Small Business Size Standards: Adjustment of Monetary-Based Size Standards, Disadvantage Thresholds, and 8(a) Eligibility Thresholds for Inflation, 46048-46055 [2023-15078]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 88, Number 137 (Wednesday, July 19, 2023)]
[Rules and Regulations]
[Pages 46048-46055]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15078]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 124, and 127

RIN 3245-AH93


Small Business Size Standards: Adjustment of Monetary-Based Size 
Standards, Disadvantage Thresholds, and 8(a) Eligibility Thresholds for 
Inflation

AGENCY: U.S. Small Business Administration.

ACTION: Final rule.

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SUMMARY: This rule finalizes, without change, the U.S. Small Business 
Administration's (SBA or Agency) November 17, 2022, interim provisions 
that adjusted monetary-based industry size standards (i.e., receipts- 
and assets-based) for inflation. Specifically, this rule finalizes 
three interim final actions adopted in the November 17, 2022 rule. 
First, this rule finalizes an additional 13.65 percent inflation 
increase to the industry-based monetary small business size standards 
to account for the inflation that occurred since the last adjustment to 
size standards for inflation in 2019. Second, this rule finalizes 
inflation adjustments to three program-specific monetary size 
standards: the size standards for sales or leases of government 
property, the size standards for stockpile purchases, and the 
alternative size standard based on tangible net worth and net income 
for the Small Business Investment Company (SBIC) program. Third, this 
rule finalizes inflation adjustments to the economic disadvantage 
thresholds applicable to the 8(a) Business Development and Economically 
Disadvantaged Women-Owned Small Business programs, and the dollar limit 
for combined total 8(a) contracts.

DATES: This rule is effective July 19, 2023.

FOR FURTHER INFORMATION CONTACT: Samuel Castilla, Office of Size 
Standards, (202) 205-6618 or [email protected].

SUPPLEMENTARY INFORMATION: As explained in the SBA's ``Size Standards 
Methodology'' white paper available at www.sba.gov/size and at 
www.regulations.gov (Docket ID: SBA-2018-0004), SBA reviews small 
business size standards and makes necessary adjustments to them for 
three reasons: (i) changes in industry structure and Federal market 
conditions under the Small Business Jobs Act of 2010 (Jobs Act), Public 
Law 111-240, section 1344, Sep. 27, 2010; (ii) inflation in accordance 
with 13 CFR 121.102(c); and (iii) adoption of the latest North American 
Industry Classification System (NAICS) revision by the Office of 
Management and Budget. Updating size standards based on inflation--in 
addition to updating size standards based on the latest industry and 
Federal contracting data under the five-year rolling review--not only 
satisfies the Jobs Act's mandate that SBA review all size standards 
every five years, but also is consistent with Executive Order 13563 on 
improving regulation and regulatory review.
    Although SBA is required to assess the impact of inflation on its 
monetary-based size standards at least once every five years (67 FR 
3041; January 23, 2002) (13 CFR 121.102(c)), SBA may modify the timing 
of its adjustments to size standards and consider adjustments even more 
frequently than five-year intervals based on the prevailing economic 
conditions and the important policy objective of maintaining the value 
of size standards in inflation-adjusted terms.
    Accordingly, on November 17, 2022 (87 FR 69118), SBA published a 
joint final rule and interim final rule (IFR) that finalized, without 
change, SBA's July 2019 IFR (84 FR 34261; July 18, 2019) that adjusted 
industry-based (i.e., receipts- and assets-based) and certain program-
specific monetary size standards for inflation that occurred since the 
previous inflation adjustment in 2014 (79 FR 33647; June 12, 2014). 
SBA's November 2022 rule also contained interim final provisions to 
increase by 13.65 percent all industry-specific monetary small business 
size standards, including receipts-based size standards for 496 
industries and nine subindustries (i.e., ``exceptions'' in the SBA 
Table of Size Standards), as well as assets-based size standards for 
four industries.
    SBA assessed the impact of the general price increases on size 
standards before the normal five-year review for inflation was due, 
which would have been in 2024, due to the prevailing economic 
conditions and the rise in the general level of prices since the last 
adjustment in 2019. SBA's adjustments to industry-based monetary size 
standards for inflation were in addition to the changes to monetary-
based size standards adopted in March and June of 2022 as part of SBA's 
second five-year rolling review of size standards,\1\ as required by 
section 1344 of the Jobs Act.
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    \1\ See Small Business Size Standards: Agriculture, Forestry, 
Fishing and Hunting; Mining, Quarrying, and Oil and Gas Extraction; 
Utilities; Construction (87 FR 18607; March 31, 2022), Small 
Business Size Standards: Transportation and Warehousing; 
Information; Finance and Insurance; Real Estate and Rental and 
Leasing (87 FR 18627; March 31, 2022), Small Business Size 
Standards: Professional, Scientific and Technical Services; 
Management of Companies and Enterprises; Administrative and Support 
and Waste Management and Remediation Services (87 FR 18665; March 
31, 2022), Small Business Size Standards: Education Services; Health 
Care and Social Assistance; Arts, Entertainment and Recreation; 
Accommodation and Food Services; Other Services (87 FR 18646; March 
31, 2022), and Small Business Size Standards: Wholesale Trade and 
Retail Trade (87FR 35869; June 14, 2022).
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    SBA's November 2022 rule also contained interim final provisions to 
adjust for inflation three program-specific receipts-based size 
standards. These include the size standards for sales or leases of 
government property which was increased from $8 million to $9 million 
in average annual receipts, the size standards for stockpile purchases 
which was increased from $67.5 million to $76.5 million in average 
annual receipts, and the alternative size standard based on tangible 
net worth and net income for the Small Business Investment Company 
(SBIC) program. Inflation adjustment increased tangible net worth from 
$19.5 million to $24 million and net income from $6.5 million to $8 
million.
    Besides adjustment of industry and program-based monetary size 
standards described above, the interim final provisions of the November 
2022 rule also adjusted other monetary thresholds primarily used in the 
8(a) Business Development (8(a) BD) program and the Economically 
Disadvantaged Women-Owned Small Business (EDWOSB) program to determine 
eligibility of applicants and current participants as economically 
disadvantaged business concerns. Specifically, SBA adjusted for 
inflation the following Economic disadvantage thresholds for the 8(a) 
BD and EDWOSB programs: Net worth from $750,000 to $850,000 (13 CFR 
124.104(c)(2)), Income (adjusted gross income or AGI) from $350,000 to

