A copy of the original proposed rulemaking notice is available at:http://www.gpo.gov/fdsys/pkg/FR-2011-09-13/html/2011-23311.htm.

To determine eligibility for Federal small business assistance, SBA establishes small business size definitions (referred to as size standards) for private sector industries in the United States. SBA uses two primary measures of business size: average annual receipts and average number of employees. SBA uses financial assets, electric output, and refining capacity to measure the size for a few specialized industries. In addition, SBA's Small Business Investment Company (SBIC), Certified Development Company (504) and 7(a) Loan Programs use either the industry based size standards or net worth and net income based size standards to determine eligibility for those programs. At the beginning of SBA's comprehensive size standards review, there were 41 different size standards, covering 1,141 NAICS industries and 18sub-industry activities (“exceptions” in SBA's table of size standards). Thirty-one of these size levels were based on average annual receipts, seven were based on average number of employees, and three were based on other measures. 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 the changes in the Federal contracting marketplace and industry structure. The last time SBA conducted a comprehensive review of size standards was 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. SBA's latest inflation adjustment to size standards was published in theFederal Registeron July 18, 2008 (73 FR 41237).

Because of changes in the Federal marketplace and industry structure since the last overall review, SBA recognizes that current data may no longer support some of its existing size standards. Accordingly, in 2007, SBA began a comprehensive review of all size standards to determine if they are consistent with current data, and to adjust them when necessary. In addition, on September 27, 2010, the President of the United States signed the Small Business Jobs Act of 2010 (Jobs Act). The Jobs Act directs SBA to conduct a detailed review of all size standards and to make appropriate adjustments to reflect market conditions. Specifically, the Jobs Act requires SBA to conduct a detailed review of at least one-third of all size standards during every 18-month period from the date of its enactment. In addition, the Jobs Act requires that SBA conduct a review of all size standards not less frequently than once every 5 years thereafter. Reviewing existing small business size standards and making appropriate adjustments based on current data are also consistent with Executive Order 13563 on improving regulation and regulatory review.

Rather than review all size standards at one time, SBA has adopted a more manageable approach of reviewing a group of industries within an NAICS Sector. An NAICS Sector generally consists of 25 to 75 industries, except for the manufacturing sector, which has considerably more. Once SBA completes its review of size standards for industries in an NAICS Sector, it will issue a proposed rule to revise size standards for those industries for which currently available data and other relevant factors support doing so.

Below is a discussion of SBA's size standards methodology for establishing receipts based size standards, which SBA applied to this proposed rule, including analyses of industry structure, Federal procurement trends and other factors for industries reviewed in this proposed rule, the impact of the proposed revisions to size standards on Federal small business assistance, and the evaluation of whether a revised size standard would exclude dominant firms from being considered small.

SBA has developed a “Size Standards Methodology” for developing, reviewing and modifying size standards when necessary. SBA has published the document on its Web site athttp://www.sba.gov/sizefor public review and comments and included it, as a supporting document, in the electronic docket for this proposed rule athttp://www.regulations.gov. SBA does not apply all features of its “Size Standards Methodology” to all industries because not all are appropriate. For example, since this proposed rule covers all industries with receipts based size standards in NAICS Sector 61, the methodology described here applies to establishing receipts based standards. However, the methodology is made available in its entirety for parties who have an interest in SBA's overall approach to establishing, evaluating and modifying small business size standards. SBA always explains its analysis in individual proposed and final rules relating to size standards for specific industries.

SBA welcomes comments from the public on a number of issues that it raises in its “Size Standards Methodology,” such as suggestions on alternative approaches to establishing and modifying size standards, whether there are alternative or additional factors that SBA should consider, whether SBA's approach to small business size standards makes sense in the current economic environment, whether SBA's use of anchor size standards is appropriate 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. Comments on SBA's methodology should be submitted via (1) The Federal eRulemaking Portal:http://www.regulations.gov;the docket number is SBA-2009-0008; follow the instructions for submitting comments; or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, Ph.D., Chief, Size Standards Division, 409 Third Street SW., Mail Code 6530, Washington, DC 20416. As with comments received to this and other proposed rules, SBA will post all comments on its methodology onhttp://www.regulations.gov.As of November 15, 2011, SBA has received seven comments to its “Size Standards Methodology.” The comments are available to the public athttp://www.regulations.gov.SBA continues to welcome comments on its methodology from interested parties.

Congress granted SBA's Administrator discretion to establish detailed small business size standards. 15 U.S.C. 632(a)(2). Section 3(a)(3) of the Small Business Act (15 U.S.C. 632(a)(3)) requires that “* * * the [SBA] Administrator shall ensure that the size standard varies from industry to industry to the extent necessary to reflect the differing characteristics of the various industries and consider other factors deemed to be relevant by the Administrator.” Accordingly, the economic structure of an industry is the basis for developing and modifying small business size standards. SBA identifies the small business segment of an industry by examining data on the economic characteristics defining the industry structure itself (as described below). In addition to analyzing an industry's structure when it establishes small business size standards, SBA considers current economic conditions, together with its own mission, program objectives, and the Administration's current policies, suggestions from industry groups and Federal agencies, and public comments on the proposed rule. SBA also examines whether a size standard based on industry and other relevant data successfully excludes businesses that are dominant in the industry. This proposed rule affords the public an opportunity to review and comment on SBA's proposals to revise size standards in NAICS Sector 61, as well as on the data and methodology it uses to evaluate and revise a size standard.

For the current comprehensive size standards review, SBA has established three “base” or “anchor” size standards: $7 million in average annual receipts for industries that have receipts based size standards, 500 employees for manufacturing and other industries that have employee based size standards (except for Wholesale Trade), and 100 employees for industries in the Wholesale Trade Sector. SBA established 500 employees as the anchorsize standard for manufacturing industries at its inception in 1953. Shortly thereafter SBA established $1 million in average annual receipts as the anchor size standard for nonmanufacturing industries. SBA has periodically increased the receipts based anchor size standard for inflation, and it stands today at $7 million. Since 1986, the size standard for all industries in the Wholesale Trade Sector has been 100 employees for SBA financial assistance and for most other Federal programs. However, NAICS codes for Wholesale Trade Industries (NAICS Sector 42) and their 100 employee size standards do not apply to Federal procurement programs. Rather, for Federal procurement the size standard for all industries in Wholesale Trade and for all industries in Retail Trade (NAICS Sector 44-45) is 500 employees under SBA's nonmanufacturer rule (13 CFR 121.406(b)).

These long-standing anchor size standards have stood the test of time and gained legitimacy through practice and general public acceptance. An anchor size standard is neither a minimum nor a maximum. It is a common size standard for a large number of industries that have similar economic characteristics and serves as a reference point in evaluating size standards for individual industries. SBA uses the anchor in lieu of trying to establish precise small business size standards for each industry. Otherwise, theoretically, the number of size standards might be as high as the number of industries for which SBA establishes size standards (1,141). Furthermore, the data SBA analyzes are static, while the U.S. economy is not. Hence, absolute precision is impossible. Therefore, SBA presumes an anchor size standard is appropriate for a particular industry unless that industry displays economic characteristics that are considerably different from others with the same anchor size standard.

When evaluating a size standard, SBA compares the economic characteristics of the specific industry under review to the average characteristics of industries with one of the three anchor size standards (referred to as “anchor comparison group”). This allows SBA to assess the industry structure and to determine whether the industry is appreciably different from the other industries in the anchor comparison group. If the characteristics of a specific industry under review are similar to the average characteristics of the anchor comparison group, the anchor size standard is considered appropriate for that industry. SBA may consider adopting a size standard below the anchor when (1) All or most of the industry characteristics are significantly smaller than the average characteristics of the anchor comparison group or (2) other industry considerations strongly suggest that the anchor size standard would be an unreasonably high size standard for the industry.

If the specific industry's characteristics are significantly higher than those of the anchor comparison group, then a size standard higher than the anchor size standard may be appropriate. The larger the differences are between the characteristics of the industry under review and those in the anchor comparison group, the larger will be the difference between the appropriate industry size standard and the anchor size standard. To determine a size standard above the anchor size standard, SBA analyzes the characteristics of a second comparison group. For industries with receipts based size standards, including those in NAICS Sector 61 that are reviewed in this proposed rule, SBA has developed a second comparison group consisting of industries with the highest levels of receipts based size standards. To determine the level of a size standard above the anchor size standard, SBA analyzes the characteristics of this second comparison group. The size standards for this group of industries range from $23 million to $35.5 million in average annual receipts, with the weighted average size standard for the group being $29 million. SBA refers to this comparison group as the “higher level receipts based size standard group.”

The primary factors that SBA evaluates when analyzing the structural characteristics of an industry include average firm size, startup costs and entry barriers, industry competition, and distribution of firms by size. SBA also evaluates, as an additional primary factor, the impact that revising size standards might have on Federal contracting assistance to small businesses. These are, generally, the five most important factors SBA examines when establishing or revising a size standard for an industry. In addition, SBA considers and evaluates other information that it believes is relevant to a particular industry (such as technological changes, growth trends, SBA financial assistance and other program factors,etc.). The SBA also considers impacts of size standard revisions on eligibility for Federal small business assistance, current economic conditions, the Administration's policies, and suggestions from industry groups and Federal agencies. Public comments on a proposed rule also provide important additional information. SBA thoroughly reviews all public comments before making a final decision on its proposed size standards. Below are brief descriptions of each of the five primary factors that SBA has evaluated for each industry in NAICS Sector 61 being reviewed in this proposed rule. A more detailed description of this analysis is provided in SBA “Size Standards Methodology,” available athttp://www.sba.gov/size.

1.Average firm size.SBA computes two measures of average firm size: Simple average and weighted average. For industries with receipts based size standards, the simple average is the total receipts of the industry divided by the total number of firms in the industry. The weighted average firm size is the sum of weighted simple averages in different receipts size classes, where weights are the shares of total industry receipts for respective size classes. The simple average weighs all firms within an industry equally, regardless of their size. The weighted average overcomes that limitation by giving more weight to larger firms.

If the average firm size of an industry under review is significantly higher than the average firm size of industries in the anchor comparison industry group, this will generally support a size standard higher than the anchor size standard. Conversely, if the industry's average firm size is similar to or significantly lower than that of the anchor comparison industry group, it will be a basis to adopt the anchor size standard, or in rare cases, a standard lower than the anchor.

2.Startup costs and entry barriers.Startup costs reflect a firm's initial size in an industry. New entrants to an industry must have sufficient capital and other assets to start and maintain a viable business. If new firms entering a particular industry have greater capital requirements than firms in industries in the anchor comparison group, this can be a basis for establishing a size standard higher than the anchor standard. In lieu of data on actual startup costs, SBA uses average assets as a proxy to measure the capital requirements for new entrants to an industry.

To calculate average assets, SBA begins with the total sales to total assets ratio for an industry from the Risk Management Association's Annual Statement Studies. SBA then applies these ratios to the average receipts of firms in that industry. An industry with average assets that are significantly higher than those of the anchor comparison group is likely to have higher startup costs; this in turn willsupport a size standard higher than the anchor. Conversely, an industry with average assets that are similar to or significantly lower than those of the anchor comparison group is likely to have lower startup costs; this in turn will support adoption of the anchor size standard, or in rare cases, one lower than the anchor.

3.Industry competition.Industry competition is generally measured by the share of total industry receipts generated by the largest firms in an industry. SBA generally evaluates the share of industry receipts generated by the four largest firms in each industry. This is referred to as the “four-firm concentration ratio,” a commonly used economic measure of market competition. SBA compares the four-firm concentration ratio for an industry under review to the average four-firm concentration ratio for industries in the anchor comparison group. If a significant share of economic activity within the industry is concentrated among a few relatively large companies, all else being equal, SBA will establish a size standard higher than the anchor size standard. SBA does not consider the four-firm concentration ratio as an important factor in assessing a size standard if its value for an industry under review is less than 40 percent. For industries in which the four-firm concentration ratio is 40 percent or more, SBA examines the average size of the four largest firms in determining a size standard.

