[Federal Register Volume 77, Number 28 (Friday, February 10, 2012)]
[Rules and Regulations]
[Pages 7490-7515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-2659]
[[Page 7489]]
Vol. 77
Friday,
No. 28
February 10, 2012
Part V
Small Business Administration
-----------------------------------------------------------------------
13 CFR Part 121
Small Business Size Standards: Professional, Technical, and Scientific
Services; Final Rule
Federal Register / Vol. 77 , No. 28 / Friday, February 10, 2012 /
Rules and Regulations
[[Page 7490]]
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AG07
Small Business Size Standards: Professional, Technical, and
Scientific Services
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The United States Small Business Administration (SBA) is
increasing 37 small business size standards for 34 industries and three
sub-industries (``exceptions'' in SBA's table of small business size
standards) in North American Industry Classification System (NAICS)
Sector 54, Professional, Technical, and Scientific Services. SBA is
also increasing the one size standard in NAICS Sector 81, Other
Services, which it did not review in 2010. These size standards are all
receipts based. SBA is retaining the current standards for the
remaining industries in NAICS Sector 54. This rule also removes ``Map
Drafting'' as the ``exception'' to NAICS 541340, Drafting Services. As
part of its ongoing comprehensive review of all size standards, SBA has
evaluated every receipts based size standard in NAICS Sector 54 as well
as the one previously unreviewed size standard in NAICS Sector 81 to
determine whether the existing standards should be retained or revised.
DATES: This rule is effective March 12, 2012.
FOR FURTHER INFORMATION CONTACT: Khem Sharma, Ph.D., Chief, Size
Standards Division, (202) 205-6618 or [email protected].
SUPPLEMENTARY INFORMATION:
Supplementary Information
To determine eligibility for Federal small business assistance
programs, SBA establishes small business size definitions (referred to
as size standards) for private sector industries in the United States.
SBA's existing size standards use two primary measures of business
size--receipts and number of employees. Financial assets, electric
output, and refining capacity are used as size measures for a few
specialized industries. In addition, SBA's Small Business Investment
Company (SBIC) and the Certified Development Company (CDC) Programs
determine small business eligibility using either the industry based
size standards or net worth and net income based size standards. At the
start of the current comprehensive size standards review, SBA's size
standards consisted of 41 different size levels, covering 1,141 NAICS
industries and 18 sub-industry activities (or ``exceptions''). Of these
size levels, 31 were based on average annual receipts, seven were based
on number of employees, and three were based on other measures. In
addition, SBA has established 11 other size standards for its financial
and procurement programs.
Over the years, SBA has received comments that its size standards
have not kept up with changes in the economy, in particular, that they
do not reflect changes in the Federal contracting marketplace and
industry structure. The last comprehensive review of size standards
occurred during the late 1970s and early 1980s. Since then, most
reviews of size standards were limited to in-depth analyses of specific
industries in response to requests from the public and Federal
agencies. SBA also makes periodic inflation adjustments to its monetary
based size standards. The latest inflation adjustment to size standards
was published in the Federal Register on July 18, 2008 (73 FR 41237).
SBA recognizes that changes in industry structure and the Federal
marketplace since the last overall review have rendered existing size
standards for some industries no longer supportable by current data.
Accordingly, in 2007, SBA began a comprehensive review of its size
standards to determine whether existing size standards have supportable
bases relative to the current data, and where necessary, to revise
current size standards.
In addition, on September 27, 2010, the President of the United
States signed the Small Business Jobs Act of 2010 (Jobs Act), Public
Law 111-240. The Jobs Act directs SBA to conduct a detailed review of
all size standards and to make appropriate adjustments to reflect
market conditions. Specifically, the Jobs Act requires SBA to conduct a
detailed review of at least one-third of all size standards during
every 18-month period from the date of its enactment and do a complete
review of all size standards not less frequently than once every 5
years thereafter. Reviewing existing size standards and making
appropriate adjustments based on current data is also consistent with
Executive Order 13563 on improving regulation and regulatory review.
Rather than review all size standards at one time, SBA is reviewing
a group of related industries on a Sector by Sector basis.
As part of SBA's ongoing comprehensive review of size standards,
the Agency reviewed all receipts based small business size standards in
NAICS Sector 54, Professional, Technical, and Scientific Services, and
one size standard in NAICS Sector 81, Other Services, to determine
whether they should be retained or revised. SBA published a proposed
rule for public comment in the Federal Register on March 16, 2011 (76
FR 14323), which proposed to increase the size standards for 35
industries and one sub-industry in NAICS Sector 54 and one industry in
NAICS Sector 81. The proposed rule and this final rule concern only
NAICS 811212, Computer and Office Machine Repair and Maintenance, in
NAICS Sector 81. When SBA reviewed the size standards for NAICS Sector
81, it advised the public that it would review NAICS 811212 when it
reviewed the receipts based size standards for NAICS Sector 54 because
this industry shares a common size standard with computer-related
services in that Sector.
SBA has developed a ``Size Standards Methodology'' for developing,
reviewing, and modifying size standards, when necessary. SBA published
the document on its Web site at www.sba.gov/size for public review and
comments and included it as a supporting document in the electronic
docket of the March 16, 2011 proposed rule at www.regulations.gov,
Docket ID SBA-2009-0008, posted October 31, 2009.
As described in the proposed rule, when it evaluates an industry's
size standard, SBA examines its characteristics (such as average firm
size, startup costs and entry barriers, industry competition, and
distribution of firms by size), the level and small business share of
Federal contracts within the industry, the potential impact on SBA
financial assistance programs, and dominance in the field of
operations. SBA analyzed the characteristics of all industries with
receipts based size standards in NAICS Sector 54 and one industry in
NAICS Sector 81 mostly using a special tabulation obtained from the
U.S. Bureau of the Census from its 2007 Economic Census (which is the
latest available data). SBA evaluated Federal contracting activities in
those industries using the data from the Federal Procurement Data
System--Next Generation (FPDS-NG) for fiscal years 2008 to 2010. To
evaluate the impact of proposed changes to size standards on its loan
programs, SBA analyzed its internal data on its guaranteed loan
programs for fiscal years 2008 to 2010.
SBA's ``Size Standards Methodology'' provides a detailed
description of analyses of various industry and program factors and
data sources and
[[Page 7491]]
derivation of size standards using the results. In the March 16, 2011
proposed rule, SBA detailed how it applied its ``Size Standards
Methodology'' to review, and modify where necessary, the existing
receipts based standards in NAICS Sector 54 and one size standard in
NAICS Sector 81. SBA sought comments from the public on a number of
issues about its ``Size Standards Methodology,'' such as whether there
are alternative methodologies that SBA should consider; whether there
are alternative or additional factors or data sources that SBA should
evaluate; whether SBA's approach to establishing small business size
standards makes sense in the current economic environment; whether
SBA's definitions of anchor size standards are appropriate in the
current economy; whether there are gaps in SBA's methodology due to the
lack of comprehensive data; and whether there are other facts or issues
that SBA should consider in its methodology.
In the proposed rule, SBA proposed to increase receipts based size
standards for 35 industries and one sub-industry in NAICS Sector 54 and
one industry in NAICS Sector 81, based on its analyses of the latest
industry data, Federal procurement data, and other relevant data.
Although SBA's analyses suggested lowering the existing size standards
for some industries, SBA believes, as the proposed rule pointed out,
that lowering size standards and thereby reducing the number of firms
eligible to participate in Federal small business assistance programs
would run counter to what the Agency and the Federal Government are
doing to help small businesses and to create jobs.
The decision to not lower size standards is consistent with SBA's
final rules covering 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); and Sector 81, Other Services (75 FR 61591,
October 6, 2010). In each of those final rules, SBA adopted its
proposal not to reduce any size standards for the same reasons it
provided in the March 16, 2011 proposed rule. Therefore, SBA proposed
to retain the existing size standards when its analysis suggested
lowering them.
Summary of Comments
SBA sought comments on its proposal to increase size standards for
35 industries and one sub-industry in NAICS Sector 54 and one industry
in NAICS Sector 81 and to retain the existing size standards for the
remaining industries in NAICS Sector 54. SBA requested comments on
whether the size standards should be revised as proposed and whether
the proposed revisions are appropriate. SBA also invited comments on
whether its proposed eight fixed size standard levels are appropriate
and whether it should adopt common size standards for several Industry
Groups in NAICS Sector 54. SBA received 1,426 public comments to the
proposed rule. Many of them were duplicative and/or from the same
individual. Below is a discussion of the issues and concerns the
commenters raised and SBA's responses.
General Summary of Comments
SBA received 1,426 comments on the proposed rule from about 1,320
unique members of the public representing individuals, about 850 firms,
and a dozen trade groups and professional associations. Ninety-five
percent of the comments applied to industries covered by the proposed
rule, about three percent did not reference any NAICS codes, and the
remainder related to other Industries or Sectors. Of the total comments
that related to SBA's proposed revisions to the size standards for 35
industries and one sub-industry in NAICS Sector 54 and one industry in
NAICS Sector 81, 30 percent supported SBA's proposed revisions, 53
percent opposed the proposed revisions, and 12 percent supported SBA's
effort to increase size standards but recommended smaller increases.
The rest of the comments remained neutral, took other positions, or
raised other related issues.
Commenters supporting SBA's proposed increases in size standards
believed that higher size standards will enable small businesses to
grow and be able to compete fully and openly in the Federal market,
effectively compete against largest firms in their industries for
Federal contracts, retain or regain small business size eligibility for
Federal assistance, and successfully perform and meet size and other
requirements associated with Federal contracts. Many also believed
higher size standards would expand the pool of qualified small
businesses, allowing Federal agencies to meet their needs and for large
prime contractors to meet small business subcontracting goals. Many
commenters, especially those in the architectural and engineering (A&E)
area, felt that current size standards are too low and should be
increased given the changes in industry structure and the Federal
marketplace. Many supporting the proposed $19 million size standard for
the A&E group believed increased utilization of subcontracting and
inflation also warranted an increase.
Most commenters opposing the proposed rule believed that small
businesses under the current size standards would face adverse
competition with the newly defined small businesses under the proposed
increases. Many contended that if the proposed increases are adopted,
an exorbitant percentage of businesses, including many mid-sized and
large businesses, will qualify as small, thereby increasing competition
for small business opportunities in the Federal market. Many others
also felt that the proposed size standards do not reflect ``what is
truly small.'' Many commenters in architectural and landscape
architectural services pointed out that a vast majority of firms either
operate as sole proprietors or have fewer than 20 employees and do not
need a higher size standard.
Commenters' positions on SBA's proposed revisions to size standards
varied significantly by industry categories, with an overwhelming
majority of comments opposing SBA's proposed increases to size
standards for NAICS 541310 (Architectural Services) and NAICS 541320
(Landscape Architectural Services) and the majority of comments
supporting SBA's proposed increases to size standards for most other
industries. Additionally, several commenters also provided feedback on
SBA's size standards methodology and data sources it used, as well as
various issues with Federal procurements. These results are summarized
below by industry and type of issues.
Detailed Summary of Comments by Industry/Industry Group
NAICS Industry Group 5411--Legal Services
SBA received only one comment opposing the proposed increase in
size standards for all industries in NAICS Industry Group 5411 from $7
million to $10 million in average annual revenues. Since the commenter
provided no explanation or specific information for opposing the
proposed increase, SBA is adopting its proposed $10 million common size
standard for all industries within in NAICS Industry Group 5411.
NAICS Industry Group 5412--Accounting, Tax Preparation, Bookkeeping,
and Payroll Services
NAICS Industry Group 5412 received 10 comments, including four at
the 4-digit level (i.e., no specific industries were identified at the
6-digit NAICS level), four for NAICS 541211 (Offices of
[[Page 7492]]
Certified Public Accounts), one for NAICS 541213 (Tax Preparation
Services), and one for NAICS 541219 (Other Accounting Services). All
comments on NAICS 541211, NAICS 541213, and NAICS 541219 supported
SBA's effort to increase the current size standards but recommended
$25.5 million, a much larger increase than SBA's proposed $14 million.
SBA received comments concerning its proposed size standards for
NAICS 541211 (Offices of Certified Public Accountants) and NAICS 541219
(Other Accounting Services) from two associations representing the
accounting profession, including one which testified on the May 5, 2011
hearing entitled ``Professional Services: Proposed Changes to the Small
Business Size Standards'' before the Subcommittee on Economic Growth,
Tax and Capital Access of the U.S. House Committee on Small Business.
The association that testified before Congress submitted a copy of its
congressional testimony as its public comments on the proposed rule. In
the testimony, the association indicated that it was ``evident that the
source data referenced above [i.e., SBA's sources] used in this
calculation did not adequately reflect the accounting profession.'' The
association also provided SBA with additional data, including the
estimated values from the results of industry surveys, covering
accounting firms of all sizes. SBA had previously met with
representatives from both associations regarding the standards for
these industries, without discussing what changes the Agency was
considering to propose. SBA explained its size standards methodology
and indicated its openness to considering other data and information
that the associations might have to support the size standard they
suggested. Because the two sets of comments were very similar, SBA will
discuss them together, below.
The associations concluded that the substitution of their data in
SBA's calculations would support a $19 million size standard for NAICS
541211 and NAICS 541219. However, they proposed that SBA adopt a $25.5
million size standard to account for secondary factors related to
changes in Federal procurement policies and practices, including
contract bundling and larger Federal contracts.
The primary factors underlying the associations' support of a $19
million size standard for these two industries were their
recalculations of the four-firm concentration ratio and Gini
coefficient values using their data. Under SBA's analysis based on the
2007 Economic Census, the proposed $14 million size standard did not
include the four-firm concentration ratio because it was calculated to
be less than 40 percent. However, the associations' calculations
resulted in a four-firm concentration ratio higher than 40 percent,
supporting a higher $19 million size standard for that factor.
Likewise, SBA's calculations of the Gini coefficient value supported a
$10 million size standard, whereas the associations obtained a higher
Gini coefficient value that supported a $19 million size standard.
SBA had proposed a $14 million common size standard for all
industries in NAICS Industry Group 5412, including NAICS 541211 and
NAICS 541219. The associations suggested that, based on their data
alone, the size standards for those industries should be $19 million.
However, as stated above, the associations recommended that the size
standard be increased to $25.5 million, in consideration of secondary
factors affecting the ability of small accounting firms to compete for
Federal contracts. They commented that the $25.5 million size standard
would enable small accounting firms to grow and build expertise and
infrastructure to be able to meet the requirements for today's larger
Federal contracts. The associations pointed out that there are fewer
than 30 accounting firms with average annual revenues between $19
million and $25.5 million. They also noted that a firm at the $19
million revenue level is comparable to a firm at the $25 million
revenue level in terms of the number of professionals it employs,
suggesting that such firms are similarly capable to compete for and
perform Federal contracts.
SBA gave due consideration to the analytical results and secondary
factors that the associations presented. Despite having some concerns
with their data (as discussed elsewhere in this rule), SBA generally
accepts their findings and characterizations of the Federal
marketplace, which seem to support a size standard higher than the
proposed $14 million size standard for those industries. However, SBA
is concerned that the $25.5 million size standard could put many small
accounting firms at a significant competitive disadvantage for
contracting opportunities, while benefiting only a limited number of
relatively larger firms. Accordingly, SBA is adopting $19 million as
the appropriate size standard for NAICS 541211 and NAICS 541219. To be
consistent with its proposal to use a common size standard for all
industries in NAICS Industry Group 5412, SBA is also adopting the same
$19 million size standard for the remaining two industries in the Group
(NAICS 541213 and NAICS 541214).
NAICS Industry Group 5413--Architectural, Engineering, and Related
Services
SBA proposed a $19 million common size standard for all industries
in NAICS Industry Group 5413 based on its evaluation of industry and
Federal procurement factors for the entire Architectural and
Engineering (A&E) group and its interest in maintaining the common size
standard that is currently in place for most industries in the industry
group. SBA received more than 1,200 comments on NAICS Industry Group
5413, of which 60 percent applied to NAICS 541310 (Architectural
Services), nearly 20 percent to NAICS 541330 (Engineering Services),
six percent to NAICS 541320 (Landscape Architectural Services), and
seven percent to other A&E industries at the 6-digit level. The
remaining seven percent were limited to NAICS Industry Group 5413 as a
group. SBA discusses the results by NAICS industry below.
NAICS 541310--Architectural Services; and NAICS 541320--Landscape
Architectural Services
SBA is increasing the current $4.5 million size standard to $7
million for NAICS 541310 (Architectural Services) and retaining the
current $7 million size standard for NAICS 541320 (Landscape
Architectural Services). In response to the comments, SBA re-evaluated
its proposal and determined that industry specific size standards that
are lower than proposed are more appropriate for these industries.
Of the 1,426 public comments that SBA received, over one-half
addressed SBA's proposed $19 million standard for these two industries.
In general, commenters overwhelmingly opposed the proposed increases,
and many offered alternatives. Two associations, one representing NAICS
541310 (Architectural Services) and the other representing NAICS 541320
(Landscape Architectural Services), were among the commenters. However,
the number of supportive comments was not insignificant, and many of
them opposed the position of the associations representing
architectural firms.
