Federal Register, Volume 77 Issue 37 (Friday, February 24, 2012)

[Federal Register Volume 77, Number 37 (Friday, February 24, 2012)]
[Rules and Regulations]
[Pages 10943-10950]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-4330]

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Rules and Regulations
Federal Register
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Federal Register / Vol. 77, No. 37 / Friday, February 24, 2012 /
Rules and Regulations

[[Page 10943]]

SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG08

Small Business Size Standards: Transportation and Warehousing

AGENCY: U.S. Small Business Administration.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The United States Small Business Administration (SBA) is
increasing the small business size standards for 22 industries in North
American Industry Classification System (NAICS) Sector 48-49,
Transportation and Warehousing, and retaining the current standards for
the remaining 37 industries in that Sector. As part of its ongoing
comprehensive review of all size standards, SBA has evaluated all
receipts based standards for industries in NAICS Sector 48-49 to
determine whether they should be retained or revised. SBA did not
review the employee based standards for industries in NAICS Sector 48-
49, but will do so at a later date with other employee based size
standards.

DATES: This rule is effective March 26, 2012.

FOR FURTHER INFORMATION CONTACT: Jon Haitsuka, Program Analyst, Size
Standards Division, (202) 205-6618 or sizestandards@sba.gov.

SUPPLEMENTARY INFORMATION: To determine eligibility for Federal small
business assistance programs, SBA establishes small business size
definitions (referred to as size standards) for private sector
industries in the United States. SBA's existing size standards use two
primary measures of business size--average annual receipts and number
of employees. Financial assets, electric output and refining capacity
are used as size measures for a few specialized industries. In
addition, SBA's Small Business Investment Company (SBIC), 7(a), and
Certified Development Company (CDC or 504) Loan Programs determine
small business eligibility using either the industry based size
standards or net worth and net income size based standards. At the
start of the current comprehensive review of SBA's small business size
standards, there were 41 different size standards levels, covering
1,141 NAICS industries and 18 sub-industry activities. Of these, 31
were based on average annual receipts, seven based on number of
employees, and three based on other measures.
Over the years, SBA has received comments that its size standards
have not kept up with changes in the economy, in particular, that they
do not reflect changes in the Federal contracting marketplace and
industry structure. SBA last conducted a comprehensive review of size
standards during the late 1970s and early 1980s. Since then, most
reviews of size standards have been limited to a few specific
industries in response to requests from the public and Federal
agencies. SBA also makes periodic inflation adjustments to its monetary
based size standards. The latest inflation adjustment to size standards
was published in the Federal Register on July 18, 2008 (73 FR 41237).
SBA recognizes that changes in industry structure and the Federal
marketplace since the last overall review have rendered existing size
standards for some industries no longer supportable by current data.
Accordingly, in 2007, SBA began a comprehensive review of its size
standards to determine whether existing size standards have supportable
bases relative to the current data, and to revise them, where
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 every18-month period
from the date of its enactment and 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 is also consistent with Executive Order 13563 on
improving regulation and regulatory review.
SBA has chosen not to review all size standards at one time.
Rather, it is reviewing groups of related industries on a Sector by
Sector basis.
As part of SBA's comprehensive review of size standards, the Agency
reviewed all receipts based size standards in NAICS Sector 48-49,
Transportation and Warehousing, to determine whether the existing size
standards should be retained or revised. On May 13, 2011, SBA published
a proposed rule in the Federal Register (76 FR 27935) seeking public
comment on its proposal to increase the size standards for 22
industries in NAICS Sector 48-49. The rule was one of a series of
proposed rules that examines industries grouped by NAICS Sector.
SBA developed a ``Size Standards Methodology'' for developing,
reviewing, and modifying size standards, when necessary. SBA published
the document on its Web site at www.sba.gov/size for public review and
comment and also included it as a supporting document in the electronic
docket of the May 13, 2011 proposed rule at www.regulations.gov.
In evaluating an industry's size standard, SBA examines its
characteristics (such as average firm size, startup costs, industry
competition and distribution of firms by size) and the level and small
business share of Federal contract dollars in that industry. SBA also
examines the potential impact a size standard revision might have on
its financial assistance programs and whether a business concern under
a revised size standard would be dominant in its industry. SBA analyzed
the characteristics of each industry in NAICS Sector 48-49 that has a
receipts based size standard, mostly using a special tabulation
obtained from the U.S. Bureau of the Census based on its 2007 Economic
Census (the latest available). SBA also evaluated the level and small
business share of Federal contracts in each of those industries using
the data from the Federal Procurement Data System--Next Generation
(FPDS-NG) for fiscal years 2007 to 2009. To evaluate the impact of
changes to size standards on its loan programs, SBA analyzed internal
data