[[Page 46049]]

$400,000 (13 CFR 124.104(c)(3)), and total assets from $6 million to 
$6.5 million (13 CFR 124.104(c)(4)). SBA also adjusted the dollar limit 
for combined total 8(a) contracts from $100 million to $168.5 million 
(13 CFR 124.519(a)).
    In this final rule, SBA is adopting, without change, the interim 
final provisions contained in the November 2022 rule as described 
above. SBA's adoption of the interim final provisions provides 
assurances to the public that the Agency is monitoring inflation to 
determine whether to adjust size standards within a reasonable period 
since its last inflation adjustment. SBA's adoption of the interim 
final provisions also ensures that the recently reviewed industry-based 
monetary size standards under the Jobs Act are up-to-date for 
accurately determining small business status, and restores the 
eligibility of businesses that may have lost their small business 
status due solely to price level increases rather than from increases 
in business activity. Given the current developments in the U.S. 
economy, SBA will continue to monitor the inflation and other economic 
indicators and their impacts on size standards and adjust size 
standards, as needed.
    The November 2022 rule requested comments from the public on SBA's 
methodology of using the gross domestic product (GDP) price index for 
adjusting size standards for inflation and suggestions for alternative 
measures of inflation, on whether SBA should adjust employee-based size 
standards for labor productivity growth and technical changes similar 
to adjusting monetary-based size standards for inflation, and on 
changes to program-specific size standards. Below is a discussion of 
those comments and SBA's responses.
    As required under 13 CFR 121.102(e), SBA advises readers that 
interested eligible parties may file a petition for reconsideration of 
a revised, modified, or established size standard at SBA's Office of 
Hearings and Appeals (OHA) within 30 calendar days after publication of 
this final rule in accordance with 15 U.S.C. 632(a)(9) and 13 CFR part 
134, subpart I. You may reach OHA using the following contact 
information: by mail at U.S. Small Business Administration, Office of 
Hearings and Appeals, 409 Third St. SW, Eighth Floor, Washington, DC 
20416, by email at [email protected], by phone: 202-401-8200 TTY/TRS: 
711, or by fax at (202) 205-7059.

Summary and Discussion of Public Comments on the November 17, 2022 Rule

    SBA received nine comments on the November 2022 rule, of which 
eight comments were relevant. Each of the eight relevant comments 
expressed general support for SBA's interim changes to NAICS-based 
industry size standards. Four commenters petitioned SBA to make 
adjustments to certain monetary thresholds other than monetary-based 
size standards that the Agency adjusted for inflation in the November 
2022 rule, of which one commenter also petitioned SBA to consider 
changing its methodology for adjusting size standards for inflation 
generally. All comments are available at the Federal rulemaking portal, 
www.regulations.gov, and are summarized and discussed below.

Comments Supporting SBA's Changes

    SBA received eight pertinent comments to the November 2022 rule 
that expressed general support for SBA's interim changes to industry-
based monetary size standards. Commenters supported SBA's changes for 
several reasons, including the timeliness of SBA's adjustments given 
the recent increases in inflation and SBA's decision to issue the 
changes through an interim final rulemaking with requests for comments 
instead of a proposed rule. Commenters also expressed support for SBA's 
changes due to the expanded runway that it provides to small business 
in accessing SBA's financial assistance and contracting programs. One 
commenter explained that SBA's support of small business and timely 
recognition of the impacts of inflation on the size standards and 
ability of small business to compete is laudatory. The commenter 
expressed that issuance of the inflation adjustments as an interim 
final rule while still soliciting public comment correctly balances the 
need for urgency and public interest. Another comment from a national 
organization representing over 15,000 minority-owned businesses 
expressed that minority-owned business enterprises (MBEs) will benefit 
greatly from this new rule change as it will help bring economic equity 
in the Federal contracting process. Another comment from a national 
trade association supported SBA's changes on the grounds that the 
changes will allow more small businesses to be eligible or remain 
eligible for SBA assistance.