4.Distribution of firms by size.SBA examines the shares of industry total receipts accounted for by firms of different receipts and employment size classes in an industry. This is an additional factor SBA evaluates in assessing competition within an industry. If most of an industry's economic activity is attributable to smaller firms, this indicates that small businesses are competitive in that industry. This supports adopting the anchor size standard. If most of an industry's economic activity is attributable to larger firms, this indicates that small businesses are not competitive in that industry. This will support adopting a size standard above the anchor.

Concentration is a measure of inequality of distribution. To determine the degree of inequality of distribution in an industry, SBA computes the Gini coefficient, using the Lorenz curve. The Lorenz curve presents the cumulative percentages of units (firms) along the horizontal axis and the cumulative percentages of receipts (or other measures of size) along the vertical axis. (For further detail, please refer to SBA's “Size Standards Methodology” on SBA's Web site athttp://www.sba.gov/size.) Gini coefficient values vary from zero to one. If receipts are distributed equally among all the firms in an industry, the value of the Gini coefficient will equal zero. If an industry's total receipts are attributed to a single firm, the Gini coefficient will equal one.

SBA compares the Gini coefficient value for an industry under review with that for industries in the anchor comparison group. If an industry shows a higher Gini coefficient value than industries in the anchor comparison industry group this may, all else being equal, warrant a higher size standard than the anchor. Conversely, if an industry's Gini coefficient is similar to or lower than that for the anchor group, the anchor standard, or in some cases a standard lower than the anchor, may be adopted.

5.Impact on Federal contracting and SBA loan programs.SBA examines the impact a size standard change may have on Federal small business assistance. This most often focuses on the share of Federal contracting dollars awarded to small businesses in the industry in question. In general, if the small business share of Federal contracting in an industry with significant Federal contracting is appreciably less than the small business share of the industry's total receipts, there is justification for considering a size standard higher than the existing size standard. The disparity between the small business Federal market share and the industry-wide small business share may have a variety of causes, such as extensive administrative and compliance requirements associated with Federal contracts, different skill set requirements for Federal contracts as compared to typical commercial contracting work, and the size of Federal contracts. These, as well as other factors, are likely to influence the type of firms within an industry that compete for Federal contracts. By comparing the Federal contracting small business share with the industry-wide small business share, SBA includes in its size standards analysis the latest Federal contracting trends. This analysis may indicate a size standard larger than the current standard.

SBA considers Federal procurement trends in the size standards analysis only if (1) The small business share of Federal contracting dollars is at least 10 percent lower than the small business share of total industry receipts and (2) total Federal contracting averages $100 million or more during the latest three fiscal years. These thresholds reflect a significant level of contracting where a revision to a size standard may have an impact on expanding small business opportunities.

Besides the impact on small business Federal contracting, SBA also evaluates the impact of a proposed size standard on SBA's loan programs. For this, SBA examines the volume of SBA guaranteed loans within an industry and the size of firms obtaining those loans. This allows SBA to assess whether the existing or the proposed size standard for a particular industry may restrict the level of financial assistance to small firms. If the analysis shows that the current size standards have impeded financial assistance to small businesses, higher size standards are supportable. However, if under current size standards small businesses have been receiving significant amounts of financial assistance through SBA's loan programs, or if the financial assistance has been provided mainly to businesses that are much smaller than the existing size standard, this factor is not considered for determining the size standard.

SBA's primary source of industry data for most industries covered by this proposed rule was a special tabulation of the data from 2007 Economic Census (see http://www.census.gov/econ/census07/) prepared by the U.S. Bureau of the Census (Census Bureau) for SBA. The three industries, namely NAICS 611110, NAICS 611210, and NAICS 611310, are not covered by the Economic Census. The data for these industries were based on the 2007 County Business Patterns (see http://www.census.gov/econ/cbp/). The special tabulation provides SBA with data on the number of firms, number of establishments, number of employees, annual payroll, and annual receipts of companies by NAICS Sector (2-digit level), Subsector (3-digit level), Industry Group (4-digit level), Industry (6-digit level). These data are arrayed by various classes of firms' size based on the overall number of employees and receipts of the entire enterprise (all establishments and affiliated firms) from all industries. The special tabulation enables SBA to evaluate average firm size, the four-firm concentration ratio, and distribution of firms by receipts and employment size.

In some cases, where data were not available due to disclosure prohibitions, SBA either estimated missing values using available relevant data or examined data at a higher level of industry aggregation, such as at the NAICS 2-digit (Sector), 3-digit(Subsector), or 4-digit (Industry Group) level. In some instances, SBA analysis was based only on those factors for which data were available or estimates of missing values were possible.

The data from the Census Bureau's tabulation are limited to the 6-digit NAICS industry level and hence do not provide economic characteristics at the sub-industry level. Thus, when establishing, reviewing, or modifying size standards at the sub-industry level (that is, one of the “exceptions” in SBA's table of size standards), SBA evaluates the data from the U.S. General Service Administration's (GSA) Federal Procurement Data System—Next Generation (FPDS-NG) and Central Contractor Registration (CCR) databases following a two-step procedure. First, using FPDS-NG, SBA identifies product service codes (PSCs) that correspond to specific sub-industry activities or “exceptions” and then identifies firms that are active in Federal contracting involving those PSCs. Then, SBA obtains those firms' revenue and employment data from the CCR database. SBA uses that data to evaluate the actual size of businesses that FPDS-NG identifies for those procurements. In this proposed rule, SBA applied this approach to determine industry and Federal contracting factors for “Job Corps Centers,” which is an exception under NAICS 611519, Other Technical and Trade Schools.

To calculate average assets, SBA used total sales to total assets ratios from the Risk Management Association's Annual Statement Studies from years 2007 to 2009.

To evaluate Federal contracting trends, SBA examined data on Federal contract awards for fiscal years 2007 to 2009. The data are available from the GSA's FPDS-NG database.

To assess the impact on financial assistance to small businesses, SBA examined data on its own guaranteed loan programs for fiscal years 2008 to 2010.

Data sources and estimation procedures that SBA uses in its size standards analysis are documented in detail in the SBA's “Size Standards Methodology” White Paper, which is available athttp://www.sba.gov/size.

Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a small business concern as one that is (1) Independently owned and operated, (2) not dominant in its field of operation, and (3) within a specific small business size definition or size standard established by the SBA Administrator. SBA considers as part of its evaluation whether a business concern at a proposed size standard would be dominant in its field of operation. For this, SBA generally examines the industry's market share of firms at the proposed standard. Market share and other factors may indicate whether a firm can exercise a major controlling influence on a national basis in an industry where a significant number of business concerns are engaged. If a contemplated size standard includes a dominant firm, SBA will consider a lower size standard to exclude the dominant firm from being defined as small.

To simplify size standards, for the ongoing comprehensive review of receipts based size standards, SBA has proposed to select size standards from a limited number of levels. For many years, SBA has been concerned about the complexity of determining small business status caused by a large number of varying receipts based size standards (see69 FR 13130 (March 4, 2004) and 57 FR 62515 (December 31, 1992)). At the beginning of the current comprehensive size standards review, there were 31 different levels of receipts based size standards. They ranged from $0.75 million to $35.5 million, and many of them applied to one or only a few industries. SBA believes that size standards with such a large number of small variations among them are both unnecessary and difficult to justify analytically. To simplify managing and using size standards, SBA proposes that there be fewer size standard levels. This will produce more common size standards for businesses operating in related industries. This will also result in greater consistency among the size standards for industries that have similar economic characteristics.

SBA proposes, therefore, to apply one of eight receipts based size standards to each industry in NAICS Sector 61. All size standards in NAICS Sector 61 are based on annual receipts. The eight “fixed” receipts based size standard levels are $5 million, $7 million, $10 million, $14 million, $19 million, $25.5 million, $30 million, and $35.5 million. To establish these eight receipts based size standard levels SBA considered the current minimum, the current maximum, and the most commonly used current receipts based size standards. Currently, the most commonly used receipts based size standards cluster around the following: $2.5 million to $4.5 million, $7 million, $9 million to $10 million, $12.5 million to $14 million, $25 million to $25.5 million, and $33.5 million to $35.5 million. SBA selected $7 million as one of eight fixed levels of receipts based size standards because it is an anchor standard for receipts based standards. The lowest or minimum receipts based size level will be $5 million. Other than the standards for agriculture and those based on commissions (such as real estate brokers and travel agents), $5 million will include those industries that at the start of the comprehensive size standards review had the lowest receipts based standards, which ranged from $2 million to $4.5 million. Among the higher level size clusters, SBA has set four fixed levels, namely: $10 million, $14 million, $25.5 million, and $35.5 million. Because there are large intervals between some of the fixed levels, SBA also established two intermediate levels, namely $19 million between $14 million and $25.5 million, and $30 million between $25.5 million and $35.5 million. These two intermediate levels reflect roughly the same proportional differences as between the other two successive levels.

SBA evaluated the structure of each of the 17 industries and one sub-industry in NAICS Sector 61, Educational Services, to assess the appropriateness of the current size standards. As described above, SBA compared data on the economic characteristics of each industry in NAICS Sector 61 to the average characteristics of industries in two comparison groups. The first comparison group consists of all industries with $7 million size standards and is referred to as the “receipts based anchor comparison group.” Because the goal of SBA's size standards review is to assess whether a specific industry's size standard should be the same as or different from the anchor size standard, this is the most logical group of industries to analyze. In addition, this group includes a sufficient number of firms to provide a meaningful assessment and comparison of industry characteristics.

If the characteristics of an industry under review are similar to the average characteristics of industries in the anchor comparison group, the anchor size standard is generally considered appropriate for that industry. If an industry's structure is significantly different from industries in the anchor group, a size standard lower or higher than the anchor size standard might be selected. The level of the new size standard is based on the difference between the characteristics of the anchor comparison group and a second industry comparison group. As described above, the second comparisongroup for receipts based standards consists of industries with the highest receipts based size standards, ranging from $23 million to $35.5 million. The average size standard for this group is $29 million. SBA refers to this group of industries as the “higher level receipts based size standard comparison group.” SBA determines differences in industry structure between an industry under review and the industries in the two comparison groups by comparing data on each of the industry factors, including average firm size, average assets size, the four-firm concentration ratio, and the Gini coefficient of distribution of firms by size. Table 1 shows two measures of the average firm size (simple and weighted), average assets size, the four-firm concentration ratio, average receipts of the four largest firms, and the Gini coefficient for both anchor level and higher level comparison groups for receipts based size standards.

For each industry factor in Table 1, SBA derives a separate size standard based on the differences between the values for an industry under review and the values for the two comparison groups. If the industry value for a particular factor is near the corresponding factor for the anchor comparison group, SBA will consider the $7 million anchor size standard appropriate for that factor.

An industry factor significantly above or below the anchor comparison group will generally warrant a size standard for that industry above or below the $7 million anchor. The level of the new size standard in these cases is based on the proportional difference between the industry value and the values for the two comparison groups.

For example, if an industry's simple average receipts are $3.3 million, that would support a $19 million size standard. The $3.3 million level is 52.8 percent between the average firm size of $1.32 million for the anchor comparison group and $5.07 million for the higher level comparison group (($3.30 million−$1.32 million) ÷ ($5.07 million−$1.32 million) = 0.528 or 52.8%). This proportional difference is applied to the difference between the $7 million anchor size standard and average size standard of $29 million for the higher level size standard group and then added to $7 million to estimate a size standard of $18.62 million ([{$29.0 million−$7.0 million} * 0.528] + $7.0 million = $18.62 million). The final step is to round the estimated $18.62 million size standard to the nearest fixed size standard, which in this example is $19 million. SBA applies the above calculation to derive a size standard for each industry factor. Detailed formulas involved in these calculations are presented in SBA's “Size Standards Methodology,” which is available on its Web site athttp://www.sba.gov/size. (However, it should be noted that the figures in the “Size Standards Methodology” White Paper are based on 2002 Economic Census data and are different from those presented in this proposed rule. That is because when SBA prepared its “Size Standards Methodology,” the 2007 Economic Census data were not yet available). Table 2 (below) shows ranges of values for each industry factor and the levels of size standards supported by those values.