[[Page 10944]]

on its guaranteed loan programs for fiscal years 2008 to 2010.
SBA's ``Size Standards Methodology'' provides a detailed
description of its analyses of various industry and program factors and
data sources, and how the Agency uses the results to derive size
standards. In the proposed rule, SBA detailed how it applied its ``Size
Standards Methodology'' to review and modify, where necessary, the
existing standards for industries in NAICS Sector 48-49. SBA sought
comments from the public on a number of issues about its ``Size
Standards Methodology,'' such as whether there are alternative
methodologies that SBA should consider; whether there are alternative
or additional factors or data sources that SBA should evaluate; whether
SBA's approach to establishing small business size standards makes
sense in the current economic environment; whether SBA's applications
of anchor size standards are appropriate in the current economy;
whether there are gaps in SBA's methodology because of the lack of
comprehensive data; and whether there are other facts or issues that
SBA should consider.
SBA sought comments on its proposal to increase receipts based size
standards for 22 industries in NAICS Sector 48-49 (Transportation and
Warehousing) and retain the existing size standards for remaining
industries in that Sector. Specifically, SBA requested comments on
whether the size standards should be revised as proposed and whether
the proposed revisions are appropriate. SBA also invited comments on
whether its proposed eight fixed size standard levels are appropriate
and whether it should adopt common size standards for several
Subsectors and Industry Groups in NAICS Sector 48-49.
SBA's analyses supported lowering existing receipts based standards
for 18 industries. However, as SBA pointed out in the proposed rule,
lowering size standards would reduce the number of firms eligible to
participate in Federal small business assistance programs and this is
contrary to what the Federal government and the Agency are doing to
help small businesses. Therefore, SBA proposed to retain the current
size standards for those industries and requested comments on whether
the Agency should lower size standards for those industries for which
its analyses might support lowering them.
In addition, because of lack of relevant industry data, SBA
proposed no changes to current size standards for the following:
Offshore Marine Air Transportation Services (sub-industries or
``exceptions'' to both NAICS Codes 481211 and NAICS 481212); Offshore
Marine Water Transportation Services (exception to NAICS Subsector
483); Non-Vessel Owning Common Carriers and Household Goods Forwarders
(exception to NAICS Code 488510); and Postal Services (NAICS Code
491110). SBA sought comments on this proposal as well as supporting
information if different size standards appeared more appropriate for
these industries or sub-industries.

Summary of Comments

SBA received six comments to the proposed rule. However, three of
them were related to the proposed rule for NAICS Sector 54
(Professional, Technical, and Scientific Services), which was published
for comments separately about the same time. One of those three
comments was submitted within the comment period for the NAICS Sector
54 proposed rule, and therefore SBA considered it along with the other
comments in drafting a final rule for that Sector. However, the other
two comments were submitted after the closing date for the comment
period for Sector 54 (June 15, 2011), and thus were not considered for
NAICS Sector 54 (because they were untimely) or for this rule (because
they were not relevant). Therefore, SBA received and considered three
valid comments to the proposed rule on NAICS Sector 48-49. Each of
these comments is discussed below.
SBA received one comment on NAICS 484230 (Specialized Freight
(except Used Goods) Trucking, Long-Distance). For the reasons provided
in the proposed rule, SBA proposed to retain the current $25.5 million
size standard for that NAICS code, although its analyses of industry
data related to all industries within NAICS Subsector 484 and to NAICS
Code 484230 individually supported a lower $19 million size standard.
The commenter stated that the size standard for NAICS Code 484230
should not be lowered to $19 million based on SBA's analyses, but
instead should be increased to $30 million from the current $25.5
million. However, the comment provided no specific data or analysis
justifying why the $30 million size standard is a more appropriate size
standard than $25.5 million for that industry. Rather, the commenter
simply pointed out SBA's results on certain industry and Federal
procurement factors to justify the $30 million size standard. Although
the four-firm concentration ratio was only 8 percent (i.e., much lower
than 40 percent for this to factor in the calculated size standard),
the commenter suggested that the size standard be increased to $30
million based on that factor. Similarly, although the Gini coefficient
value reflecting the size distribution of firms in that industry
supported the current $25.5 million size standard, the commenter argued
that the size standard should be $30 million instead. Finally, the
commenter contended that the size standard for NAICS Code 484230 should
be $30 million because the Federal contracting factor, based on the
2007-2009 FPDS-NG data, supported that level. As explained in the SBA's
size standards methodology as well as in the proposed rule, SBA
calculates an industry's size standard based on the average of size
standards supported by each of industry and Federal factors, not based
on one or several factors that support a higher size standard. Although
SBA sought comments on whether it should weigh some factors more
heavily than others for specific industries, the commenter provided no
feedback on this issue.
In response to the comment, SBA analyzed updated 2008-2010 Federal
procurement data and industry data from an updated tabulation of the
2007 Economic Census. The updated data produced a Gini coefficient
value that supported a higher $30 million size standard, and the
Federal contracting factor based on the updated data supported a higher
$35.5 million size standard than the previous analyses. However, SBA's
analysis based on all factors continued to support the current $25.5
million size standard for NAICS Code 484230 because the remaining
industry factors supported a standard much lower than the current $25.5
million size standard. Because all industries within NAICS Subsector
484 currently share a common size standard, SBA also used the updated
data to recalculate the appropriate common size standard for NAICS
Subsector 484 and found it to be $19 million. Since SBA received no
comments opposing its proposal to retain a common size standard for all
industries in NAICS Subsector 484, the Agency is maintaining a common
size standard for these industries. However, continuing its policy of
not lowering any size standards under the current economic environment,
SBA is adopting the current $25.5 million size standard for all
industries in NAICS Subsector 484, including NAICS Code 484230. In
other words, SBA has not adopted the commenter's recommendation to
increase the size standard for NAICS Code 484230 to $30 million.
Additionally, the commenter suggested that fuel surcharges should
be excluded from the calculation of receipts when determining if a
company meets the size standard. SBA's