Of the comments that applied to NAICS 541310 (about 735 in total),
87 percent opposed SBA's proposal to increase the size standard to $19
million, mostly arguing in support of the current $4.5 million. Only
about six percent supported $19 million as proposed, while six percent
supported a smaller increase. Several commenters
[[Page 7493]]
supporting the smaller increase recommended, as an alternative to SBA's
proposed $19 million, size standards ranging from $5 million to $14
million and averaging about $8 million.
Similarly, of the comments concerning NAICS 541320 (about 70 in
total), 78 percent opposed SBA's proposal to increase the size standard
for this industry, mostly in support of the existing $7 million size
standard and some suggesting to lower it. Of the 14 comments that
supported an increase, half supported the proposed increase to $19
million, while the other half supported a smaller increase. A few
provided alternative size standards, ranging from $8.5 million to $14
million and averaging about $11 million.
SBA proposed a $19 million size standard to be consistent with its
past use of a common size standard for several industries within NAICS
Industry Group 5413, including NAICS 541310 and NAICS 541320. SBA
acknowledges that the industry specific data did not necessarily
support the proposed $19 million size standard for these individual
industries, but SBA proposed that level in the interest of maintaining
a common size standard for industries in NAICS Industry Group 5413. In
its 1999 final rule (64 FR 26275), SBA adopted a common standard for
these industries in response comments it received to its earlier
proposed rule (63 FR 5480). In its March 16, 2011 proposed rule, SBA
proposed continuing that practice.
Several commenters on NAICS 541310 (Architectural Services) and
NAICS 541330 (Engineering Services) noted that each of these two
industries is very distinct and stated that SBA should not use a common
size standard for them. They noted that significant differences between
these industries in terms of their primary industry factors, such as
average firm size and distribution of firms as reflected in the Gini
coefficient, do not support using a common size standard for them.
An architectural industry association pointed out that SBA's view
of most firms being multi-disciplinary ``does not match the reality of
smaller architecture groups.'' The association stated that small firms
do not have engineers or other specialties on their payroll until they
are quite substantial in size. Rather, the smaller architectural firms
subcontract those services to others. The association stated that
average billings for firms with up to 35 employees are under $5
million. A landscape architectural association indicated that SBA's
proposed $19 million was not an accurate reflection of the industry's
receipts and recommended that SBA retain the current $7 million size
standard. It urged SBA to target its analysis to this industry alone
and not include it in the $19 million common size standard that it
proposed for the other industries in the A&E group.
Generally, those who supported SBA's proposed increases for NAICS
541310 and NAICS 541320 indicated that, if adopted, firms in these
industries would be able to grow and develop in the open market,
compete against larger businesses, transition from small to the next
level of entrepreneurship, perform on larger Federal contracts, and
retain or regain their small business size status. These reasons are
pertinent to why SBA should increase the size standards for these
industries. Nevertheless, based on the Agency's reexamination of the
industry and Federal procurement data in conjunction with its
evaluation of public comments, SBA does not believe it should increase
the size standards for these industries to the level it proposed. In
fact, industry specific data do not support anything higher than the $7
million size standard for NAICS 541310. Because SBA is not adopting the
proposed $19 million common A&E size standard for these industries, it
is adopting the size standards that it derived based on industry
specific and on the other relevant data as described in the proposed
rule.
Generally, those who opposed SBA's proposed increases to the size
standards for NAICS 541310 and NAICS 541320 indicated that, if adopted,
these standards would define too many companies as small, create
adverse competition from the newly defined small businesses, include
mid-sized and large businesses as small, include dominant firms, and
not represent ``truly small'' firms (addressed elsewhere in this rule).
A number of comments recommended that SBA should apply industry
specific size standards rather than including these industries under
the $19 million proposed common size standard, and that SBA should
analyze alternative industry data provided by the relevant
associations. Many commenters pointed out that the architectural
industries are economically depressed and stated that the current size
standards ($4.5 million for NAICS 541310 and $7 million for NAICS
541320) are already too high. A substantial number of comments
supported their respective association's position to oppose SBA's
proposal.
Industry factors and other relevant data that SBA used for the
March 16, 2011 proposed rule support a $7 million size standard for
NAICS 541310 (which is an increase from the current $4.5 million size
standard) and a $5 million size standard for NAICS 541320 (which is
lower than the current $7 million size standard). The proposed rule
stated that SBA will not lower any small business size standards
because if it did so, some existing small businesses could lose their
eligibility, which would be counter-productive in the current economic
climate. Therefore, SBA is retaining the current $7 million size
standard for NAICS 541320.
Several individual comments and the architectural industry
association suggested that SBA explore ways to modify its definition of
receipts to allow for the exclusion of amounts paid to third-party
subcontractors (referred to as ``pass throughs''). The association
indicated that many of its members report they ``pay between 15-50
percent of their receipts to third-party subcontractor [sic].'' SBA
addresses this issue elsewhere in this rule. To summarize, SBA does not
allow for the exclusion of ``pass throughs'' because they are part of
the usual and customary costs of doing business. SBA acknowledges that
the architectural industry and other industries may have substantial
subcontracting costs, and as such, SBA considers ``pass throughs,'' and
other similar factors, as secondary factors when it establishes small
business size standards. Specifically, SBA uses industry data from the
2007 Economic Census (discussed above), and that data, which firms
report (under law) to the Census Bureau, include the firm's revenue,
which includes those costs.
The architectural association also stated that about 80 percent of
firms in its industry have fewer than 10 employees and requested that
SBA consider using employees rather than receipts as a size standard to
target smaller firms. SBA has previously taken this suggestion into
consideration and has decided not to adopt it. In March 2004, SBA
proposed a size standard of 50 employees and maximum annual receipts of
$7 million (69 FR 13130). In that proposed rule, which covered nearly
all industries including Architectural Services, SBA proposed to base
all size standards on number of employees instead of annual receipts
and other measures. In response, there were myriad and varied comments,
mostly opposing the proposed rule. Thus, SBA withdrew the proposed rule
in July 2004. Over the years, comments have generally supported
receipts based size standards for service industries in the various
Sectors, including NAICS Sector 54. Although SBA requested comments on
whether employee based
[[Page 7494]]
standards would be more appropriate for certain industries in NAICS
Sector 54, there were not many commenters supporting such a change.
The association also requested SBA to consider developing a
``micro-metric'' for the architectural industry. A number of individual
commenters also recommended that SBA consider creating a ``micro-
business'' category to target Federal assistance to ``truly small''
businesses. The Small Business Act gives SBA's Administrator the
authority to determine what constitutes a small business concern for
Federal government programs, but the Act does not provide for
definitions other than small. The Small Business Competitiveness
Demonstration (CompDemo) Program provided for an Emerging Small
Business (ESB) category, under which an ESB concern was one that was at
or below half the size standard for its industry, and it applied to
architectural firms. However, the Jobs Act terminated the CompDemo
Program, effective September 27, 2010. Public Law 111-240, sec. 1335
(Sept. 27, 2010).
SBA believes that the size standards that it is adopting will allow
small architectural firms to grow without having to compete with very
large businesses. Although the revised size standards may redefine
about 600 currently large (``other than small'') firms as small, this
represents only 2.5 percent of total firms in NAICS 541310. In
addition, these size standards will allow Federal agencies to set aside
more contracts for small business concerns. Prior to the repeal of the
CompDemo Program, firms in the architectural and engineering services
industries were effectively competing in the open market, because most
contracts were ``full and open.'' Small business set-asides were only
required when an agency participating in the CompDemo Program did not
meet its small business goals. With the adoption of these size
standards, combined with the repeal of the CompDemo Program, SBA
believes there will be more set-asides contracts for more small
businesses.
NAICS 541330--Engineering Services
SBA received about 240 comments on NAICS 541330 (Engineering
Services). More than 60 percent fully supported the proposed increase
in the size standard from $4.5 million to $19 million. Another 16
percent supported a smaller increase than proposed by SBA. About 12
percent opposed the $19 million proposed size standard in support of
the current size standard of $4.5 million, while 11 percent took other
positions. Several of those who supported a size standard lower than
SBA's proposed $19 million but higher than the current $4.5 million
provided alternative size standards, ranging from $6.5 million to $12.5
million and averaging about $10 million.
One commenter strongly supported SBA's proposal to increase the
size standard for NAICS 541330 from $4.5 million to $19 million. The
comment indicated that under the current size standard, small
businesses are only able to perform a small portion of work under the
set-aside contracts they are awarded and need to subcontract the
majority of the work, often to large businesses, which defeats the very
intent of the small business program. The comment also indicated that
engineering firms in the $5 million to $15 million revenue range have
very limited opportunities to compete effectively for Federal contracts
in full and open competition, although they have the best
qualifications, in terms of complexity and scope, to meet the
requirements of Federal contracts for professional services. The
commenter believed that the higher size standard will enable a larger
pool of small businesses to participate in the Federal market as prime
contractors and to perform the majority of small business set-aside
contracts by themselves. The commenter further stated that the proposed
$19 million size standard for engineering services will enable more
small businesses to participate in more complex and larger Indefinite
Delivery Indefinite Quantity (IDIQ) multiple award contracts (MACs).
The comment pointed out that businesses that exceed the $4.5 million
size standard by a small margin lack the capabilities to effectively
compete with large firms with thousands of employees. SBA generally
agrees with this comment and based on its reevaluation of data and
comments on the proposed rule, the Agency has decided to increase the
size standard for NAICS 541330 to $14 million.
Another commenter supportive of the proposed increase noted that
the improvement in national infrastructure will be the key to job
creation and long-term economic growth, and this effort will require
the professional services of architects, engineers, surveyors, etc.
However, under the current $4.5 million size standard, many small
businesses cannot participate in Federally funded projects. Upon
graduation, firms with $5 million in revenue are forced to compete with
firms that are much larger than they are. Thus, under the current size
standard, it is mostly the large firms with hundreds of millions of
dollars in revenue and thousands of employees that benefit. Large prime
contractors are required to subcontract a portion of a Federal contract
to small businesses. Thus, once they exceed the current size standard,
small businesses lose teaming and subcontracting opportunities with
large prime contractors. Relying on data from Engineering News Record
regarding revenues for the largest architectural and engineering
companies, the comment indicated that disparities in market share and
average revenue between large firms and small firms have significantly
increased in recent years, with the recent economic recession
exacerbating this situation. The commenter pointed out that the average
annual revenue of the top 100 engineering and design firms is about
$650 million, and postured that since five percent of that value is
$32.5 million, $19 million was an easily supportable size standard.
According to the commenter, under the $19 million proposed size
standard, there will be more opportunities for small businesses to grow
and create jobs, and large businesses will have a larger and more
talented pool of small businesses for their teaming and subcontracting
needs. The commenter also noted that ``pass throughs'' (i.e., fees and
costs for supporting consultants) account for 35 percent of the gross
revenues of architects, engineers and surveyors and suggested that SBA
consider this factor when evaluating the size standard. The commenter
believed that these ``pass throughs'' also warrant the proposed $19
million size standard. After exceeding the current size standard, many
formerly small businesses are unable to compete with their larger
counterparts, and thus are forced to be acquired by larger firms, which
often results in job losses when redundant jobs are eliminated in the
process. The commenter stated that SBA's proposed $19 million size
standard will help small businesses overcome these challenges. The
commenter believed that increasing the size standard to $19 million
would not create a significant competitive disadvantage for firms below
the current size standard. The commenter also believed that the
proposed increase was supported by the fact that while most other size
standards in NAICS Sector 54 had been increased over the years for
inflation, the engineering, architectural, and surveying size standard
often remained unchanged. SBA generally agrees with these arguments and
based on its reevaluation of data and comments on the proposed rule,
the Agency has decided to increase the size standard for NAICS 541330
to $14 million.
[[Page 7495]]
Another commenter believed that an increase to the current size
standard was long overdue and strongly supported SBA's proposal to
increase it to $19 million because this would allow small businesses to
win larger and multiple multiyear IDIQ contracts, thereby allowing them
to grow and become more competitive. According to the commenter, under
the current $4.5 million size standard, a small business is unable to
win several simultaneous IDIQ contracts in NAICS 541330 because just
one or two such contracts would cause it to exceed the size standard.
Once a small business exceeds the size standard, it is forced to
compete with large companies with thousands of employees and
significantly more resources. Thus, under the current size standard,
small businesses are unable to develop the capabilities to meet the
complex technical requirements for most IDIQ and other contracts under
NAICS 541330. As such, the commenter supported the proposed $19 million
size standard. Additionally, the commenter questioned the rationale
underlying a higher $7 million size standard for interior designers and
landscape architects and a lower $4.5 million size standard for
architects and engineers. The commenter also pointed out that the
proposed increase would expand the pool of qualified small businesses
for Federal agencies to meet their small business contracting goals.
SBA generally agrees with these points and based on public comments and
reevaluation of relevant data, the Agency has adopted a $14 million
size standard for NAICS 541330. SBA believes this higher size standard
will expand Federal contracting opportunities for small businesses.
A national association representing nearly 5,500 engineering firms
also commented on SBA's proposed $19 million size standard for NAICS
541330. While the association supported SBA's efforts to address the
need to update the existing $4.5 million size standard, it recommended
a more moderate increase to $10 million. It commented that the size
standard should be increased to keep pace with inflation and to
accommodate the need to provide services to the Federal government.
However, the association expressed concern that SBA's proposed increase
to $19 million was too high, citing various issues with the Economic
Census and FPDS-NG data that SBA used in its evaluation (as discussed
elsewhere in this rule) and the impact that a large increase in the
size standard might have on the industry. Specifically, the association
commented that the proposed $19 million size standard was too high
based on the fact that the majority of its members are very small, with
fewer than 30 employees.
However, a large percentage of firms have fewer than 30 employees
for all industries in NAICS Sector 54. In fact, for most other
professional services, the proportion of firms with fewer than 50
employees is much higher than for engineering services. For example,
based on the 2007 Economic Census, 86 percent of firms in NAICS 541330
have fewer than 20 employees and 94 percent have fewer than 50
employees, compared to 94 percent and 97 percent, respectively, for all
industries within NAICS Sector 54, most of which have much higher size
standards than $4.5 million and some higher than $19 million.
In addition, the association expressed concerns that increasing the
size standard from $4.5 million to $19 million would (1) provide a
competitive advantage to larger firms over their truly small
counterparts; (2) allow more than 90 percent of engineering firms to
qualify as small; (3) limit fair and open competition among qualified
firms under the ``rule of 2''; and (4) harm the public and the Federal
government through reduced performance and higher costs. SBA disagrees
with these arguments.
As a preliminary matter, SBA points out that comparing the $4.5
million size standard with a standard of $19 million is somewhat
misleading. If SBA had adopted the proposed $7.5 million size standard
for Engineering Services in 1999, then with inflation adjustments, that
would be about $10 million today. In that case, the proposed increase
to $19 million would not appear as dramatic. Regarding the
association's first concern, SBA notes that increasing size standards
does not necessarily put firms that are small under the current
standards at a competitive disadvantage. In fact, increasing size
standards can have an opposite impact. With higher size standards and a
larger pool of businesses qualifying as small, Federal agencies are
likely to utilize more small business set-asides, thereby increasing
opportunities for all small businesses. As stated above, the majority
of comments received on NAICS 541330 supported the proposed $19 million
size standard, contending, in part, that this increase will enable
firms below that level to develop and become competitively viable.
Second, it is true that more than 90 percent of engineering firms will
qualify as small under the $19 million size standard. This is fully
consistent with other industries in NAICS Sector 54, where more than 95
percent of businesses (and for some industries, as much as 99 percent
of businesses), qualify as small under both current and proposed size
standards. However, businesses qualifying as small under the $19
million size standard account for less than 29 percent of total
revenues in NAICS 541330, as compared to the average of 49 percent for
other industries within NAICS Sector 54. SBA believes that the share of
industry revenues is a more robust and informative indicator of small
business participation in the marketplace than the percentage of firms
covered by a size standard. Third, since more businesses can qualify to
compete for Federal small business set-aside contracts under higher
size standards, there will be more competition under the ``rule of 2,''
not less. Fourth, with larger size standards, as many commenters
supporting the proposed $19 million believed, there will be more
competition among a larger pool of eligible small businesses, not less.
The association recommended an alternative size standard for NAICS
541330 of $9 million (or $10 million when rounded to the nearest fixed
size level). To derive this value, the association used 50 employees as
a ``natural break'' in firm size for the industry, based on a cross
section of its member firms. Using the average revenue per employee for
the industry, 35 percent for consultants' fees and other costs (i.e.,
``pass throughs,'' which are discussed elsewhere in this rule), and an
additional 10 percent adjustment for high cost areas, the association
translated 50 employees to about $9 million in revenues. SBA has
several concerns with this analysis. First, the association's total
membership includes about 5,500 engineering firms, which represents
less than 12 percent of total firms in NAICS 541330, based on the 2007
Economic Census. SBA is concerned that findings based on such a limited
sample may not accurately represent the entire engineering services
industry. Second, the comment provided no explanation regarding its use
of 50 employees as a ``natural break'' of firm size as an appropriate
basis of size standards for the engineering industry. Third, the
association did not provide any references to the data sources it used
to verify its findings.