Besides industry structure, SBA also evaluates Federal contracting data to assess how successful small businesses are in getting Federal contracts under existing size standards. For the current comprehensive size standards review, for industries where the small business share of total Federal contracting dollars is between 10 and 30 percent lower than their shares in total industry receipts, SBA has designated a size standard at one level higher than their current size standard. For industries where the small business share of total Federal contracting dollars is more than 30 percent lower than their shares in total industry receipts, SBA has designated a size standard at two levels higher than the current size standard.

Because of the complex relationships among a number of variables affecting small business participation in theFederal marketplace, SBA has chosen not to designate a size standard for the Federal contracting factor alone that is more than two levels above the current size standard. SBA believes that a larger adjustment to size standards based on Federal contracting activity should be based on a more detailed analysis of the impact of any subsequent revision to the current size standard. In limited situations, however, SBA may conduct a more extensive examination of Federal contracting experience. This may enable SBA to support a different size standard than indicated by this general rule and take into consideration significant and unique aspects of small business competitiveness in the Federal contract market. SBA welcomes comments on its methodology for incorporating the Federal contracting factor in the size standard analysis and suggestions for alternative methods and other relevant information on small business experience in the Federal contract market.

Of the 17 industries reviewed in this proposed rule, seven industries averaged $100 million or more annually in Federal contracting during fiscal years 2007 to 2009. Also, a review of Federal contracts awarded to the sub-industry Job Corps Centers during fiscal year 2009 indicates that the sub-industry received more than $100 million in Federal contracts as well. The Federal contracting factor was significant (i.e.,the difference between the small business share of total industry receipts and the small business share of Federal contracting dollars was 10 percentage points or more) in three of those seven industries and a separate size standard was derived for that factor for each of them.

Table 3 shows the results of analyses of industry and Federal contracting factors for each industry covered by this proposed rule. Many of the NAICS industries in columns 2, 3, 4, 6, 7, and 8 show two numbers. The upper number is the value for the industry or Federal contracting factor shown on the top of the column, and the lower number is the size standard supported by that factor. For the four-firm concentration ratio, SBA estimates a size standard if its value is 40 percent or more. If the four-firm concentration ratio for an industry is less than 40 percent, there is no size standard estimated for that factor. If the four-firm concentration ratio is more than 40 percent, SBA indicates in column 6 the average size of the industry's top four firms together with a size standard based on that average. Column 9 shows a calculated new size standard for each industry. This is the average of the size standards supported by each factor and rounded to the nearest fixed size level. Analytical details involved in the averaging procedure are described in SBA “Size Standard Methodology.” For comparison with the new standards, the current size standards are in column 10 of Table 3.

The current size standard for Federal contracts for Job Corps Centers (“exception” to NAICS code 611519) is $35.5 million in average annual receipts. For Federal procurement programs, this size standard applies to Federal contracts that meet specific criteria. The criteria that constitute a Jobs Corps Center contract or company are detailed in Footnote 16 to SBA's table of size standards (13 CFR 121.201): “For classifying a Federal Procurement, the purpose of the solicitation must be for the management and operation of a U.S. Department of Labor Job Corps Centers. The activities involved include admissions activities, life skills training, educational activities, comprehensive career preparation activities, career development activities, career transition activities, as well as the management and support functions and services needed to operate and maintain the facility. For SBA assistance as a small business concern, other than for Federal Government procurements, a concern must be primarily engaged in providing the services to operate and maintain Federal Job Corps Centers.”

To determine if the current $35.5 million size standard is appropriate, SBA evaluated average firm size, market concentration, and size distribution of firms involved in the Job Corps Centers sub-industry using the data from FPDS-NG and CCR and the procedure described under the section of this rule entitled “Sources of Industry and Program Data.” Based on the data for fiscal year 2009, Federal contracts averaged more than $100 million annually, but the small business share of Federal contracting dollars was larger than the small business share of total receipts. Therefore, the Federal contracting factor was not important for the evaluation of this sub-industry. The results, as shown in Table 3, support decreasing the current size standard to $30 million. However, for reasons discussed below, SBA has proposed to retain the $35.5 million size standard.

Before deciding on an industry's size standard, SBA also considers the impact of new or revised standards on SBA's loan programs. Accordingly, SBA examined its 7(a) and 504 Loan Program data for fiscal years 2008 to 2010 to assess whether the existing or proposed size standards need further adjustments to ensure credit opportunities for small businesses through those programs. For the industries reviewed, the data show that it is mostly businesses much smaller than the current size standards that utilize SBA's 7(a) and 504 loans. Therefore, no size standard in NAICS Sector 61, Educational Services, needs an adjustment based on this factor.

Table 4 (below) summarizes the results of SBA analyses of industry and federal procurement factors from Table 3. The results support increases in size standards for nine industries, decreases for six industries and one sub-industry (exception to NAICS 611519, Job Corps Centers), and no changes for two industries.

However, lowering small business size standards is not in the best interests of small businesses under the current economic environment. The U.S. economy was in recession from December 2007 to June 2009, the longest and deepest of any recessions since World War II. The economy lost more than eight million non-farm jobs during 2008-2009. In response, Congress passed and the President signed the American Recovery and Reinvestment Act of 2009 (Recovery Act) to promote economic recovery and to preserve and create jobs. Although the recession officially ended in June 2009, the unemployment rate was 9.4 percent or higher from May 2009 to December 2010. It somewhat moderated to 8.8 percent in March 2011, but it has been 9 percent or higher for the May-July quarter. The unemployment rate is forecast to remain at around 9 percent through the end of 2011. More recently, Congress passed and the President signed the Small Business Jobs Act of 2010 (Jobs Act) to promote small business job creation. The Jobs Act puts more capital into the hands of entrepreneurs and small business owners; includes recommendations from the President's Task Force on Federal Contracting Opportunities for Small Business that strengthens small businesses' ability to compete for contracts and creates a better playing field for small businesses; building on the President's National Export Initiative, promotes small business exporting; expands training and counseling for small businesses; and provides $12 billion in tax relief to help small businesses invest in their firms and create jobs.

Reducing the size standard for Job Corps Centers (the exception to NAICS 511619) would result in significant jobs losses in that industry, and it would adversely affect those unemployed and underemployed people that Job Corps Centers serve. This is another reason why SBA is not lowering the size standard for this industry.

Further, lowering size standards would decrease the number of firms that could participate in Federal financial and procurement assistance for small businesses. Size standards based solely on analytical results without any other considerations would cut off currently eligible small firms from those programs. That would run counter to what SBA and the Federal government are doing to help small businesses. Reducing size eligibility for Federal assistance, especially under current economic conditions, would not preserve or create more jobs; rather, it would have the opposite effect. Therefore, in this proposed rule, SBA does not propose to reduce size standards for any industries. For six industries and one sub-industry for which analyses might support lowering size standards, SBA proposes to retain the current size standards. SBA nevertheless invites comments and suggestions on whether it should lower size standards as suggested by analyses of industry and program data or retain the current standards for those industries in view of current economic conditions.

As discussed above, SBA has decided that lowering small business size standards would be inconsistent with what the Federal government is doing to stimulate the economy and encourage job growth through the Recovery Act and Jobs Act. Therefore, for those industries for which its analyses suggested decreasing their size standards, SBA proposes to retain the current size standards. Thus, of the 17 industries and one sub-industry in NAICS Sector 61 that SBA reviewed in this proposed rule, the Agency proposes to increase size standards for nine industries and retain the current standards for eight industries and one sub-industry. Industries for which SBA has proposed to increase their size standards and proposed standards are in Table 5 (below).

In addition, not lowering size standards in NAICS Sector 61 is consistent with SBA's prior actions for NAICS Sector 44-45 (Retail Trade), NAICS Sector 72 (Accommodation and Food Services), and NAICS Sector 81 (Other Services), which the Agency proposed (74 FR 53924, 74 FR 53913, and 74 FR 53941, October 21, 2009) and adopted in its final rules (75 FR 61597, 75 FR 61604, and 75 FR 61591, October 6, 2010). It is also consistent with the Agency' recently proposed rules for NAICS Sector 54, Professional, Technical, and Scientific Services (76 FR 14323, March 16, 2011), NAICS Sector 48-49, Transportation and Warehousing (76 FR 27935, May 13, 2011), NAICS Sector 51, Information (See76 FR 63216, October 12, 2011), and NAICS Sector 56, Administrative and Support, Waste Management and Remediation Services (See76 FR 63510, October 12, 2011). In each of those final and proposed rules, SBA opted not to reduce small business size standards for the same reasons it has provided above in this proposed rule.

To determine eligibility for Federal small business assistance, SBA establishes small business size definitions (referred to as size standards) for private sector industries in the United States. SBA uses two primary measures of business size—average annual receipts and average number of employees. SBA uses financial assets, electric output, and refining capacity to measure the size of a few specialized industries. In addition, SBA's Small Business Investment Company (SBIC), Certified Development Company (504) and 7(a) Loan Programs use either the industry based size standards or net worth and net income based alternative size standards to determine eligibility for those programs. At the beginning of the current comprehensive size standards review, there were 41 different size standards covering 1,141 NAICS industries and 18 sub-industry activities (“exceptions” in SBA's table of size standards). Thirty-one of these size levels were based on average annual receipts, seven were based on average number of employees, and three were based on other measures. 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 the changes in the Federal contracting marketplace and industry structure. The last time SBA conducted a comprehensive review of all size standards was 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 reviews the effect of inflation on its standards and makes necessary adjustments to its monetary based size standards at least once every five years. SBA's latest inflation adjustment to size standards was published in theFederal Registeron July 18, 2008 (73 FR 41237).

Because of changes in the Federal marketplace and industry structure since the last overall review, SBA recognizes that current data may no longer support some of its existing size standards. Accordingly, in 2007, SBA began a comprehensive review of all size standards to determine if they are consistent with current data, and to adjust them when necessary. In addition, on September 27, 2010, the President of the United States signed the Small Business Jobs Act of 2010 (Jobs Act). The Jobs Act directs SBA to conduct a detailed review of all size standards and to make appropriate adjustments to reflect market conditions. Specifically, the Jobs Act requires SBA to conduct a detailed review of at least one-third of all size standards during every 18-month period from the date of its enactment. In addition, the Jobs Act requires that SBA conduct a review of all size standards no less frequently than once every 5 years thereafter. Reviewing existing small business size standards and making appropriate adjustments based on current data are also consistent with Executive Order 13563 on improving regulation and regulatory review.

Rather than review all size standards at one time, SBA has adopted a more manageable approach of reviewing a group of industries within a NAICS Sector. A NAICS Sector generallyconsists of 25 to 75 industries, except for the manufacturing sector, which has considerably more. Once SBA completes its review of size standards for industries in a NAICS Sector, it will issue a proposed rule to revise size standards for those industries for which currently available data and other relevant factors support doing so.

Below is a discussion of SBA's size standards methodology for establishing receipts based size standards that SBA applied to this proposed rule, including analyses of industry structure, Federal procurement trends and other factors for industries reviewed in this proposed rule, the impact of the proposed revisions to size standards on Federal small business assistance, and the evaluation of whether a revised size standard would exclude dominant firms from being considered small.

SBA has developed a “Size Standards Methodology” for developing, reviewing, and modifying size standards when necessary. SBA has published the document on its Web site athttp://www.sba.gov/sizefor public review and comments and included it as a supporting document in the electronic docket of this proposed rule athttp://www.regulations.gov.SBA does not apply all features of its “Size Standards Methodology” to all industries because not all are appropriate. For example, since all industries in NAICS Sector 53 have receipts based size standards, the methodology described in this proposed rule applies to establishing receipts based size standards. However, the methodology is made available in its entirety for parties who have an interest in SBA's overall approach to establishing, evaluating, and modifying small business size standards. SBA always explains its analysis in individual proposed and final rules relating to size standards for specific industries.