SBA Response

    SBA agrees with commenters supporting the rule that there are 
various benefits from adopting the interim final changes to size 
standards contained in the November 2022 rule. The most significant 
benefits were described in the Regulatory Impact Analysis section of 
the November 2022 rule. The primary benefits include: (1) Some 
businesses that are above the current size standards may gain small 
business status under the higher, inflation-adjusted 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 estimated that the changes adopted in the November 2022 rule 
enabled approximately 17,700 firms in industries and subindustries with 
receipts-based size standards and about 170 firms in industries with 
assets-based size standards, above SBA's size standards at the time, to 
gain small business status and become eligible for SBA programs, 
resulting in about $1.3 billion in additional small business Federal 
contract dollars to the newly-qualified businesses.
    Moreover, SBA agrees with commenters regarding the importance of 
SBA's timely adjustments to size standards, including adjustments even 
more frequently than regular five year intervals, as required by 13 CFR 
121.102(c)), based on the prevailing economic conditions. Accordingly, 
in response to the recent sustained increases in the general level of 
prices in the economy, SBA issued the November 2022 rule which 
contained interim final changes to adjust monetary size standards for 
inflation that has occurred since the last adjustment in July 2019 (84 
FR 34261; July 18, 2019). In this final rule, SBA is adopting, without 
change, the interim final provisions contained in the November 2022 
rule to ensure that small businesses can successfully compete for 
Federal contracting opportunities and access SBA's financial assistance 
programs.

Comments Recommending Changes to the November 2022 Rule

    While eight commenters to SBA's November 2022 rule expressed 
general

[[Page 46050]]

support for SBA's changes to NAICS-based industry size standards, three 
commenters petitioned SBA to adjust other monetary thresholds not 
included in the rule, namely, the alternative size standard applicable 
to SBA's 7(a) and Certified Development Company (CDC)/504 loan programs 
(collectively ``Business Loan programs''), and the sole source/direct 
awards thresholds applicable to SBA's 8(a) and other SBA programs. Of 
these three commenters, one commenter also petitioned SBA to adjust 
size standards for inflation on an industry-by-industry basis. SBA 
received one comment urging SBA to revise its calculation of net worth.
    Regarding SBA's alternative size standard, a national trade 
association for Certified Development Companies (CDCs) recommended that 
SBA immediately adjust for inflation the statutory alternative size 
standard applicable to SBA's 7(a) and 504 loan programs, and include it 
in future inflation adjustments on a five-year schedule, but did not 
recommend specific thresholds for the alternative size standard.
    Regarding the sole source thresholds applicable to SBA's 8(a) and 
other SBA programs, SBA received one comment from a business 
recommending that SBA increase the current $4.5 million threshold for 
sole source awards applicable to 8(a) contracts for services by a 
significant amount; however, the commenter did not specify what size 
level would constitute a ``significant'' increase, nor provided any 
data to support their position.
    Another commenter urged SBA to adjust the sole source thresholds in 
line with the House-passed National Defense Authorization Act (NDAA) 
2023 \2\ and proposed amendments to the Federal Contracting Fairness 
Act of 2022.\3\ The commenter recommended that SBA increase the sole 
source thresholds as follows: $12,000,000 in the case of a contract 
opportunity assigned a NAICS code for research and development or 
related Product Services Codes (PSCs); $14,000,000 in the case of a 
contract opportunity assigned a NAICS code for manufacturing or if the 
small business concern partners with an institution of higher education 
described in section 371(a) of the Higher Education Act of 1965 (20 
U.S.C. 1067q(a)); or $10,000,000 in the case of any other contract 
opportunity.
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    \2\ Text--H.R. 7900--117th Congress (2021-2022): National 
Defense Authorization Act for Fiscal Year 2023 [verbar] Congress.gov 
[verbar] Library of Congress.
    \3\ Text--S. 5044--117th Congress (2021-2022): Federal 
Contracting Fairness Act of 2022 [verbar] Congress.gov [verbar] 
Library of Congress.
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    One commenter in this group also petitioned SBA to consider 
adjusting size standards for inflation on an industry-by-industry basis 
instead of applying a general price increase to all industries. The 
commenter argued that the general value applied to all industries 
doesn't account for market trends and the rising costs of technology 
tools, software, and program implementation in certain industries.
    Another commenter urged SBA to revise its calculation of net worth 
by allowing applicants to subtract real estate debt from the value of 
their real estate assets in order to counter housing price inflation. 
The commenter expressed concern that housing price inflation may create 
paper gains for real estate assets that have significant debt 
liabilities that may force a firm to leave an SBA program.

