[Federal Register Volume 77, Number 138 (Wednesday, July 18, 2012)]
[Proposed Rules]
[Pages 42197-42211]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17440]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG37


Small Business Size Standards: Construction

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA) proposes to 
increase small business size standards for one industry and one sub-
industry in North American Industry Classification System (NAICS) 
Sector 23, Construction. SBA proposes to increase the size standard for 
NAICS 237210, Land Subdivision, from $7 million to $25 million and the 
size standard for Dredging and Surface Cleanup Activities, a sub-
industry category (or an ``exception'') under NAICS 237990, Other Heavy 
and Civil Engineering Construction, from $20 million to $30 million in 
average annual receipts. As part of its ongoing comprehensive size 
standards review, SBA has evaluated all size standards in NAICS Sector 
23 to determine whether they should be retained or revised. This 
proposed rule is one of a series of proposed rules that will review 
size standards of industries grouped by NAICS Sector. SBA issued a 
White Paper entitled ``Size Standards Methodology'' and published a 
notice in the October 21, 2009 issue of the Federal Register to advise 
the public that the document is available on its Web site at 
www.sba.gov/size for public review and comments. The ``Size Standards 
Methodology'' White Paper explains how SBA establishes, reviews, and 
modifies its receipts based and employee based small business size 
standards. In this proposed rule, SBA has applied its methodology that 
pertains to establishing, reviewing, and modifying a receipts based 
size standard.

DATES: SBA must receive comments to this proposed rule on or before 
September 17, 2012.

ADDRESSES: Identify your comments by RIN 3245-AG37 and submit them by 
one of the following methods: (1) Federal eRulemaking Portal: 
www.regulations.gov, following 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. SBA will not accept comments to this proposed 
rule submitted by email.
    SBA will post all comments to this proposed rule on 
www.regulations.gov. If you wish to submit confidential business 
information (CBI) as defined in the User Notice at www.regulations.gov, 
you must submit such information to U.S. Small Business Administration, 
Khem R. Sharma, Ph.D., Chief, Size Standards Division, 409 Third Street 
SW., Mail Code 6530, Washington, DC 20416, or send an email to 
sizestandards@sba.gov. Highlight the information that you consider to 
be CBI and explain why you believe SBA should hold this information as 
confidential. SBA will review your information and determine whether it 
will make the information public.

FOR FURTHER INFORMATION CONTACT: Jorge Laboy-Bruno, Ph.D., Economist, 
Size Standards Division, (202) 205-6618 or sizestandards@sba.gov.

SUPPLEMENTARY INFORMATION: 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.
    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 were limited to a few specific industries in response to 
requests from the public and Federal agencies. SBA also adjusts its 
monetary based size standards for inflation at least once every five 
years. SBA's latest inflation adjustment to size standards was 
published in the Federal Register on July 18, 2008 (73 FR 41237).
    Given its importance in the Federal Procurement market, SBA has 
studied and reviewed the construction industry over time. In 1985, SBA 
adopted a new size standard for the Dredging sub-industry (an exception 
within NAICS industry 237990). The new size standard was based on a 
1984 study of the industry structure, conducted in cooperation with the 
Corps of Engineers and members of the industry. The final rule was 
published in the Federal Register on November 8, 1985 (50 FR 46418). 
Finally, the industry's

[[Page 42198]]

definitions under the NAICS changed significantly in 2002, requiring 
SBA to adjust its size standards (including those in NAICS Sector 23) 
accordingly (67 FR 52633).
    Because of changes in the Federal marketplace and industry 
structure since the last comprehensive size standards 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 five 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 is reviewing 
size standards on a Sector by Sector basis. A NAICS Sector generally 
includes 25 to 75 industries, except for NAICS Sector 31-33, 
Manufacturing, which has considerably more industries. Once SBA 
completes its review of size standards for industries in a NAICS 
Sector, it issues a proposed rule to revise size standards for those 
industries for which it believes 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.