SBA welcomes comments from the public on a number of issues that it raises in its “Size Standards Methodology,” such as suggestions on alternative approaches to establishing and modifying size standards; whether there are alternative or additional factors that SBA should consider; whether SBA's approach to small business size standards makes sense in the current economic environment; whether SBA's using anchor size standards is appropriate in the current economy; whether there are gaps in SBA's methodology because of the lack of comprehensive data; and whether there are other facts or issues that SBA should consider. Comments on SBA's methodology should be submitted via (1) the Federal eRulemaking Portal:http://www.regulations.gov;the docket number is SBA-2009-0008; follow the instructions for submitting comments; or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, Ph.D., Chief, Size Standards Division, 409 Third Street SW., Mail Code 6530, Washington, DC 20416. As with comments received to this and other proposed rules, SBA will post all comments on its methodology onhttp://www.regulations.gov.As of November 15, 2011, SBA has received seven comments to its “Size Standards Methodology.” The comments are available to the public at http://www.regulations.gov. SBA continues to welcome comments on its methodology from interested parties.

Congress granted SBA's Administrator discretion to establish detailed small business size standards. 15 U.S.C. 632(a)(2). Section 3(a)(3) of the Small Business Act (15 U.S.C. 632(a)(3)) requires that “* * * the [SBA] Administrator shall ensure that the size standard varies from industry to industry to the extent necessary to reflect the differing characteristics of the various industries and consider other factors deemed to be relevant by the Administrator.” Accordingly, the economic structure of an industry is the basis for developing and modifying small business size standards. SBA identifies the small business segment of an industry by examining data on the economic characteristics defining the industry structure itself (as described below). In addition to analyzing an industry's structure when it establishes small business size standards, SBA considers current economic conditions, together with its own mission, program objectives, and the Administration's current policies; suggestions from industry groups and Federal agencies; and public comments on the proposed rule. SBA also examines whether a size standard based on industry and other relevant data successfully excludes businesses that are dominant in the industry.

This proposed rule includes information regarding the factors SBA evaluated and the criteria the Agency used to propose any adjustments to size standards in NAICS Sector 53. It also explains why SBA has proposed to adjust some size standards in NAICS Sector 53 but not others. This proposed rule affords the public an opportunity to review and comment on SBA's proposals to revise size standards in NAICS Sector 53, as well as on the data and methodology it uses to evaluate and revise a size standard.

For the current comprehensive size standards review, SBA has established three “base” or “anchor” size standards—$7 million in average annual receipts for industries that have receipts based size standards, 500 employees for manufacturing and other industries that have employee based size standards (except for Wholesale Trade), and 100 employees for industries in the Wholesale Trade Sector. SBA established 500 employees as the anchor size standard for manufacturing industries at its inception in 1953. Shortly thereafter SBA established $1 million in average annual receipts as the anchor size standard for nonmanufacturing industries. SBA has periodically increased the receipts based anchor size standard for inflation, and it stands today at $7 million. Since 1986, the size standard for all industries in the Wholesale Trade Sector has been 100 employees for SBA financial assistance and for most other Federal programs. However, NAICS codes for Wholesale Trade Industries (NAICS Sector 42) and their 100 employee size standards do not apply to Federal procurement programs. Rather, for Federal procurement the size standard for all industries in Wholesale Trade and for all industries in Retail Trade (NAICS Sector 44-45) is 500 employees under SBA's nonmanufacturer rule (13 CFR 121.406(b)).

These long-standing anchor size standards have stood the test of time and gained legitimacy through practice and general public acceptance. An anchor size standard is neither a minimum nor a maximum. It is a common size standard for a large number of industries that have similar economic characteristics and serves as a reference point in evaluating size standards for individual industries. SBA uses the anchor in lieu of trying to establish precise small business size standards for each industry. Otherwise, theoretically, the number of size standards might be as high as the number of industries for which SBA establishes size standards (1,141). Furthermore, the data SBA analyzes are static, while the U.S. economy is not. Hence, absolute precision is impossible. Therefore, SBA presumes an anchor size standard is appropriate for a particular industry unless that industry displays economic characteristics that are considerably different from others with the same anchor size standard.

When evaluating a size standard, SBA compares the economic characteristics of the specific industry under review to the average characteristics of industrieswith one of the three anchor size standards (referred to as “anchor comparison group”). This allows SBA to assess the industry structure and to determine whether the industry is appreciably different from the other industries in the anchor comparison group. If the characteristics of a specific industry under review are similar to the average characteristics of the anchor comparison group, the anchor size standard is considered appropriate for that industry. SBA may consider adopting a size standard below the anchor when (1) all or most of the industry characteristics are significantly smaller than the average characteristics of the anchor comparison group, or (2) other industry considerations strongly suggest that the anchor size standard would be an unreasonably high size standard for the industry.

If the specific industry's characteristics are significantly higher than those of the anchor comparison group, then a size standard higher than the anchor size standard may be appropriate. The larger the differences are between the characteristics of the industry under review and those in the anchor comparison group, the larger will be the difference between the appropriate industry size standard and the anchor size standard. To determine a size standard above the anchor size standard, SBA analyzes the characteristics of a second comparison group. For industries with receipts based size standards, including those in NAICS Sector 53 that are reviewed in this proposed rule, SBA has developed a second comparison group consisting of industries with the highest levels of receipts based size standards. The size standards for this group of industries range from $23 million to $35.5 million in average receipts, with the weighted average size standard for the group being $29 million. SBA refers to this comparison group as the “higher level receipts based size standard group.”

The primary factors that SBA evaluates when analyzing the structural characteristics of an industry include average firm size, startup costs and entry barriers, industry competition, and distribution of firms by size. SBA also evaluates, as an additional primary factor, the impact that revising size standards might have on Federal contracting assistance to small businesses. These are, generally, the five most important factors SBA examines when establishing or revising a size standard for an industry. However, SBA will also consider and evaluate other information that it believes is relevant to a particular industry (such as technological changes, growth trends, SBA financial assistance and other program factors,etc.). SBA also considers the potential impact of size standard revisions on eligibility for Federal small business assistance, current economic conditions, the Administration's policies, and suggestions from industry groups and Federal agencies. Public comments on a proposed rule also provide important additional information. SBA thoroughly reviews all public comments before making a final decision on its proposed size standards. Below are brief descriptions of each of the five primary factors that SBA has evaluated for each industry in NAICS Sector 53 being reviewed in this proposed rule. A more detailed description of this analysis is provided in SBA's “Size Standards Methodology,” available athttp://www.sba.gov/size.

1.Average firm size.SBA computes two measures of average firm size: simple average and weighted average. For industries with receipts based size standards, the simple average is the total receipts of the industry divided by the total number of firms in the industry. The weighted average firm size is the sum of weighted simple averages in different receipts size classes, where weights are the shares of total industry receipts for respective size classes. The simple average weighs all firms within an industry equally regardless of their size. The weighted average overcomes that limitation by giving more weight to larger firms.

If the average firm size of an industry under review is significantly higher than the average firm size of industries in the anchor comparison industry group, this will generally support a size standard higher than the anchor size standard. Conversely, if the industry's average firm size is similar to or significantly lower than that of the anchor comparison industry group, it will be a basis to adopt the anchor size standard, or in rare cases, a standard lower than the anchor.

2.Startup costs and entry barriers.Startup costs reflect a firm's initial size in an industry. New entrants to an industry must have sufficient capital and other assets to start and maintain a viable business. If new firms entering a particular industry have greater capital requirements than firms in industries in the anchor comparison group, this can be a basis for establishing a size standard higher than the anchor standard. In lieu of actual startup cost data, SBA uses average assets as a proxy to measure the capital requirements for new entrants to an industry.

To calculate average assets, SBA begins with the sales to total assets ratio for an industry from the Risk Management Association's Annual Statement Studies. SBA then applies these ratios to the average receipts of firms in that industry. An industry with average assets that are significantly higher than those of the anchor comparison group is likely to have higher startup costs; this in turn will support a size standard higher than the anchor. Conversely, an industry with average assets that are similar to or significantly lower than those of the anchor comparison group is likely to have lower startup costs; this in turn will support the anchor standard, or in rare cases, one lower than the anchor may be appropriate.

3.Industry competition.Industry competition is generally measured by the share of total industry receipts generated by the largest firms in an industry. SBA generally evaluates the share of industry receipts generated by the four largest firms in each industry. This is referred to as the “four-firm concentration ratio,” a commonly used economic measure of market competition. SBA compares the four-firm concentration ratio for an industry under review to the average four-firm concentration ratio for industries in the anchor comparison group. If a significant share of economic activity within the industry is concentrated among a few relatively large companies, all else being equal, SBA will establish a size standard higher than the anchor size standard. SBA does not consider the four-firm concentration ratio as an important factor in assessing a size standard if its value for an industry under review is less than 40 percent. For industries in which the four-firm concentration ratio is 40 percent or more, SBA examines the average size of the four largest firms in determining a size standard.

4.Distribution of firms by size.SBA examines the shares of industry total receipts accounted for by firms of different receipts and employment size classes in an industry. This is an additional factor SBA evaluates in assessing competition within an industry. If most of an industry's economic activity is attributable to smaller firms, this generally indicates that small businesses are competitive in that industry. This can support adopting the anchor size standard. If most of an industry's economic activity is attributable to larger firms, this indicates that small businesses are not competitive in that industry. This can support adopting a size standard above the anchor.

Concentration is a measure of inequality of distribution. To determinethe degree of inequality of distribution in an industry, SBA computes the Gini coefficient, using the Lorenz curve. The Lorenz curve presents the cumulative percentages of units (firms) along the horizontal axis and the cumulative percentages of receipts (or other measures of size) along the vertical axis. (For further detail, please refer to SBA's “Size Standards Methodology” on its Web site athttp://www.sba.gov/size.) Gini coefficient values vary from zero to one. If receipts are distributed equally among all the firms in an industry, the value of the Gini coefficient will equal zero. If an industry's total receipts are attributed to a single firm, the Gini coefficient will equal one.

SBA compares the Gini coefficient value for an industry under review with that for industries in the anchor comparison group. If an industry shows a higher Gini coefficient value than industries in the anchor comparison industry group this may, all else being equal, warrant a higher size standard than the anchor. Conversely, if an industry's Gini coefficient is similar to or lower than that for the anchor group, the anchor standard, or in some cases a standard lower than the anchor, may be adopted.

5.Impact on Federal contracting and SBA loan programs.SBA examines the impact a size standard change may have on Federal small business assistance. This most often focuses on the share of Federal contracting dollars awarded to small businesses in the industry in question. In general, if the small business share of Federal contracting in an industry with significant Federal contracting is appreciably less than the small business share of the industry's total receipts, there is justification for considering a size standard higher than the existing size standard. The disparity between the small business Federal market share and the industry-wide small business share may be due to various factors, such as extensive administrative and compliance requirements associated with Federal contracts, the different skill set required for Federal contracts as compared to typical commercial contracting work, and the size of Federal contracts. These, as well as other factors, are likely to influence the type of firms within an industry that compete for Federal contracts. By comparing the small business Federal contracting share with the industry-wide small business share, SBA includes in its size standards analysis the latest Federal contracting trends. This analysis may indicate a size standard larger than the current standard.

SBA considers Federal contracting trends in the size standards analysis only if (1) the small business share of Federal contracting dollars is at least 10 percent lower than the small business share of total industry receipts, and (2) the amount of total Federal contracting averages $100 million or more during the latest three fiscal years. These thresholds reflect significant levels of contracting where a revision to a size standard may have an impact on expanding contracting opportunities to small businesses.