[[Page 10945]]

definition of receipts states the following: ``Receipts means `total
income' (or in the case of a sole proprietorship, `gross income') plus
`cost of goods sold' as these terms are defined and reported on
Internal Revenue Service (IRS) tax return forms * * *.'' 13 CFR
121.104. The definition of receipts provides for a limited number of
specific exclusions, none of which relates to fuel surcharges or other
fuel related costs. Fuel surcharges are part of the usual and customary
costs of doing business. In addition, fuel surcharges that businesses
collect are subject to taxation and therefore are part of a firm's
revenues. Further, SBA uses data from the Economic Census, and the
revenue data that firms report under law to the Economic Census include
those costs. Accordingly, SBA does not exclude fuel surcharges from the
calculation of receipts for small business size determination purposes.
SBA acknowledges that firms in the transportation industries may have
substantial fuel surcharges or other fuel related costs, and, as such,
the Agency may consider such costs as a secondary factor in addition to
the primary industry and Federal procurement factors that SBA evaluates
when establishing small business size standards.
Another commenter felt that most of the revenues generated from the
commenter's firm's contracts are passed through to its many
subcontractors, which were tied to its costs and thus should not be
included as part of its revenues. The commenter pointed out that on
average the subcontractors are paid 82 percent of the total contract
value, and including these pass-throughs overstates the firm's
revenues. The commenter stated that the requirement to include
subcontracting costs in revenues had an adverse impact on its business'
size determination because it caused its total revenues to exceed the
size standard. The commenter suggested that costs of goods sold be
removed from the definition of receipts and that actual profit be the
determining factor on whether a firm qualifies as small.
This is not a new suggestion, nor is it unique to transportation
industries. As explained above, SBA's definition of receipts states
that ``receipts means `total income' * * * plus `cost of goods sold' *
* *'' and provides for a limited number of specific exclusions. 13 CFR
121.104. None of the enumerated exclusions relates to subcontracting
costs.
Similar to fuel surcharges mentioned above, SBA does not allow for
the exclusion of subcontracting costs (commonly known as ``pass-
throughs'') from the calculation of revenues because they are part of
the usual and customary costs of doing business. Additionally, SBA uses
data from the U.S. Bureau of the Census' 2007 Economic Census, and the
revenue data that firms report under law to the Economic Census include
subcontracting and other costs of goods sold. If the Agency were to
exclude the value of ``pass-through'' revenues, SBA would also have to
establish a lower size standard to reflect the size of the industry
without them.
SBA has always included all revenues, including pass-throughs or
subcontracting costs, for size standards purposes for several reasons.
First, as stated above, the revenue data SBA receives from the Economic
Census includes those costs. Second, this practice is consistent with
the Small Business Act, which refers to SBA's establishing size
standards based on ``* * * annual average gross receipts of the
business concern * * *'' Sec. 3(a)(2)(C)(ii)(II) [emphasis added].
Third, SBA's existing definitions of receipts and employees provide a
consistent approach to establishing eligibility for small business
programs for all industries. Fourth, if SBA were to exclude certain
costs for one or a few industries, other industries could raise the
same questions, creating a ``slippery slope'' leading toward widespread
inconsistency in how businesses calculate their receipts to determine
if they qualify as small.
The third commenter supported the increase in the size standard for
NAICS Code 485113 (Bus and Motor Vehicles Transit Systems) from $7.0
million in average annual receipts to $14.0 million in average annual
receipts because the higher size standard better reflected current
operations of the commenter's business, where a large portion of small
business set-aside contracts had to be subcontracted to other
businesses. The commenter stated that subcontractors are paid on
average 85 percent of the total contract value, while the commenter's
business receives the remaining 15 percent.
SBA acknowledges that some industries may have substantially higher
subcontracting costs than others. SBA considers subcontracting costs as
a secondary factor, in addition to the primary industry and Federal
procurement factors, when it reviews size standards for those
industries. In other words, SBA may make further adjustments to small
business size standards, if necessary, for industries for which
subcontracting costs are substantially higher than for other
industries.
SBA notes that two of the three comments indicated that
subcontracting costs accounted for more than 80 percent of the total
value of work in their industries. It is important to point out that
SBA's regulations on Government Contracting Programs provide that
``[i]n order to be awarded a full or partial small business set-aside
contract, an 8(a) contract, a WOSB or EDWOSB contract pursuant to part
127 of this chapter, * * * a small business concern must agree that:
(1) In the case of a contract for services (except construction), the
concern will perform at least 50 percent of the cost of the contract
incurred for personnel with its own employees. * * *'' 13 CFR 125.6. A
firm undertaking such contracts must comply with these ``limitations on
subcontracting,'' even if it otherwise appears to meet the small
business size standard for a particular procurement. It cannot qualify
as small for award under any of the aforementioned programs if it
subcontracts more than 50 percent of the contract.
SBA received no comments opposing its proposal to retain the
current size standards where analyses suggested lowering them. The
Agency also received no comments opposing SBA's proposal to retain the
current standards where relevant data were not available.
All comments to the proposed rule are available for public review
at http://www.regulations.gov.