Size Standards Methodology

    SBA has recently developed a ``Size Standards Methodology'' for 
developing, reviewing, and modifying size standards when necessary. SBA 
published the document on its Web site at www.sba.gov/size for public 
review and comments, and has included it as a supporting document in 
the electronic docket of this proposed rule at www.regulations.gov. SBA 
does not apply all features of its ``Size Standards Methodology'' to 
all industries because not all features are appropriate for every 
industry. For example, since all industries in NAICS Sector 23 have 
receipts based size standards the methodology described in this 
proposed rule applies only to establishing receipts based size 
standards. However, the methodology is 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 
concerning its ``Size Standards Methodology,'' such as whether there 
are other 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; whether there are gaps in SBA's 
methodology because the data it uses are not current or sufficiently 
comprehensive; and whether there are other data, facts, and/or issues 
that SBA should consider. Comments on SBA's size standards methodology 
should be submitted via: (1) The Federal eRulemaking Portal: 
www.regulations.gov, following the instructions for submitting 
comments; the docket number is SBA-2009-0008; 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 it will do with comments to this and other proposed rules, SBA will 
post all comments on its methodology on www.regulations.gov. As of 
December 29, 2011, SBA has received 14 comments to its ``Size Standards 
Methodology.'' The comments are available to the public at 
www.regulations.gov. SBA continues to welcome comments on its 
methodology from interested parties. SBA will not accept comments to 
its ``Size Standards Methodology'' submitted by email.
    Congress granted SBA's Administrator discretion to establish 
detailed small business size standards. 15 U.S.C. 632(a)(2). 
Specifically, 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 
(as described below). In addition, SBA considers current economic 
conditions, its mission and program objectives, 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 it used to propose adjustments to size 
standards in NAICS Sector 23. This proposed rule affords the public an 
opportunity to review and to comment on SBA's proposals to revise size 
standards in NAICS Sector 23, as well as on the data and methodology it 
used to evaluate and revise the size standards.

Industry Analysis

    For the current comprehensive size standards review, SBA has 
established three ``base'' or ``anchor'' size standards--$7.0 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 
today it is $7 million. Since 1986, the size standard for all 
industries in the Wholesale Trade Sector for SBA financial assistance 
and for most Federal programs has been 100 employees. However, NAICS 
codes for the Wholesale Trade Sector and their 100 employee size 
standards do not apply to Federal procurement programs. Rather, for 
Federal procurement the size

[[Page 42199]]

standard for all industries in Wholesale Trade (NAICS Sector 42) 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 is neither a minimum nor a maximum size standard. 
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. SBA presumes an anchor size standard is 
appropriate for a particular industry unless that industry displays 
economic characteristics that are considerably different from other 
industries with the same anchor size standard.
    When evaluating a size standard, SBA compares the economic 
characteristics of the industry under review to the average 
characteristics of industries with one of the three anchor size 
standards (referred to as the ``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 generally 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 23, SBA has developed a second comparison group 
consisting of industries that have the highest of receipts based size 
standards. To determine 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; the weighted average size 
standard for the group is $29 million. SBA refers to this comparison 
group as the ``higher level receipts based size standard group.''
    The primary factors that SBA evaluates to examine industry 
structure include average firm size, startup costs and entry barriers, 
industry competition, and distribution of firms by size. SBA evaluates, 
as an additional primary factor, the impact that revised 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, other program factors, etc.). 
SBA also considers possible 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 23. A more detailed description of this analysis is provided in 
SBA's ``Size Standards Methodology,'' available at http://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 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 size 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 lower than those of the anchor 
comparison group is likely to have lower startup costs; this will 
support the anchor standard or 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 to the average four-firm concentration ratio for 
industries in the anchor comparison group. If a significant share

[[Page 42200]]

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 share of economic activity within the 
industry is less than 40 percent. For an industry with a four-firm 
concentration ratio of 40 percent or more, SBA examines the average 
size of the four largest firms to determine 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 in assessing industry competition. 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 
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 its Web site at 
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 with that 
for industries in the anchor comparison group. If the Gini coefficient 
value for an industry is higher than it is for industries in the anchor 
comparison industry group this may, all else being equal, warrant a 
size standard higher 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 possible 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, this could justify considering a size standard higher than 
the existing size standard. The disparity between the small business 
Federal market share and 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 support a size standard 
larger than the current size 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 
contracting opportunities to small businesses.
    Besides the impact on small business Federal contracting, SBA also 
evaluates the impact of a proposed size standard revision on SBA's loan 
programs. For this, SBA examines the data on volume and number of 
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 current size standards have 
impeded financial assistance to small businesses, higher size standards 
may be 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 standards, SBA does not consider this factor when 
determining the size standard.

Sources of Industry and Program Data

    SBA's primary source of industry data used in this proposed rule is 
a special tabulation of the 2007 Economic Census (see www.census.gov/econ/census07/) prepared by the U.S. Bureau of the Census (Census 
Bureau) for SBA. The 2007 Economic Census data are the latest 
available. 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 Industry (6-digit level), 
Industry Group (4-digit level), Subsector (3-digit level), and Sector 
(2-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.
    To calculate average assets, SBA used sales to total assets ratios 
from the Risk Management Association's Annual Statement Studies, 2008-
2010.
    To evaluate Federal contracting trends, SBA examined data on 
Federal contract awards for fiscal years 2008-2010. The data are 
available from the U.S. General Service Administration's Federal 
Procurement Data System--Next Generation (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 SBA uses in its size 
standards analysis are documented in detail in SBA's ``Size Standards 
Methodology'' White Paper, which is available at www.sba.gov/size.