Besides the impact on small business Federal contracting, SBA also evaluates the impact of a proposed size standard on SBA's loan programs. For this, SBA examines the volume and number of SBA guaranteed loans within an industry and the size of firms obtaining those loans. This allows SBA to assess whether the existing or the proposed size standard for a particular industry may restrict the level of financial assistance to small firms. If the analysis shows that the current size standards have impeded financial assistance to small businesses, higher size standards are supportable. However, if small businesses under current size standards have been receiving significant amounts of financial assistance through SBA's loan programs, or if the financial assistance has been provided mainly to businesses that are much smaller than the existing size standard, this factor is not considered for determining the size standard.

SBA's primary source of industry data used in this proposed rule is a special tabulation of the data from 2007 Economic Census (see http://www.census.gov/econ/census07/) prepared by the U.S. Bureau of the Census (Census Bureau) for SBA. The special tabulation provides SBA with data on the number of firms, number of establishments, number of employees, annual payroll, and annual receipts of companies by NAICS Sector (2-digit level), Subsector (3-digit level), Industry Group (4-digit level), Industry (6-digit level). These data are arrayed by various classes of firms' size based on the overall number of employees and receipts of the entire enterprise (all establishments and affiliated firms) from all industries. The special tabulation enables SBA to evaluate average firm size, the four-firm concentration ratio, and distribution of firms by various receipts, and employment size classes.

In some cases, where data were not available due to disclosure prohibitions in the Census Bureau's tabulation, SBA either estimated missing values using available relevant data or examined data at a higher level of industry aggregation, such as at the NAICS 2-digit (Sector), 3-digit (Subsector) or 4-digit (Industry Group) level. In some instances, SBA's analysis was based only on those factors for which data were available or estimates of missing values were possible.

The data from the Census Bureau's tabulation are limited to the 6-digit NAICS industry level and hence do not provide economic characteristics at the sub-industry level. Thus, when establishing, reviewing, or modifying size standards at the sub-industry level (that is, one of the “exceptions” in SBA's table of size standards), SBA evaluates the data from the U.S. General Service Administration's (GSA) Federal Procurement Data System—Next Generation (FPDS-NG) and the Central Contractor Registration (CCR) following a two-step procedure. First, using FPDS-NG, SBA identifies product service codes (PSCs) that correspond to specific sub-industry activities or “exceptions” and then identifies firms that are active in Federal contracting involving those PSCs. Then, SBA obtains those firms' revenue and employment data from the CCR database. SBA uses that data to evaluate the actual size of businesses that FPDS-NG identifies for those procurements. In this proposed rule, SBA applied this approach to evaluate industry and Federal contracting factors for “Leasing of Building Space to Federal Government by Owners,” which is an exception under NAICS 531190, Lessors of Other Real Estate Property.

To calculate average assets, SBA used sales to total assets ratios from the Risk Management Association's Annual Statement Studies, 2007-2009.

To evaluate Federal contracting trends, SBA examined data on Federal contract awards for fiscal years 2007-2009. The data are available from GSA's FPDS-NG.

To assess the impact on financial assistance to small businesses, SBA examined data on its own guaranteed loan programs for fiscal years 2008-2010.

Data sources and estimation procedures that SBA uses in its size standards analysis are documented in detail in SBA's “Size Standards Methodology” White Paper, which is available athttp://www.sba.gov/size.

Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a small business concern as one that is (1) independently owned and operated, (2) not dominant in its field of operation,and (3) within a specific small business definition or size standard established by the SBA Administrator. SBA considers as part of its evaluation whether a business concern at a proposed size standard would be dominant in its field of operation. For this, SBA generally examines the industry's market share of firms at the proposed standard. Market share and other factors may indicate whether a firm can exercise a major controlling influence on a national basis in an industry where a significant number of business concerns are engaged. If a contemplated size standard includes a dominant firm, SBA will consider a lower size standard to exclude the dominant firm from being defined as small.

To simplify size standards, for the ongoing comprehensive review of receipts based size standards, SBA has proposed to select size standards from a limited number of levels. For many years, SBA has been concerned about the complexity of determining small business status caused by a large number of varying receipts based size standards (see69 FR 13130, March 4, 2004) and 57 FR 62515, December 31, 1992). At the beginning of SBA's comprehensive size standards review, there were 31 different levels of receipts based size standards. They ranged from $0.75 million to $35.5 million, and many of them applied to one or only a few industries. SBA believes that size standards with such a large number of small variations among them are both unnecessary and difficult to justify analytically. To simplify managing and using size standards, SBA proposes that there be fewer size standard levels. This will produce more common size standards for businesses operating in related industries. This will also result in greater consistency among the size standards for industries that have similar economic characteristics.

SBA proposes, therefore, to apply one of eight receipts based size standards to each industry and sub-industry in NAICS Sector 53. In NAICS Sector 53, all size standards are based on annual receipts. The eight “fixed” receipts based size standard levels are $5 million, $7 million, $10 million, $14 million, $19 million, $25.5 million, $30 million, and $35.5 million. To establish these eight receipts based size standard levels, SBA considered the current minimum, the current maximum, and the most commonly used current receipts based size standards. Currently, the most commonly used receipts based size standards cluster around the following—$2.5 million to $4.5 million, $7 million, $9 million to $10 million, $12.5 million to $14 million, $25 million to $25.5 million, and $33.5 million to $35.5 million. SBA selected $7 million as one of eight fixed levels of receipts based size standards because it is an anchor standard for receipts based standards. The lowest or minimum receipts based size level will be $5 million. Other than the size standards for agriculture and those based on commissions (such as real estate brokers and travel agents), $5 million will include those industries with the currently lowest receipts based standards, which range from $2 million to $4.5 million. Among the higher level size clusters, SBA has set four fixed levels, namely $10 million, $14 million, $25.5 million, and $35.5 million. Because there are large intervals between some of the fixed levels, SBA established two intermediate levels, namely $19 million between $14 million and $25.5 million, and $30 million between $25.5 million and $35.5 million. These two intermediate levels represent roughly the same proportional differences as in the other two successive levels.

To simplify size standards further, SBA may propose a common size standard for closely related industries. Although the size standard analysis may support a specific size standard level for each industry, SBA believes that establishing different size standards for closely related industries may not always be appropriate. For example, in cases where many of the same businesses operate in the same multiple industries, a common size standard for those industries might better reflect the Federal marketplace. This might also make size standards among closely related industries more consistent than separate size standards for each of those industries. This led SBA to establish a common size standard for the information technology (IT) services (NAICS 541511, NAICS 541112, NAICS 541513, and NAICS 541519), even though the industry data might support a distinct size standard for each industry (see57 FR 27906, June 23, 1992). Within NAICS Sector 53, all industries in NAICS Industry Group 5313, Activities Related to Real Estate; all industries in NAICS Industry Group 5321, Automotive Equipment Rental and Leasing; and all industries in NAICS Industry Group 5322, Consumer Goods Rental, have common size standards of $2 million, $25.5 million, and $7 million, respectively. In this rule, except for NAICS 5322, SBA proposes to retain common size standards for those industries and establish common size standards for similar industries in other NAICS Industry Groups as well. Whenever SBA proposes a common size standard for closely related industries it will provide its justification.

SBA evaluated the structure of the 24 industries and one sub-industry in NAICS Sector 53, Real Estate and Rental and Leasing, to assess the appropriateness of the current size standards. As described above, SBA compared data on the economic characteristics of each industry and sub-industry to the average characteristics of industries in two comparison groups. The first comparison group consists of all industries with a $7 million size standard and is referred to as the “receipts based anchor comparison group.” Because the goal of SBA's size standards review is to assess whether a specific industry's size standard should be the same as or different from the anchor size standard, this is the most logical group of industries to analyze. In addition, this group includes a sufficient number of firms to provide a meaningful assessment and comparison of industry characteristics.

If the characteristics of an industry under review are similar to the average characteristics of industries in the anchor comparison group, the anchor size standard is generally considered appropriate for that industry. If an industry's structure is significantly different from industries in the anchor group, a size standard lower or higher than the anchor size standard might be appropriate. The level of the new size standard is based on the difference between the characteristics of the anchor comparison group and a second industry comparison group. As described above, the second comparison group for receipts based standards consists of industries with the highest receipts based size standards, ranging from $23 million to $35.5 million. The average size standard for this group is $29 million. SBA refers to this group of industries as the “higher level receipts based size standard comparison group.” SBA determines differences in industry structure between an industry under review and the industries in the two comparison groups by comparing data on each of the industry factors, including average firm size, average assets size, the four-firm concentration ratio, and the Gini coefficient of distribution of firms by size. Table 1 shows two measures of the average firm size (simple and weighted), average assets size, the four-firm concentrationratio, average receipts of the four largest firms, and the Gini coefficient for both anchor level and higher level comparison groups for receipts based size standards.

For each industry factor in Table 1, SBA derives a separate size standard based on the differences between the values for an industry under review and the values for the two comparison groups. If the industry value for a particular factor is near the corresponding factor for the anchor comparison group, SBA will consider the $7 million anchor size standard appropriate for that factor.

An industry factor significantly above or below the anchor comparison group will generally warrant a size standard for that industry above or below the $7 million anchor. The new size standard in these cases is based on the proportional difference between the industry value and the values for the two comparison groups.

For example, if an industry's simple average receipts are $3.3 million, that can support a $19 million size standard. The $3.3 million level is 52.8 percent between $1.32 million for the anchor comparison group and $5.07 million for the higher level comparison group (($3.3 million−$1.32 million) ÷ ($5.07 million−$1.32 million) = 0.528 or 52.8%). This proportional difference is applied to the difference between the $7 million anchor size standard and average size standard of $29 million for the higher level size standard group and then added to $7 million to estimate a size standard of $18.62 million ([{$29 million−$7 million} * 0.528] + $7 million = $18.62 million). The final step is to round the estimated $18.62 million size standard to the nearest fixed size standard, which in this example is $19 million.

SBA applies the above calculation to derive a size standard for each industry factor. Detailed formulas involved in these calculations are presented in SBA's “Size Standards Methodology,” which is available athttp://www.sba.gov/size.(However, it should be noted that figures in the “Size Standards Methodology” White Paper are based on 2002 Economic Census data and are different from those presented in this proposed rule. That is because when SBA prepared its “Size Standards Methodology,” the 2007 Economic Census data were not yet available.) Table 2 (below) shows ranges of values for each industry factor and the levels of size standards supported by those values.

Besides industry structure, SBA also evaluates Federal contracting data to assess how successful small businesses are in getting Federal contracts under existing size standards. For industries where the small business share of total Federal contracting dollars is 10 to 30 percent lower than their share of total industry receipts, SBA has designated a size standard one level higher than their current size standard. For industries where the small business share of total Federal contracting dollars is more than 30 percent lower than their share of total industry receipts, SBA has designated a size standard two levels higher than the current size standard.

Because of the complex relationships among several variables affecting small business participation in the Federal marketplace, SBA has chosen not to designate a size standard for the Federal contracting factor alone that is more than two levels above the current size standard. SBA believes that a larger adjustment to size standards based on Federal contracting activity should be based on a more detailed analysis of the impact of any subsequent revision to the current size standard. In limited situations, however, SBA may conduct a more extensive examination of Federal contracting experience. This may enable SBA to support a different size standard than indicated by this general rule and take into consideration significant and unique aspects of small business competitiveness in the Federal contract market. SBA welcomes comments on its methodology for incorporating the Federal contracting factor in the size standard analysis and suggestions foralternative methods and other relevant information on small business experience in the Federal contract market.

Of the 24 industries and one sub-industry in NAICS Sector 53 reviewed in this proposed rule, seven industries averaged $100 million or more annually in Federal contracting during fiscal years 2007-2009. The Federal contracting factor was significant (i.e.,the difference between the small business share of total industry receipts and small business share of Federal contracting dollars was 10 percentage points or more) in three of those seven industries and a separate size standard was derived for that factor for each of them.