Conclusion

Based on SBA's analyses of relevant industry and program data and
the public comments it received on the proposed rule, SBA has decided
to increase the small business size standards for the 22 industries in
NAICS Sector 48-49 to the levels it proposed. Those industries and
their revised size standards are shown in the following Table 1,
Summary of Revise Size Standards in NAICS Sector 48-49.

[[Page 10946]]

Table 1--Summary of Revised Size Standards in NAICS Sector 48-49
----------------------------------------------------------------------------------------------------------------
Current size New size
NAICS codes NAICS industry title standard standard
(millions) (millions)
----------------------------------------------------------------------------------------------------------------
481219..................................... Other Nonscheduled Air $7.0 $14.0
Transportation.
485111..................................... Mixed Mode Transit Systems......... 7.0 14.0
485112..................................... Commuter Rail Systems.............. 7.0 14.0
485113..................................... Bus and Other Motor Vehicle Transit 7.0 14.0
Systems.
485119..................................... Other Urban Transit Systems........ 7.0 14.0
485210..................................... Interurban and Rural Bus 7.0 14.0
Transportation.
485310..................................... Taxi Service....................... 7.0 14.0
485320..................................... Limousine Service.................. 7.0 14.0
485410..................................... School and Employee Bus 7.0 14.0
Transportation.
485510..................................... Charter Bus Industry............... 7.0 14.0
485991..................................... Special Needs Transportation....... 7.0 14.0
485999..................................... All Other Transit and Ground 7.0 14.0
Passenger Transportation.
486210..................................... Pipeline Transportation of Natural 7.0 25.5
Gas.
488111..................................... Air Traffic Control................ 7.0 30.0
488119..................................... Other Airport Operations........... 7.0 30.0
488190..................................... Other Support Activities for Air 7.0 30.0
Transportation.
488210..................................... Support Activities for Rail 7.0 14.0
Transportation.
488310..................................... Port and Harbor Operations......... 25.5 35.5
488320..................................... Marine Cargo Handling.............. 25.5 35.5
488330..................................... Navigational Services to Shipping.. 7.0 35.5
488390..................................... Other Support Activities for Water 7.0 35.5
Transportation.
488510..................................... Freight Transportation Arrangement \10\ 7.0 14.0
\10\.
----------------------------------------------------------------------------------------------------------------