The association identified several factors to characterize the U.S.
engineering industry, namely: Staffing, marketing, management,
technology, competition, mergers and acquisitions, and costs. However,
it provided no information on what specific roles these
[[Page 7496]]
factors play in defining what constitutes a small firm in the
engineering industry nor it explained why these factors would support
its suggested $10 million size standard.
Further, the association questioned how the inclusion of the three
``exceptions'' for NAICS 541330 in the Economic Census data influenced
SBA's results for general engineering services. As noted in the
proposed rule, the data from the Census Bureau's tabulation are limited
to the 6-digit NAICS industry level and hence do not provide separate
data on ``exceptions.'' As such, SBA used product service codes (PSCs)
for contracting activity reported in FPDS-NG to identify firms that
were active in general engineering services and in the three
``exceptions.'' Using the revenue and employment data for those firms
from the Central Contractor Registration (CCR), SBA analyzed industry
factors for firms engaged in general engineering services and those
involved in the ``exceptions.''
SBA agrees with the association's comment that the Agency should
reassess the impact that the inclusion of three ``exceptions'' in the
analysis might have on the calculated size standard for general
engineering services. As SBA explained in the proposed rule, firms
engaged in Military and Aerospace Equipment and Military Weapons and in
Marine Engineering and Naval Architecture are significantly larger in
size than firms engaged in other general engineering services.
Consequently, the inclusion of those larger firms in the analysis for
the size standard for general engineering services creates an upward
bias in the estimated size standard. In the past, SBA gave considerable
weight to public comments on the engineering size standard, which for
various reasons, overwhelmingly supported a lower size standard than
otherwise supported by the industry data. In contrast, the comments to
the March 16, 2011 proposed rule revealed much broader support for a
higher size standard for engineering services. Thus, SBA concurs with
the comment that it should reevaluate the industry data before revising
the size standard. SBA also agrees that, when deciding the size
standard for general engineering services, it should exclude from the
analysis, as best as it can, the larger firms that primarily provide
services in those three sub-categories or ``exceptions.''
To adjust the industry-wide data for NAICS 541330 obtained from the
2007 Economic Census, SBA re-estimated the values for the industry
factors. As described in the proposed rule, SBA analyzed data from CCR
and FPDS-NG to evaluate size standards for the two engineering
``exceptions.'' These are the only appropriate data sets available
because these sub-categories represent firms that are predominately
engaged in the Federal procurement market, and as the proposed rule
pointed out and as indicated above, the Economic Census data are not
available at the sub-industry level (i.e., below the 6-digit NAICS
industry level). The analysis of those firms using the CCR and FPDS-NG
data also had produced the results for all other engineering firms.
However, because CCR and FPDS-NG data are limited to the Federal
market, rather than using those results directly, SBA applied the
differences between firms in the engineering sub-categories and those
in the remaining engineering services based on the CCR/FPDS data to
adjust industry factors estimated from the Economic Census data for
NAICS 541330.
SBA calculated ratios for industry and Federal procurement factors
between the two engineering sub-categories and all other engineering
services. The ratio for average firm size and average assets size was
estimated to be 66.2 percent and 87.5 percent for the weighted average.
In this analysis, SBA did not consider the Gini coefficient values,
because the size distributions of firms are not comparable between CCR/
FPDS-NG and Economic Census data. The Federal small business share for
the remaining engineering firms continues to be similar to the overall
industry small business share, and as discussed in the proposed rule,
is not a factor in the analysis. Using the above ratios, SBA adjusted
industry factors (i.e., simple average firm size, weighted average firm
size, and average assets) obtained from the 2007 Economic Census for
NAICS 541330. Based on those adjusted factors, SBA is adopting a $14
million size standard for NAICS 541330.
SBA's decision to adopt a $7 million size standard for
architectural services and a $14 million size standard for engineering
services (except for Military and Aerospace Equipment and Military
Weapons and for Marine Engineering and Naval Architecture) departs from
the historic use of a common size standard for these two industries.
Unlike in the past, comments on a proposed common size standard for A&E
differed significantly between the two industries. Specifically, almost
90 percent of the comments addressing architectural services opposed
the proposed $19 million size standard, while more than 75 percent of
the comments addressing engineering services supported a significant
increase to the current size standard. The comments focused primarily
on an appropriate size standard for their specific industries, with
little discussion of the need to have a common size standard for
architectural services and engineering services. Accordingly, SBA
believes that the different size standards adopted for each of these
two industries better reflect the structure of each industry, while
providing increased Federal contracting opportunities for small
businesses without requiring them to compete against what many
commenters believed would have been much more competitive mid-sized
firms included as small under the proposed $19 million size standard.
In addition, SBA was concerned that the relatively low 15.6 percent
small business share of industry receipts for engineering services
under the $4.5 million size standard was out of line with the typical
small business market share of other professional services industries
and thus, constraining small business opportunities in Federal
contracting in engineering services. The $14 million size standard will
expand the number of deserving businesses that should be considered
small in engineering services and increase Federal contracting
opportunities for small businesses.
NAICS 541330--Engineering Services (Three ``Exceptions'')
There were 16 public submissions that specifically commented on
SBA's proposal to retain the current $27 million size standard for the
Military and Aerospace Equipment and Military Weapons sub-category or
``exception.'' All believed that the current $27 million size standard
was too low and needed to be increased. Some comments recommended that
SBA reform its current approach to size standards so that size
standards are based on the average size of dominant players in the
Federal market.
One commenter expressed concern with SBA's proposal to increase 36
size standards in NAICS Sector 54 but to maintain the size standard for
Military and Aerospace Equipment and Military Weapons at the current
$27 million level. The commenter believed that this size standard
should also be increased, pursuant to the intent of Small Business Jobs
Act of 2010 to help small businesses create jobs. The commenter stated
that a higher size standard would expand the pool of qualified small
businesses for Federal contracts. The commenter believed that the $27
million size standard does not reflect changes in the Federal
contracting marketplace in military and aerospace
[[Page 7497]]
engineering services for aviation programs, including Naval Air Systems
Command and Naval Air Warfare Center Aircraft Division (NAVAIR/NAWCAD).
The commenter pointed out that small business contracts for engineering
services with NAVAIR/NAWCAD totaled $95 million in 2008 and commented
that leaving the size standard at $27 million would negatively impact
NAVAIR's ability to meet its needs and small business goals. The
commenter went on to allege that this will reduce the number of small
businesses available to perform as prime contractors and as
subcontractors for large prime contractors. Further, the commenter
stated that some businesses that are small under the current size
standard will soon lose their small business status due to contract
cost escalation for multi-year task order contracts. The commenter
stated that some upward adjustment to the current standard will not
include small businesses that would be dominant in their fields
relative to high revenue of large firms that receive contracts for
engineering work. In the view of the commenter, upward adjustment to
the current size standard would enable small businesses to compete for
larger contracts. The commenter stated that contracts for military and
aerospace engineering tend to be large relative to the current $27
million size standard. The commenter recommended that SBA also consider
the critical nature of military and aerospace engineering services in
war efforts as an additional factor in its methodology. Upon
graduation, the commenter stated, small businesses are forced either to
compete with large industry leaders for military and aerospace
engineering contracts on an unrestricted basis or elect to be acquired
by large businesses. The current size standard should be adjusted to
$30 million to account for inflation and higher labor and operating
costs in some regions.
Six commenters noted that dominant firms in the Federal market for
military and aerospace equipment and military weapons average $25
billion in annual revenues compared to the $27 million size standard.
Two commenters on ``Military and Aerospace Equipment and Military
Weapons'' size standard believed that mid-sized firms are too large to
qualify under SBA's current standards and too small to compete with
large businesses in the Federal market. Successful companies that
outgrow size standards are forced to compete with businesses that are
many times larger than they are. The commenters noted that mid-sized
firms have seen their share in the federal market decline from 40
percent in 1995 to 30 percent in 2009, while the large business share
increased from 41 percent to 48 percent in the same period. As conduit
for innovation, robust mid-tier companies are desirable for the Federal
marketplace, they contended.
Two commenters stated that the majority of contracts for Military
and Aerospace Equipment and Military Weapons are so large that
companies with $27 million in revenue cannot meet their requirements.
They also noted that the Federal government is moving from the single
award vehicle to much larger and more complex multiple award contract
(MAC) vehicles, making it harder for even mid-sized companies to
compete in the Federal market.
Several commenters recommended a substantial increase to the
current $27 million size standard for Military and Aerospace Equipment
and Military Weapons. They contended that a higher size standard would
enable small businesses in this sub-category to grow and be able to
compete with the largest businesses for Federal contracts in full and
open competition, successfully transition from small to mid-sized
businesses, meet size and other requirements for Federal contracts, and
retain or regain their small business eligibility for Federal
assistance.
SBA generally agrees with the above comments. However, the
commenters did not provide data or data sources to support their
positions. SBA is aware that there are very large companies in the
Federal market for Military and Aerospace Equipment and Military
Weapons. However, SBA's analysis of FPDS-NG data indicates that many
small and ``mid-sized'' firms have grown and been successful in this
arena.
SBA agrees that the size standard for the two engineering
``exceptions'' (Military and Aerospace Equipment and Military Weapons,
and Marine Engineering and Naval Architecture) should be increased, and
as such, SBA is adopting a size standard of $35.5 million. The comments
above raised two main issues that, when assessed along with SBA's
analysis in the proposed rule, support a higher size standard. First,
Federal contracts for these types of engineering services tend to be
extremely large and beyond the capabilities of small businesses under
the current size standards. Under the current standards, small
businesses obtained a relatively small proportion of Federal contracts
(11.2 percent for Military and Aerospace Equipment and Military
Weapons, and 3.6 percent for Marine Engineering and Naval
Architecture). Larger size standards for Military and Aerospace
Equipment and Military Weapons and for Marine Engineering and Naval
Architecture will provide opportunities for contracting officers to
structure contracts within the capabilities of small businesses.
Second, small businesses that outgrow the size standard must compete
against extremely large businesses for Federal contracts. The graduated
small businesses have not developed sufficiently to compete with those
large businesses, which are the Federal government's largest
contractors as well as among the largest companies in the U.S.
Industry data from the Economic Census do not fully capture the
structure of the sub-industries comprising the above exceptions. While
SBA's analyses of the average firm size and average assets size support
the points made by the comments, the Gini coefficient and Federal
contracting factors point to inconsistent assessments of the industry
data and the Federal market as characterized by the comments. The Gini
coefficient indicates a $5 million size standard while all the other
industry factors support a $35.5 million size standard. The low Gini
coefficients may have resulted from an unusually skewed firm size
distribution that is unsuitable for the size standard analysis. While
the firms are extremely large in size, the Gini coefficient is low
perhaps because of the presence of about a dozen extremely large firms,
resulting in a more even firm distribution than generally exists when
only a few extremely large firms obtain a large market share of the
industry. Thus, SBA did not apply the Gini coefficient in its final
analysis. The remaining industry factors all support a $35.5 million
size standard for both exceptions.
As discussed in the proposed rule, the Federal contracting factor
did not support an increase in the current size standard for these two
exceptions. However, the comments above raised valid concerns regarding
the availability of Federal contracting opportunities for small
businesses. Although the small business Federal market share does not
differ significantly from the small business share of overall revenue
for these sub-categories, SBA is concerned that the small business
Federal contract share for these sub-categories is relatively low as
compared to other professional services industries.
As required by law, SBA is also adopting the $35.5 million size
standard for the third ``exception'' to NAICS 541330 (Contracts and
Subcontracts for Engineering Services Awarded Under the National Energy
Policy Act of 1992).
[[Page 7498]]
Section 3021(b)(1) of Public Law 102-486, the National Energy Policy
Act of 1992 (106 Stat. 2776, 3133) states that ``for purposes of
contracts and subcontracts requiring engineering services (awarded
under this Act) the applicable size standard shall be that established
for Military and Aerospace Equipment and Military Weapons.''
NAICS 541360--Geophysical Surveying and Mapping Services; and NAICS
541370--Surveying and Mapping (Except Geophysical) Services
SBA received 22 comments on NAICS 541360 (Geophysical Surveying and
Mapping Services) and 38 comments on NAICS 541370 (Surveying and
Mapping (except Geophysical) Services). Almost all commenters supported
SBA's proposal to increase the current $4.5 million size standard. The
vast majority (87 percent) fully supported SBA's proposal to increase
it to $19 million, and the remainder supported a more moderate
increase.
An association representing private sector firms in the geospatial
(remote sensing and geographic information systems) market supported
SBA's proposed $19 million size standard for NAICS 541370 (Surveying
and Mapping (except Geophysical) Services). The association commented
that the current size standard of $4.5 million fails to meet the needs
of Federal agencies and private geospatial firms, thereby restricting
small business set-asides and small business participation at the prime
contractor and subcontractor level. The commenter noted that this has
caused some Federal agencies to select other NAICS codes with higher
size standards for surveying and mapping work. The comment also
indicated that few firms at $4.5 million in annual revenue can make the
capital investments necessary to perform Federal contracts involving
surveying, mapping, and geospatial services. The commenter added that
the participation of some of the largest corporations in the geospatial
market has rendered small businesses at the current $4.5 million size
standard unable to compete in the Federal market.
SBA is adopting a $14 million size standard for both NAICS 541360
and NAICS 541370. As discussed elsewhere in this rule, the Agency had
proposed $19 million as a common size standard for all industries in
NAICS Industry Group 5413 (Architectural, Engineering and Related
Services) but has decided not to apply a common size standard for this
industry group. Rather, SBA agrees with many of the comments that a
common size standard is not appropriate for the entire industry group.
SBA has therefore assessed the comments received on the individual
industries and reexamined the specific industry data for these
industries.
The decision to adopt a $14 million size standard for the two
surveying and mapping industries is based on several considerations.
First, public comments overwhelmingly supported increasing the current
$4.5 million size standard to the significantly higher proposed level
of $19 million. Commenters contended that the higher size standard
would enable firms in these industries to grow and develop to a size at
which they could compete against larger businesses, while retaining or
regaining their small business status. Second, historically, the size
standards for these two industries have been the same as the size
standards for architectural and engineering services. In this rule, SBA
is adopting a $7 million size standard for NAICS 541310 (Architectural
Services) and NAICS 541320 (Landscape Architectural Services), and a
$14 million size standard for NAICS 541330 (Engineering Services). SBA
believes it should continue to maintain similar or comparable size
standards among the surveying and mapping industries and the
architectural and engineering service industries. Thus, although the
industry data point to a size standard higher than $14 million for
NAICS 541360 and lower than $14 million for NAICS 541370, SBA believes
a common size standard of $14 million is more appropriate than
establishing two very different size standards for the two very similar
types of industries, because (1) it represents a significant increase
to the current size standard, as the commenters desired and (2) it
maintains the historical common size standard between mapping and
surveying services and architecture and engineering services.
Furthermore, comments provided by a mapping industry association
cited the expanding role of geospatial activities in NAICS 541370 and
recommended a much higher size standard than supported by the Economic
Census industry data. Many of the firms in NAICS 541370 are engaged in
conventional land surveying, and such firms are significantly different
in many respects from those involved in geospatial services. The most
important distinction is that firms engaged in geospatial services have
much higher capital expenses for equipment such as aircraft, precision
aerial cameras, analytical or softcopy stereoplotters, and specialized
computer peripheral equipment. The staff required to operate these
types of equipment and process the information have a very different
and much more expensive skill set than that which is required for
other, more traditional, surveying activities. Importantly, firms
primarily engaged in geospatial services are now competing against many
of the largest firms obtaining Federal contracts in this area.
Additionally, the Federal market for geospatial services consists of
multiyear, multimillion dollar contracts. SBA agrees with the
association's comment that Economic Census data do not reflect these
developments in the Federal market for geospatial services.
SBA also evaluated data from FPDS-NG and CCR. In terms of total
contract dollars, NAICS 541370 represented a significantly larger share
of the Federal market than did NAICS 541360. In addition, Federal
contracts tend to be larger for NAICS 541370 than for NAICS 541360. In
contrast to Economic Census data, values for industry factors based on
revenue data on firms that participate in Federal market for surveying
and mapping services were also much higher for NAICS 541370 than for
NAICS 541360.
The association stated that some of its members were concerned that
increasing the NAICS 541370 size standard to $19 million may result in
Federal agencies' overreliance on small business set-asides, thereby
causing disadvantage to mid-sized firms that are principally engaged in
geospatial activities. SBA anticipates some redistributions of
contracts from mid-sized firms to newly defined small businesses under
the $14 million size standard; however it does not anticipate that
impact to be significant. The $14 million size standard, instead of the
proposed $19 million, should mitigate some of their concerns.
In view of these considerations, SBA believes a $14 million size
standard is appropriate for both NAICS 541360 and for NAICS 541370.
