[Federal Register Volume 75, Number 193 (Wednesday, October 6, 2010)]
[Rules and Regulations]
[Pages 61604-61609]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-24857]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN: 3245-AF71


Small Business Size Standards; Accommodation and Food Services 
Industries

AGENCY: Small Business Administration (SBA).

ACTION: Final rule.

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SUMMARY: The United States Small Business Administration (SBA) is 
increasing small business size standards for five industries in North 
American Industry Classification System (NAICS) Sector 72, 
Accommodation and Food Services--namely NAICS 721110, Hotels and 
Motels, from $7.0 million to $30 million; NAICS 721120, Casino Hotels, 
from $7.0 million to $30 million; NAICS 722211, Limited Service 
Restaurants, from $7.0 million to $10 million; NAICS 722212, 
Cafeterias, from $7.0 million to $25.5 million; and NAICS 722310, Food 
Service Contractors, from $20.5 million to $35.5 million. As part of 
its ongoing initiative to review all size standards, SBA has evaluated 
every industry in Sector 72 to determine whether the existing size 
standards should be retained or revised.

DATES: This rule is effective November 5, 2010.

FOR FURTHER INFORMATION CONTACT: Carl Jordan, Program Analyst, Office 
of Size Standards, (202) 205-6618 or sizestandards@sba.gov.

SUPPLEMENTARY INFORMATION:

Introduction

    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--annual receipts and number of employees. Financial assets, 
electric output and refining capacity are used as size measures for a 
few specialized industries. In addition, SBA's Small Business 
Investment Company (SBIC) 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. 
Currently, SBA's size standards consist of 45 different size levels, 
covering 1,141 NAICS industries and 17 sub-industry activities. Of 
these size levels, 32 are based on average annual receipts, eight

[[Page 61605]]

are based on number of employees, and five are 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 and, in particular, that 
they do not reflect changes in the Federal contracting marketplace. The 
last overall review of size standards occurred during the late 1970s 
and early 1980s. Since then, most reviews of size standards have been 
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 Federal 
marketplace over time have rendered existing size standards for some 
industries no longer supportable by current data. Accordingly, SBA has 
begun 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 make revisions to existing size 
standards. Rather than review all size standards at one time, SBA has 
taken a more manageable approach to reviewing a group of related 
industries within an NAICS Sector. SBA expects to complete its review 
of all NAICS Sectors in two years.
    As part of its ongoing effort to review all small business size 
standards, SBA evaluated every industry in NAICS Sector 72, 
Accommodation and Food Services, to determine whether the existing size 
standards should be retained or revised, and published a proposed rule 
for public comment in the October 21, 2009 issue of the Federal 
Register (74 FR 53913) to increase the size standards for five 
industries in that Sector. The proposed rule was one of a series of 
proposals that will examine industries grouped by an NAICS Sector. SBA 
also published concurrently in the same October 21, 2009 issue of the 
Federal Register proposed rules to increase small business size 
standards for 47 industries in NAICS Sector 44-45, Retail Trade (74 FR 
53924) and for 18 industries in NAICS Sector 81, Other Services (74 FR 
53941). Similarly, SBA is publishing final rules on NAICS Sector 44-45 
and NAICS Sector 81 elsewhere in this issue of the Federal Register.
    In addition, SBA established its ``Size Standards Methodology'' for 
reviewing small business size standards and modifying them, where 
necessary. SBA published in the October 21, 2009 issue of the Federal 
Register (74 FR 53940) a notice of its availability, for public 
comments, on its Web site at http://www.sba.gov/contractingopportunities/officials/size/index.html. In addition, SBA 
has placed a copy of its ``Size Standards Methodology'' in the 
electronic docket of the proposed rule and is available there as well.
    In evaluating an industry's size standard, SBA examines the 
industry's characteristics (such as average firm size, startup costs, 
industry competition and distribution of firms by size), Federal 
government contracting trends, impact on SBA financial assistance 
programs, and dominance in field of operations. SBA analyzed the 
characteristics of each industry in NAICS Sector 72 mostly using a 
special tabulation obtained from the U. S. Bureau of the Census from 
its 2002 Economic Census (the latest available). SBA also evaluated 
Federal contracting trends using the data from the Federal Procurement 
Data System--Next Generation (FPDS--NG) for fiscal years 2006-2008.
    To evaluate the impact of changes to size standards on its loan 
programs, SBA analyzed internal data on its guaranteed loan programs 
for fiscal years 2006-2008.
    SBA's ``Size Standards Methodology'' provides a detailed 
description of analyses of various industry and program factors and 
data sources and derivation of size standards using the results. In the 
proposed rule itself, SBA detailed how it applied its ``Size Standards 
Methodology'' to review, and to modify where necessary, the existing 
standards for the Sector and Industries under analysis.
    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 because of the lack of 
comprehensive data; and whether there are other facts or issues that 
SBA should consider in its methodology.
    SBA did not receive any comments on ``Size Standards Methodology.'' 
SBA continues to welcome comments from interested parties.
    In the proposed rule, based on its analyses of current industry and 
other relevant data, SBA proposed to increase five of the 15 size 
standards in NAICS Sector 72. SBA's analyses supported retaining the 
existing size standards for three industries. As noted in the proposed 
rule, SBA's analyses would support reducing size standards for the 
seven of the remaining industries in the Sector. However, as the 
proposed rule pointed out, SBA believes 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 is doing to help small businesses. Therefore, SBA proposed 
to retain the existing size standards for those seven industries.