For the reasons stated above in this rule and in the proposed rule,
SBA has decided to retain the current receipts based size standards for
18 industries for which analytical results suggested lower size
standards. Not lowering size standards in NAICS Sector 48-49 is
consistent with SBA's recent final rules on NAICS Sector 44-45, Retail
Trade (75 FR 61597, October 6, 2010); NAICS Sector 72, Accommodation
and Food Services (75 FR 61604, October 6, 2010); and NAICS Sector 81,
Other Services (75 FR 61591, October 6, 2010). In each of those final
rules, SBA adopted its proposal not to reduce small business size
standards for the same reasons. SBA is also retaining the existing
receipts based size standards for two industries for which the results
supported them at their current levels. Accordingly, SBA has retained
the existing receipts based size standards for all industries in NAICS
Subsector 484 (Truck Transportation), Subsector 487 (Scenic and
Sightseeing Transportation), Subsector 492 (Couriers and Messengers),
and Subsector 493 (Warehousing and Storage).
SBA has also retained current receipts based size standards for
Offshore Marine Air Transportation Services (exceptions to NAICS Code
481211 and NAICS Code 481212), Offshore Marine Water Transportation
Services (exception to NAICS Subsector 483, Water Transportation), Non-
Vessel Owning Common Carriers and Household Goods Forwarders (exception
to NAICS Code 488510), and Postal Services (NAICS Code 491110).
SBA did not review the 15 industries in NAICS Sector 48-49 that
have employee based size standards. Therefore, SBA has retained the
size standards for those industries at their current levels until the
Agency reviews employee based size standards at a later date.

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

Executive Order 12866

The Office of Management and Budget (OMB) has determined that this
final rule is a ``significant'' regulatory action for purposes of
Executive Order 12866. Accordingly, the next section contains SBA's
Regulatory Impact Analysis. This is not a major rule, however, under
the Congressional Review Act, 5 U.S.C. 800.
Regulatory Impact Analysis:
1. Is there a need for the regulatory action?
SBA believes that the revised changes to small business size
standards for 22 industries in NAICS Sector 48-49, Transportation and
Warehousing, reflect changes in economic characteristics of small
businesses in those industries and the Federal procurement market.
SBA's mission is to aid and assist small businesses through a variety
of financial, procurement, business development, and advocacy programs.
To assist the intended beneficiaries of these programs effectively, SBA
establishes distinct definitions to determine which businesses are
deemed small businesses. The Small Business Act (15 U.S.C. 632(a))
delegates to SBA's Administrator the responsibility for establishing
definitions for small business. The Act also requires that small
business definitions vary to reflect industry differences. The Jobs Act
requires the Administrator to review one-third of all size standards
within each 18-month period from the date of its enactment and to
review all size standards at least every five years thereafter. The
supplementary information section of the May 13, 2011 proposed rule and
this rule explained in detail SBA's methodology for analyzing a size
standard for a particular industry.
2. What are the potential benefits and costs of this regulatory
action?
The most significant benefit to businesses obtaining small business
status as a result of this rule is gaining eligibility for Federal
small business assistance programs, including SBA's financial
assistance programs, economic injury disaster loans, and Federal
procurement opportunities intended for small businesses. Federal small
business programs provide targeted opportunities for small businesses
under SBA's various business development and contracting programs.
These include the 8(a) Business Development program and programs
benefiting small businesses located in Historically Underutilized
Business Zones (HUBZone), women owned small businesses (WOSB), and
service-disabled veteran-owned small businesses (SDVOSB). Other Federal
agencies also may use SBA's size

[[Page 10947]]