SBA Response

    Regarding the comment that SBA should evaluate and immediately 
adjust for inflation the alternative size standard applicable to SBA's 
7(a) and 504 loan programs, SBA affirms its commitment to meet its 
statutory obligation under section 3(a)(5) of the Small Business Act to 
establish an appropriate alternative size standard using maximum 
tangible net worth and average net income for its Business Loan 
Programs. The Jobs Act established for applicants for the SBA's 
Business Loan Programs an interim alternative size standard of not more 
than $15 million in tangible net worth and not more than $5 million in 
the average net income after Federal income taxes (excluding any carry-
over losses) of the applicant for the two full fiscal years before the 
date of the application and it provided that this interim statutory 
alternative size standard would remain in effect until such time as SBA 
has established a new permanent alternative size standard for the 
Business Loan Programs through rulemaking. 15 U.S.C. 632(a)(5). Prior 
to that, SBA had a lower permanent regulatory alternative size standard 
that applied to the 504 Loan Program, and temporarily applied to the 
7(a) Loan Program for the period beginning on May 5, 2009, and ending 
on September 30, 2010, 13 CFR 120.301(b)(2). SBA is not reviewing the 
alternative size standard applicable to its Business Loan Programs 
under this final rule. However, SBA intends to issue in the near future 
a separate proposed rule to adjust for inflation the interim 
alternative size standards for 7(a) and CDC/504 programs and solicit 
feedback and public comments on a permanent alternative size standard 
for SBA's Business Loan Programs.
    As part of this effort, on March 22, 2018, SBA issued an advanced 
notice of proposed rulemaking (ANPRM) to solicit comments and data for 
use in its forthcoming proposed rule (83 FR 12506). SBA looks forward 
to receiving public comments on its proposed revisions to the 
alternative size standard under the future proposed rule for the 
alternative size standard for SBA's Business Loan Programs.
    Regarding the comments that SBA should adjust for inflation the 
sole source thresholds applicable to SBA's 8(a) and other SBA programs, 
SBA notes that 13 CFR 124.506(a)(1) establishes that the Federal 
Acquisition Regulatory Council (FAR Council) has the responsibility of 
adjusting each acquisition-related dollar threshold on October 1, of 
each year that is evenly divisible by five. Accordingly, on October 2, 
2020, the Department of Defense (DoD), the General Services 
Administration (GSA), and the National Aeronautics and Space 
Administration (NASA), which constitute the FAR Council, issued a final 
rule adjusting for inflation the sole source thresholds for the 8(a), 
HUBZone, and Women Owned Small Business programs (85 FR 62485). 
Specifically, the FAR Council raised the following small business 
thresholds in 48 CFR part 19: the sole-source thresholds in the 8(a) 
program to $7.5 million for manufacturing contracts and $4.5 million 
for all other contracts (previously $7 million and $4 million, 
respectively) (19.805-1); the threshold to require a justification for 
a sole-source 8(a) award to $25 million (previously $22 million) 
(19.808-1), of which DoD applies a $100 million threshold for these 
justifications (219.808-1); the sole-source thresholds in the HUBZone 
program to $7.5 million for manufacturing contracts and $4.5 million 
for all other contracts (previously $7 million and $4 million, 
respectively) (19.1306); the sole-source threshold in the Small 
Disadvantaged Veteran Owned Small Business (SDVOSB) program to $7 
million for manufacturing contracts (previously $6.5 million) 
(19.1406); and the sole-source thresholds in the Woman Owned Small 
Business (WOSB) program to $7 million for manufacturing contracts and 
$4.5 million for all other contracts (previously $6.5 million and $4 
million, respectively) (19.1506). Thus, given the recent adjustments to 
these size standards for inflation and SBA's regulations at 13 CFR 
124.506(a)(1) establishing that the FAR Council has the responsibility 
of adjusting acquisition-related dollar thresholds, in this final rule, 
SBA is not further

[[Page 46051]]