Summary of Comments

    The proposed rule sought comments from the public on SBA's proposal 
to increase size standards for five Industries in NAICS Sector 72. SBA 
received six comments; four strongly supported the proposed increases 
in size standards and two did not. The four supporting comments stated 
that the proposed increases will help more small hotels participate in 
Federal procurement opportunities reserved for small businesses. It 
will also help the Federal government meet its hotel and conference 
accommodation needs. The commenters stated that there are too few 
conference hotels under the current size standards with little 
competition for federal business.
    Another commenter suggested that there should be only one maximum 
revenue based and one maximum employee based size standard, regardless 
of NAICS industry. While this would simplify size standards even more 
than what SBA had proposed, the Small Business Act states that ``the 
[SBA] Administrator shall ensure that the size standard varies from 
industry to industry to the extent necessary to reflect the differing 
characteristics of the various industries and consider other factors 
deemed to be relevant by the Administrator.'' (15 U.S.C. 632(a)(3)) The 
relevant data show significant differences among industries within each 
NAICS Sector, including Sector 72, and SBA believes that varying the 
size standard by industry not only complies with the Act, but it also 
serves the best interests of small businesses in that Sector. 
Therefore, SBA does not presently plan to reduce the number of receipts 
based size standard levels below eight.
    Another commenter stated that an increase from $7 million to $30 
million was ``too drastic,'' but provided no

[[Page 61606]]

specifics to support this opinion. SBA agrees that such an increase 
might appear so, but based on its analysis of the industries in Sector 
72, fully explained in the proposed rule (q.v.), SBA believes that the 
increases are appropriate.
    SBA did not receive any comments on whether it should lower size 
standards for the seven industries in NAICS Sector 72 for which SBA's 
analyses supported reducing the existing size standards. SBA also did 
not receive any comments on three industries for which SBA's analyses 
supported retaining the existing size standards. Therefore, SBA is 
retaining the existing size standards for 10 of the 15 Industries in 
NAICS Sector 72.
    All comments to the proposed rule are available for public review 
at http://www.regulations.gov.

Conclusion

    Based on its analyses of relevant industry and program data and 
public comments it received on the proposed rule, SBA has decided to 
increase five small business size standards in NAICS Sector 72, as 
shown in the following table.

  Summary of Revised Small Business Size Standards for NAICS Sector 72
------------------------------------------------------------------------
                                           Current size    Revised size
                  NAICS                    standard  ($    standard  ($
                                             million)        million)
------------------------------------------------------------------------
721110--Hotels (except Casino Hotels) &             $7.0           $30.0
 Motels.................................
721120--Casino Hotels...................             7.0            30.0
722211--Limited Service Restaurants.....             7.0            10.0
722212--Cafeterias......................             7.0            25.5
722310--Food Service Contractors........            20.5            35.5
------------------------------------------------------------------------

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

    The Office of Management and Budget (OMB) has determined that this 
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 adjustments to certain size standards in Sector 
72, Accommodation and Food Services, are needed to better reflect the 
economic characteristics of small businesses in those industries. SBA 
provides aid and assistance to small businesses through a variety of 
financial, procurement, business development and advocacy programs. To 
assist effectively the intended beneficiaries of these programs, SBA 
must establish distinct definitions of which businesses are deemed 
small businesses. The Small Business Act (15 U.S.C. 632(a)) delegates 
to SBA's Administrator the responsibility for establishing small 
business definitions. The Act also requires that small business 
definitions vary to reflect industry differences. The supplementary 
information section of this rule explains SBA's methodology for 
analyzing a size standard for a particular industry.