standards for a variety of regulatory and program purposes. These
programs help small businesses become more knowledgeable, stable, and
competitive. In the 22 industries in NAICS Sector 48-49 for which SBA
has decided to increase size standards, SBA estimates that about 1,200
additional firms will gain small business status and become eligible
for these programs. That number is 0.7 percent of the total number of
firms in industries in NAICS Sector 48-49 that have receipts based size
standards. SBA estimates that this would increase the small business
share of total industry receipts in those industries from 36 percent
under the current size standards to 39 percent.
The benefits of increasing size standards to a more appropriate
level will accrue to three groups in the following ways: (1) Some
businesses that are above the current size standards will gain small
business status under the higher size standards, thereby enabling them
to participate in Federal small business assistance programs; (2)
growing small businesses that are close to exceeding the current size
standards will be able to retain their small business status under the
higher size standards, thereby enabling them to continue their
participation in the programs; and (3) Federal agencies will have a
larger pool of small businesses from which to draw for their small
business procurement programs.
Based on the data for fiscal years 2007 to 2009, more than two-
thirds of total Federal contracting dollars spent in industries
reviewed in this proposed rule were accounted for by the 22 industries
for which SBA is increasing size standards. SBA estimates that
additional firms gaining small business status in those industries
under the revised size standards could potentially obtain Federal
contracts totaling up to $25 million per year through the 8(a),
HUBZone, WOSB, and SDVOSB programs and through other, unrestricted
procurements. The added competition for many of these procurements may
also result in lower prices to the Government for procurements reserved
for small businesses, although SBA cannot quantify this benefit.
Under SBA's 7(a) Business Loan and 504 Programs, based on the 2008
to 2010 data, SBA estimates that approximately 10 additional loans
totaling $4 million to $5 million in new Federal loan guarantees could
be made to the newly defined small businesses under the revised size
standards. 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 SBA's 7(a) and 504 Loan Programs for
those applicants that do not meet the size standards for their
industries. That is, under the Jobs Act, if a firm applies for a 7(a)
or 504 loan but does not meet the size standard for its industry, it
might still qualify if, including its affiliates, it has a tangible net
worth that does not exceed $15 million and also has an average net
income after Federal income taxes (excluding any carry-over losses) for
its preceding two completed fiscal years that does not exceed $5.0
million. Thus, increasing the size standards may result in an increase
in small business guaranteed loans to small businesses in these
industries, but it would be impractical to try to estimate the extent
of their number and the total amount loaned.
Newly defined small businesses will also benefit from SBA's
Economic Injury Disaster Loan 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 all 1,200 newly defined small firms under the
revised size standards could become active in Federal procurement
programs, this may entail some additional administrative costs to the
Federal Government associated with additional bidders for Federal small
business procurement opportunities, additional firms seeking SBA
guaranteed lending programs, additional firms eligible for enrollment
in the Central Contractor Registration's Dynamic Small Business Search
database and additional firms seeking certification as 8(a) or HUBZone
firms or those qualifying for small business, WOSB, SDVOSB, and SDB
status. Among businesses in this group seeking SBA assistance, there
could be some additional costs associated with compliance and
verification of small business status and protests of small business
status. These added costs are likely to be minimal because mechanisms
are already in place to handle these administrative requirements.
The costs to the Federal Government may be higher on some Federal
contracts under the higher revised size standards. With a greater
number of businesses defined as small, Federal agencies may choose to
set aside more contracts for competition among small businesses rather
than using full and open competition. The movement from unrestricted to
set-aside contracting will likely 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 additional
full and open contracts are awarded to HUBZone businesses because of a
price evaluation preference. The additional costs associated with fewer
bidders, however, will likely 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 SDVOSB Programs only if awards are expected to
be made at fair and reasonable prices.
The revised size standards may have some distributional effects
among large and small businesses. Although SBA cannot estimate with
certainty the actual outcome of gains and losses among small and large
businesses, there are several likely impacts. There may be a transfer
of some Federal contracts from large businesses to small 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 agencies may award more Federal contracts
to HUBZone concerns instead of large businesses since HUBZone concerns
may be eligible for price evaluation adjustments when they compete on
full and open bidding opportunities. Similarly, currently defined small
businesses may obtain fewer Federal contracts due to the increased
competition from more businesses defined as small under the revised
size standards. This transfer may be offset by more 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 small businesses under the existing size
standards. The SBA cannot estimate with precision the potential
distributional impacts of these transfers.
The revisions to the existing size standards for Transportation and
Warehousing industries are consistent with SBA's statutory mandate to
assist small business. This regulatory action promotes the
Administration's objectives. One of SBA's goals in support of the
Administration's objectives is to help individual small businesses
succeed through fair and equitable access to capital and credit,
Government contracts, and management and technical assistance.
Reviewing and modifying size standards, when appropriate, ensures that
intended beneficiaries have access to small business programs designed
to assist them.

[[Page 10948]]

Executive Order 13563

A description of the need for this regulatory action and benefits
and costs associated with this action including possible distributions
impacts that relate to Executive Order 13563 is included above in the
Regulatory Impact Analysis under Executive Order 12866.
In an effort to engage interested parties in this action, SBA has
presented its methodology (discussed above under SUPPLEMENTARY
INFORMATION) to various industry associations and trade groups. SBA
also met with various industry groups to obtain their feedback on its
methodology and other size standards issues. SBA also presented its
size standards methodology to businesses in 13 cities in the U.S. and
sought their input as part of the Jobs Act tours. 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, and Federal agencies in
preparing this proposed rule.
The review of size standards in NAICS Sector 48-49, Transportation
and Warehousing, is consistent with EO 13563 Sec. 6 calling for
retrospective analyses of existing rules. The last overall review of
size standards occurred during the late 1970s and early 1980s. Since
then, except for periodic adjustments for monetary based size
standards, most reviews of size standards 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, in
2007, SBA began a comprehensive review of all size standards to ensure
that existing size standards have supportable bases and to revise them
when necessary. In addition, the Jobs Act directs SBA to conduct a
detailed review of all size standards and to make appropriate
adjustments to reflect market conditions. Specifically, the Jobs Act
requires SBA to conduct a detailed review of at least one-third of all
size standards during every 18-month period from the date of its
enactment and do a complete review of all size standards not less
frequently than once every 5 years thereafter.

Executive Order 12988

This action meets applicable standards set forth in Sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.

Executive Order 13132

For purposes of Executive Order 13132, SBA has determined that this
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 rule has no
federalism implications warranting preparation of a federalism
assessment.

Paperwork Reduction Act

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

Final Regulatory Flexibility Analysis

Under the Regulatory Flexibility Act (RFA), this rule may have a
significant impact on a substantial number of small entities in NAICS
Sector 48-49, Transportation and Warehousing. As described above, this
rule may affect small entities seeking Federal contracts, SBA's 7(a)
and 504 Guaranteed Loans, SBA's Economic Injury Disaster Loans, and
various small business benefits under other Federal programs.
Immediately below, SBA sets forth a final regulatory flexibility
analysis of this final rule addressing the following questions: (1)
What are the need for and objective of the rule? (2) What are SBA's
description and estimate of the number of small entities to which the
rule will apply? (3) What are the projected reporting, record keeping,
and other compliance requirements of the rule? (4) What are the
relevant Federal rules which may duplicate, overlap, or conflict with
the rule? and (5) What alternatives will allow the Agency to accomplish
its regulatory objectives while minimizing the impact on small
entities?
(1) What are the need for and objective of the rule?
Most of SBA's size standards for the Transportation and Warehousing
industries had not been reviewed since the 1980s. Technological
changes, productivity growth, international competition, mergers and
acquisitions and updated industry definitions may have changed the
structure of many industries in that Sector. Such changes can be
sufficient to support a revision to size standards for some industries.
Based on the analysis of the latest industry and program data
available, SBA believes that the revised standards in this rule more
appropriately reflect the size of businesses in those industries that
need Federal assistance. Additionally, the Jobs Act requires SBA to
review all size standards and make appropriate adjustments to reflect
current data and market conditions.
(2) What are SBA's description and estimate of the number of small
entities to which the rule will apply?
SBA estimates that approximately 1,200 additional firms will become
small because of increases in size standards in 22 industries in NAICS
Sector 48-49. That represents 0.7 percent of total firms in industries
in that Sector that have receipts based size standards. This will
result in an increase in the small business share of total industry
receipts in those industries from about 36 percent under the current
size standards to nearly 39 percent under the proposed standards. SBA
does not anticipate a significant competitive impact on smaller
businesses in these industries. The revised size standards will enable
more small businesses to retain their small business status for a
longer period. Under current size standards, many small businesses may
have lost their eligibility or found it difficult to compete with
companies that are significantly larger than they are, and this final
rule attempts to correct that impact. SBA believes these changes will
have a positive impact for existing small businesses and for those that
have either exceeded or are about to exceed current size standards.
(3) What are the projected reporting, record keeping, and other
compliance requirements of the rule and an estimate of the classes of
small entities which will be subject to the requirements?
Revising size standards does not impose any additional reporting or
record keeping requirements on small entities. However, qualifying for
Federal procurement and a number of other Federal programs requires
that entities register in the Central Contractor Registration (CCR)
database and certify

[[Page 10949]]

at least annually that they are small in the Online Representations and
Certifications Application (ORCA). Therefore, businesses opting to
participate in those programs must comply with CCR and ORCA
requirements. There are no costs associated with either CCR
registration or ORCA certification. Revising size standards alters the
access to SBA programs that are designed to assist small businesses,
but does not impose a regulatory burden as they neither regulate nor
control business behavior.
(4) What are the relevant Federal rules which may duplicate,
overlap, or conflict with the rule?
Under Sec. 3(a)(2)(C) of the Small Business Act, 15 U.S.C.
632(a)(2)(c), Federal agencies must use SBA's size standards to define
a small business, unless specifically authorized by statute. In 1995,
SBA published in the Federal Register a list of statutory and
regulatory size standards that identified the application of SBA's size
standards as well as other size standards used by Federal agencies (60
FR 57988, November 24, 1995). SBA is not aware of any Federal rule that
would duplicate or conflict with establishing or revising size
standards.
However, the Small Business Act and SBA's regulations allow Federal
agencies to develop different size standards if they believe that SBA's
size standards are not appropriate for their programs, with the
approval of SBA's Administrator (13 CFR 121.903). The Regulatory
Flexibility Act authorizes an agency to establish an alternative small
business definition after consultation with the Office of Advocacy of
the U.S. Small Business Administration (5 U.S.C. 601(3)).
(5) What alternatives will allow the Agency to accomplish its
regulatory objectives while minimizing the impact on small entities?
By law, SBA is required to develop numerical size standards for
establishing eligibility for Federal small business assistance
programs. Other than varying size standards by industry and changing
the size measures, no practical alternative exists to the existing
system of numerical size standards. The possible alternative size
standards considered for the individual NAICS Code industries within
NAICS Sector 48-49 are discussed in the supplementary information to
the proposed rule and this final rule.

List of Subjects in 13 CFR Part 121

Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Individuals with
disabilities, Loan programs--business, Reporting and recordkeeping
requirements, Small businesses.

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

PART 121--SMALL BUSINESS SIZE REGULATIONS

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

Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 662, 694a(9).

0
2. In Sec. 121.201, in the table, revise the entries for ``481219'',
``485111'', ``485112'', ``485113'', ``485119'', ``485210'', ``485310'',
``485320'', ``485410'', ``485510'', ``485991'', ``485999'', ``486210'',
``488111'', ``488119'', ``488190'', ``488210'', ``488310'', ``488320'',
``488330'', ``488390'', and ``488510'' to read as follows:

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

* * * * *

Small Business Size Standards by NAICS Industry
----------------------------------------------------------------------------------------------------------------
Size standards Size standards
NAICS codes NAICS U.S. industry title in millions of in number of
dollars employees
----------------------------------------------------------------------------------------------------------------

* * * * * * *
Sector 48-49--Transportation and Warehousing

* * * * * * *
481219.................................. Other Nonscheduled Air $14.0 ................
Transportation.

* * * * * * *
485111.................................. Mixed Mode Transit Systems........ 14.0 ................
485112.................................. Commuter Rail Systems............. 14.0 ................
485113.................................. Bus and Other Motor Vehicle 14.0 ................
Transit Systems.
485119.................................. Other Urban Transit Systems....... 14.0 ................
485210.................................. Interurban and Rural Bus 14.0 ................
Transportation.
485310.................................. Taxi Service...................... 14.0 ................
485320.................................. Limousine Service................. 14.0 ................
485410.................................. School and Employee Bus 14.0 ................
Transportation.
485510.................................. Charter Bus Industry.............. 14.0 ................
485991.................................. Special Needs Transportation...... 14.0 ................
485999.................................. All Other Transit and Ground 14.0 ................
Passenger Transportation.

* * * * * * *
486210.................................. Pipeline Transportation of Natural 25.5 ................
Gas.

* * * * * * *
488111.................................. Air Traffic Control............... 30.0 ................
488119.................................. Other Airport Operations.......... 30.0 ................
488190.................................. Other Support Activities for Air 30.0 ................
Transportation.
488210.................................. Support Activities for Rail 14.0 ................
Transportation.
488310.................................. Port and Harbor Operations........ 35.5 ................
488320.................................. Marine Cargo Handling............. 35.5 ................
488330.................................. Navigational Services to Shipping. 35.5 ................
488390.................................. Other Support Activities for Water 35.5 ................
Transportation.

[[Page 10950]]

* * * * * * *
488510.................................. Freight Transportation Arrangement \10\ 14.0 ................
\10\.

* * * * * * *
----------------------------------------------------------------------------------------------------------------

Footnotes
* * * * *
10. NAICS codes 488510 (part) 531210, 541810, 561510, 561520, and
561920--As measured by total revenues, but excluding funds received in
trust for an unaffiliated third party, such as bookings or sales
subject to commissions. The commissions received are included as
revenues.
* * * * *

Dated: December 21, 2011.
Karen G. Mills,
Administrator.
[FR Doc. 2012-4330 Filed 2-23-12; 8:45 am]
BILLING CODE 8025-01-P