adjusting the above sole source thresholds applicable to SBA programs. 
However, such adjustments may be made through a future proposed 
rulemaking.
    Regarding the comment petitioning SBA to consider adjusting 
monetary-based size standards for inflation on an industry-by-industry 
basis instead of applying a general price increase to all industries, 
SBA notes that small business size standards are used to determine 
eligibility of businesses for a wide variety of SBA's and other Federal 
programs. The majority of businesses participating in those programs 
are engaged in multiple industries producing a wide range of goods and 
services. Therefore, it is important that SBA use a broad measure of 
inflation to adjust its size standards. SBA's preferred measure of 
inflation has consistently been the chain-type price index for the U.S. 
Gross Domestic Product (GDP price index), published by the Bureau of 
Economic Analysis (BEA) within the U.S. Department of Commerce on a 
quarterly basis as part of its National Income and Product Accounts 
(NIPA). In the SBA's 2014 IFR adjusting size standards for inflation 
(79 FR 33647; June 12, 2014), besides the GDP price index, SBA reviewed 
several alternative inflation measures published by the Federal 
Government (including the consumer price index, the personal 
consumption expenditures price index, the producer price index, and the 
employment cost index) for their appropriateness to use for adjusting 
SBA's size standards. Among all these indexes, SBA determined that the 
GDP price index is the most comprehensive measure to capture movements 
in the general price level in the economy and consequently the most 
appropriate measure of inflation for adjusting SBA's size standards. 
Thus, as in the previous inflation adjustments in 2014 and 2019, SBA 
decided to use the GDP price index to adjust industry-based monetary 
size standards for the November 2022 inflation adjustment.
    Moreover, as discussed earlier in this rule, SBA recently concluded 
the second five-year review of size standards under the Jobs Act. Under 
the second five-year review, SBA evaluated all industry-based monetary 
size standards and adopted revisions to size standards where 
appropriate based on SBA's evaluation of industry and Federal 
contracting factors. The inflation adjustments to size standards 
adopted in this final rule are in addition to SBA's changes to size 
standards under the second five-year review of size standards.
    SBA believes that its five-year comprehensive review of size 
standards under the Jobs Act is the most appropriate regulatory venue 
to evaluate and address industry-specific economic characteristics and 
recent Federal contracting trends that may support a size standard 
different from SBA's current size standard. As part of its review of 
size standards, SBA must ensure that small business definitions vary 
from industry to industry to reflect industry differences as required 
by the Small Business Act (15 U.S.C. 632(a)) (Act). To that end, as 
part of the comprehensive review of size standards, SBA evaluates 
industry structure at the 6-digit NAICS level, such as average firm 
size, startup costs and entry barriers, industry concentration, and 
distribution of firms by business size. SBA also evaluates Federal 
contracting trends (i.e., small business share of Federal contract 
dollars relative to small business share of total industry's receipts) 
for industries with significant contracting activities (i.e., 
industries averaging $20 million or more in Federal contracts 
annually). Based on its analysis of the above industry and Federal 
contracting factors, and after considering all comments submitted to 
SBA during the proposed rule stage, in March and June of 2022, as part 
of SBA's second five-year review of size standards, SBA issued a series 
of five final rules reviewing all industry-based monetary size 
standards as required under the Jobs Act.\4\ Thus, while SBA is not 
including a comprehensive review of industry factors in this final 
rule, SBA believes that it has satisfied the commenter's petition to 
consider industry-specific factors in the evaluation of size standards 
under the recently completed, second five-year review of size 
standards.
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    \4\ See Footnote 1, above.
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    Regarding the comment urging SBA to revise its calculation of net 
worth by excluding real estate debt from the calculation of net worth, 
SBA assumes that the commenter is referring to SBA's net worth 
calculation for determining economic disadvantage for purposes of 
assessing eligibility for participation in the 8(a) BD program. SBA 
notes that under the current regulations at 13 CFR 124.104(a), 
economically disadvantaged individuals are defined as those whose 
ability to compete in the free enterprise system has been impaired due 
to diminished capital and credit opportunities as compared to others in 
the same or similar line of business who are not socially 
disadvantaged. SBA disagrees that real estate debt should be excluded 
from the calculation of net worth because such exclusions may allow 
individuals with access to substantial capital and credit 
opportunities, as demonstrated by their significant real estate debts, 
to qualify as economically disadvantaged. This would be counter to 
SBA's definition of an economically disadvantaged individual, which 
requires that individuals demonstrate diminished capital and credit 
opportunities.
    Prior to the SBA's November 2022 rule, the net worth of an 
economically disadvantaged individual had to be less than $750,000. In 
addition, their Income (AGI) (13 CFR 124.104(c)(3)) had to be less than 
$350,000, and their Total Assets (13 CFR 124.104(c)(4)) less than $6 
million. In the November 2022 rule, SBA increased these thresholds for 
inflation. Currently, the net worth of an economically disadvantaged 
individual must be less than $850,000 (13 CFR 124.104(c)(2)), Income 
(AGI) (13 CFR 124.104(c)(3)) must be less than $400,000, and Total 
Assets (13 CFR 124.104(c)(4)) less than $6.5 million. In determining 
net worth, SBA excludes the individual's equity in their primary 
personal residence. However, exclusions for net worth purposes are not 
exclusions for asset valuation or access to capital and credit 
purposes. SBA continues to believe that it is appropriate to determine 
economic disadvantage for purposes of the 8(a) BD program based on 
these factors, and thus, is not adjusting the methodology for 
calculating net worth in this final rule.

Conclusion

    With due consideration of all public comments as discussed above, 
in this final rule, SBA is adopting the increases in all industry-
specific monetary size standards for inflation, as published in the 
November 2022 rule. SBA is also adopting the adjustments for inflation 
to three program-specific receipts-based size standards contained in 
the November 2022 rule. These include sales or leases of Government 
property for which SBA is adopting $9 million in average annual 
receipts, stockpile purchases for which SBA is adopting $76.5 million 
in average annual receipts, and the alternative size standard based on 
tangible net worth and net income for the Small Business Investment 
Company (SBIC) program for which SBA is adopting $24 million of 
tangible net worth and $8 million of net income.
    SBA also adopts the adjustments to monetary thresholds used in the 
8(a) BD and the EDWOSB programs to determine eligibility of applicants 
and current participants as economically

[[Page 46052]]

disadvantaged business concerns, as contained in the November 2022 
rule. Specifically, SBA is adopting the following economic disadvantage 
thresholds for the 8(a) BD and EDWOSB programs: $850,000 as the 
threshold for Net worth (13 CFR 124.104(c)(2)), $400,000 as the 
threshold for Income (AGI) (13 CFR 124.104(c)(3)), and $6.5 million as 
the threshold for Total Assets (13 CFR 124.104(c)(4)). SBA is also 
adopting $168.5 million as the dollar limit for combined total 8(a) 
contracts (13 CFR 124.519).
    Accordingly, SBA is issuing this final rule to adopt and finalize, 
without change, the interim final changes contained in the rule 
published on November 17, 2022 (87 FR 69118).