NAICS 541340--Drafting Services; and NAICS 541350--Building Inspection
Services
SBA received four comments on NAICS 541340 (Drafting Services) and
two comments on NAICS 541350 (Building Inspection Services). To
maintain the common size standards for all industries within NAICS
Industry Group 5413, SBA had proposed a $19 million size standard for
both of these industries, although the data for the individual
industries supported much lower size standards for them. Nearly all
comments supported SBA's proposal to increase the current $7 million
size standard to $19 million.
In light of SBA's decision not to adopt the proposed $19 million
common size
[[Page 7499]]
standard for NAICS 5413, which was based on public comments and
significant differences in estimated size standards among individual
industries, SBA reevaluated the size standards for NAICS 541340 for
NAICS 541350. To do so, SBA analyzed updated industry data from the
2007 Economic Census and Federal contracting data from FPDS-NG. The
updated analysis supported lowering the size standard to $5 million for
both industries. However, given SBA's decision not to lower any size
standards, SBA is adopting the current $7 million size standard for
NAICS 541340 for NAICS 541350.
SBA received no comment or concern regarding its proposal to
eliminate Map Drafting as an exception to NAICS 541340. The exception
for this activity was created in support of the CompDemo Program, which
the Jobs Act of 2010 repealed. Therefore, SBA is removing the exception
for Map Drafting from NAICS 541340.
NAICS 541380--Testing Laboratories
SBA received 10 comments on NAICS 541380 (Testing Laboratories).
Seven comments fully supported SBA's proposed $19 million size
standard, while three comments opposed it in support of retaining the
current $12 million size standard.
One commenter who strongly supported SBA's proposal to increase the
size standard also supported the common size standard proposed for all
industries within NAICS Industry Group 5413. The commenter mentioned
that a common size standard would ease contracting officers' burden of
selecting the perfect NAICS codes for government contracts and reduce
the likelihood of NAICS code appeals. Citing growing consolidation in
the industry, the commenter stated that the current $12 million size
standard for NAICS 541380 should not be lowered based on industry-
specific analysis, in the event that SBA does not adopt the $19 million
common size standard. The commenter pointed out that the effect of
losing small business status would be immediate and devastating to its
company and other similar small businesses because lowering size
standards would force small businesses to cut hours and salaries and
lay off employees to survive. For the same reasons, the commenter also
agreed with SBA's decision not to lower any size standards under
current economic conditions.
Given SBA's decision not to adopt the proposed $19 million common
size standard for NAICS 5413 (discussed elsewhere in this rule), SBA
reevaluated the size standard for NAICS 541380. The initial industry
specific analysis supported a size standard of $10 million, which is
lower than the current size standard of $12 million. For reasons
explained in the proposed rule, SBA proposed to retain the current size
standard where analyses supported lowering them. In this final rule, to
be consistent with the use of eight fixed levels, instead of the
current $12 million size standard, SBA is adopting a size standard of
$14 million, which is the nearest fixed size level. The updated
Economic Census tabulation also supported a $14 million size standard
for this industry.
NAICS Industry Group 5414--Specialized Design Services
For the reasons explained in the proposed rule, SBA proposed to
retain the current $7 million size standard for all industries in NAICS
Industry Group 5414 (Specialized Design Services), even if the industry
data supported a lower $5 million size standard. In response, SBA
received 11 comments, with about half supporting the current $7 million
size standard and half opposing it. None of the comments expressed
major concerns. Therefore, SBA is adopting the current $7 million size
standard for all industries within NAICS Industry Group 5414.
NAICS Industry Group 5415--Information Technology Services; and NAICS
811212--Computer and Office Machine Repair and Maintenance
SBA received about 25 comments on NAICS 5415 (Information
Technology Services) and NAICS 811212 (Computer and Office Machine
Repair and Maintenance) at the 6-digit level. The majority recommended
that the current size standard be higher than the $25.5 million size
standard that SBA proposed for these industries. Commenters recommended
alternative size standards varying from $30 million to $35.5 million,
with an average of $30 million. A few commenters fully supported the
proposed $25.5 million size standard. Additionally, SBA received 34
comments for NAICS 5415 at the 4-digit level, many of which recommended
either an employee based size standard or total reform of SBA's current
size standards to expand Federal contracting opportunities for mid-
sized companies. A few commenters recommended a size standard higher
than the proposed $25.5 million size standard to account for inflation
since SBA's last inflation adjustment.
An association representing 350 companies involved in a variety of
professional services commented on SBA's proposed $25.5 million common
size standard for NAICS Industry Group 5415 and NAICS 811212. It also
commented, as discussed elsewhere in this rule, on some of the factors
and analyses that SBA used to develop the proposed size standards. It
also expressed concerns for the SBA's proposal to increase the size
standard for the Architectural and Engineering (A&E) services from $4.5
million to $19 million, while it proposed to increase the size standard
for computer related services only by $0.5 million to $25.5 million.
The association strongly supported SBA's effort to review size
standards in view of changes in the professional services industry
since the last overall review. That was several decades ago and there
have been significant changes in the Federal marketplace for
professional services, especially the rapid growth in Federal spending
on professional services in recent years. The association noted that
SBA proposed increases to 36 size standards in NAICS Sector 54 will
provide much needed flexibility for small businesses to grow, while
still having access to Federal contracts on an unrestricted basis. The
association believed that proposed increases are not too substantial to
squeeze very small businesses out of the ability to compete for Federal
contracting opportunities. The association questioned the rationale for
a dramatic increase in the size standard for engineering and
architectural services from $4.5 million to $19 million, in contrast to
the increase of just $0.5 million in the size standard for computer
related services, despite significant changes in Federal market for
those services.
SBA's proposal to increase the A&E size standard to $19 million was
based on the evaluation of industry and Federal procurement factors for
the entire A&E group given the commonalities and overlap among firms in
the A&E commercial and Federal marketplace. Another rationale was to
maintain the use of common size standard for the group, as supported by
the industry's comment on SBA's 1998 proposed rule to revise size
standards for the architectural, engineering and surveying industries.
In addition, SBA believes that it is misleading to compare $4.5 million
with $19 million without considerations of the results from the
industry data. If SBA had adopted the proposed $7.5 million size
standard for the A&E industry in 1999, with inflation adjustment the
size standard would be about $10 million today and the proposed
increase to $19 million would not be as dramatic as it seems. In
response to industry's comments, SBA
[[Page 7500]]
adopted a much lower $4 million size standard in the final rule.
SBA's analyses did not support a higher increase to the size
standard for four of five computer related services, possibly
indicating that the current $25 million size standard is already
adequate. Under the current size standards, based on the 2007 Economic
Census, the small business share of total industry revenue was 35
percent for computer related services (NAICS 5415 and NAICS 811212)
versus 22 percent for A&E and Related Services (NAICS Industry Group
5413). Similarly, based on the FY 2008-2010 data, the small business
share in the Federal market was 36 percent for computer related
services, as compared to 16 percent for A&E services. These data
clearly support the need for a much higher increase to the current size
standard for the A&E group than for computer related services.
The association expressed its concerns about SBA's proposal to use
a $25.5 million common size standard for all Computer Systems Design
and Related Services Industries (NAICS Industry Group 5415 and NAICS
811212), when SBA's industry specific analysis supported a much higher
$35.5 million size standard for NAICS 541513. It stated that by doing
so, SBA has eliminated legitimate small businesses in that NAICS code
from being able to qualify. It pointed out that this also applies to
some architectural and engineering services industries. The association
recommended that, when proposing a common size standard for a group of
industries, SBA either adopt the highest calculated size standard for
any NAICS code as the common size standard for the entire group, or
adopt the size standard based on its analysis of individual NAICS
codes. However, the commenter agreed with SBA's proposal not to lower
any size standards, and recommended that no size standards be lowered
when SBA decides not to adopt the common size standard. When
establishing a common size standard, SBA evaluates the results for both
individual industries and for the group as a whole, commonalities, and
overlap among the industries in the group, historical practice,
industry's input, and the impact of using separate industry specific
size standards for closely related industries in the Federal market,
when a common size standard may be more appropriate.
SBA has not adopted the association's recommendation. SBA has used
a common size standard for all Computer Systems Design and Related
Services since 1992 and received no concerns about the common size
standard. Based on SBA's industry specific analysis using the 2007
Economic Census data, only about 20-30 firms in NAICS 541513 would be
impacted by using the $25.5 million common size standard instead of
$35.5 million. Meanwhile, if $35.5 million were used as the common size
standard for the entire group, as suggested by the association, more
than 300 otherwise large firms would qualify as small in other NAICS
codes, possibly hurting many other legitimate small businesses in those
industries. If SBA were not to create a common size standard it might
give contracting officers an incentive to select NAICS 541513 because
of its higher size standard, instead of another more appropriate NAICS
code in the group. Many firms operating in NAICS 541513 also operate in
other industries, such as NAICS 541511 and 541519, and will benefit
from SBA's decision not to lower size standards for those industries
based on industry specific analyses. Regarding the association's
similar concern for the common size standard for the A&E industry
group, as discussed elsewhere in this rule, SBA has, based on the
comments and additional analysis, modified its proposed common size
standard for that industry group.
One commenter believed that size standards for computer related
services must be large enough to enable small businesses to grow and
become competitive against large businesses that dominate ``full and
open'' competition in the Federal market. It suggested that SBA raise
the size standards for NAICS Industry Group 5415 to at least $35.5
million. It contended that SBA does not take into account the
competition of mid-sized businesses with significantly larger Federal
contractors. The commenter noted that once small businesses outgrow
size standards after being moderately successful in the Federal market,
they lack the resources, in terms of capital, staff, and
infrastructure, to compete successfully with their significantly larger
counterparts. SBA recognizes the challenges many mid-sized businesses
face in the Federal market when they outgrow a size standard, but SBA
is also very concerned that ``smaller'' small businesses may not be
able to compete effectively with ``larger'' small businesses for
Federal small business contracts if size standards are too large. SBA
does not agree with the comment that it does not account for industry
competition when establishing size standards. The Agency evaluated the
four-firm concentration and size distribution of firms to account for
completion within the industry.
The commenter recommended that the size standard for all industries
in NAICS 5415 be increased to $35.5 million, based on the argument that
a business concern at that revenue level is ``not dominant in its field
of operation.'' SBA does not adopt this recommendation for three
reasons. First, the requirement of the Small Business Act that a small
business not be dominant in its field of operation does not mean that
SBA should define all ``non-dominant'' firms as small. Rather, it means
that a business concern defined as small may not be dominant in its
field of operation. In other words, all dominant firms are necessarily
other than small, but all non-dominant firms are not necessarily small.
Second, using non-dominance as a basis of size standards could result
in very large size standards for some industries, resulting in a
significant competitive disadvantage to businesses that are more
representative of what constitute small business concerns. Third, SBA's
analyses of relevant data do not support the $35.5 million size
standard for all industries within NAICS Industry Group 5415, either
individually or as a group. In fact, the industry specific results
would support size standards of $14 million and $19 million for NAICS
541511 and NAICS 541519, respectively, which are lower than the current
$25 million.
In response to comments, SBA reevaluated industry and Federal
procurement data for industries in NAICS Industry Group 5415. Based on
this reevaluation, the data do not support higher than the proposed
$25.5 million size standard. In fact, as stated below, when these
industries are analyzed individually, the data supports lowering size
standards for some of them. However, SBA is not lowering any size
standards for the reasons given in the proposed rule. In addition,
under the current $25 million size standard, small businesses in these
industries seem to be doing relatively well, receiving 36 percent of
total Federal contract dollars during fiscal years 2008 to 2010, as
compared to 35 percent of total industry receipts.
One commenter supported SBA's effort to review all size standards
and its size standards methodology. However, the commenter recommended
that SBA evaluate inflation as an additional factor when reviewing size
standards. Specifically, the commenter suggested that the proposed size
standard based on five primary factors be adjusted for inflation since
SBA's last adjustment and recommended a $30 million size standard for
firms in NAICS 5415. Otherwise, the commenter stated, small
[[Page 7501]]
businesses on the brink of exceeding the current size standard will
soon be forced to compete with much larger firms.
SBA is required to review all size standards not less frequently
than every five years. Accordingly, the latest inflation adjustment for
all receipts based size standards, including those in NAICS 5415, was
completed in July 2008. In this comprehensive size standards review,
SBA's revisions to size standards are primarily based on the Agency's
evaluation of industry and Federal procurement factors. SBA plans to
adjust all monetary size standards together for inflation after it
completes its review of all receipts based size standards. SBA is
reviewing size standards on a Sector by Sector basis, and this can take
several years to complete all of them. If SBA were to make additional
adjustments for inflation on a Sector by Sector basis, the result would
be inconsistent size standards across industries.
A few commenters recommended an employee based size standard for
NAICS Industry Group 5415, and their suggested employee based standards
varied from 500 employees to 1,500 employees. Based on the 2007
Economic Census data, if the size standard was set at 500 employees,
99.2 percent of businesses in NAICS Industry Group 5415 would qualify
as small, and at 1,500 employees, 99.5 percent would qualify as small.
Meanwhile, more than 92 percent of firms in this industry group have
fewer than 20 employees. Based on the industry data from the 2007
Economic Census, a 500-employee size standard would translate to annual
revenue of approximately $45 million and a 1,500-employee size standard
would translate to nearly $70 million. SBA believes that such a large
size standard would render many truly small businesses unable to
compete with large small businesses for Federal opportunities.
Currently, no SBA's receipts based size standard is higher than $35.5
million.
For the above reasons, SBA is adopting the proposed $25.5 million
size standard for all industries within NAICS 5415 and NAICS 811212.
NAICS Industry Group 5416--Management, Scientific and Technical
Consulting Services
SBA received more than 100 comments for this industry group, with
about one-fifth of them limited to the 4-digit level. The vast majority
(73 percent) fully supported SBA's proposal to increase the size
standard for all industries within NAICS Industry Group 5416 from the
current size standard of $7 million to $14 million; 7 percent
recommended a smaller increase; 13 percent opposed the increase, mostly
in support of the current size standard; and the rest took other
positions.
Many commenters supporting the proposed $14 million the size
standard for NAICS Industry Group 5416 stated that the higher size
standard will enable small businesses to develop and grow to be able to
compete against large businesses for Federal contracting opportunities,
meet requirements for Federal contracts, and retain or regain small
business size status.
One commenter, who fully supported SBA's proposal to establish a
$14 million common size standard for all industries within NAICS 5416,
noted that firms in this industry group provide a variety of services
in multiple NAICS codes, rather than operating solely in one. The
commenter indicated that a common size standard would ease contracting
officers' burden of selecting the perfect NAICS codes for closely
related industries and reduce the likelihood NAICS code appeals. The
commenter stated that SBA's proposed rule reaches an appropriate
balance of ensuring that small business set-aside contracts continue to
be awarded to small businesses, while recognizing the need that
existing size standards in NAICS Sector 54 need to be revised to
reflect current economic and market conditions.
One commenter recommended that no size standards in the industry
group be decreased if SBA does not adopt the $14 million common size
standard in the final rule. The commenter believed that decreasing the
size standards would have significant impacts on small businesses and
the economy as a whole. SBA agrees.
Of those who opposed the proposed $14 million size standard for
NAICS 5416, several believed that currently small businesses will face
increased competition with newly defined small businesses under the
higher size standard. A few also contended that the $14 million size
standard does not reflect what is truly small. However, these
commenters did not provide specific data to support their arguments.
Thus, based on the comments received on the proposed rule and its
analyses of relevant industry data and other relevant factors, SBA is
adopting the proposed $14 million common size standard for all
industries within NAICS Industry Group 5416.
NAICS 541720--Research and Development in the Social Sciences and
Humanities
SBA received six comments for the NAICS 5417 Industry Group, but
none were related to NAICS 541720 (Research and Development in the
Social Sciences and Humanities). Thus, SBA is adopting its proposal to
increase the size standard for this industry from the current $7
million to $19 million.
NAICS Industry Group 5418--Advertising and Related Services
SBA received just one comment for NAICS Industry Group 5418
(Advertising and Related Services), which fully supported SBA's
proposal to increase the size standard for all industries in this
industry group from $7 million to $14 million. Since there were no
major concerns against the SBA's proposed increase, SBA is adopting its
proposal.
NAICS Industry Group 5419--Other Professional, Scientific and Technical
Services
Based on the evaluation of industry and Federal procurement factors
for all of NAICS Industry Group 5419, and in the interest of
maintaining the common size standard that is currently in place for
most industries in this industry group, SBA proposed a $7 million
common size standard for NAICS Industry Group 5419. SBA received only
eight comments on NAICS 5419, of which six supported the increase, one
opposed, and one took other position. Two comments supporting the
increase also suggested alternative size standards for industries NAICS
541910 and NAICS 541990. SBA generally agrees with these comments, as
discussed below.
NAICS 541910--Marketing Research and Public Opinion Polling
One comment supporting SBA's proposal to increase the size standard
for NAICS Industry Group 5416 opposed the creation of a common size
standard for NAICS Industry Group 5419, because this is a ``catch all''
industry group and various industries therein are entirely unrelated.