Table 3 shows the results of analyses of industry and Federal contracting factors for each industry covered by this proposed rule. Many of the NAICS industries in columns 2, 3, 4, 6, 7, and 8 show two numbers. The upper number is the value for the industry or Federal contracting factor shown on the top of the column and the lower number is the size standard supported by that factor. For the four-firm concentration ratio, SBA estimates a size standard if its value is 40 percent or more. If the four-firm concentration ratio for an industry is less than 40 percent, no size standard is estimated for that factor. If the four-firm concentration ratio is more than 40 percent, SBA indicates in column 6 the average size of the industry's top four firms together with a size standard based on that average. Column 9 shows a calculated new size standard for each industry. This is the average of the size standards supported by each factor and rounded to the nearest fixed size level. Analytical details involved in the averaging procedure are described in SBA's “Size Standard Methodology.” For comparison with the new standards, the current size standards are in column 10 of Table 3.

When many of the same businesses operate in multiple industries, SBA believes that a common size standard can be appropriate for these industries even if the industry and relevant program data may support different size standards. For instance, in past rules, SBA has established a common size standard for Computer Systems Design and Related Services (NAICS 541511, NAICS 541112, NAICS 541513, NAICS 541519 (excluding the “exception”), and NAICS 811212). Another example is the common size standard for certain Architectural, Engineering and Related Services (NAICS 541310, NAICS 541330 (excluding the “exceptions”), Map Drafting which is identified as “exception” under NAICS 541340, NAICS 541360, and NAICS 541370 (see64 FR 28275, May 25, 1999). More recently, SBA established a common size standard for some of the industries in NAICS Sector 44-45, Retail Trade, as well (see75 FR 61597, October 6, 2010). Similarly, SBA proposed common size standards for several other industries in NAICS Sector 54, Professional, Scientific and Technical Services (see76 FAR 14323, March 16, 2011), NAICS Sector 48-49, Transportation and Warehousing (see76 FAR 27935, May 13, 2011), and NAICS Sector 56, Administrative and Support, Waste Management and Remediation Services (see76 FR 63510, October 12, 2011).

In this rule, SBA proposes, as an alternative to a separate size standard for each industry, common size standards for industries under several NAICS Industry Groups as shown in Table 4. SBA evaluated industry and Federal contracting factors and derived a common size standard for each Industry Group using the same method as described above. The results are in Table 5, which immediately follows Table 4, below. For two closely related NAICS Industry Groups, Real Estate Agents and Brokers (NAICS 5312) and Activities Related to Real Estate (NAICS 5313), SBA is also proposing to continue with a common size standard. The industries in these two Industry Groups were one industry under the former Standard Industrial Classification System. With the establishment of the NAICS in 1997, five industries were created for the various real estate related activities (see62 FR 17288, April 9, 1997). Firms in these two NAICS Industry Groups, however, often engage in related real estate activities of both Industry Groups, such as property sales, property rental, property management services, real estate consulting, real estate appraisal and relocations services. In consideration of the similar activities of firms within NAICS 5312 and NAICS 5312, and SBA's historical application of a common size standard for them, SBA has combined the data for the two NAICS Industry Groups in evaluating an appropriate size standard.

The current size standard for Federal contracts for Leasing of Building Space to Federal Government by Owners (“exception” to NAICS 531190) is $20.5 million. This size standard applies only to certain Federal contracting opportunities that meet specific criteria. Footnote 9 of SBA's table of size standards (13 CFR 121.201) reads: “For Government procurement, a size standard of $20.5 million in gross receipts applies to the owners of building space leased to the Federal Government. This size standard does not apply to an agent.”

To determine if the current $20.5 million size standard is appropriate, SBA evaluated average firm size, market concentration, and size distribution of firms involved in Leasing of Building Space to Federal Government by Owners. SBA used data from FPDS-NG and CCR and followed the procedure described under the section “Sources of Industry and Program Data” (above). Based on the data for fiscal years 2007-2009, Federal contracts averaged less than $100 million annually. Therefore, the Federal contracting factor was not an important factor for evaluating this sub-industry. The results, as shown in Table 3, support increasing the current size standard to $35.5 million.

Before deciding on an industry's size standard, SBA also considers the impact of new or revised standards on SBA's loan programs. Accordingly, SBA examined its 7(a) and 504 Loan Program data for fiscal years 2008-2010 to assess whether the existing or proposed size standards need further adjustments to ensure credit opportunities for small businesses through those programs. For the industries reviewed in this rule, the data show that it is mostly businesses much smaller than the size standards that utilize SBA's 7(a) and 504 loans. Therefore, no size standard in NAICS Sector 53, Real Estate and Rental and Leasing, needs an adjustment based on this factor.

Table 6, below, summarizes the results of SBA's analyses of industry specific size standards from Table 3 and the results for common size standards from Table 5. In terms of industry-specific size standards, the results in Table 3 support increases in size standards for 19 industries and one sub-industry (“exception”), decreases for two industries and no changes for three industries. Based on common size standards for certain NAICS Industry Groups, the results in Table 5 appear to support increases in size standards for 20 industries and one sub-industry, a decrease for one industry, and no changes for three industries

However, lowering small business size standards is not in the best interests of small businesses in the current economic environment. The U.S. economy was in recession from December 2007 to June 2009, the longest and deepest of any recessions since World War II. The economy lost more than eight million non-farm jobs during 2008-2009. In response, Congress passed and the President signed the American Recovery and Reinvestment Act of 2009 (Recovery Act) to promote economic recovery and to preserve and create jobs. Although the recession officially ended in June 2009, the unemployment rate was 9.4 percent or higher from May 2009 to December 2010. It somewhat moderated to 8.8 percent in March 2011, but it has been 9 percent or higher for the May-July 2011 quarter. The unemployment rate is forecast to remain at this elevated level at least through the end of 2011. More recently, Congress passed and the President signed the Small Business Jobs Act of 2010 (Jobs Act) to promote small business job creation. The Jobs Act puts more capital into the hands of entrepreneurs and small business owners; strengthens small businesses' ability to compete for contracts; includes recommendations from the President's Task Force on Federal Contracting Opportunities for Small Business; creates a better playing field for small businesses; promotes small business exporting, building on the President's National Export Initiative; expands training and counseling for small businesses; and provides $12 billion in tax relief to help smallbusinesses invest in their firms and create jobs.

Lowering size standards could decrease the number of firms that are able to participate in Federal financial and procurement assistance for small businesses. Furthermore, size standards based solely on analytical results without any other considerations could cut off currently eligible small firms from those programs. That would run counter to what SBA and the Federal Government are doing to help small businesses. Reducing size eligibility for Federal procurement opportunities, especially under current economic conditions, would not preserve or create more jobs; rather, it would have the opposite effect. Therefore, in this proposed rule, SBA does not propose to reduce size standards for any industries. For industries where analyses might seem to support lowering size standards, SBA proposes to retain the current size standards. SBA nevertheless invites comments and suggestions on whether it should lower size standards as suggested by analyses of industry and program data or retain the current standards for those industries in view of current economic conditions.

Based on comparisons between industry specific size standards and common size standards within each Industry Group, SBA finds that for some industries common size standards are more appropriate for several reasons. First, analyzing industries at a more aggregated Industry Group level simplifies size standards analysis and the results are likely to be more consistent among related industries. Second, in most cases, industries within each Industry Group currently have the same size standards and SBA believes it is better to keep the revised size standards also the same. Third, within each Industry Group many of the same businesses tend to operate in the same multiple industries. SBA believes that common size standards reflect the Federal marketplace in those industries better than do different size standards for each industry. Fourth, industry specific size standards and common size standards are mostly within a reasonably close range.

For industries where both industry specific size standards and common size standards have been calculated, SBA, for the above reasons, proposes to apply common size standards. For industries where SBA has not estimated common size standards, it proposes to apply industry-specific size standards. As discussed above, SBA has decided that lowering small business size standards would be inconsistent with what the Federal Government is doing to stimulate the economy and encourage job growth through the Recovery Act and the Jobs Act. Therefore, for those industries for which its analyses suggested decreasing their size standards, SBA proposes to retain the current size standards. Of the 24 industries and one sub-industry in NAICS Sector 53 that SBA reviewed for this proposed rule, the Agency proposes to increase size standards for 20 industries and one sub-industry and retain the current size standards for four industries. Industries for which SBA has proposed to increase their size standards and proposed standards are in Table 7 (below).

Not lowering size standards in NAICS Sector 53 is consistent with SBA's prior actions for NAICS Sector 44-45 (Retail Trade), NAICS Sector 72 (Accommodation and Food Services), and NAICS Sector 81 (Other Services) that the Agency proposed (74 FR 53924, 74 FR 53913, and 74 FR 53941, October 21, 2009) and adopted in its final rules (75 FR 61597, 75 FR 61604, and 75 FR 61591, October 6, 2010). It is also consistent with the Agency's recently proposed rules for NAICS Sector 54, Professional, Technical, and ScientificServices (76 FR 14323, March 16, 2011), NAICS Sector 48-49, Transportation and Warehousing (76 FR 27935, May 13, 2011), NAICS Sector 51, Information (76 FR 63216, October 12, 2011), and NAICS Sector 56, Administrative and Support, Waste Management and Remediation Services (76 FR 63510, October 12, 2011). In each of those final and proposed rules, SBA opted not to reduce small business size standards for the same reasons it has provided above in this proposed rule.

SBA has determined that for the industries in NAICS Sector 53, Real Estate and Rental and Leasing, for which it has proposed to increase size standards, no firm at or below the proposed size standard will be large enough to dominate its field of operation. At the proposed size standards, if adopted, small business shares of total industry receipts among those industries vary from less than .01 percent to 2.0 percent, with an average of 0.4 percent. These levels of market share effectively preclude a firm at or below the proposed size standards from exerting control on any of the industries.

SBA invites public comments on this proposed rule, especially on the following issues:

1. To simplify size standards, SBA proposes eight fixed levels for receipts based size standards: $5 million, $7 million, $10 million, $14 million, $19 million, $25.5 million, $30 million, and $35.5 million. SBA invites comments on whether simplification of size standards in this way is necessary and if these proposed fixed size levels are appropriate. SBA welcomes suggestions on alternative approaches to simplifying small business size standards.

2. SBA seeks feedback on whether the proposed levels of size standards are appropriate given the economic characteristics of each industry and sub-industry reviewed in this proposed rule. SBA also seeks feedback and suggestions on alternative standards, if they would be more appropriate, including whether the number of employees is a more suitable measure of size for certain industries and what that employee level should be.

3. SBA proposes common size standards for industries within certain NAICS Industry Groups, namely NAICS 5311, NAICS 5312 and 5313, NAICS 5321, and NAICS 5324 (seeTable 4, above). SBA invites comments or suggestions along with supporting information with respect to the following:

a. Whether SBA should adopt common size standards for those industries or establish a separate size standard for each industry, or,

b. Whether the proposed common size standards for those industries are at the correct levels or what are more appropriate size standards if the proposed standards are not suitable.

4. SBA's analysis supports increasing the size standard for Leasing of Building Space to Federal Government by Owners (“exception” to NAICS 531190) from $20.5 million to $35.5 million. SBA has also proposed, based on the use of a common size standard for NAICS Industry Group 5311, to increase the size standard for NAICS 531190 to $25.5 million. Federal contracting under this NAICS code did not exceed $100 million annually and was not, therefore, a significant factor. SBA invites comments or suggestions along with supporting information with respect to the following:

a. Whether SBA should also apply the same common $25.5 million size standard for Leasing of Building Space to Federal Government by Owners and remove it as an exception to NAICS 531190; or

b. Whether SBA should adopt a size standard of $35.5 million based on the analysis and retain it as an exception to NAICS 531190.

5. SBA's proposed size standards are based on its evaluation of five primary factors—average firm size, average assets size (as a proxy of startup costs and entry barriers), four-firm concentration ratio, distribution of firms by size and the level, and small business share of Federal contracting dollars. SBA welcomes comments on these factors and/or suggestions on other factors that it should consider for assessing industry characteristics when evaluating or revising size standards. SBA also seeks information on relevant data sources, if available.