Compliance With Executive Order 12866, the Congressional Review Act (5 
U.S.C. 801-808), the Regulatory Flexibility Act (5 U.S.C. 601-612), 
Executive Orders 13563, 12988, and 13132, and the Paperwork Reduction 
Act (44 U.S.C., Ch. 35)

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
final rule is not a ``significant regulatory action'' for purposes of 
Executive Order 12866. OMB also determined that the November 2022 rule 
was not a ``significant regulatory action'' for purposes of Executive 
Order 12866. However, in order to help explain the need for this rule 
and its potential benefits and costs, SBA provided a Cost Benefit 
Analysis of the rule in the November 2022 rule, which is summarized 
below.
Cost Benefit Analysis
    SBA's statutory mission is to aid and assist small businesses 
through a variety of financial, procurement, business development, and 
advocacy programs. To assist the intended beneficiaries of these 
programs effectively, SBA must establish distinct definitions of which 
businesses are deemed small businesses. The Small Business Act (15 
U.S.C. 632(a)) (Act) delegates to the SBA Administrator the 
responsibility for establishing small business definitions. The Act 
also requires that small business definitions vary from industry to 
industry to reflect industry differences. SBA is required to assess the 
impact of inflation on its monetary-based size standards at least once 
every five years (67 FR 3041; January 23, 2002) (13 CFR 121.102(c)). 
This final rule adopts, without change, the interim final changes 
contained in the November 2022 rule.
    The most significant benefit to businesses of SBA's adjustments to 
size standards for inflation finalized in this final rule were 
described in detail in the November 2022 rule. The size standards 
adopted by SBA at that time enabled businesses that exceeded size 
standards simply due to inflation-driven revenue growth to regain or 
maintain eligibility for Federal small business assistance programs. 
The changes also helped businesses about to exceed their size standards 
to retain small business eligibility for Federal programs for a longer 
period. These programs included SBA's financial assistance programs, 
economic injury disaster loans (EIDL), 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) BD, Small Disadvantaged Businesses 
(SDB), small businesses located in Historically Underutilized Business 
Zones (HUBZone), WOSB, EDWOSB, and 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.
    Besides small business contracting opportunities and financial 
assistance, small businesses also benefited through reduced fees, less 
paperwork, and fewer compliance requirements that are available to 
small businesses through Federal agencies that use SBA's monetary-based 
size standards.
    In the November 2022 rule, SBA estimated that the changes would 
enable approximately 17,713 firms in industries and subindustries with 
receipts-based size standards and about 170 firms in industries with 
assets-based size standards, above SBA's size standards, to gain small 
business status and become eligible for these programs. SBA estimated 
that this change would increase the small business share of total 
receipts in industries and subindustries with receipts-based size 
standards from 29 percent to 30 percent and the small business share of 
total assets in industries with assets-based size standards from 5.4 
percent to 5.9 percent.
    SBA also estimated that firms gaining small business status under 
the inflation adjusted size standards could receive $1.3 billion in 
additional small business Federal contract dollars. This represented an 
increase of about 1.7 percent over the baseline. Additionally, by 
allowing businesses above the size threshold to regain small business 
status and advanced small businesses close to size standards to prolong 
their small status for a longer period, the November 2022 rule expanded 
the pool of qualified small firms for Federal agencies to draw upon to 
meet their small business requirements.
    Moreover, SBA estimated that about seven additional loans totaling 
about $4.1 million could be made to the newly defined small businesses 
under SBA's 7(a) and 504 Loan Programs under the adjusted industry-
based size standards.
    To the extent that those 17,883 additional small firms under 
receipts-based and assets-based size standards could become active in 
Federal procurement programs, SBA estimated in the November 2022 rule 
that the adjusted size standards 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 
could be more firms seeking SBA's guaranteed loans, more firms eligible 
for enrollment in the Dynamic Small Business Search (DSBS) database or 
in certify.sba.gov, more firms seeking certification as 8(a) or HUBZone 
firms or qualifying for small business, WOSB, EDWOSB, SDVOSB, and SDB 
status, and more firms applying for SBA's 8(a) BD and all small 
business mentor-prot[eacute]g[eacute] programs.
    One may surmise that an expanded pool of small businesses under 
higher size standards due to inflation adjustment might result in a 
higher number of small business size protests and additional processing 
costs to agencies. However, SBA's historical data on size protests 
shows that the number of size protests actually decreased after an 
increase in the number of businesses qualifying as small as a result of 
size standards revisions as part of the first five-year review of size 
standards. Specifically, on an annual basis, the number of size 
protests dropped from about 600 during fiscal years 2011-2013 (review 
of most receipts-based size standards was completed by the end of FY 
2013) to about 500 during fiscal years 2018-2020. That represents a 17 
percent decline.
    Aside from taking time to register in the System for Award 
Management (SAM) to be eligible to participate in Federal contracting 
and update the SAM profile annually, SBA estimated that small 
businesses incur no direct costs to gain or retain their small business 
status under the inflation adjusted size standards. All businesses 
willing to do business with the Federal Government must register in SAM 
and update their SAM profiles annually, regardless of their size 
status. SBA believes that a