2. What are the potential benefits and costs of this regulatory action?

    The most significant benefit to businesses obtaining small business 
status as a result of this rule is eligibility for Federal small 
business assistance programs, including SBA's financial assistance 
programs, economic injury disaster loans, and Federal procurement 
preference programs for small businesses. Federal procurement 
regulations provide opportunities for small businesses under SBA's 
business development programs, such as 8(a), Small Disadvantaged 
Businesses (SDB), small businesses located in Historically 
Underutilized Business Zones (HUBZone), women owned small businesses 
and service disabled veteran owned small businesses (SDVOSB). Other 
Federal agencies also may use SBA size standards for a variety of 
regulatory and program purposes. Through the assistance of these 
programs, small businesses become more knowledgeable, stable and 
competitive businesses. In five industries under Sector 72 for which 
SBA had proposed to increase size standards, about 2,050 additional 
firms are estimated to obtain small business status and become eligible 
for these programs.
    In the seven industries for which SBA's analyses indicated a lower 
size standard as appropriate, there are about 450 firms that might have 
lost their small business status, had SBA proposed lowering them. That 
number is less than 0.6 percent of the total number of firms in those 
industries defined as small under the current standards. Thus, the net 
impact for the Sector as whole is about 2,050 additional firms gaining 
and none losing small business status under this rule. This will 
increase the small business share of total industry receipts for the 
Sector from about 46 percent under the current size standards to nearly 
50 percent under the revised standards.
    The benefits of increasing certain size standards to a more 
appropriate level would accrue to three groups: (1) Businesses that 
benefit by gaining small business status from the higher size standard 
that also use small business assistance programs; (2) growing small 
businesses that may exceed the current size standards in the near 
future and that will retain their small business status from the higher 
size standards; and (3) Federal agencies that award contracts under 
procurement programs that require small business status.
    Nearly 90 percent of Federal contracting dollars spent in Sector 72 
during fiscal years 2006-2008 was accounted for by two of five 
industries for which size standards have been increased in this rule. 
SBA estimates that additional firms gaining small business status in 
those two industries under the new size standards could potentially 
obtain Federal contracts totaling up to $75 million per year under the 
small business set-aside program, the 8(a), HUBZone, and SDVOSB 
Programs, or unrestricted procurements. This represents about 5.5 
percent of the $1.13 billion in average Federal contract dollars 
awarded in the Accommodation and Food Services Sector during fiscal 
years 2006-2008. The added competition for many of these procurements 
will also likely result in a lower price to the Government for 
procurements reserved

[[Page 61607]]

for small businesses, but SBA is not able to quantify this benefit.
    Under SBA's 7(a) Guaranteed Loan Program and 504 Certified 
Development Company (CDC) Program, SBA estimates only a few additional 
loans totaling $1 million to $2 million in Federal loan guarantees 
could be made to these newly defined small businesses. Because of the 
size of the loan guarantees, however, most loans are made to small 
businesses well below the size standard. Moreover, under the Recovery 
Act, effective February 17, 2009, SBA temporarily raised guarantees on 
its SBA's 7(a) loan program and also temporarily eliminated fees for 
borrowers on SBA 7(a) loans and for both borrowers and lenders on 504 
CDC loans, through calendar year 2009, or until the funds are 
exhausted. The fee elimination is retroactive to February 17, 2009, the 
day the Recovery Act was signed. In addition, since SBA has applied its 
CDC alternative size standard to its 7(a) Business Loan Program, more 
capital is available to small businesses. Thus, increasing the size 
standards will likely result in an increase in guaranteed loans to 
businesses in these industries, but it would be impractical to try to 
estimate the extent of their number and the total amount loaned.
    The 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 disasters, no meaningful 
estimate of benefits can be projected for future disasters.
    To the extent that 2,050 additional firms 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 
qualifying for 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 additional costs are likely to be minimal 
because mechanisms are already in place to handle these additional 
administrative requirements.
    The costs to the Federal Government may be higher on some Federal 
contracts. With a greater number of businesses defined as small, 
Federal agencies may choose to set aside more contracts for competition 
among small businesses rather than using full and open competition. The 
movement from unrestricted to set-aside contracting is likely to result 
in competition among fewer bidders. In addition, higher costs may 
result from additional full and open contracts awarded to HUBZone and 
SDB businesses because of price evaluation preferences. The additional 
costs associated with fewer bidders, however, are likely to be minor 
since, as a matter of law, procurements may be set aside for small 
businesses or reserved for the 8(a), SDB or HUBZone Programs only if 
awards are expected to be made at fair and reasonable prices.
    The increased size standards may have distributional effects among 
large and small businesses. Although the actual outcome of the gains 
and losses among small and large businesses cannot be estimated with 
certainty, several likely impacts can be identified. There will likely 
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. Also, some Federal contracts may be 
awarded to HUBZone or SDB concerns instead of large businesses since 
those two categories of small businesses may be eligible for an 
evaluation adjustment for contracts competed on a full and open basis. 
Similarly, currently defined small businesses may obtain fewer Federal 
contracts due to the increased competition from more businesses defined 
as small. This transfer may be offset by a greater number of Federal 
procurements set aside for all small businesses. The number of newly 
defined and expanding small businesses that are willing and able to 
sell to the Federal Government will limit the potential transfer of 
contracts away from large and currently defined small businesses. The 
potential distributional impacts of these transfers may not be 
estimated with any degree of precision because the data on the size of 
business receiving a Federal contract are limited to identifying small 
or other than small businesses, without regard to the exact size of the 
business.
    The revisions to the existing size standards for Accommodation and 
Food Services industries is consistent with SBA's statutory mandate to 
assist small business. This regulatory action promotes the 
Administration's objectives. One of SBA's goals in support of the 
Administration's objectives is to help individual small businesses 
succeed through fair and equitable access to capital and credit, 
Government contracts, and management and technical assistance. 
Reviewing and modifying size standards, when appropriate, ensures that 
intended beneficiaries have access to small business programs designed 
to assist them.

Executive Order 12988

    For purposes of Executive Order 12988, SBA has determined that this 
rule is drafted, to the extent practicable, in accordance with the 
standards set forth in that Order.

Executive Order 13132

    For purposes of Executive Order 13132, SBA has determined that this 
rule does not have any Federalism implications warranting the 
preparation of a federalism assessment.

Paperwork Reduction Act

    For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, 
SBA has determined that this rule would not impose new reporting or 
recordkeeping 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 Sector 
72, Accommodation and Food Services. As described above, this rule may 
affect small entities seeking Federal contracts, SBA 7(a) and 504 
Guaranteed Loan Programs, SBA Economic Injury Disaster Loans, and other 
Federal small business programs.
    Immediately below, SBA sets forth a final regulatory flexibility 
analysis of this proposed rule addressing the following questions: (1) 
What is the need for and objective of the rule? (2) what is 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 is the need for and objective of the rule?

    Most of SBA's size standards for Accommodation and Food Services 
industries have not been reviewed since the early 1980s. Technology, 
productivity growth, international competition, mergers and 
acquisitions,

[[Page 61608]]

and updated industry definitions may have changed the structure of many 
industries. Such changes can be sufficient to support a revision to 
size standards for some industries. Based on an analysis of the latest 
data available to the Agency, SBA believes that the revised standards 
in this proposed rule more appropriately reflect the size of businesses 
in those industries that need Federal assistance.

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

    SBA estimates that approximately 2,050 additional firms will become 
small because of increases in size standard in five industries. That 
represents 1.1 percent of total firms in those industries. This will 
result in an increase in the small business share of total industry 
receipts for this Sector from about 46 percent under the current size 
standard to nearly 50 percent under the revised standards.

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

    A new size standard does not impose any additional reporting or 
recordkeeping requirements on small entities. However, qualifying for 
Federal procurement and a number of other programs requires that 
entities register in the Central Contractor Registration (CCR) database 
and certify at least annually that they are small in the Online 
Representations and Certifications Application (ORCA). Therefore, 
businesses opting to participate in those programs must comply with CCR 
and ORCA requirements. There are no costs associated with either CCR 
registration or ORCA certification. Revising size standards alters the 
access to SBA programs that 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?

    This rule overlaps with other Federal rules that use SBA's size 
standards to define a small business. Under Sec.  3(a)(2)(C) of the 
Small Business Act, 15 USC 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 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)). Thus, there 
may be instances where this rule conflicts with other rules.

(5) What alternatives will allow the Agency to accomplish its 
regulatory objectives while minimizing the impact on small entities?

    SBA is required to develop numerical size standards for identifying 
businesses eligible for Federal small business programs. Other than 
varying the size standards, no 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.

0
For reasons set forth in the preamble, SBA amends 13 CFR part 121 as 
follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

0
1. The authority citation for part 121 continues to read as follows:

    Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 637(a), 644, 
657(a), 657(f), and 662(5); and Pub. L. 105-135, Sec. 401, et seq., 
111 Stat, 2592.

Subpart A--Size Eligibility Provisions and Standards

0
2. In Sec.  121.201, in the table, revise the entries for ``721110'', 
``721120'', ``722211'',``722212'', and ``722310'' to read as follows:


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

* * * * *

                                 Small Business Size Standards by NAICS Industry
----------------------------------------------------------------------------------------------------------------
                                                                                  Size standards  Size standards
               NAICS codes                       NAICS U.S. industry title        in millions of   in number of
                                                                                      dollars        employees
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
721110...................................  Hotels (except Casino Hotels) and               $30.0  ..............
                                            Motels.
721120...................................  Casino Hotels........................            30.0  ..............
 
                                                  * * * * * * *
722211...................................  Limited-Service Restaurants..........            10.0  ..............
722212...................................  Cafeterias, Grill Buffets, and                   25.5  ..............
                                            Buffets.
 
                                                  * * * * * * *
722310...................................  Food Service Contractors.............            35.5  ..............
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------



[[Page 61609]]

    Dated: September 10, 2010.
Marie C. Johns,
Deputy Administrator.
[FR Doc. 2010-24857 Filed 10-5-10; 8:45 am]
BILLING CODE 8025-01-P