6. SBA gives equal weight to each of the five primary factors in all industries. SBA seeks feedback on whether it should continue giving equal weight to each factor or whether it should give more weight to one or more factors for certain industries. Recommendations to weigh some factors more than others should include suggestions on specific weights for each factor for those industries along with supporting information.

7. For some industries, based on its analysis of industry and program data alone, SBA proposes to increase the existing size standards by a large amount (such as NAICS 532210, NAICS 532291, NAICS 532411, NAICS 532490, and NAICS 533110), while for others the proposed increases are modest. SBA seeks feedback on whether it should, as a policy, limit the increase to a size standard and/or whether it should, as a policy, establish minimum or maximum values for its size standards. SBA seeks suggestions on appropriate levels of changes to size standards and on their minimum or maximum levels.

Based on the analysis of industry and program data and use of common size standards for closely related industries, SBA has proposed to increase the size standard for NAICS 531210 (Offices of Real Estate Agents and Brokers) from $2.0 million to $7.0 million. To determine if a company meets the size standard for NAICS 531210, a firm may exclude “* * * funds received in trust for an unaffiliated third party, such as bookings or sales subject to commissions. The commissions received are included as revenue” (seeFootnote 10 to SBA's table of size standards). SBA seeks feedback on whether it should continue or terminate the exclusion of funds received in trust for an unaffiliated third party from receipts if it adopts its proposed standard or any other standard considerably higher than the existing standards for this industry. SBA also welcomes information and data on how businesses in this industry collect and report income for Federal Income Tax Returns, and what they recognize as business receipts (see13 CFR 121.104 for SBA's definition of “receipts”).

9. For analytical simplicity and efficiency, in this proposed rule, SBA has refined its size standard methodology to obtain a single value as a proposed size standard instead of a range of values as in its past size regulations. SBA welcomes any comments on this procedure and suggestions on alternative methods.

Public comments on the above issues are very valuable to SBA for validating both its size standard methodology and the proposed revisions to size standards in this proposed rule. This will help SBA to move forward with its review of size standards for other NAICS Sectors. Commenters addressing size standards for a specific industry or a group of industries should include relevant data and/or other information supporting their comments. If comments relate to using size standards for Federal procurement programs, SBA suggests that commenters provide information on the size of contracts, the size of businesses that can undertake the contracts, start-up costs, equipment and other asset requirements, the amount of subcontracting, other direct and indirect costs associated with the contracts, the use of mandatory sources of supply for products and services and the degree to which contractors can mark up those costs.

The Office of Management and Budget (OMB) has determined that this proposed rule is a “significant” regulatory action for purposes of Executive Order 12866. Accordingly, 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.

SBA believes that the proposed size standards for a number of industries in NAICS Sector 53, Real Estate and Rental and Leasing, will better reflect the economic characteristics of small businesses and the Federal Government marketplace. SBA's mission is to aid and assist small businesses through a variety of financial, procurement, business development and advocacy programs. To assist 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 recently enacted Small Business Jobs Act also requires SBA to review all size standards and make necessary adjustments to reflect market conditions. The Supplementary Information section of this proposed rule explains SBA's methodology for analyzing a size standard for a particular industry.

The most significant benefit to businesses obtaining small business status because of this rule is gaining eligibility for Federal small business assistance programs. These include SBA's financial assistance programs, economic injury disaster loans, and Federal procurement programs intended for small businesses. Federal procurement programs provide targeted opportunities for small businesses under SBA's business development programs, such as 8(a), Small Disadvantaged Businesses (SDB), small businesses located in Historically Underutilized Business Zones (HUBZone), women-owned small businesses (WOSB), and service-disabled veteran-owned small business concerns (SDVO SBC). Federal agencies may also use SBA size standards for a variety of other regulatory and program purposes. These programs assist small businesses to become more knowledgeable, stable, and competitive. In the 20 industries and one sub-industry in NAICS Sector 53 for which SBA has proposed increasing size standards, SBA estimates that about 13,000 additional firms will obtain small business status and become eligible for these programs. That represents nearly 5.0 percent of the total number of firms that are classified as small under the current standards in all industries within NAICS Sector 53. If adopted as proposed, this will increase the small business share of total industry receipts in all industries within NAICS Sector 53 from about 27 percent under the current size standards to nearly 39 percent.

Three groups will benefit from these proposed size standards if they are adopted as proposed: (1) Some businesses that are above the current size standards may gain small business status under the higher size standards, thereby enabling them to participate in Federal small business assistance programs; (2) growing small businesses that are close to exceeding the current size standards will be able to retain their small business status under the higher size standards, thereby enabling them to continue their participation in the programs; and (3) Federal agencies will have larger pools of small businesses from which to draw for their small business procurement programs.

During fiscal years 2007-2009, about 99 percent of Federal contracting dollarsspent in industries reviewed in this proposed rule were accounted for by the 20 industries and one sub-industry for which SBA has proposed to increase size standards. SBA estimates that additional firms gaining small business status in those industries under the proposed size standards could potentially obtain Federal contracts totaling up to $70 million to $75 million annually under SBA's small business, 8(a), HUBZone, WOSB, and SDVO SBC Programs and other unrestricted procurements. The added competition for many of these procurements can also result in lower prices to the Federal Government for procurements reserved for small businesses, but SBA cannot quantify this benefit.

Under SBA's 7(a) Business Loan and 504 Programs, based on the 2008-2010 data, SBA estimates about 50 to 60 additional loans totaling about $15 million to $20 million in Federal loan guarantees could be made to these newly defined small businesses under the proposed 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 13,000 newly defined additional small firms could become active in Federal procurement programs, if adopted, the proposed size standards changes may entail some additional administrative costs to the Federal Government associated with additional bidders for Federal small business procurement opportunities. In addition, there will be more firms seeking SBA guaranteed loans, more firms eligible for enrollment in the CCR's Dynamic Small Business Search database, and more firms seeking certification as 8(a) or HUBZone firms or those qualifying for small business, WOSB, SDVO SBC, and SDB status. Among those newly defined small businesses 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 will 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. 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 proposed size standards, if adopted, may have 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 a price evaluation preference 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. 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 because FPDS-NG data only identify the size of businesses receiving Federal contracts as “small businesses” or “other than small businesses” FPDS-NG does not provide the exact size of the business.

The proposed revisions to the existing size standards for Industries in NAICS Sector 53, Real Estate and Rental and Leasing, are consistent with SBA's statutory mandate to assist small business. This regulatory action promotes the Administration's objectives. One of SBA's goals in support of the Administration's objectives is to help individual small businesses succeed through fair and equitable access to capital and credit, Federal 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.

A description of the need for this regulatory action and benefits and costs associated with this action including possible distributional impacts that relate to Executive Order 13563 are included above in the Regulatory Impact Analysis under Executive Order 12866.

In an effort to engage interested parties in this action, SBA has presented its methodology (discussed above underSUPPLEMENTARY INFORMATION) to various industry associations and trade groups. SBA also met with various industry groups to get their feedback on its methodology and other size standards issues. In addition, SBA presented its size standards methodology to businesses in 13 cities in the U.S and sought their input as part of the Jobs Act tours. The presentation also included information on the latest status of the comprehensive size standards review and on how interested parties can provide SBA with input and feedback on size standards review.

Additionally, SBA sent letters to the Directors of the Offices of Small and Disadvantaged Business Utilization (OSDBU) at several Federal agencies with considerable procurement responsibilities requesting their feedback on how the agencies use SBA size standards and whether current standards meet their programmatic needs (both procurement and non-procurement). SBA gave appropriate consideration to all input, suggestions, recommendations, and relevant information obtained from industry groups, individual businesses, andFederal agencies in preparing this proposed rule.

The review of NAICS Sector 53, Real Estate and Rental and Leasing, is consistent with EO 13563, Sec 6, calling for retrospective analyses of existing rules. The last comprehensive review of size standards occurred during the late 1970s and early 1980s. Since then, except for periodic adjustments for monetary based size standards, most reviews of size standards were limited to a few specific industries in response to requests from the public and Federal agencies. 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, SBA has begun a comprehensive review of its size standards to ensure that existing size standards have supportable bases and will revise them when necessary. In addition, on September 27, 2010, the President of the United States signed the Small Business Jobs Act of 2010 (Jobs Act). The Jobs Act directs SBA to conduct a detailed review of all size standards and to make appropriate adjustments to reflect market conditions. Specifically, the Jobs Act requires SBA to conduct a detailed review of at least one-third of all size standards during every 18 month period from the date of its enactment and do a complete review of all size standards not less frequently than once every five years thereafter.

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.

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.

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.

Under the Regulatory Flexibility Act (RFA), this rule, if finalized, may have a significant impact on a substantial number of small entities in NAICS Sector 53, Real Estate and Rental and Leasing. As described above, this rule may affect small entities seeking Federal contracts, loans under SBA's 7(a), 504 Guaranteed Loan and Economic Injury Disaster Loan Programs, and assistance under other Federal small business programs.

Immediately below, SBA sets forth an initial regulatory flexibility analysis (IRFA) of this proposed rule addressing the following questions: (1) What are the need for and objective of the rule? (2) What 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 that may duplicate, overlap, or conflict with the rule? and (5) What alternatives will allow the Agency to accomplish its regulatory objectives while minimizing the impact on small entities?

Most of the size standards in NAICS Sector 53, Real Estate and Rental and Leasing Support Services, have not been reviewed since the early 1980s. Technology, productivity growth, international competition, mergers and acquisitions, and updated industry definitions may have changed the structure of many industries in the Sector. Such changes can be sufficient to support revisions to current size standards for some industries. Based on the 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. The recently enacted Small Business Jobs Act also requires SBA to review all size standards and make necessary adjustments to reflect market conditions.

If the proposed rule is adopted in its present form, SBA estimates that about 13,000 additional firms will become small because of increases in size standards in 20 industries and one sub-industry. That represents nearly 5.0 percent of total firms that are small under current size standards in all industries within NAICS Sector 53. This will result in an increase in the small business share of total industry receipts for this Sector from about 27 percent under the current size standards to nearly 39 percent under the proposed standards. The proposed standards, if adopted, will enable more small businesses to retain their small business status for a longer period. Many have lost their eligibility and find it difficult to compete at current size standards with companies that are significantly larger than they are. SBA believes the competitive impact will be positive for existing small businesses and for those that exceed the size standards but are on the very low end of those that are not small. They might otherwise be called or referred to as mid-sized businesses, although SBA only defines what is small; other entities are other than small.

Proposed size standards changes 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.

Under § 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 theFederal Registera 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 duplicateor 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)).

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 system of numerical size standards.

For the reasons set forth in the preamble, SBA proposes to amend 13 CFR Part 121 as follows:

Sections 101(a)(5)(A) and (D) of the MMPA (16 U.S.C. 1361et seq.) direct the Secretary of Commerce (Secretary) to allow, upon request, the incidental, but not intentional taking of marine mammals by U.S. citizens who engage in a specified activity (other than commercial fishing) during periods of not more than five consecutive years each if certain findings are made and regulations are issued or, if the taking is limited to harassment and of no more than 1 year, to issue a notice of proposed authorization for public review.

Authorization shall be granted if NMFS finds that the taking will have a negligible impact on the species or stock(s), will not have an unmitigable adverse impact on the availability of the species or stock(s) for subsistence uses, and if the permissible methods of taking and requirements pertaining to the mitigation, monitoring and reporting of such taking are set forth.