[[Page 46053]]

vast majority of businesses that are willing to participate in Federal 
contracting are already registered in SAM and update their SAM profiles 
annually. It is important to point out that most business entities that 
are already registered in SAM will not be required to update their SAM 
profiles. However, it will be incumbent on registrants to review, and 
update as necessary, their profiles to ensure that they have the 
correct NAICS codes. SAM requires that registered companies review and 
update their profiles annually, and therefore, businesses will need to 
pay particular attention to the changes to determine if they might 
affect them. They will also have to verify, and update, if necessary, 
their Representations and Certifications in SAM. More importantly, this 
rule does not establish the new size standards for the very first time; 
rather it intends to modify the existing size standards by adjusting 
them for the inflation that has occurred since the last inflation 
adjustment in 2019.
    In the November 2022 rule, SBA also described how, due to the 
expanded pool of small businesses, contracts may move from unrestricted 
competition to small business set-aside contracts, resulting in 
competition among fewer total bidders. However, any additional costs 
associated with fewer bidders are expected to be minor since, by law, 
procurements may be set aside for small businesses under the 8(a)/BD, 
HUBZone, WOSB, EDWOSB, or SDVOSB programs only if awards are expected 
to be made at fair and reasonable prices.
    Costs may also be higher when full and open contracts are awarded 
to HUBZone businesses that receive price evaluation preferences. 
However, with agencies likely setting aside more contracts for small 
businesses in response to the availability of a larger pool of small 
businesses under the higher inflation-adjusted size standards, HUBZone 
firms might receive fewer full and open contracts, thereby resulting in 
some cost savings to agencies. However, such cost savings are likely to 
be minimal as only a small fraction of unrestricted contracts are 
awarded to HUBZone businesses.
    An increase in the number of new applicants to SBA's economic 
disadvantage programs and an increase in the number of participants 
eligible for 8(a) sole source awards has similar costs for the programs 
and for the new applicants and current participants, as discussed in 
the previous paragraphs. The increase in the number of participants in 
the programs will not affect the SBA costs of providing services to 
these business concerns, because the administrative structure is 
already in place.
    SBA's adoption of increases in the economic disadvantage (ED) 
eligibility thresholds through inflation adjustment support gaining 
eligibility of the new applicants which would otherwise be not approved 
and maintaining eligibility of the existing participants in the 8(a) BD 
and EDWOSB programs. The new applicants affected by inflation impacting 
the value of their net worth (NW), adjusted gross income (AGI), and 
total assets (TA) will be approved into these programs. The inflation 
adjusted thresholds would also help current SBA ED participants who are 
about to exceed their NW, AGI, or TA thresholds to retain ED 
eligibility for Federal programs for a longer period.
    Internal data on applicants to the 8(a) BD program from fiscal 
years 2019-2021 showed that since the ED thresholds were increased for 
new applicants in mid-2020 (see Table 7, Increases in ED Thresholds 
Adopted on July 15, 2020, in the November 2022 rule), the number of 
approvals increased by 3.2 percent, and the number of denials for 
economic-disadvantage reasons decreased by 36.8 percent. The same data 
also showed that since 2019, the applicants' average net worth 
increased by 50 percent, the average AGI by about 20 percent, and the 
average total assets by 40 percent.
    SBA's inflation adjustment to the ED thresholds provides current 
program participants with a longer runway to maintain eligibility and 
allows SBA to approve new applicants to the ED programs who may have 
been ineligible due to the impacts of the current inflation rate. SBA 
believes that finalizing the inflation adjustment of the ED thresholds 
helps to preserve the real value of the current thresholds.
    For the above reasons, SBA estimates that the added administrative 
costs associated with SBA's adopted changes will be de minimis because 
necessary mechanisms are already in place to handle these added 
requirements.

Congressional Review Act

    Subtitle E of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (codified at 5 U.S.C. 801-808), also known as the 
Congressional Review Act or CRA, generally provides that before a rule 
may take effect, the agency promulgating the rule must submit a rule 
report, which includes a copy of the rule, to each House of the 
Congress and to the Comptroller General of the United States. SBA will 
submit a report containing this rule and other required information to 
the U.S. Senate, the U.S. House of Representatives, and the Comptroller 
General of the United States. A major rule under the CRA cannot take 
effect until 60 days after it is published in the Federal Register. 
OMB's Office of Information and Regulatory Affairs has determined that 
this rule is not a ``major rule'' as defined by 5 U.S.C. 804(2).

Final Regulatory Flexibility Analysis

    Under the Regulatory Flexibility Act (RFA), this final rule may 
have a significant impact on a substantial number of small businesses 
in the industries and subindustries with monetary size standards. As 
described above, this rule may affect small businesses in those 
industries seeking Federal contracts, loans under SBA's 7(a), 504 and 
EIDL Programs, and assistance under other Federal small business 
programs.
    Immediately below, SBA sets forth a final regulatory flexibility 
analysis (FRFA) of this final rule addressing the following questions: 
(1) What are the need for and objective of the rule?; (2) What are 
SBA's description and estimate of the number of small 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?
    As discussed in the supplemental information, the revision to the 
monetary-based size standards for inflation more appropriately defines 
small businesses. This final rule is a procedural step that merely 
finalizes the changes already in place since December 19, 2022 (the 
effective date of SBA's November 2022 rule), that restored small 
business eligibility in real terms to businesses that exceeded the size 
standard due to inflation-led revenue growth rather than due to 
increased business activity.
    Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) gives SBA 
the authority to establish and change size standards. Within its 
administrative discretion, SBA implemented a policy in its regulations 
to review the effect of inflation on size standards at least once every 
five years (13 CFR 121.102(c)) and make any changes as appropriate. A 
review of the latest data indicated that inflation had increased a 
sufficient amount since the 2019 adjustment to warrant another 
inflation adjustment to

[[Page 46054]]

the monetary-based size standards. Adjusting size standards for 
inflation is also consistent with a statutory requirement to review all 
size standards and make adjustments to reflect current market 
conditions every five years under the Jobs Act.
2. What are SBA's description and estimate of the number of small 
businesses to which the rule will apply?
    Based on the 2017 Economic Census tabulations, in the November 2022 
rule, SBA estimated that the changes would enable approximately 17,713 
firms in industries and subindustries with receipts-based size 
standards and about 170 firms in industries with assets-based size 
standards, above SBA's size standards, to gain small business status 
and become eligible for these programs. SBA estimated that this change 
would increase the small business share of total receipts in industries 
and subindustries with receipts-based size standards from 29 percent to 
30 percent and the small business share of total assets in industries 
with assets-based size standards from 5.4 percent to 5.9 percent. The 
size standards adopted in the November 2022 rule enabled businesses 
that have exceeded the size standards for their industries to regain 
small business status. It also helped advanced small businesses to 
retain their small business status, and associated benefits, for a 
longer period.
3. What are the projected reporting, record keeping and other 
compliance requirements of the rule?
    The inflation adjustment to size standards imposes 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, any newly-
eligible small businesses opting to participate in those programs would 
have had to comply with SAM requirements. However, SBA estimates that 
there are no additional costs associated with SAM registration or 
certification. While changing size standards alters the access to SBA's 
programs that assist small businesses, it does not impose a regulatory 
burden because such actions on the part of SBA neither regulate nor 
control business behavior.
4. What are the relevant Federal rules, which may duplicate, overlap, 
or conflict with the rule?
    Under section 3(a)(2)(C) of the Small Business Act, 15 U.S.C. 
632(a)(2)(c), Federal agencies must use SBA's size standards to define 
a small business, unless specifically authorized by statute 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 57982; 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 for Regulatory Flexibility Analysis purposes, 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.
    SBA's only other consideration was whether to adopt the size 
standards presented in the November 2022 rule with no further increase 
for the inflation. However, SBA believes that the 13.65 percent 
inflation increase since the previous inflation adjustment in July 2019 
sufficiently affects the real value of the size standards to warrant 
applying an increase at this time. SBA also believes that its inflation 
adjustments to the dollar limit for combined total 8(a) contracts and 
the economic disadvantaged thresholds applicable to 8(a) BD and EDWOSB 
are appropriate, as well as the adjustments to three program-specific 
monetary size standards: namely, the size standards for sales or leases 
of government property, the size standards for stockpile purchases, and 
alternative size standard based on tangible net worth and net income 
for the Small Business Investment Company (SBIC) program.

Executive Order 13563

    E.O. 13563 emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
A description of the need for this regulatory action and benefits and 
costs associated with this action including possible distributional 
impacts that relate to Executive Order 13563 is included above in the 
Benefit-Cost Analysis under Executive Order 12866 and in greater detail 
in the November 2022 rule which adopted the size standards effective 
December 19, 2022. Additionally, section 6 of E.O. 13563 calls for 
retrospective analyses of existing rules.
    SBA updated the Small Business Procurement Advisory Council (SBPAC) 
on its November 15, 2022, and December 13, 2022, meetings about 
upcoming rules on size standards, including inflation adjustment. SBA 
also presented a similar update to the small business audience at the 
Small Business Alliance of Government Contractors and at various other 
industry events.

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. This rule does not 
have retroactive or preemptive effect.

Executive Order 13132

    For purposes of Executive Order 13132, SBA has determined that this 
final rule will not have substantial, direct effects on the States, on 
the relationship between the National Government and the States, or on 
the distribution of power and responsibilities among the various levels 
of government. Therefore, SBA has determined that this final rule has 
no federalism implications warranting preparation of a federalism 
assessment.

Paperwork Reduction Act

    For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, 
SBA has determined that this final rule will not impose any new 
reporting or record keeping requirements.

List of Subjects

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.

[[Page 46055]]

13 CFR Part 124

    Administrative practice and procedure, Government procurement, 
Government property, Small businesses.

13 CFR Part 127

    Government contracts, Reporting and recordkeeping requirements, 
Small businesses.

PART 121--SMALL BUSINESS SIZE REGULATIONS

PART 124--8(a) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS 
STATUS DETERMINATIONS

PART 127--WOMEN-OWNED SMALL BUSINESS FEDERAL CONTRACT PROGRAM

0
For the reasons set forth in the preamble, the interim final provisions 
amending 13 CFR parts 121, 124, and 127, published on November 17, 2022 
(87 FR 69118), are adopted as a final rule without change.

Isabella Casillas Guzman,
Administrator.
[FR Doc. 2023-15078 Filed 7-18-23; 8:45 am]
BILLING CODE 8026-09-P