SBA agrees. A reevaluation of the FPDS-NG and CCR data showed that
industries within NAICS Industry Group 5419 are distinct and generally
unrelated. In addition, the data show that a large number of firms
operating under NAICS 541910 also offer services within NAICS Industry
Groups 5416 and 5418. Given the results of the industry specific
analysis, the evaluation of the FPDS and CCR data, and the analysis of
the comments from the industry, SBA is increasing the size standard for
NAICS
[[Page 7502]]
541910 from the current $7 million to $14 million in average annual
revenue. As discussed above, SBA is also adopting the $14 million size
standard for all industries within NAICS Industry Groups 5416 and 5418.
NAICS 541990--All Other Professional, Scientific, and Technical
Services
One commenter opposed keeping the size standard of NAICS 541990 at
the current $7 million level, arguing that this industry is also a
``catch all'' of other industries under NAICS 5419 (which is already a
``catch all'' industry group, as discussed previously) as well as all
other industries under NAICS Sector 54 as a whole. The commenter
recommended a higher $19 million size standard for weather forecasting
services, which is part of NAICS 541990. The commenter noted that the
size and scope of Federal contracts involving weather forecasting are
beyond the capabilities of firms under the current $7 million size
standard. SBA partially agrees with this comment. Although the analysis
of the primary factors suggested a size standard of $7 million, a
reevaluation of the FPDS-NG and CCR data showed that the
characteristics of businesses in the Federal market within NAICS 541990
are not captured well by the Economic Census data. The FPDS-NG data
showed an average of nearly 10 billion dollars awarded annually to this
industry and a small business share of about nine percent. In contrast,
the analysis of the Economic Census data showed that small businesses
account for 65 percent of the total industry receipts. However, the
total Federal contracting dollars reported in FPDS-NG over the past
several fiscal years has exceeded total industry receipts, suggesting
that Economic Census does not adequately represent the Federal market
for NAICS 541990. Also, the mix of services included in Federal
contracts under NAICS 541990 tend to be much more technical and
scientific in nature than the mix of services provided under other
industries within NAICS Industry Group 5419. As expected, the FPDS-NG
and CCR data showed that a large number of businesses operating under
NAICS 541990 also offer services in several other industries within the
NAICS Industry Groups 5416, 5418 and 5413, indicating the related types
of services among these industries. Given these results, SBA has given
more weight to the Federal procurement data factor in the final
analysis and increased the size standard for NAICS 541990 from the
current $7 million to $14 million in average annual receipts.
Summary of Comments on Other Issues
Calculation of Receipts and the Exclusion of ``Pass Throughs''
SBA received about 30 comments regarding subcontracting costs
(termed as ``pass throughs'' in the comments), particularly among
comments on NAICS 541310 (Architectural Services), NAICS 541320
(Landscape Architectural Services), and NAICS 541330 (Engineering
Services). These commenters believe that ``pass throughs'' account for
a large percentage of their revenues (suggested figures varied from 15
percent to as much as 60 percent, but most fell within the 30-40
percent range). Commenters suggested that SBA modify its definition of
receipts to allow businesses to exclude from the calculation of
revenues the amounts paid to subcontractors and suppliers in the course
of doing their business. Some commented that instead of increasing the
size standards, SBA should allow businesses to exclude ``pass
throughs'' from their revenues, while a few others suggested an
employee based size standard to address this issue (which has been
addressed elsewhere in the rule).
This is not a new suggestion, nor is it unique to these industries.
SBA's definition of receipts states the following: ``Receipts means
`total income' (or in the case of a sole proprietorship, `gross
income') plus `cost of goods sold' as these terms are defined and
reported on Internal Revenue Service (IRS) tax return forms * * *.'' 13
CFR 121.104 [emphasis added]. The definition of receipts provides for a
number of exclusions (discussed below), none of which correspond to
subcontracting, materials, or related costs. SBA recognizes that
subcontracting and material costs can be more substantial for some
types of businesses and industries than for others. The Economic Census
data that SBA uses in its size standards analysis include all revenues
received by companies, including the values of their subcontracts. If
the Agency excluded the value of ``pass throughs'' revenues from the
calculation of receipts, SBA would also have to establish a lower size
standard to reflect the size of the industry without them.
Except for a few industries, SBA has always included all revenues
in its calculation of receipts--first, because Economic Census data
includes them, as stated above, and second, because SBA's existing
definitions of receipts and employees provide a consistent approach to
establishing eligibility for small business programs for all
industries. If SBA were to exclude certain costs for one or a few
industries, other industries could raise the same questions. This would
create a ``slippery slope'' leading toward widespread inconsistency in
how businesses calculate their receipts to determine if they are small.
The better solution would be to have higher size standards than
otherwise supported by industry and Federal procurement factors for
industries with high ``pass throughs,'' so that the size standards
reflect the realities of how such firms conduct their business. In
fact, a number of commenters cited high ``pass throughs'' as one of
their reasons for supporting SBA's proposed increases to size standards
for architectural and engineering services. Again, SBA's current
definition of receipts is consistent with how businesses report their
revenues for the Economic Census. The current definition is also
consistent with the Small Business Act, which provides that size
standards are to be established based on ``* * * annual average gross
receipts of the business concern * * *'' (15 U.S.C.
632(a)(2)(C)(ii)(II) [emphasis added]).
SBA's definition of ``receipts,'' cited above, goes on to provide
for the following exclusions from the calculation: ``Receipts do not
include net capital gains or losses; taxes collected for and remitted
to a taxing authority if included in gross or total income, such as
sales or other taxes collected from customers and excluding taxes
levied on the concern or its employees; proceeds from transactions
between a concern and its domestic or foreign affiliates; and amounts
collected for another by a travel agent, real estate agent, advertising
agent, conference management service provider, freight forwarder or
customs broker. For size determination purposes, the only exclusions
from receipts are those specifically provided for in this paragraph.
All other items, such as subcontractor costs, reimbursements for
purchases a contractor makes at a customer's request, and employee-
based costs such as payroll taxes, may not be excluded from receipts.''
13 CFR 121.104(a). The following is a discussion of these exclusions:
1. ``Net capital gains'' are extraordinary income, and for a given
company, their inclusion in the calculation of annual receipts could
substantially alter its fiscal picture. A business uses its annual
receipts averaged over its last three fiscal years to determine if it
is small, and extraordinary income can substantially distort that
calculation.
2. ``Proceeds from transactions between a concern and its domestic
or
[[Page 7503]]
foreign affiliates'' would be counted two or more times, if included,
because a company must include the receipts of its affiliates as well.
13 CFR 121.103(a)(6).
3. The other exclusions refer to amounts that certain types of
businesses receive but to which they never have a right. That is, they
collect money for others, hold the funds in trust, and disburse them on
behalf of the party for whom they hold them. The funds do not increase
their asset base and can never be used to reduce their liabilities. In
other words, the funds are never the property of the company that
receives them. They may receive commissions and/or fee for their
services, which are their revenue, but the funds themselves are not.
4. ``All other items, such as subcontractor costs, reimbursements
for purchases a contractor makes at a customer's request, and employee-
based costs such as payroll taxes, may not be excluded from receipts''
refers to the costs of doing business for firms that do not operate in
industries where the above-named exclusions apply. For example, if a
firm subcontracts work to others and/or purchases material in the
course of its business dealings, it incurs liabilities. Payments
received as a prime contractor, or from another prime contractor, to
cover any of those usual and customary costs of doing business,
constitute revenue, and the company cannot exclude them when it
calculates its receipts.
In the same vein, SBA notes that a number of public submissions
indicated that subcontracting costs can be very substantial in their
industries. It is important to point out that, under SBA's regulations
on Government Contracting Programs (13 CFR 125), ``In order to be
awarded a full or partial small business set-aside contract, an 8(a)
contract, a WOSB or EDWOSB contract pursuant to part 127 of this
chapter, or an unrestricted procurement where a concern has claimed a
10 percent small disadvantaged business (SDB) price evaluation
preference, a small business concern must agree that: (1) In the case
of a contract for services (except construction), the concern will
perform at least 50 percent of the cost of the contract incurred for
personnel with its own employees. * * *'' 13 CFR 125.6(a). A firm
undertaking such contracts must comply with these ``limitations on
subcontracting,'' even if it otherwise appears to meet the small
business size standard for the procurement. It cannot qualify as small
for award under any of the aforementioned programs if it subcontracts
more than 50 percent of the contract.
Mid-Size Businesses
A number of comments advocated for SBA to significantly increase
the size standards to enable formerly small businesses (termed as
``mid-sized'' businesses) to obtain Federal contracts. These comments
related the difficulties experienced by former small businesses that
have outgrown the size standards in their industries in obtaining
Federal contractors as ``mid-sized'' businesses. The comments explained
that such businesses are too large to qualify for small business set-
asides and yet too small to compete successfully on a full and open
basis against the largest businesses in their industries. They cited a
study by the Center for International and Strategic Studies, Structure
and Dynamics of the U.S. Federal Professional Services Industrial Base
1995-2009, which found that the market share of Federal contracts for
professional services of mid-sized businesses had declined during the
1995-2009 period, while the large business share had increased. The
study also found that the small business Federal professional services
market share had essentially remained stable. In general, commenters
contended that the formerly small businesses have not developed to a
size where they possess the resources and capabilities to compete
effectively against the largest businesses in their fields that have
billions of dollars in revenue and thousands of employees. In addition,
commenters contended that Federal contracting requirements and trends,
especially contract bundling, make it difficult for mid-size companies
to compete. These comments recommended a number of changes to address
the problem of formerly small businesses. The discussion below provides
descriptions of these recommendations, along with SBA's responses.
1. Include as small businesses those which are not dominant in
their field of operation, in accordance with the Section 3(a)(1) of the
Small Business Act. For example, consider the average size of the
largest businesses in an industry and determine the size standard as a
percentage of that average.
SBA does not adopt this recommendation. As described in its Size
Standards Methodology and the proposed rule, in developing size
standards, SBA considers various characteristics to identify the small
business segment of an industry. SBA's implementation of this provision
of the Small Business Act ensures that a size standard developed based
on its industry analysis does not include a business that is dominant
in its industry. The legislative history of the Act makes clear that a
business under a size standard may not be dominant in its field and
qualify as small. To do otherwise would include extremely large
businesses never envisioned to be considered small.
2. Redefine NAICS 517110 (Wired Telecommunications) to include
information technology services, such as the design, development, and/
or provision of software; the design, development, and/or provision of
information technology systems; and IT infrastructure operations,
maintenance, and security services.
SBA does not adopt this comment. The information technology NAICS
codes under NAICS Industry Group 5415 (Computer Systems Design and
Related Services) are well defined and reflect the range of information
technology services provided by businesses in that Industry Group that
are listed in the recommendation. NAICS 517110, however, pertains to
the provision of telecommunications services. Although
telecommunications apply and use information technology in developing
communications, that is not the nature of the services provided by
businesses in NAICS 517110. If SBA were to adopt the recommendation, a
1,500-employee size standard would apply to information technology
services. However, the industry data for NAICS Industry Group 5415
strongly support its proposed size standard of $25.5 million. SBA is
also concerned that a 1,500-employee size standard for information
technology services would harm currently defined small businesses by
causing them to lose contracts to the much larger businesses under that
suggested size standard.
3. Develop a five-year pilot program for contracting officers to
use number of employees to determine small business status. The
suggested tiers, based on the size of a contract, are as follows:
------------------------------------------------------------------------
Number of
Tier employees Anticipated contract value
------------------------------------------------------------------------
1....................... 1-50 $5 million.
2....................... 51-150 $5-$50 million.
3....................... 151-300 $51-$150 million.
4....................... 301-500 $151-$300 million.
5....................... 501-1,000 $301-$500 million.
6....................... 1,001-2,000 $500 million.
------------------------------------------------------------------------
Pursuant to the recommendation, businesses may compete for
contracts within their size tier or a higher tier. The commenters
stated that this recommendation attempts to protect the
[[Page 7504]]
smallest businesses and assist developing firms and to create a level
playing field among competitors of a similar size.
SBA does not adopt this recommendation. The approach appears to
offer Federal contracting opportunities for various small and mid-sized
businesses. Under such an approach, the small business Federal
procurement programs would become significantly more complex to
administer. Furthermore, new small business procurement goals would
need to be established for each tier to ensure that contracting
officers did not structure contracts for only the largest tiers, and
this in turn would create more burdensome reporting requirements than
those that currently exist. Past programs that applied a tiered small
business approach, such as the Very Small Business Program and the
Emerging Small Business category under the CompDemo Program, were not
successful and were eventually terminated.
4. Establish separate size standards for Federal contracting.
Federal contracting imposes restrictions on business practices and
operations not included in the commercial market. Because of the
differences between commercial and government work, a recommendation
was made for SBA to establish a separate set of size standards for
Federal government procurement.
SBA does not adopt this recommendation. Federal procurement is one
aspect of industry characteristics that is considered along with
industry data and other relevant considerations in developing size
standards. However, giving exclusive consideration to Federal
procurement may produce skewed analyses that are biased in favor of
more successful Federal contractors, which would reduce contracting
opportunities for smaller businesses. For procurement sensitive
industries, SBA will consider giving greater weight to the Federal
contracting factor and possibly evaluating additional data related to
Federal contracts. SBA has established separate size standards for
Federal contracts of very specific types of goods and services as
exceptions in certain industries.
At one point, the size standards for Federal procurements and SBA's
loan programs were different. These separate size standards created
confusion and complexity, and consequently, SBA adopted uniform
standards for both procurement and non-procurement programs in the
1980s. SBA is also concerned that separate standards for Federal
contracts, especially if they are appreciably higher than the current
size standards, may cause significant disadvantage to very small
businesses when they compete for Federal small business set-aside
contracts.
5. Calculate average size based on five years. The commenter also
recommended calculating average annual receipts every five years,
instead of every three. The commenter alleged that this would allow
small businesses to plan and increase capacity before entering full and
open competition and provide longer transition time from small business
status to non-small business status. In addition, small businesses with
large temporary increases in revenues would not lose small business
status.
SBA does not adopt this comment. For receipts based size standards,
calculating size over a period of time ameliorates fluctuations in
receipts due to variations in economic conditions. SBA maintains that
the length of time should reasonably balance the problems of
fluctuating receipts with the overall capabilities of firms that are
about to exceed the size standard. The average receipts calculation has
not been an issue with small businesses and is generally well accepted.
Extending the averaging period to five years would allow a business to
greatly exceed the size standard for one to three years and still be
eligible for Federal assistance, perhaps at the expense of other
smaller businesses. Such a change is more likely to benefit successful
graduated small businesses by allowing them to prolong their small
business status, thereby reducing opportunities for currently defined
small businesses.
Tiered Size Standards
About 35 comments recommended that SBA establish some form of
tiered size standards for Federal contracting. Generally, smaller firms
and those opposing SBA's proposal to increase size standards
recommended creating a ``micro-business'' category to help truly small
businesses that are way below the size standards. Several commenters
recommended a ``multi-tiered'' size standard approach based on the
number of employees and/or size of Federal contracts, to expand Federal
contracting opportunities for mid-sized firms and those close to
exceeding the size standards, while protecting truly small businesses.
Such recommendations are discussed in greater detail elsewhere in this
rule. While SBA recognizes the challenges that both truly small and
mid-sized businesses face in the Federal market, SBA has not adopted
this recommendation in this rule for three reasons. First, as discussed
elsewhere in this rule, SBA believes that tiered standards would add
significant complexity to size standards, which many believe are
already too complex, which would run counter to SBA's ongoing effort to
simplify them. Second, in order for the tiered standards approach to
work as envisioned by its proponents, small business contracting goals
would need to be established at each tier to ensure that small
businesses at different tiers have fair access to Federal small
business contracts. Third, the Small Business Act requires SBA to
establish one definition of what is a small business concern, not what
is small, medium, and so forth.
Size Standards Methodology
SBA received about 70 comments regarding various aspects of the
methodology it used to develop the proposed rule. Commenters generally
supported SBA's methodology and its proposal to use eight fixed size
levels to simplify size standards. Several commenters also supported
SBA's decision not to lower any size any standards, just based on
analytical results, under current economic conditions.
Some commenters believed that SBA's size standards methodology was
too complicated and difficult to understand, while others questioned
the rationale for using $7 million as an anchor for receipts based
standards. There were a few who opposed fixed size levels and believed,
because of big gaps between the two size levels, calculated size
standards could be larger or smaller than otherwise.
SBA's ``Size Standard Methodology'' document provides a vast array
of information on its size standards analysis from a general
description of the analytical approach to rigorous mathematical
expressions of the calculation of industry factors. While some portions
of the document are of somewhat technical nature, the general
description should be sufficient for the public to understand clearly
the various factors and data sources SBA uses when reviewing a size
standard. SBA's methodology document describes the basis for the $7
million anchor for all receipts based size standards. The use of an
anchor size standard serves an important function by ensuring that the
characteristics of all industries are consistently evaluated relative
to the same baseline level. As the methodology document states, the
anchor size standard concept has been in place for many years with
widespread general acceptance. Additionally, the $7 million anchor has
been used as the appropriate size standard for a majority of the
[[Page 7505]]
industries that have receipts based size standards.
The fixed size standard levels were developed in response to
concern from SBA and the public regarding the need to simplify size
standards where possible. Because of the large number of industries and
the great variation therein, a number of different size standards
needed to be established. There were 31 different levels of receipts
based size standards at the start of the current comprehensive size
standards review, which SBA believes are both unnecessary and difficult
to justify analytically. Thus, SBA has implemented the fixed size
standards approach, and it welcomes comments on whether more or fewer
size standard levels are more appropriate.
Several comments suggested an employee based size standard instead
of a receipts based standard, arguing that number of employees is a
better measure of business size for professional services industries,
especially when high ``pass throughs'' are involved, and that receipts
are much more sensitive to business cycles, costs of materials, and
inflation in the economy. SBA disagrees. For industries where
subcontracting is widespread, such as many professional services
industries, SBA is concerned that an employee based size standard may
encourage businesses to excessively outsource Federal work to other
businesses to remain within the size standard. Under the receipts based
standard, businesses are not allowed to deduct value of work
outsourced. SBA will periodically review all industries not less
frequently than every five years.
Some commenters recommended establishing size standards based on
the average size of dominant firms in the industry, arguing that SBA's
current methodology results in size standards that force mid-sized
firms to compete with significantly larger firms in the Federal market.
In developing a size standard, SBA considers various characteristics to
identify the small business segment of an industry. The Small Business
Act provides that a business concern defined as small cannot be
dominant in its industry. SBA has implemented this provision of the
Small Business Act by ensuring that a size standard based on its
industry analysis does not include a business that is dominant in its
industry.
A few questioned the methodology on the ground that calculated size
standards are generally much higher than average firm size. A few
expressed concerns regarding the use of simple average, instead of
median, and averaging size standards over different factors. The
purpose of evaluating a statistic such as average firm size is to
describe quantitatively the structure of an industry. For example, is
the industry comprised of many small or large firms or are most
industry receipts obtained by many small firms or only a few large
firms? Since no single statistic or factor can adequately describe
industry structure, SBA evaluates several statistics or factors to best
obtain a full representation of industry structure. Whichever
statistics or factors are used, the key is to compare different
industries in a consistent manner. Thus, average firm size and other
industry factors are appropriate to compare how different industries
are from one another. In addition, in most cases, equating the size
standard to the average or median firm size in an industry can result
in an unacceptably low size standard that may not adequately capture
the small business segment in an industry that small business programs
are intended to assist. Thus, for most industries, size standards are
generally higher than the simple average or median firm size so that
small businesses are able to grow and develop to an economically viable
size while remaining eligible for Federal assistance. If size standards
are too low, small businesses will quickly outgrow the size standards
and be forced to compete with significantly larger businesses for
Federal contracts on a full and open basis. SBA is equally concerned
about setting size standards too high, as doing so could put smaller
businesses at a disadvantage in competing for Federal opportunities.
A few commenters, including a trade association for professional
services, recommended giving greater weight to the Federal contracting
factor. Federal procurement is one of the factors SBA evaluates, along
with industry data and other relevant considerations, when reviewing a
size standard. When these factors are applied to size standards, a
certain degree of additional consideration is appropriate. As discussed
elsewhere in this rule, giving an excessive weight to Federal
procurement (or some other factor for that matter) may produce skewed
results with unintended adverse impact on small businesses. For
procurement sensitive industries, SBA will consider giving greater
weight to the Federal contracting factor, and possibly evaluating
additional data related to Federal contracts, where appropriate. For
example, SBA considers the Federal procurement factor for those
industries that receive $100 million or more in total Federal contracts
annually and demonstrate a large disparity between small business
shares in the Federal market and the industry's total sales.
One commenter pointed out that the methodology indicated that SBA
received several thousand comments on the 2004 Advance Notice of
Proposed Rulemaking (ANPRM) that was proposed to simplify and
restructure the size standards and that SBA held 11 public hearings
throughout the country. The commenter stated that there was no
resolution of many of these issues and asked if SBA resolved these
issues before making the current proposed rules public--and if so, what
the unresolved issues were and what SBA did to resolve them. While the
2004 ANPRM provided SBA with useful information on many size standard
issues, there was not a general consensus on those issues. The major
issues that SBA raised in the ANPRM are discussed in SBA's ``Size
Standards Methodology'' White Paper (q.v., pp. 45-48), and SBA welcomes
the public's comments on any or all of these issues. Please visit
www.sba.gov/size to access the White Paper. The public should submit
its comments at www.regulations.gov, Docket ID SBA-2009-0008, posted
October 21, 2009. SBA decided to withdraw the rule and continue its
current approach and policies unless significant problems required
changes to its regulations. More importantly, SBA continues to believe
that the most pressing concern about small business size standards is
to ensure that they are supportable by the current industry data and
other relevant considerations, are consistent across industries, and
effectively target Federal small business assistance to its intended
beneficiaries.
One commenter stated that SBA's methodology of averaging size
standards supported by different factors to calculate an overall size
standard may result in loss of information. SBA disagrees. This
procedure actually preserves information provided by different factors,
as opposed to basing the size standard on only one or two factors. The
commenter believed that the averaging procedure especially hurts
companies in the $25.5 million to $35.5 million annual revenue range.
However, as also noted by the commenter, if the size standard was based
on the largest value supported by any of the factors, it would put
smaller companies at a competitive disadvantage. The commenter believed
that perhaps assigning different weights to different factors would
provide better results, but it did not offer any specific suggestions.
An association representing professional services provided the
[[Page 7506]]
following comments on the various factors and analyses SBA used to
develop the proposed size standards.
1. Start-up costs and barriers to entry: The association commented
that while using average assets may be a useful method for assessing
barriers to entry into the commercial market, it fails to capture the
extensive administrative and compliance requirements associated with
Federal contracts, the different skills required for Federal contracts
as compared to the commercial market, and the size of contracts, all of
which also act as significant barriers to the Federal market. The
association recommended that SBA also evaluate the unique costs of
entering the Federal marketplace.
SBA agrees that these are important factors determining businesses'
ability to enter the Federal market and should be considered when
evaluating size standards. However, there exists no readily available
data in a form to be able to formalize these factors in the size
standards methodology. Given the lack of data, SBA believes that
evaluation of small business Federal market share relative to small
business share of the industry total revenues would provide a fairly
good indication of how successful small businesses are in participating
in the Federal market. In addition, SBA also looks at the distribution
of Federal contracts by firm size and size of contracts, when
appropriate.
2. Industry competition: The association recommended that SBA use
the ``eight-firm concentration ratio,'' which it claimed is also a
widely accepted tool for measuring market share (although no references
were provided to support this claim), for evaluating industry
competition. The association stated that the eight-firm concentration
ratio provides a more accurate picture of market share controlled by
the largest firms in an industry. According to the association, using
the eight-firm concentration ratio, SBA may find that the largest firms
control more than 40 percent in more industries than using the four-
firm concentration ratio and SBA may have to increase size standards
for those industries.
SBA agrees that there are various measures for assessing industry
competition. SBA has always used the four-firm concentration ratio to
measure industry competition in its size standards analysis because
this is the mostly widely used measure in the relevant literature, as
described in its ``Size Standard Methodology'' white paper. Further,
the special tabulation of the Economic Census that SBA receives from
the U.S. Census Bureau only includes data to compute the four-firm
concentration ratio, not the eight-firm ratio. However, SBA will
consider using the eight-firm concentration ratio in future reviews. In
response to the comment, SBA evaluated the eight-firm concentration
ratio using the revenue data for firms receiving Federal contracts
under NAICS Industry Group 5415 in CCR. The eight-firm concentration
ratio was more than 40 percent only for NAICS 541513, as was the case
for the four-firm concentration ratio based on the 2007 Economic
Census.
3. Federal contracting factor: The association agreed with SBA's
method of assigning higher size standards for industries where small
businesses are underrepresented in the Federal market relative to their
share in the industry's total sales. The association believed that SBA
should also assess the extent to which contracts are being set aside
within specific industries, as this might have an effect on small
business Federal market share. It pointed out that a higher size
standard may not necessarily lead to a higher small business Federal
market share if small business set-asides are not used in a particular
industry. The comment contended that SBA's goal should be to spread all
small business contracting opportunities across a broad variety of
industries and stated that raising size standards may not have a
measurable impact on that goal if Federal agencies are over-relying on
set-aside contracts only in a handful of industries to meet their small
business contracting goals.
While SBA agrees that small business opportunities should be spread
across a variety of industries, it does not believe that size standards
are the only factor deciding how many set-asides Federal agencies want
to use in the various industries. SBA's size standards establish
eligibility for the small business set-aside opportunities that Federal
agencies provide in a particular industry, but they do not dictate how
the agencies make their set-aside decisions. The number of set-asides
in each industry can be a function of many factors, including the
nature, scope, types, volume, and costs of goods and services the
agencies need to procure. It should also be noted that the current 23
percent small business contracting goal only applies to total
procurements government-wide, but it does not apply to individual
industries.
The association contended that the Federal contracting factor
warrants a greater weight, although it did not provide any specific
value, to account for factors affecting small business share in the
Federal market, including administrative and compliance requirements
associated with Federal contracts, different skills required for
Federal contracts, and size of contracts. As mentioned earlier, there
is a lack of data to be able to formalize these factors and assign a
specific weight for the Federal contracting factor for specific
industries. SBA already gives more weight to the Federal contracting
factor in some industries than in others by assigning higher size
standards for those industries that have $100 million or more in annual
Federal contracting and a lower small business share in the Federal
market relative to their share in industry's total sales.
Data Issues
SBA received 25 comments on the 2007 Economic Census and FPDS-NG
data it used to evaluate industry and Federal procurement factors in
developing the proposed rule.
Two associations representing the accounting profession contended
that the Economic Census data that SBA uses in its analysis did not
adequately reflect the accounting profession and recommended using
alternative data sources for their industries. They provided SBA with
data, but in most cases those data were either estimates based on
sample surveys or represented only a segment of a particular industry,
such as the largest firms in terms of revenue or Federal contracts.
SBA believes that the Economic Census data it uses are in fact
comprehensive and adequately reflect the accounting profession because
the data include all accounting firms in the industry, including any
subsidiaries, divisions, and other affiliates that perform accounting
functions. They are also more complete because Federal law requires all
firms to respond to the Economic Census. Accordingly, SBA believes that
the Economic Census data are more appropriate for its size standard
analyses.
The data submitted by the associations reflect estimated revenues
generated by their worldwide membership and by readers of a major
accounting publication. SBA does not dispute the accuracy of their
data. However, SBA uses only data that reflect domestic operations of
entities with revenues and/or employees in the NAICS Industries for
review of their size standards. Although the associations' data may
appear to be more complete, SBA does not find that their data meet
Agency requirements for determining what an appropriate size standard
should be for an industry. In addition, one association stated that it
represents more than 370,000 members worldwide,
[[Page 7507]]
but it is possible that not all members are firms. Its data included
estimates of revenues and number of professionals per firm for 2007 and
2009, covering approximately 30,700 firms.
The Economic Census data that SBA uses are actual data on firms.
SBA establishes small business size standards based on firms' sizes.
Although the associations' data appear to be comprehensive, they are
based on estimates. SBA does not believe their data are as accurate,
comprehensive, and complete as the Economic Census. To be consistent
with the past and with how SBA reviews size standards for all
industries, SBA will continue to use Economic Census data in the
absence of other more accurate data sources. However, the Agency will
give due considerations to alternative data provided by the industries,
especially if they are representative of the entire industry in
question.
An association representing firms in the surveying, mapping, and
geospatial market commented that the Economic Census data do not
include the large firms that are active in the Federal geospatial
market, which results in a downward bias in calculated standards. Since
the Economic Census data that SBA receives from the Census Bureau are
based on primary industry at the establishment level, establishments
doing some geospatial work may not be included in that industry if that
is not their primary work. SBA is aware that there are known problems
with the Economic Census tabulation for some industries, and therefore
it also evaluates CCR and FPDS-NG data for those industries.
A few commenters believed that the 2007 economic data are outdated
and may not reflect current industry structure. SBA is attentive to
this limitation, but the 2007 Economic Census is the latest and most
comprehensive data source that is available for evaluating all
industries consistently and on the same terms. An association
representing architectural professionals contended that it has better
data for the architectural industry than the Economic Census. The
association's data on distribution of firms by size that it submitted
with its comment were fairly comparable to a similar distribution based
on the 2007 Economic Census special tabulation received from the U.S.
Census Bureau. Several commenters cited a study from the Center for
International and Strategic Studies on Federal professional services
industrial base to substantiate their concerns regarding the
participation of mid-sized businesses in the Federal market.
An association representing engineering firms raised a number of
issues with the data from the 2007 Economic Census that SBA used to
evaluate industry characteristics of Engineering Services (NAICS
541330). Specifically, it opined that Economic Census data do not
accurately reflect the characteristics of businesses in the engineering
industry for the reasons outlined below.
1. The association believed that the 2007 Economic Census includes
several billion-dollar companies under NAICS 541330, thereby inflating
SBA's calculated size standard for that industry. SBA disagrees with
this comment. SBA received from the U.S. Census Bureau a special
tabulation of the 2007 Economic Census for its size standards analysis.
Only the total revenue of each establishment is included in the primary
NAICS code for that establishment. Based on the evaluation of Federal
contract data from FPDS-NG, NAICS 541330 does not appear be the primary
industry for most of the companies that the association identified in
its comment. That means that the vast majority of revenues they
generate are not included in NAICS 541330. For example, in the case of
one company, its primary industry is Aircraft Manufacturing (NAICS
336411), and hence its revenue will be included within that industry
code. Had these companies' total revenues been included in NAICS
541330, the results would have supported a much larger size standard
for Engineering Services. Even if these companies were primarily
engaged in Engineering Services and included in the industry data, SBA
believes that they should not be excluded. Excluding the largest firms
from the analysis, as another association involved in surveying and
mapping noted (discussed above), causes a downward bias on the
calculated size standard.
2. The association also expressed concerns that the Economic Census
data include firms that primarily provide engineering services to
petroleum, petrochemical, and other industrial and manufacturing plants
and processing industries, and therefore the data distort SBA's
results. Based on the NAICS definition, SBA believes that all firms
providing engineering services as their primary industry that are part
of NAICS 541330 should be included in the analysis, no matter what
their clients or industries receiving their services are.
3. The association commented that revenues that many engineering
firms receive from non-Federal work, international work, and non-
engineering work are also included in Economic Census data for NAICS
541330, distorting average firm size and estimated size standards. SBA
disagrees with this comment for two reasons. First, revenues that U.S.
companies generate in foreign countries are not included in the
Economic Census. Second, including revenues that firms primarily
engaged in Engineering Services generate from non-federal work or non-
engineering type of work in NAICS 541330 is consistent with how SBA
calculates revenues for its size standards purposes. In other words,
for a company to qualify as small, its revenues from all sources
(including Federal, state, and private work, and work related to non-
primary industries) must be counted. See 13 CFR 121.104.
4. The association was also concerned that, compared to data from
the Engineering News Record's (ENR) listing of the top 500 design
firms, 2007 Economic Census data grossly overstated the number of firms
with revenues over $25 million that provide infrastructure related
engineering services. Specifically, the association stated that the
2007 Economic Census showed 771 firms with revenues over $25 million
versus 383 firms based on ENR's listing of the top 500 design firms.
SBA disagrees with these figures for two reasons. First, because
Economic Census data for NAICS 541330 cover all types of engineering
firms, not just a sample of design firms possibly developed through
voluntary surveys, the figures from the two sources are simply not
comparable. Second, the special tabulation of the 2007 Economic Census
shows 1,242 firms above $25 million and 791 firms above $50 million in
NAICS 541330. The association did not provide reference to the data
source it used to verify its findings.
5. The association commented that the engineering industry is not
homogenous and is composed of specialty (i.e., single discipline)
firms, full service (i.e., multiple discipline) firms, and their
variations. No industry is homogenous; otherwise size standards would
be unnecessary. However, no matter how many disciplines, the Economic
Census data for NAICS 541330 only include those establishments for
which engineering services are the primary industry. All total revenues
of an establishment are assigned to its primary NAICS industry.
The same engineering association also commented that the FPDS-NG
data that SBA analyzed do not provide a complete picture of small
business participation in the Federal marketplace. Specifically, it
pointed out that there exist no data on work that large prime
contractors subcontracted to
[[Page 7508]]
small businesses, especially in design-build contracts. In design-build
contracts, a construction contractor is usually the prime contract
holder and subcontracts all or some of the engineering to small firms.
Similarly, the association noted that there are no data on work
subcontracted to large firms by small firms. The association made a
further comment that no data exist on various size of firms performing
Federal work within small and large business categories. Citing these
problems, the association stated that there is no way of knowing how
successful and competitive small businesses are in the Federal market
under current size standards. In addition, the association did not
provide in its comment any alternative data sources that SBA should
examine besides the FPDS-NG data to more accurately assess the Federal
marketplace.
SBA is aware that the FPDS-NG data do not provide information on
subcontracting and do not contain information on the exact sizes of
businesses receiving Federal contracts. The Electronic Subcontracting
Reporting System (eSRS) collects data on subcontracting activity, but
those data are not categorized by NAICS industry. SBA concurs with the
association's recommendation that the current data collection system
should be improved to address these problems. However, despite these
and other issues, SBA believes that FPDS-NG is still the best data
source available for assessing activity in the Federal marketplace.
The association also commented that FPDS-NG data lack information
on the exact sizes of businesses receiving Federal contracts, which
would allow a better estimate of the impact of size standards changes
on small businesses. SBA analyzed Federal contracts by both actual size
of contract recipients and size of contracts by merging contract data
from FPDS-NG with employees and revenues information from the CCR. By
using this analysis in conjunction with the share of small businesses
in the Federal market relative to their share in overall industry total
sales, SBA assessed the impacts of proposed size standards changes on
small business participation in the Federal market. If this SBA
analysis is flawed, it is likely due to its being based on flawed data
that companies have self-reported for their CCR registration profiles.
SBA does not verify what information companies put in their CCR
profiles, except when they apply for one of SBA's Business Development
Programs or when the Agency must make a size determination after a
small business size protest.
Small Business Size Definitions and Related Issues
SBA received approximately 160 public submissions from about 130
unique individuals (many submitted multiple comments or the same
comment multiple times) asserting that SBA's proposed small business
size standards did not represent or target ``truly small'' businesses.
Many also stated that the proposed standards included up to 99 percent
of all businesses, and even up to 100 percent in their states. Public
submissions also included ordinary dictionary definitions and size
standards used by foreign countries.
SBA acknowledges that some of its proposed size standards could
include 97 percent to 99 percent of firms in a given industry. However,
it is very important to point out that while it may appear to be a
large segment of an industry in terms of the percentage of firms, small
firms in industries analyzed in this rule represent only 37 percent of
total industry receipts under current standards and 43 percent under
the proposed size standards. Similarly, small businesses in those
industries account for 22-23 percent of total industry Federal
government contract awards. These factors are major considerations when
evaluating small business size standards. It is not uncommon for a
small number of large firms to have a high percentage of industry
receipts and employees and to obtain the largest number of Federal
contacts. In the March 16, 2011 proposed rule, SBA detailed its
analysis and evaluation of these and other factors that it used to
arrive at its various proposed small business size standards. SBA
discusses elsewhere in this rule why it is not adopting every small
business size standard as proposed.
SBA's small business size standards apply to business concerns on a
national basis. As part of its review, SBA investigates whether one or
more firms at or below a proposed size standard would be dominant in
its industry. As stated in its regulations, when SBA examines
dominance, it ``* * * take[s] * * * into consideration market share of
a concern and other appropriate factors which may allow a concern to
exercise a major controlling influence on a national basis in which a
number of business concerns are engaged.'' 13 CFR 121.102(b) [emphasis
added]. For Federal government procurement, opportunities for small
business participation are not limited to contractors in any given
area. SBA therefore looks at dominance on a national basis because U.S.
Government contracting activities are located throughout the U.S., and
contract performance can often be outside of the contracting activity's
or the successful contractor's area. A contractor in Pennsylvania, for
example, can bid on a contract in Hawaii, if it so chooses, and
contracts awarded in California can be for work in New England.
Therefore, SBA must evaluate dominance on a national basis, because
place of bid, place of performance, and/or contractor location are
virtually unlimited within the U.S.
Common dictionary definitions of ``small'' are very general and not
relevant to why and how SBA establishes small business size standards.
SBA's definition of a small business concern is more than a generic
meaning of the word ``small'' in a dictionary. In addition, numeric
small business size standards are just one component of what
constitutes a small business concern. Size standards set thresholds an
entity cannot exceed and still be small for various Federal government
programs. If a firm (together with its affiliates) meets both SBA's
definition of a business concern (see 13 CFR 121.105) and those numeric
size thresholds, it is a small business concern; if it does not meet
both SBA's definition of a business concern and those numeric
thresholds, it is ``other than small.'' Common definitions of ``small''
usually speak about comparisons, and thus it is important to point out
that such general definitions relate only to subjects as compared to
others and lack specificity. SBA's small business size standards are
comparisons, and small businesses are small when compared to those in
its industry that are other than small, but SBA's definitions of what
constitutes a small business concern for Federal government programs
clearly delineate what is small. What constitutes a small business
determines eligibility so that some businesses, but not all, can
qualify for Federal government programs that provide benefits for small
business concerns. A small business in one industry may not be
``small'' in another industry, because being small is relative to other
business concerns that have similar ways of conducting their business.
Furthermore, just as SBA's small business size standards do not
apply to programs of foreign entities, likewise another country's
definition of what is small does not apply and has no relevance to U.S.
Government programs.
[[Page 7509]]
All Other Issues
An association representing firms in NAICS 541360 (Geophysical
Surveying and Mapping Services) expressed concern that Federal agencies
often use NAICS 541930 (Commercial Photography) for contracts to
perform mapping-related aerial photography. The association urged SBA
to modify and clarify the distinction between aerial photography for
mapping and commercial photography and to promulgate regulations to
dissuade or prohibit the use of NAICS 541930 for aerial photography.
SBA does not establish, modify, or clarify NAICS industry
definitions. Any comments regarding the NAICS industry definitions
should be directed to the Office of Management and Budget, which in
partnership with the U.S. Census Bureau, modifies and updates NAICS
industry definitions. The Small Business Size Regulations (13 CFR 121)
already contain provisions against the use of improper NAICS codes for
Federal procurements. First, the regulations require Federal agencies
to designate the proper NAICS code and size standard in a solicitation,
selecting the NAICS code which best describes the principal purpose of
the product or service being acquired. See 13 CFR 121.402(b). Second,
the regulations provide that any interested party adversely affected by
a NAICS code designation may appeal the designation to the Office of
Hearings and Appeals. See 13 CFR 121.1102-1103.
To increase small business participation in Federal market for
mapping and surveying, the association made several policy
recommendations, specifically that (1) SBA establish small business
contracting and subcontracting goals in each industry category to
ensure that small businesses receive a fair proportion of Federal
procurements of goods and services in each industry; (2) size and
complexity of small business set-aside contracts match with size and
capability of small business firms and the ``rule of 2'' be revised to
allow the distinction among types and size of contracts; (3) SBA work
with the industry to develop policies to account for teaming and pass
through subcontracting when determining a firm meets the size standard;
(4) SBA work with existing authority, such as OFPP, to reinstate the
Small Business Competitiveness Demonstration Program; (5) SBA extend
the $300,000 threshold for Department of Defense contracts for
architecture and engineering services under 10 U.S.C. 2855(b) to
civilian agencies as well; and, (6) the SBA work with the industry to
modify FAR part 36-601-4(a)(4) to ensure that the Brooks Act also
applies to Federal contracts involving surveying, mapping and
geospatial services, pursuant to 40 U.S.C. 1102.
An association representing firms in the engineering industries
also provided several policy recommendations to improve participation
of small business engineering firms in the Federal market. These relate
to improvement in contracting data collection, development of contracts
commensurate with capabilities and experience of small firms, expansion
of teaming arrangements, setting small business subcontracting goals
for larger primes, and targeting more set-aside contracts to truly
small firms.
SBA agrees that these are important issues relating to small
business participation in the Federal market for engineering,
surveying, mapping and geospatial services, but they are outside of the
scope of this rule. SBA will work with the industry to find appropriate
avenues to address these important issues.
An association commented that SBA failed to account for the number
of additional firms that would become eligible for each industry
category under the proposed rule. It is not that SBA did not estimate
those figures by industry; rather, the Agency did not include all those
details in the proposed rule. SBA believes that conducting an impact
analysis on an industry-by-industry basis would make the rule too long
and complicated. The association also suggested that SBA provide
estimates of additional firms that would become eligible in each
industry if SBA proposed a size standard one level higher than the
current proposed size standard. SBA believes that such information
would make the rule much more complex. In addition, SBA finds it useful
to receive public comments on its proposal supported by its analysis
and other relevant considerations, rather than comments on different
hypothetical scenarios. However, if SBA adopts in the final rule a
different size standard from that in the proposed rule, SBA will
provide the new estimate of firms impacted in its final regulatory
flexibility analysis.
All public submissions to the proposed rule are available for
public review at http://www.regulations.gov.
Conclusion
Based on the reevaluations of relevant industry and program data
and the Agency's assessments of public comments it received on the
proposed rule, SBA has decided to increase small business size
standards for 34 industries and three sub-industries in NAICS Sector 54
and one industry in NAICS Sector 81. SBA has decided to maintain 11
receipts based size standards in NAICS Sector 54 at their current
levels. SBA also is removing Map Drafting (along with its $4.5 million
size standard) as the ``exception'' under NAICS 541340, Drafting
Services. The following Table--Summary of Size Standards Changes--
summarizes SBA's decisions.
Summary of Size Standards Changes
----------------------------------------------------------------------------------------------------------------
Current size Proposed size Revised size
NAICS Codes NAICS industry title standard ($ standard ($ standard ($
millions) millions) millions)
----------------------------------------------------------------------------------------------------------------
541110............................ Offices of Lawyers........ $7.0 $10.0 $10.0
541191............................ Title Abstract and 7.0 10.0 10.0
Settlement Offices.
541199............................ All Other Legal Services.. 7.0 10.0 10.0
541211............................ Offices of Certified 8.5 14.0 19.0
Public Accountants.
541213............................ Tax Preparation Services.. 7.0 14.0 19.0
541214............................ Payroll Services.......... 8.5 14.0 19.0
541219............................ Other Accounting Services. 8.5 14.0 19.0
541310............................ Architectural Services.... 4.5 19.0 7.0
541320............................ Landscape Architectural 7.0 19.0 7.0
Services.
541330............................ Engineering Services...... 4.5 19.0 14.0
Except............................ Military and Aerospace 27.0 27.0 35.0
Equipment and Military
Weapons.
Except............................ Contracts and Subcontracts 27.0 27.0 35.5
for Engineering Services
Awarded Under the
National Energy Policy
Act of 1992.
[[Page 7510]]
Except,........................... Marine Engineering and 18.5 25.5 35.5
Naval Architecture.
541340............................ Drafting Services......... 7.0 19.0 7.0
Except,........................... Map Drafting.............. 4.5 \1\ \1\
541350............................ Building Inspection 7.0 19.0 7.0
Services.
541360............................ Geophysical Surveying and 4.5 19.0 14.0
Mapping Services.
541370............................ Surveying and Mapping 4.5 19.0 14.0
(except Geophysical)
Services.
541380............................ Testing Laboratories...... 12.0 19.0 14.0
541410............................ Interior Design Services.. 7.0 7.0 7.0
541420............................ Industrial Design Services 7.0 7.0 7.0
541430............................ Graphic Design Services... 7.0 7.0 7.0
541490............................ Other Specialized Design 7.0 7.0 7.0
Services.
541511............................ Custom Computer 25.0 25.5 25.5
Programming Services.
541512............................ Computer Systems Design 25.0 25.5 25.5
Services.
541513............................ Computer Facilities 25.0 25.5 25.5
Management Services.
541519............................ Other Computer Related 25.0 25.5 25.5
Services.
541611............................ Administrative Management 7.0 14.0 14.0
and General Management
Consulting Services.
541612............................ Human Resources Consulting 7.0 14.0 14.0
Services.
541613............................ Marketing Consulting 7.0 14.0 14.0
Services.
541614............................ Process, Physical 7.0 14.0 14.0
Distribution and
Logistics Consulting
Services.
541618............................ Other Management 7.0 14.0 14.0
Consulting Services.
541620............................ Environmental Consulting 7.0 14.0 14.0
Services.
541690............................ Other Scientific and 7.0 14.0 14.0
Technical Consulting
Services.
541720............................ Research and Development 7.0 19.0 19.0
in the Social Sciences
and Humanities.
541810............................ Advertising Agencies...... 7.0 14.0 14.0
541820............................ Public Relations Agencies. 7.0 14.0 14.0
541830............................ Media Buying Agencies..... 7.0 14.0 14.0
541840............................ Media Representatives..... 7.0 14.0 14.0
541850............................ Display Advertising....... 7.0 14.0 14.0
541860............................ Direct Mail Advertising... 7.0 14.0 14.0
541870............................ Advertising Material 7.0 14.0 14.0
Distribution Services.
541890............................ Other Services Related to 7.0 14.0 14.0
Advertising.
541910............................ Marketing Research and 7.0 7.0 14.0
Public Opinion Polling.
541921............................ Photography Studios, 7.0 7.0 7.0
Portrait.
541922............................ Commercial Photography.... 7.0 7.0 7.0
541930............................ Translation and 7.0 7.0 7.0
Interpretation Services.
541940............................ Veterinary Services....... 7.0 7.0 7.0
541990............................ All Other Professional, 7.0 7.0 14.0
Scientific and Technical
Services.
811212............................ Computer and Office Repair 25.0 25.5 25.5
and Maintenance.
----------------------------------------------------------------------------------------------------------------
\1\ Eliminate.
Compliance With Executive Orders 12866, 13563, 12988, 13132, and 13272
the Paperwork Reduction Act (44 U.S.C., Ch. 35) and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
final rule is a ``significant'' regulatory action for purposes of
Executive Order 12866. Accordingly, the next section contains SBA's
Regulatory Impact Analysis. This is not a major rule, however, under
the Congressional Review Act (5 U.S.C. 800).
Regulatory Impact Analysis
1. Is there a need for the regulatory action?
SBA believes that the revised changes to small business size
standards for 34 industries and three sub-industries within NAICS
Sector 54, Professional, Technical, and Scientific Services, and one
industry in NAICS Sector 81, Other Services, reflect changes in
economic characteristics of small businesses in those industries and
the Federal procurement market. SBA's mission is to aid and assist
small businesses through a variety of financial, procurement, business
development, and advocacy programs. To assist the intended
beneficiaries of these programs effectively, SBA establishes distinct
definitions to determine which businesses are deemed small businesses.
The Small Business Act (15 U.S.C. 632(a)) delegated to SBA's
Administrator the responsibility for establishing definitions for small
business. The Act also requires that small business definitions vary to
reflect industry differences. In addition, the Jobs Act requires the
Administrator to review one-third of all size standards during each 18-
month period from the date of its enactment and to review all size
standards at least every five years thereafter. The supplementary
information sections of the March 16, 2011 proposed rule and this final
rule explained in detail SBA's methodology for analyzing a size
standard for a particular industry.
2. What are the potential benefits and costs of this regulatory action?
The most significant benefit to businesses obtaining small business
status as a result of this rule is gaining or regaining eligibility for
Federal small business assistance programs, including SBA's financial
assistance programs, economic injury disaster loans, and Federal
procurement opportunities
[[Page 7511]]
intended for small businesses. Federal small business programs provide
targeted opportunities for small businesses under SBA's various
business development and contracting programs. These include the 8(a)
program, and programs benefitting small disadvantaged businesses (SDB),
small businesses located in Historically Underutilized Business Zones
(HUBZone), women-owned small businesses (WOSB), and service-disabled
veteran-owned small business concerns (SDVO SBC). Other Federal
agencies also may use SBA's size standards for a variety of regulatory
and program purposes. These programs help small businesses become more
knowledgeable, stable, and competitive.
In the 35 industries and three sub-industries for which SBA has
decided to increase size standards in this rule, SBA estimates that,
based on an updated special tabulation of the 2007 Economic Census,
about 8,350 additional firms will obtain small business status and
become eligible for these programs. That number is about 1.1 percent of
the total number of firms in those industries defined as small under
the current standards. SBA estimates that this will increase the small
business share of total industry receipts in those industries from
about 37 percent under the current size standards to 42 percent.
The benefits of increasing size standards to a more appropriate
level will accrue to three groups as follows: (1) Some businesses that
are above the current size standards will gain small business status
under the higher size standards, thereby enabling them to participate
in Federal small business assistance programs; (2) growing small
businesses that are close to exceeding the current size standards will
be able to retain their small business status under the higher size
standards, thereby enabling them to continue their participation in the
programs; and (3) Federal agencies will have larger pools of small
businesses from which to draw for their small business procurement
programs.
Based on the FPDS-NG data for fiscal years 2008-2010, more than 95
percent of total Federal contracting dollars spent in industries
covered by this rule were accounted for by the 35 industries and three
sub-industries for which SBA is increasing the size standards. SBA
estimates that additional firms gaining small business status in those
industries under the revised size standards could potentially obtain
Federal contracts totaling up to $500 million per year under SBA's
small business, 8(a), SDB, HUBZone, WOSB, and SDVO SBC programs and
other unrestricted procurements. The added competition for many of
these procurements also could result in lower prices to the Government
for procurements reserved for small businesses, although SBA cannot
quantify this benefit.
Under SBA's 7(a) Business Loan and 504 Programs, based on the 2008-
2010 data, SBA estimates about 75 to 100 additional loans totaling
about $15 million to $20 million in Federal loan guarantees could be
made to these newly defined small businesses under the revised size
standards. Increasing the size standards will likely result in more
small business guaranteed loans to businesses in these industries, but
it would be impractical to try to estimate exactly their number and the
total amount loaned. Under the Jobs Act, SBA can now guarantee
substantially larger loans than in the past. In addition, the Jobs Act
established an alternative size standard for business concerns that do
not meet the size standards for their industry ($15 million in tangible
net worth and $5 million in net income after income taxes). Therefore,
SBA finds it similarly difficult to quantify the impact of these
proposed standards on its 7(a) and 504 Loan Programs.
Newly defined small businesses will also benefit from SBA's
Economic Injury Disaster Loan (EIDL) Program. Since this program is
contingent on the occurrence and severity of a disaster, SBA cannot
make a meaningful estimate of benefits for future disasters.
To the extent that 8,350 newly defined small firms under the
revised size standards could become active in Federal procurement
programs, this may entail some additional administrative costs to the
Federal Government associated with additional bidders for Federal small
business procurement opportunities, additional firms seeking SBA
guaranteed lending programs, additional firms eligible for enrollment
in the Central Contractor Registration's Dynamic Small Business Search
database, and additional firms seeking certification as 8(a) or HUBZone
firms or those qualifying for small business, WOSB, SDVO SBC, or SDB
status. Among businesses in this group seeking SBA assistance, there
could be some additional costs associated with compliance and
verification of small business status and protests of small business
status. These added costs are likely to be minimal because mechanisms
are already in place to handle these administrative requirements.
The costs to the Federal Government may be higher on some Federal
contracts under the higher revised size standards. With a greater
number of businesses defined as small, Federal agencies may choose to
set aside more contracts for competition among small businesses rather
than using full and open competition. The movement from unrestricted to
small business set-aside contracting might result in competition among
fewer total bidders, although there will be more small businesses
eligible to submit offers. In addition, higher costs may result when
more full and open contracts are awarded to HUBZone businesses that
receive price evaluation preferences. The additional costs associated
with fewer bidders, however, are expected to be minor since, as a
matter of law, procurements may be set aside for small businesses or
reserved for the 8(a), HUBZone, WOSB, or SDVO SBC programs only if
awards are expected to be made at fair and reasonable prices.
The revised size standards may have some distributional effects
among large and small businesses. Although SBA cannot estimate with
certainty the actual outcome of the gains and losses among small and
large businesses, it can identify several probable impacts. There may
be a transfer of some Federal contracts to small businesses from large
businesses. Large businesses may have fewer Federal contract
opportunities as Federal agencies decide to set aside more Federal
contracts for small businesses. In addition, some Federal contracts may
be awarded to HUBZone concerns instead of large businesses since these
firms may be eligible for an evaluation adjustment for contracts when
they compete on a full and open basis. Similarly, currently defined
small businesses may obtain fewer Federal contracts due to the
increased competition from more businesses defined as small under the
revised 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 away from large and currently defined small
businesses. SBA cannot estimate the potential distributional impacts of
these transfers with any degree of precision.
The revisions to the existing size standards are consistent with
SBA's statutory mandate to assist small businesses. 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,
[[Page 7512]]
Government contracts, and management and technical assistance.
Reviewing and modifying size standards, when appropriate, ensures that
intended beneficiaries have access to small business programs designed
to assist them.
Executive Order 13563
A description of the need for this regulatory action and the
benefits and costs associated with this action, including possible
distributional impacts that relate to Executive Order 13563, is
included above in the Regulatory Impact Analysis under Executive Order
12866.
In an effort to engage interested parties in this action, SBA
presented its methodology (discussed above under Supplementary
Information) to various industry associations and trade groups. SBA met
with various industry groups to obtain their feedback on its
methodology and other size standards issues. SBA also presented its
size standards methodology to businesses in 13 cities in the U.S. and
sought their input as part of the Jobs Act tours. These presentations
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.
Before SBA issued the March 16, 2011 proposed rule, it met with
representatives from two associations representing firms in NAICS
Industry Group 5412, Accounting, Tax Preparation, Bookkeeping, and
Payroll Services, to learn their ideas for size standards for these
industries, without discussing what changes SBA was considering to
propose. SBA explained its methodology and indicated it would consider
other data or information they might have to support the size standard
that they suggested.
Additionally, SBA sent letters to the Directors of the Offices of
Small and Disadvantaged Business Utilization (OSDBU) at several Federal
agencies with considerable procurement responsibilities requesting
their feedback on how the agencies use SBA size standards and whether
current standards meet their programmatic needs (both procurement and
nonprocurement). SBA gave appropriate consideration to all input,
suggestions, recommendations, and relevant information obtained from
industry groups, individual businesses, and Federal agencies in
preparing the proposed rule.
Furthermore, when SBA issued the proposed rule, it provided notice
of its publication to over 230 individuals and companies that had in
recent years exhibited an interest by letter, email, or phone, in size
standards for NAICS Sector 54 so they could comment.
The review of size standards in NAICS Sector 54, and the
implementation of necessary adjustments to reflect current industry
data and market conditions, are consistent with EO 13563 section 6,
calling for retrospective analyses of existing rules. The last overall
review of size standards occurred during the late 1970s and early
1980s. Since then, except for periodic adjustments for monetary based
size standards, most reviews of size standards had been limited to a
few specific industries in response to requests from the public and
Federal agencies. SBA recognizes that changes in industry structure and
the Federal marketplace over time have rendered existing size standards
for some industries no longer supportable by current data. Accordingly,
in 2007, SBA began a comprehensive review of its size standards to
ensure that existing size standards have supportable bases and to
revise them when necessary. In addition, the Jobs Act directs SBA to
conduct a detailed review of all size standards and to make appropriate
adjustments to reflect market conditions. Specifically, the Jobs Act
requires SBA to conduct a detailed review of at least one-third of all
size standards during every 18-month period from the date of its
enactment and to do a complete review of all size standards not less
frequently than once every 5 years thereafter.
Executive Order 12988
This action meets applicable standards set forth in Sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.
Executive Order 13132
For purposes of Executive Order 13132, SBA has determined that this
proposed rule will not have substantial, direct effects on the States,
on the relationship between the national government and the States, or
on the distribution of power and responsibilities among the various
levels of government. Therefore, SBA has determined that this proposed
rule has no federalism implications warranting preparation of a
federalism assessment.
Executive Order 13272
Pursuant to Executive Order 13272 and the Small Business Jobs Act
of 2010, Federal agencies issuing final rules are required to discuss
and give every appropriate consideration to comments received from the
SBA's Office of Advocacy to the proposed rule. SBA's Office of Advocacy
submitted two comments on the proposed rule. In the first comment
submitted on May 12, 2012, it expressed a concern about the large
proposed increase to the size standard for the A&E services industries
that would define as small much larger firms than those considered
small under the current size standard. It also recommended that SBA
extend the comment period an additional 45 days to allow stakeholders
to further evaluate and comment on the proposed size standards. SBA
partially agreed with this recommendation by extending the comment
period for an additional 30 days. As a result, SBA received
approximately 1,000 additional comments after the closing date of
original comment period.
The second comment submitted by SBA's Office of Advocacy on June
14, 2011 addressed the size standard concerns on behalf of three
industries. For the A&E services, it acknowledged that stakeholders had
expressed differing concerns regarding the proposed $19 million size
standard. It recommended that SBA consider a lower size standard than
proposed, but increase the current $4.5 million size standard to allow
for some growth of firms in the Federal marketplace. As discussed
earlier in this final rule, SBA decided not to adopt the proposed $19
million size standard for the A&E services. Rather, based largely upon
the comments and SBA's further analysis of industry data, SBA adopted a
$7 million size standard for architectural services and a $14 million
size standard for engineering services.
For the mapping services and accounting industries, SBA's Office of
Advocacy recommended no specific size standard other than suggesting
that SBA should give careful consideration to the comments submitted by
associations in these industries. In particular, it stressed that SBA
should examine the geospatial market within the surveying and mapping
industry and reassess its methodology for evaluating the primary and
secondary factors for the accounting industry.
SBA agreed with these recommendations. As discussed earlier in this
final rule, SBA found that the information provided in the comments on
these two industries warranted a reassessment of the size standards.
Based on industry comments and data as well as SBA's additional
analysis, SBA adopted a higher 19 million size
[[Page 7513]]
standard rather than the proposed $14 million for the accounting
industry. SBA's decision not to adopt a common size standard for all
industries in NAICS Industry Group 5413, assessment of public comments,
and reevaluation of industry and Federal procurement data, as
previously discussed, resulted in a $14 million size standard for both
NAICS 541360 (Geophysical Surveying and Mapping Services) and NAICS
541370 (Surveying and Mapping, except Geophysical), which includes
geospatial services. Without that assessment, the data for NAICS 541370
alone would have supported only a $5 million size standard.
Paperwork Reduction Act, 44 U.S.C., Ch. 35
For the purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA has determined that this proposed rule will not impose new
reporting or record keeping requirements, other than those required of
SBA.
Final Regulatory Flexibility Analysis
Under the Regulatory Flexibility Act (RFA), this rule may have a
significant impact on a substantial number of small entities in
industries covered in this rule. As described above, this rule may
affect small entities seeking Federal contracts, SBA 7(a) and 504
Guaranteed Loans, SBA Economic Injury Disaster Loans, and various small
business benefits under other Federal programs.
Immediately below, SBA sets forth a final regulatory flexibility
analysis of this final rule addressing the following questions: (1)
What are the need for and objective of the rule? (2) What are SBA's
description and estimate of the number of small entities to which the
rule will apply? (3) What are the projected reporting, record keeping,
and other compliance requirements of the rule? (4) What are the
relevant Federal rules which may duplicate, overlap or conflict with
the rule? and (5) What alternatives will allow the Agency to accomplish
its regulatory objectives while minimizing the impact on small
entities?
(1) What are the need for and objective of the rule?
Many of SBA's size standards for the Professional, Technical, and
Scientific Services industries had not been reviewed since the 1980s.
Since then, technological changes, productivity growth, international
competition, mergers and acquisitions, and updated industry definitions
may have changed the structure of many industries in that Sector. Such
changes can be sufficient to support a revision to size standards for
some industries. Based on the analysis of the latest industry and
program data available, SBA believes that the revised standards in this
rule more appropriately reflect the size of businesses in those
industries that need Federal assistance. Additionally, the Jobs Act
requires SBA to review all size standards and make appropriate
adjustments to reflect current data and market conditions.
(2) What are SBA's description and estimate of the number of small
entities to which the rule will apply?
Based on the updated tabulation from the 2007 Economic Census, SBA
estimates that about 8,350 additional firms will become small because
of increases in size standards in 35 industries and three sub-
industries. That represents 1.1 percent of total firms in those
industries and sub-industries. This will result in an increase in the
small business share of total industry receipts for those industries
and sub-industries from about 37 percent under the current size
standard to 42 percent under the revised size standards. SBA does not
anticipate the revised size standards to cause a significant
competitive impact on smaller businesses in these industries. As many
comments to the proposed rule suggested, the revised size standards
will enable more small businesses to retain their small business status
for a longer period. Under current standards, many small businesses
have lost their eligibility and find it difficult to compete 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 and an estimate of the classes of
small entities which will be subject to the requirements?
Revised size standards do not impose any additional reporting or
record keeping requirements on small entities. However, qualifying for
Federal procurement and a number of other programs requires that
entities register in the CCR database and certify at least once
annually that they are small in the Online Representations and
Certifications Application (ORCA). Therefore, businesses opting to
participate in those programs must comply with CCR and ORCA
requirements. There are no costs associated with either CCR
registration or ORCA certification. Changing size standards alters the
access to SBA programs that assist small businesses but does not impose
a regulatory burden, as they neither regulate nor control business
behavior.
(4) What are the relevant Federal rules which may duplicate,
overlap or conflict with the rule?
Under section 3(a)(2)(C) of the Small Business Act, 15 U.S.C.
632(a)(2)(c), Federal agencies must use SBA's size standards to define
a small business, unless specifically authorized by statute. In 1995,
SBA published in the Federal Register a list of statutory and
regulatory size standards that identified the application of SBA's size
standards as well as other size standards used by Federal agencies (60
FR 57988, November 24, 1995). SBA is not aware of any Federal rule that
would duplicate or conflict with establishing or revising size
standards.
However, the Small Business Act and SBA's regulations allow Federal
agencies to develop different size standards if they believe that SBA's
size standards are not appropriate for their programs, with the
approval of SBA's Administrator. 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 reasons set forth in the preamble, SBA amends 13 CFR part 121
as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
1. The authority citation for part 121 is revised to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 662, and 694a(9).
[[Page 7514]]
0
2. In Sec. 121.201, amend the table ``Small Business Size Standards by
NAICS Industry'' as follows:
0
a. In Sec. 121.201, in the table, revise the entries for ``541110'',
``541191'', ``541199'', ``541211'', ``541213'', ``541214'', ``541219'',
``541310'', ``541330 introductory entry and first, second and third
sub-entry'', ``541360'', ``541370'', ``541380'', ``541511'',
``541512'', ``541513'', ``541519 introductory entry'', ``541611'',
``541612'', ``541613'', ``541614'', ``541618'', ``541620'', ``541690'',
``541720'', ``541810'', ``541820'', ``541830'', ``541840'', ``541850'',
``541860'', ``541870'', ``541890'', ``541910'', ``541990'', and
``811212'' ; and
0
b. In Sec. 121.201, in the table, amend the entry for ``541340'' by
removing the subentry ``Except'', ``Map Drafting'' ``$4.5''.
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
----------------------------------------------------------------------------------------------------------------
* * * * * * *
541110..................................... Offices of Lawyers................. $10.0 ..............
541191..................................... Title Abstract and Settlement 10.0 ..............
Offices.
541199..................................... All Other Legal Services........... 10.0 ..............
541211..................................... Offices of Certified Public 19.0 ..............
Accountants.
541213..................................... Tax Preparation Services........... 19.0 ..............
541214..................................... Payroll Services................... 19.0 ..............
541219..................................... Other Accounting Services.......... 19.0 ..............
541310..................................... Architectural Services............. 7.0 ..............
* * * * * * *
541330..................................... Engineering Services............... 14.0 ..............
Except,.................................... Military and Aerospace Equipment 35.5 ..............
and Military Weapons.
Except,.................................... Contracts and Subcontracts for 35.5 ..............
Engineering Services Awarded Under
the National Energy Policy Act of
1992.
Except,.................................... Marine Engineering and Naval 35.5 ..............
Architecture.
* * * * * * *
541360..................................... Geophysical Surveying and Mapping 14.0 ..............
Services.
541370..................................... Surveying and Mapping (except 14.0 ..............
Geophysical) Services.
541380..................................... Testing Laboratories............... 14.0 ..............
* * * * * * *
541511..................................... Custom Computer Programming 25.5 ..............
Services.
541512..................................... Computer Systems Design Services... 25.5 ..............
541513..................................... Computer Facilities Management 25.5 ..............
Services.
541519..................................... Other Computer Related Services.... 25.5 ..............
* * * * * * *
541611..................................... Administrative Management and 14.0 ..............
General Management Consulting
Services.
541612..................................... Human Resources Consulting Services 14.0 ..............
541613..................................... Marketing Consulting Services...... 14.0 ..............
541614..................................... Process, Physical Distribution and 14.0 ..............
Logistics Consulting Services.
541618..................................... Other Management Consulting 14.0 ..............
Services.
541620..................................... Environmental Consulting Services.. 14.0 ..............
541690..................................... Other Scientific and Technical 14.0 ..............
Consulting Services.
* * * * * * *
541720..................................... Research and Development in the 19.0 ..............
Social Sciences and Humanities.
541810..................................... Advertising Agencies \10\.......... \10\ 14.0 ..............
541820..................................... Public Relations Agencies.......... 14.0 ..............
541830..................................... Media Buying Agencies.............. 14.0 ..............
541840..................................... Media Representatives.............. 14.0 ..............
541850..................................... Display Advertising................ 14.0 ..............
541860..................................... Direct Mail Advertising............ 14.0 ..............
541870..................................... Advertising Material Distribution 14.0 ..............
Services.
541890..................................... Other Services Related to 14.0 ..............
Advertising.
541910..................................... Marketing Research and Public 14.0 ..............
Opinion Polling.
* * * * * * *
541990..................................... All Other Professional, Scientific 14.0 ..............
and Technical Services.
* * * * * * *
811212..................................... Computer and Office Repair and 25.5 ..............
Maintenance.
[[Page 7515]]
* * * * * * *
----------------------------------------------------------------------------------------------------------------
* * * * *
\10\ NAICS codes 488510 (part) 531210, 541810, 561510, 561520, and 561920--As measured by total revenues, but
excluding funds received in trust for an unaffiliated third party, such as bookings or sales subject to
commissions. The commissions received are included as revenues.
* * * * *
Dated: November 7, 2011.
Karen G. Mills,
Administrator.
[FR Doc. 2012-2659 Filed 2-9-12; 8:45 am]
BILLING CODE 8025-01-P