NMFS has defined “negligible impact” in 50 CFR 216.103 as:

The National Defense Authorization Act (NDAA) (Pub. L. 108-136) removed the “small numbers” and “specified geographical region” limitations, and amended the definition of “harassment” as it applies to a “military readiness activity” to read as follows (section 3(18)(B) of the MMPA):

Between January 2009 and May 2011, pursuant to the Marine Mammal Protection Act (MMPA), NMFS issued 5-year final regulations to govern the unintentional taking of marine mammals incidental to Navy training and associated activities. conducted in the Hawaii Range Complex (HRC), the Southern California (SOCAL) Range Complex, the Atlantic Fleet Active Sonar Training (AFAST) Study Area, the Jacksonville (JAX) Range Complex, the Virginia Capes (VACAPES) Range Complex, the Cherry Point (CHPT) Range Complex, the Naval Surface Warfare Center Panama City Division (NSWC PCD), the Mariana Islands Range Complex (MIRC), the Northwest Training Range Complex (NWTRC), the Keyport Range Complex, the Gulf of Mexico (GOMEX) Range Complex, and the Gulf of Alaska Temporary Maritime Activities Area (GOA TMAA). Additionally, in February 2009, pursuant to the MMPA, NMFS issued 5-year regulations to govern the unintentional taking of marine mammals incidental to U.S. Air Force (USAF) space vehicle and test flight activities from Vandenberg Air Force Base (VAFB). These regulations, which allow for the issuance of annual “Letters of Authorization” (LOAs) for the incidental take of marine mammals during the specified activities anddescribed timeframes, prescribe the permissible methods of taking and other means of effecting the least practicable adverse impact on marine mammal species or stocks and their habitat, as well as requirements pertaining to the monitoring and reporting of such taking.

Currently, with the exception of the GOA TMAA regulation (which allows for biennial LOAs), these rules state that LOAs must be renewed annually. To date, the Navy has complied with this requirement, and NMFS has issued annual LOAs to the Navy for activities on its training ranges; however, in order to alleviate some of the administrative burden associated with processing annual LOAs, the Navy has requested that NMFS revise the current regulations to allow for LOAs with longer periods of validity. NMFS' regulations implementing section 101(a)(5)(A) through (D) of the MMPA do not limit the period of validity for LOAs to one year, and NMFS relied on this authority when regulations were promulgated for the GOA TMAA that allow for LOAs to be issued on an annual or biennial basis (76 FR 25480, May 4, 2011). The specific language found in the general regulations governing small takes of marine mammals incidental to specified activities states that, “Letters of Authorization will specify the period of validity and any additional terms and conditions appropriate for the specific request.” 50 CFR 216.106(c). With respect to the proposed revision to the timing of LOA renewals, the period of validity for the LOAs would be extended past one year, but will not exceed the time remaining on the 5-year rule. For example, under the proposed revision, if the Navy requested a multi-year LOA for AFAST in 2012, the LOA could only be valid for a maximum of two years because the 5-year rule expires in 2014. Other factors may be taken into consideration when determining the period of validity for a multi-year LOA, such as the degree of advanced planning regarding future training or exercise schedules and the details concerning the amount of activity and marine mammal occurrence documented in the previous year's monitoring and exercise reports. The regulations would still require the Navy to submit annual monitoring and exercise reports, NMFS and the Navy would still hold annual monitoring and adaptive management meetings, and LOAs could still be changed based on the availability of new information regarding training activities or the marine mammals affected.

In addition, these rules as first issued (a subset have been modified) quantified the specific amounts of individual sound source use that would occur over the course of the 5-year rules, and indicated that marine mammal take could only be authorized in an LOA incidental to the source types and amounts described. No language was initially included expressly allowing for deviation from those precise levels of source use if the total number of takes remain within the analyzed and authorized limits. Since the issuance of the rules, the Navy realized that their evolving training programs, which are linked to real world events, necessitate greater flexibility in the types and amounts of sound sources that they use. In response to this need, when the Navy requested incidental take authorization for the most recent area (GOA TMAA), NMFS included language explicitly allowing for greater flexibility in both source amount and type. Recently, NMFS amended the HRC, SOCAL Range Complex, AFAST, VACAPES, and JAX regulations to explicitly allow for greater flexibility in the types and amount of sound sources that they use (76 FR 6699, February 8, 2011, and 76 FR 30552, May 26, 2011). NMFS now proposes to amend the regulations for the remaining Navy training ranges to allow this same flexibility and ensure consistency.

The USAF regulations for activities at VAFB as first issued quantified the specific amounts of missiles and rockets that could be launched over the course of the 5-year rule and indicated that marine mammal take could only be authorized in an LOA incidental to the amounts described. No language was initially included expressly allowing for deviation from those precise launch levels if the total number of takes remains within the analyzed and authorized limits. Since the issuance of the rule, the USAF realized that their evolving training programs, which are linked to real world events, necessitate greater flexibility in the types and amounts of missile and rocket launches that they conduct. NMFS now proposes to amend the regulations issued to VAFB in February 2009, to allow for such flexibility.

On May 4, 2011, NMFS issued 5-year regulations governing the taking of marine mammals incidental to training activities conducted in the Gulf of Alaska Temporary Maritime Training Activities Area (76 FR 25480). These regulations allow for the issuance of annual or biennial LOAs (only annual LOAs had been allowed for in the previous Navy rules issued), but retain the annual reporting and meeting requirements.

After the issuance of the 2011 Gulf of Alaska rule, the Navy inquired about proposing amendments to the previously implemented Navy rules that would enable NMFS to renew LOAs for other training ranges on a multi-year basis. The ability to issue multi-year LOAs reduces administrative burdens on both NMFS and the Navy. In addition, multi-year LOAs would avoid situations where the last minute issuance of LOAs necessitated the commitment of extensive resources by the Navy for contingency planning.

This proposed modification would amend the regulations to allow the issuance of multi-year LOAs for all 12 Navy range complexes: HRC, SOCAL, AFAST, JAX, VACAPES, CHPT, NSWC PCD, MIRC, NWTRC, Keyport, GOA TMAA and GOMEX. The regulations for these range complexes currently limit the period of validity for LOAs to one year (two for GOA TMAA) and the Navy must request renewal of LOAs annually (biennially for GOA TMAA). Although the proposed amendments would increase the period of validity for LOAs, the regulations would retain the annual reporting and adaptive management meeting requirements that ensure NMFS is able to evaluate the Navy's compliance and marine mammal impacts with the same attention and frequency. In addition, a new LOA can be issued to incorporate any needed mitigation or monitoring measures developed through adaptive management, or if the Navy proposes changes to their activity within a given reporting period (i.e.,one year).

With respect to the second proposed modification regarding the types of sources for which incidental take is authorized, in some cases the Navy's rules identified the most representative or highest power source to represent a group of known similar sources. Additionally, the Navy regularly modifies or develops new technologies, which often results in sound sources that are similar to, but not exactly the same as, existing sources. In order to address these source modifications and the development of new technologies, NMFS proposes to include new regulatory language designed to allow for more flexibility by authorizing take incidental to the previously identified specific sound source or “similar sources” (i.e.,those that have similar characteristics to the specific sources and do not change any of the underlyinganalysis). In the February 8, 2011, modification to the HRC, SOCAL, and AFAST rules, NMFS increased the flexibility of the regulations by inserting language that explicitly allows for authorization of take incidental to the previously identified specified sound sources or “similar sources” (with similar characteristics that do not change any of the underlying analyses). NMFS now proposes inserting similar language in the following Navy rules: CHPT; NSWC PCD; MIRC; Keyport; GOMEX; and NWTRC.

Finally, regarding amounts of sound source use, the regulations only allow for the authorization of take incidental to a 5-yr maximum amount of use for each specific sound source, even though in most cases our effects analyses do not differentiate the impacts from the majority of the different types of sources. Specifically, although some sonar sources are louder or generate more acoustic energy in a given amount of time, which results in more marine mammal takes, we authorize total takes but do not differentiate between the individual takes that result from one source versus another. The proposed rule would amend the Navy rules to allow for inter-annual variability in the amount of source use identified in each LOA. For example, in one year the Navy could use a lot of one source and a little of another, and the next year those amounts could be reversed; however, the amount of inter-annual variability cannot result in exceeding the total level of incidental take analyzed and identified in the final rules, and the taking cannot result in more than a negligible impact on affected species or stocks. Language of this nature was included in final regulations governing the authorization of take incidental to the Navy's training activities in the Mariana Islands and Northwest Training Range Complexes, which were issued in 2010. NMFS issued interim final rules amending the HRC, SOCAL Range Complex, AFAST, VACAPES, and JAX regulations by adding language of this nature to increase operational flexibility in those range complexes (76 FR 6699, February 8, 2011, and 76 FR 30552, May 26, 2011). However, this language has not been adopted in the remaining Navy rules and NMFS now proposes including language of this nature in the regulations governing the authorization of take incidental to the additional Navy range complex not previously addressed by either the final rules or interim final rules mentioned above.

These regulatory amendments do not change the analyses of marine mammal impacts conducted in the original final rules. This is assured and illustrated through: (1) The Navy's submission of LOA applications for each area, which include take estimates specific to the upcoming period's activities (i.e.,sound source use); (2) their subsequent annual submission of classified exercise reports, which accurately report the specific amount of use for each sound source over the course of the previous year; and (3) their annual submission of monitoring reports, which describe observed responses of marine mammals to Navy sound sources collected via visual, passive acoustic, or tagging methods. Together, these submissions allow NMFS to accurately predict and track the Navy's activities to ensure that both NMFS' LOAs, and the impacts of the Navy's activities on marine mammals, remain within what is analyzed and allowed under the 5-year regulations.

In the 5-year regulations issued to the USAF in February 2009, NMFS authorized up to 30 missile launches and up to 20 rocket launches annually from VAFB (74 FR 6236, February 6, 2009). Those regulations analyzed potential impacts from many different types of missiles and rockets, such as the Atlas, Delta, Falcon, and intercontinental ballistic missiles. At the time of issuance of the regulations to the USAF, the Falcon was not yet ready for launch, but it was anticipated that the first launch of such a rocket would occur around August 2009. Information related to this rocket type was analyzed in both the proposed and final rulemaking documents. The Falcon has not yet been launched from VAFB, and it is anticipated that the first launch would occur in late 2012 or early 2013.

In order to accommodate the necessary launches of the Falcon rocket, the USAF has indicated that it needs to reassign the amount of the 50 total launches allowed annually. Instead of the 30 missile and 20 rocket launches currently authorized per year, the USAF has requested that they be permitted to conduct 15 missile launches and 35 rocket launches per year. The total number of annual launches would remain at 50.

As indicated above, this regulatory amendment does not change the analyses of marine mammal impacts conducted in the original final rule. This fact is assured and illustrated through: (1) The USAF's submission of annual LOA requests for the activities at VAFB related to space vehicle and test flight activities; and (2) their annual submission of monitoring reports, which describe observed responses of marine mammals to USAF missile and rocket launches and aircraft activity collected via visual monitoring and acoustic recording methods. These submissions allow NMFS to accurately predict and track the USAF's activities to ensure that both NMFS' LOAs and the impacts of the USAF's activities on marine mammals remain within what is analyzed and allowed under the 5-year regulations.

The Office of Management and Budget has determined that this proposed rule is not significant for purposes of Executive Order 12866.

Pursuant to the Regulatory Flexibility Act (RFA), the Chief Counsel for Regulation of the Department of Commerce has certified to the Chief Counsel for Advocacy of the Small Business Administration that this proposed rule, if adopted, would not have a significant economic impact on a substantial number of small entities. The RFA requires Federal agencies to prepare an analysis of a rule's impact on small entities whenever the agency is required to publish a notice of proposed rulemaking. However, a Federal agency may certify, pursuant to 5 U.S.C. 605 (b), that the action will not have a significant economic impact on a substantial number of small entities. The Navy and USAF are the only entities that will be affected by this rulemaking, not a small governmental jurisdiction, small organization, or small business, as defined by the RFA. Any requirements imposed by an LOA issued pursuant to these regulations, and any monitoring or reporting requirements imposed by these regulations, will be applicable only to the Navy and USAF. NMFS does not expect the amendments of these regulations or the associated LOAs to result in any impacts to small entities pursuant to the RFA. Because this action, if adopted, would directly affect the Navy and USAF and not a small entity, NMFS concludes the action would not result in a significant economic impact on a substantial number of small entities.

This action does not contain any collection of information requirements for purposes of the Paperwork Reduction Act.

For reasons set forth in the preamble, 50 CFR part 216 is proposed to be amended as follows: