equipment.
Except.....................................  Guided Missiles and Space Vehicles,  ..............           1,250
                                              Their Propulsion Units and
                                              Propulsion Parts.
 
                                                  * * * * * * *
562910.....................................  Remediation Services...............           $19.0  ..............
Except.....................................  Environmental Remediation Services   ..............      \14\ 1,250
                                              \14\.
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------

 .Footnotes

* * * * *
    11. NAICS code 541711 and 541712:
    (a) ``Research and Development'' means laboratory or other 
physical research and development. It does not include economic, 
educational, engineering, operations, systems, or other nonphysical 
research; or computer programming, data processing, commercial and/
or medical laboratory testing.
    (b) For research and development contracts requiring the 
delivery of a manufactured product, the appropriate size standard is 
that of the manufacturing industry.
    (c) For purposes of the Small Business Innovation Research 
(SBIR) program only, a different definition has been established by 
law. See Sec.  121.701 of these regulations.
    (d) ``Research and Development'' for guided missiles and space 
vehicles includes evaluations and simulation, and other services 
requiring thorough knowledge of complete missiles and spacecraft.
* * * * *
    14. NAICS 562910--Environmental Remediation Services:
    (a) For SBA assistance as a small business concern in the 
industry of Environmental Remediation Services, other than for 
Government procurement, a concern must be engaged primarily in 
furnishing a range of services for the remediation of a contaminated 
environment to an acceptable condition including, but not limited 
to, preliminary assessment, site inspection, testing, remedial 
investigation, feasibility studies, remedial design, containment, 
remedial action, removal of contaminated materials, storage of 
contaminated materials and security and site closeouts. If one of 
such activities accounts for 50 percent or more of a concern's total 
revenues, employees, or other related factors, the concern's primary 
industry is that of the particular industry and not the 
Environmental Remediation Services Industry.
    (b) For purposes of classifying a Government procurement as 
Environmental Remediation Services, the general purpose of the 
procurement must be to restore or directly support the restoration 
of a contaminated environment. This includes activities such as 
preliminary assessment, site inspection, testing, remedial 
investigation, feasibility studies, remedial design, remediation 
services, containment, and removal of contaminated materials or 
security and site closeouts. The general purpose of the procurement 
need not necessarily include remedial actions. Also, the procurement 
must be composed of activities in three or more separate industries 
with separate NAICS codes or, in some instances (e.g., engineering), 
smaller sub-components of NAICS codes with separate and distinct 
size standards. These activities may include, but are not limited 
to, separate activities in industries such as: Heavy Construction; 
Special Trade Contractors; Engineering Services; Architectural 
Services; Management Consulting Services; Hazardous and Other Waste 
Collection; Remediation Services; Testing Laboratories; and Research 
and Development in the Physical, Engineering, and Life Sciences. If 
any activity in the procurement can be identified with a separate 
NAICS code, or component of a code with a separate distinct size 
standard, and that industry accounts for 50 percent or more of the 
value of the entire procurement, then the proper size standard is 
the one for that particular industry, and not the Environmental 
Remediation Service size standard.
* * * * *

    Dated: August 25, 2014.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2014-20838 Filed 9-9-14; 8:45 am]
BILLING CODE 8025-01-P