[[Page 42201]]

Dominance in Field of Operation

    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 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.

Selection of Size Standards

    To simplify 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 (see 69 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 such a 
large number of different small business size standards is 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.
    All size standards in NAICS Sector 23 are based on average annual 
receipts. SBA proposes, therefore, to apply one of eight receipts based 
size standards to each industry in NAICS Sector 23. 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. SBA established these eight receipts based size standard 
based on the current minimum, the current maximum, and the most 
commonly used current receipts based size standards. At the start of 
the current comprehensive review, the most commonly used receipts based 
size standards clustered around the following--$2.5 million to $4.5 
million, $7 million, $9 million to $10 million, $12.5 million to $14.0 
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. 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 includes those 
industries with 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: $10 million, $14 million, $25.5 million, and 
$35.5 million. Because of the 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 reflect 
roughly the same proportional differences as between 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 separate size standard 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 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, NAICS 541519, and NAICS 811212), even though the industry 
data might support a distinct size standard for each industry (57 FR 
27906 (June 23, 1992)). The SBA also, more recently, established common 
size standards for the industries in NAICS Industry Group 5411, Legal 
Services, and for the industries in NAICS Industry Group 5412, 
Accounting Services (77 FR 7490 (February 10, 2012)). In NAICS Sector 
23, currently all industries in NAICS Subsector 236 (Construction of 
Buildings), and all industries in NAICS Industry Group 2371 (Utility 
System Construction) have common size standards. Similarly, all 
industries within NAICS Subsector 238 (Specialty Trade Contractors) 
also have a common size standard. In this proposed rule, SBA proposes 
to retain common size standards for all industries within NAICS 
Subsector 236 (Construction of Buildings), NAICS Industry Group 2371 
(Utility System Construction), and NAICS Subsector 238 (Specialty Trade 
Contractors). Whenever SBA proposes a common size standard for closely 
related industries it will provide its justification.

Evaluation of Industry Structure

    SBA evaluated all 31 industries and one sub-industry in NAICS 
Sector 23, Construction, to assess the appropriateness of the current 
size standards. As described above, SBA compared data on the economic 
characteristics of each industry 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 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 are similar to the average 
characteristics of industries in the anchor comparison group, the 
anchor size standard is generally 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 proposed 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

[[Page 42202]]

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, Average Characteristics of Receipts Based Comparison 
Groups, shows the average firm size (both simple and weighted), average 
assets size, 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.

                                          Table 1--Average Characteristics of Receipts Based Comparison Groups
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Avg. firm size  ($ million)                                   Avg.  receipts
                                                         --------------------------------  Avg.  assets      Four-firm        of four          Gini
             Receipts based comparison group                  Simple         Weighted        size  ($      concentration   largest firms    coefficient
                                                              average         average        million)       ratio  (%)     ($ million) *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Anchor Level............................................            1.32           19.63            0.84            16.6           196.4           0.693
Higher Level............................................            5.07          116.84            3.20            32.1         1,376.0           0.830
--------------------------------------------------------------------------------------------------------------------------------------------------------
* To be used for industries with a four-firm concentration ratio of 40% or greater.

Derivation of Size Standards Based on Industry Factors

    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, the $7 million anchor size standard is 
appropriate for that factor.
    An industry factor significantly above or below the anchor 
comparison group will generally imply 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 (($3.30 
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 $7.0 million to estimate a size standard of $18.61 million ([{$29.0 
million-$7.0 million{time} * 0.528] + $7.0 million = $18.61 million). 
The final step is to round the estimated $18.61 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 at 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, Values of Industry Factors and Supported Size 
Standards, below, shows ranges of values for each industry factor and 
the levels of size standards supported by those values.

                                            Table 2--Values of Industry Factors and Supported Size Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                       Or if  Weighted avg.                            Or if  Avg. receipts                            Then Implied size
 If  Simple avg.  receipts size  ($      receipts size  ($      Or if  Avg. assets    of largest  four firms        Or if  gini         standard is  ($
              million)                       million)            size  ($ million)          ($ million)             coefficient            million)
--------------------------------------------------------------------------------------------------------------------------------------------------------
<1.15...............................  <15.22................  <0.73.................  <142.8................  <0.686................                 5.0
1.15 to 1.57........................  15.22 to 26.26........  0.73 to 1.00..........  142.8 to 276.9........  0.686 to 0.702........                 7.0
1.58 to 2.17........................  26.27 to 41.73........  1.01 to 1.37..........  277.0 to 464.5........  0.703 to 0.724........                10.0
2.18 to 2.94........................  41.74 to 61.61........  1.38 to 1.86..........  464.6 to 705.8........  0.725 to 0.752........                14.0
2.95 to 3.92........................  61.62 to 87.02........  1.87 to 2.48..........  705.9 to 1,014.1......  0.753 to 0.788........                19.0
3.93 to 4.86........................  87.03 to 111.32.......  2.49 to 3.07..........  1,014.2 to 1,309.0....  0.789 to 0.822........                25.5
4.87 to 5.71........................  111.33 to 133.41......  3.08 to 3.61..........  1,309.1 to 1,577.1....  0.823 to 0.853........                30.0
>5.71...............................  >133.41...............  >3.61.................  >1,577.1..............  >0.853................                35.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

Derivation of Size Standard Based on Federal Contracting Factor

    Besides industry structure, SBA also evaluates Federal contracting 
data to assess the success of small businesses in getting Federal 
contracts under the existing size standards. For industries where the 
small business share of total Federal contracting dollars is 10 to 30 
percent lower than the small business 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 the 
small business 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

[[Page 42203]]

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 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 
its size standard analysis and suggestions for alternative methods and 
other relevant information on small business experience in the Federal 
contract market that SBA should consider.
    Twenty of the 31 industries in NAICS Sector 23 and the sub-industry 
category (``exception'') under NAICS 237990 (Other Heavy and Civil 
Engineering Construction),averaged $100 million or more annually in 
Federal contracting during fiscal years 2008-2010. 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 9 of those 20 industries and a separate size standard was derived 
from that factor for each of them.

New Size Standards Based on Industry and Federal Contracting Factors

    Table 3, Size Standards Supported by Each Factor for Each Industry 
(millions of dollars), shows the results of analyses of industry and 
Federal contracting factors for each industry covered by this proposed 
rule. Many 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 only if its value is 
40 percent or more. If the four-firm concentration ratio for an 
industry is less than 40 percent, SBA does not estimate a size standard 
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 
four largest 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, 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, Size Standards Supported by Each 
Factor for Each Industry (millions of dollars).

                                           Table 3--Size Standards Supported by Each Factor for Each Industry
                                                                  [Millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      Simple    Weighted                                                           Calculated   Current
                                                     average    average    Average   Four-firm  Four-firm                Federal      size        size
          NAICS Code/NAICS industry title           firm size  firm size    assets     ratio     average       Gini      contract   standard    standard
                                                        ($         ($      size  ($     (%)      size  ($  coefficient    factor       ($          ($
                                                     million)   million)   million)              million)                  (%)      million)    million)
(1)                                                       (2)        (3)        (4)        (5)        (6)         (7)         (8)         (9)       (10)
--------------------------------------------------------------------------------------------------------------------------------------------------------
236115 New Single-Family Housing Construction            $1.5      $22.3       $1.2        2.7     $599.2       0.670       -62.8  ..........  .........
 (except Operative Builders)......................        7.0        7.0       10.0  .........  .........        $5.0       $35.5       $14.0      $33.5
236116 New Multifamily Housing Construction              11.7      119.2        6.0       17.8    1,547.0       0.833       -27.1  ..........  .........
 (except Operative Builders)......................       35.5       30.0       35.5  .........  .........       $30.0       $35.5        35.5       33.5
236117 New Housing Operative Builders.............        5.2      291.5        4.8       17.9    8,097.5       0.874         4.2  ..........  .........
                                                         30.0       35.5       35.5  .........  .........       $35.5   .........        35.5       33.5
236118 Residential Remodelers.....................       0.71        9.0        0.2        2.6      337.8       0.566       -77.1  ..........  .........
                                                          5.0        5.0        5.0  .........  .........        $5.0       $35.5        14.0       33.5
236210 Industrial Building Construction...........        9.2       71.1        3.2       14.4      629.5       0.802        -3.2  ..........  .........
                                                         35.5       19.0       30.0  .........  .........       $25.5   .........        25.5       33.5
236220 Commercial and Institutional Building             10.1      161.3        3.2        5.7    5,311.1       0.839        -0.9  ..........  .........
 Construction.....................................       35.5       35.5       30.0  .........  .........       $30.0   .........        30.0       33.5
237110 Water and Sewer Line and Related Structures        4.5       44.9        2.1        4.3      520.0       0.765       -10.6  ..........  .........
 Construction.....................................       25.5       14.0       19.0  .........  .........       $19.0       $35.5        25.5       33.5
237120 Oil and Gas Pipeline and Related Structures       16.9      150.0        7.8       17.6    1,362.9       0.840        -0.1  ..........  .........
 Construction.....................................       35.5       35.5       35.5  .........  .........       $30.0   .........        35.5       33.5
237130 Power and Communication Line and Related           6.8      129.6        2.9       20.8    1,767.4       0.864        10.5  ..........  .........
 Structures Construction..........................       35.5       30.0       25.5  .........  .........       $35.5   .........        30.0       33.5
237210 Land Subdivision...........................        3.6       38.0       11.9       12.1      690.2       0.796   .........  ..........  .........
                                                         19.0       10.0       35.5  .........  .........       $25.5   .........        25.5        7.0
237310 Highway, Street and Bridge Construction....       10.6       96.0        5.0        5.2    1,393.9       0.811         5.7  ..........  .........
                                                         35.5       25.5       35.5  .........  .........       $25.5   .........        30.0       33.5
237990 Other Heavy and Civil Engineering                  5.0       59.9        2.5       10.7      476.2       0.812        -9.9  ..........  .........
 Construction, Except Dredging and Surface Cleanup       30.0       14.0       19.0  .........  .........       $25.5   .........        19.0       33.5
 Activities.......................................
237990 Dredging and Surface Cleanup Activities....       44.0      542.1       21.6       52.5      976.0       0.797         9.8  ..........  .........
                                                         35.5       35.5       35.5  .........       19.0       $25.5   .........        30.0       20.0
238110 Poured Concrete Foundation and Structure           1.9       32.5       0.75        4.5      535.5       0.739       -18.0  ..........  .........
 Contractors......................................       10.0       10.0        7.0  .........  .........       $14.0       $19.0        14.0       14.0
238120 Structural Steel and Precast Concrete              4.1       26.1        1.7        7.0      258.2       0.725       -23.5  ..........  .........
 Contractors......................................       25.5        7.0       14.0  .........  .........       $14.0       $19.0        14.0       14.0
238130 Framing Contractors........................        0.9       13.6        0.3        3.8      170.8       0.657         1.6  ..........  .........
                                                          5.0        5.0        5.0  .........  .........        $5.0   .........         5.0       14.0
238140 Masonry Contractors........................        1.1       11.5        0.4        2.3      155.9       0.685        -6.4  ..........  .........
                                                          7.0        5.0        5.0  .........  .........        $5.0                     5.0       14.0

[[Page 42204]]

 
238150 Glass and Glazing Contractors..............        2.1       16.7        0.7        5.6      150.4       0.686         8.1  ..........  .........
                                                         10.0        7.0        5.0  .........  .........        $5.0   .........         7.0       14.0
238160 Roofing Contractors........................        1.8       14.3        0.6        3.6      263.5       0.684        17.0  ..........  .........
                                                         10.0        5.0        5.0  .........  .........        $5.0   .........         5.0       14.0
238170 Siding Contractors.........................        0.7        5.0  .........        2.6       46.7       0.556        -7.5  ..........  .........
                                                          5.0        5.0  .........  .........  .........        $5.0   .........         5.0       14.0
238190 Other Foundation, Structure, and Building          1.4       13.3        0.5       10.4      176.6       0.680       -34.8  ..........  .........
 Exterior Contractors.............................        7.0        5.0        5.0  .........  .........        $5.0       $25.5        10.0       14.0
238210 Electrical Contractors and Other Wiring            1.8       36.6        0.6        3.5    1,128.6       0.738        12.1  ..........  .........
 Installation Contractors.........................       10.0       10.0        5.0  .........  .........       $14.0   .........        10.0       14.0
238220 Plumbing, Heating, and Air-Conditioning            1.8       34.4        0.6        4.0    1,623.6       0.720        19.3  ..........  .........
 Contractors......................................       10.0       10.0        5.0  .........  .........       $10.0   .........         7.0       14.0
238290 Other Building Equipment Contractors.......        4.2       97.5        1.4       27.6    1,689.8       0.818        21.9  ..........  .........
                                                         25.5       25.5       14.0  .........  .........       $25.5   .........        19.0       14.0
238310 Drywall and Insulation Contractors.........        2.1       42.3        0.7        6.3      679.6       0.762        18.6  ..........  .........
                                                         10.0       14.0        5.0  .........  .........       $19.0   .........        14.0       14.0
238320 Painting and Wall Covering Contractors.....        0.6        7.3        0.2        2.2      121.6       0.578        -7.3  ..........  .........
                                                          5.0        5.0        5.0  .........  .........        $5.0   .........         5.0       14.0
238330 Flooring Contractors.......................        1.1       17.8        0.3        5.9      231.6       0.694         5.3  ..........  .........
                                                          5.0        7.0        5.0  .........  .........        $7.0   .........         7.0       14.0
238340 Tile and Terrazzo Contractors..............        0.9        8.7        0.3        2.9       74.3       0.634        -1.8  ..........  .........
                                                          5.0        5.0        5.0  .........  .........        $5.0   .........         5.0       14.0
238350 Finish Carpentry Contractors...............        0.7        7.9        0.2        2.7      178.4       0.597        -2.7  ..........  .........
                                                          5.0        5.0        5.0  .........  .........        $5.0   .........         5.0       14.0
238390 Other Building Finishing Contractors.......        1.4        8.7        0.5        3.8       80.9       0.673       -28.8  ..........  .........
                                                          7.0        5.0        5.0  .........  .........        $5.0   .........         5.0       14.0
238910 Site Preparation Contractors...............        1.9       25.0        1.0        1.7      349.0       0.728       -12.1  ..........  .........
                                                         10.0        7.0        7.0  .........  .........       $14.0       $19.0        14.0       14.0
238990 All Other Specialty Trade Contractors......        1.4       15.5        0.5        4.9      473.7       0.673       -23.9  ..........  .........
                                                          7.0        7.0        5.0  .........  .........        $5.0       $19.0        10.0       14.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

Common Size Standards

    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 might suggest 
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'' for Information Technology Value 
Added Resellers), and NAICS 811212. Another example is the common size 
standard for certain Architectural, Engineering (A&E) and Related 
Services. These include NAICS 541310, NAICS 541330 (excluding the 
``exceptions''), Map Drafting (an ``exception'' under NAICS 541340), 
NAICS 541360, and NAICS 541370 (64 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 (see 75 FR 
61597 (October 6, 2010)). The SBA also, more recently, established 
common size standards for the industries in NAICS Industry Group 5411, 
Legal Services, and for the industries in NAICS Industry Group 5412, 
Accounting Services (77 FR 7490 (February 10, 2012)). Similarly, SBA 
proposed common size standards for several other industries in NAICS 
Sector 48-49, Transportation and Warehousing (see 76 FAR 27935 (May 13, 
2011)), NAICS Sector 56, Administrative and Support, Waste Management 
and Remediation Services (see 76 FR 63510 (October 12, 2011), and NAICS 
Sector 53, Real Estate and Rental and Leasing (see 76 FR 70680 
(November 15, 2011)).
    For NAICS Sector 23, SBA derives, as an alternative to a separate 
size standard for each industry, common size standards for industries 
in two NAICS Subsectors and one NAICS Industry Group, as shown in Table 
4, Subsectors and Industry for Common Sized Standards. SBA evaluated 
industry and Federal contracting factors and derived a common size 
standard for each Industry Group and Subsector using the same method as 
described above. The results are in Table 5, Size Standards Supported 
by Each Factor for NAICS Subsectors 236 and 238, and Industry Group 
2371, which immediately follows Table 4, Subsectors and Industry Groups 
for Common Size Standards, below.

                        Table 4--Subsectors and Industry Groups for Common Size Standards
----------------------------------------------------------------------------------------------------------------
  NAICS Subsector or industry       NAICS Subsector or
          group code *             industry group title               Industries: 6-digit NAICS codes
----------------------------------------------------------------------------------------------------------------
236............................  Construction of          236115, 236116, 236117, 236118, 236210, 236220.
                                  Buildings.
2371...........................  Utility System           237110, 237120, 237130.
                                  Construction.

[[Page 42205]]

 
238............................  Specialty Trade          238110, 238120, 238130, 238140, 238150, 238160,
                                  Contractors.             238170, 238190, 238210, 238220, 238290, 238310,
                                                           238320, 238330, 238340, 238350, 238390, 238910,
                                                           238990.
----------------------------------------------------------------------------------------------------------------
* Industries in these Subsectors and Industry Group currently have common size standards. SBA proposes to retain
  these standards.


                       Table 5--Size Standards Supported by Each Factor for NAICS Subsectors 236 and 238, and Industry Group 2371
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Simple      Weighted     Average                  Four-firm                              Calculated    Current
  NAICS Code/subsector or industry     average      average    assets size   Four-firm     average        Gini       Federal        size         size
            group title               firm size    firm size        ($       ratio (%)     size  ($     coeffi-      contract     standard     standard
                                     ($ million)  ($ million)    million)                  million)      cient      factor (%)  ($ million)   ($million)
(1)                                          (2)          (3)          (4)          (5)          (6)          (7)          (8)          (9)         (10)
--------------------------------------------------------------------------------------------------------------------------------------------------------
236 Construction of Buildings......         $3.6       $141.1         $1.5          4.8     $9,010.7        0.846        -10.8  ...........  ...........
                                            19.0         35.5         14.0                                  $30.0        $35.5         25.5        $33.5
2371 Utility System Construction...          6.5         96.9          3.0          7.9      2,231.6        0.828          0.5         30.0         33.5
                                           35.50         25.5         25.5                                  $30.0
238 Specialty Trade Contractors....          1.5         27.0          0.5          1.6      2,807.0        0.721         -1.1          7.0         14.0
                                             7.0         10.0          5.0                                  $10.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

Special Considerations: Dredging and Surface Cleanup Activities

    The Dredging and Surface Cleanup Activities (Dredging) size 
standard is a sub-industry category (or an ``exception'') established 
by SBA within the 6-digit NAICS 237990 (Other Heavy and Civil 
Engineering Construction). Data from the Census Bureau's special 
tabulation are limited to the 6-digit NAICS industry level, and hence, 
do not provide separate data at the sub-industry level. As such, SBA 
relied upon data from other sources to evaluate the current $20 million 
size standard for Dredging. Firms engaged in the Dredging sub-industry 
were identified from contracting activity reported in FPDS-NG during 
fiscal years 2008-2010. Dredging contracts can be identified as those 
classified within NAICS 237990 and by four Product Service Codes 
(PSCs): Y216 (Construction of Dredging), Z216 (Maintenance, Repair or 
Alteration of Dredging), Y217 (Dredging, Incl. Dustpan and Sea-Going 
Hoppers), and Z217 (Dredging, Incl. Dustpan and Sea-Going Hoppers). SBA 
also looked at Dredging contracting data from the Corps of Engineers' 
Navigation Data Center (www.ndc.iwr.usace.army.mil/dredge/dredge.htm) 
for the same period. SBA obtained receipts and employment data from the 
Central Contractor Registration (CCR) for the identified Dredging firms 
to develop the size standards evaluation factors. Based on the analysis 
of the resultant data, a different size standard for Dredging than for 
other heavy construction activities in NAICS 237990 continues to be 
appropriate. Table 3, Size Standards Supported by Each Factor for Each 
Industry (millions of dollars), above, shows the results from the 
analysis of the Dredging sub-industry, which supported a $30 million 
size standard instead of the current $20 million.

Evaluation of SBA Loan Data

    Before deciding on an industry's size standard, SBA also considers 
the impact of new or revised size 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 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 current 
size standards that use SBA's 7(a) and 504 loans.
    Furthermore, the Jobs Act established an alternative size standard 
for SBA's 7(a) and 504 Loan Programs. Specifically, an applicant 
exceeding an NAICS industry size standard may still be eligible if its 
maximum tangible net worth does not exceed $15 million and its average 
net income after Federal income taxes (excluding any carry-over losses) 
for the 2 full fiscal years before the date of the application is not 
more than $5 million.
    Therefore, no size standard in NAICS Sector 23, Construction, needs 
an adjustment based on this factor.

Proposed Changes to Size Standards

    Table 6, Summary of Size Standards Analysis, below, summarizes the 
results of SBA analyses of industry specific size standards from Table 
3, Size Standards Supported by Each Factor for Each Industry (millions 
of dollars), above, and the results for common size standards from 
Table 5, Size Standards Supported by Each Factor for NAICS Subsectors 
236 and 238, and Industry Group 2371, above. In terms of industry 
specific size standards, the results in Table 3, Size Standards 
Supported by Each Factor for Each Industry (millions of dollars), might 
support increases in size standards for five industries and one sub-
industry, decreases for 22 industries and no changes for four 
industries. Based on common size standards for certain NAICS Industry 
Groups and Subsectors as explained earlier, the results in Table 5, 
Size Standards Supported by Each Factor for Subsectors 236 and 238 and 
Industry Group 2371, above, appear to support increases in size 
standards for one industry and one sub-industry, decreases for 28 
industries and no changes for two industries.
    However, SBA believes that lowering small business size standards 
is not in the best interest of small businesses in the current economic 
environment. The U.S. economy was in recession from December 2007 to 
June 2009, the longest

[[Page 42206]]

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 into law 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 is still high at 
8.2 percent in June 2012 and is forecast to remain around this level at 
least through the end of 2012. In June 2012, unemployment data by 
industry and class of workers showed that construction workers 
experience the worst unemployment rate of all industries at 12.8 
percent.
    Recently, Congress passed and the President signed the 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; and provides $12 billion in tax relief to help small 
businesses invest in their firms and create jobs. A proposal to reduce 
size standards will have an immediate impact on jobs, and it would be 
contrary to the expressed will of the President and the Congress.

                                   Table 6--Summary of Size Standards Analysis
----------------------------------------------------------------------------------------------------------------
                                                                                    Calculated
                                                                  Current size       industry       Calculated
        NAICS Code                  NAICS Industry title           standard ($    specific size     common size
                                                                    million)       standard ($      standard ($
                                                                                     million)        million)
----------------------------------------------------------------------------------------------------------------
236115....................  New Single-Family Housing                     $33.5            $14.0           $25.5
                             Construction (except Operative
                             Builders).
236116....................  New Multifamily Housing                        33.5             35.5            25.5
                             Construction (except Operative
                             Builders).
236117....................  New Housing Operative Builders.....            33.5             35.5            25.5
236118....................  Residential Remodelers.............            33.5             14.0            25.5
236210....................  Industrial Building Construction...            33.5             25.5            25.5
236220....................  Commercial and Institutional                   33.5             30.0            25.5
                             Building Construction.
237110....................  Water and Sewer Line and Related               33.5             25.5            30.0
                             Structures Construction.
237120....................  Oil and Gas Pipeline and Related               33.5             35.5            30.0
                             Structures Construction.
237130....................  Power and Communication Line and               33.5             30.0            30.0
                             Related Structures Construction.
237210....................  Land Subdivision...................             7.0             25.5  ..............
237310....................  Highway, Street and Bridge                     33.5             30.0  ..............
                             Construction.
237990....................  Other Heavy and Civil Engineering              33.5             19.0  ..............
                             Construction.
Except,...................  Dredging and Surface Cleanup                   20.0             30.0  ..............
                             Activities.
238110....................  Poured Concrete Foundation and                 14.0             14.0             7.0
                             Structure Contractors.
238120....................  Structural Steel and Precast                   14.0             14.0             7.0
                             Concrete Contractors.
238130....................  Framing Contractors................            14.0              5.0             7.0
238140....................  Masonry Contractors................            14.0              5.0             7.0
238150....................  Glass and Glazing Contractors......            14.0              7.0             7.0
238160....................  Roofing Contractors................            14.0              5.0             7.0
238170....................  Siding Contractors.................            14.0              5.0             7.0
238190....................  Other Foundation, Structure, and               14.0             10.0             7.0
                             Building Exterior Contractors.
238210....................  Electrical Contractors and Other               14.0             10.0             7.0
                             Wiring Installation Contractors.
238220....................  Plumbing, Heating, and Air-                    14.0              7.0             7.0
                             Conditioning Contractors.
238290....................  Other Building Equipment                       14.0             19.0             7.0
                             Contractors.
238310....................  Drywall and Insulation Contractors.            14.0             14.0             7.0
238320....................  Painting and Wall Covering                     14.0              5.0             7.0
                             Contractors.
238330....................  Flooring Contractors...............            14.0              7.0             7.0
238340....................  Tile and Terrazzo Contractors......            14.0              5.0             7.0
238350....................  Finish Carpentry Contractors.......            14.0              5.0             7.0
238390....................  Other Building Finishing                       14.0              5.0             7.0
                             Contractors.
238910....................  Site Preparation Contractors.......            14.0             14.0             7.0
238990....................  All Other Specialty Trade                      14.0             10.0             7.0
                             Contractors.
----------------------------------------------------------------------------------------------------------------

    Lowering size standards would decrease the number of firms that 
participate in Federal financial and procurement assistance programs 
for small businesses. It would also affect small businesses that are 
now exempt from or receive some form of relief from myriad other 
Federal regulations that use SBA's size standards. That impact could 
take the form of increased fees, paperwork, or other compliance 
requirements for small businesses. Furthermore, size standards based 
solely on analytical results without any other considerations can cut 
off currently eligible small firms from those programs and benefits. In 
NAICS Sector 23, more than 7,000 businesses would lose their small 
business eligibility if size standards were lowered based solely on 
results from industry specific analysis. Similarly, more than 10,000 
businesses would lose small business eligibility if size standards were 
lowered based solely on results from common size standards analysis. 
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 intend 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.
    Furthermore, as stated previously, the Small Business Act requires 
the Administrator to ``* * * consider other factors deemed to be 
relevant * * *'' to establishing small business size

[[Page 42207]]

standards. The current economic conditions and the impact on job 
creation are quite relevant factors when establishing small business 
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 or Subsector, SBA 
finds that for several industries, as shown in Table 4, Subsectors and 
Industry Groups for Common Size Standards, above, common size standards 
are more appropriate for several reasons. First, analyzing industries 
at the more aggregated Industry Group or Subsector levels simplifies 
size standards analysis, and the results will be more consistent among 
related industries. Second, in NAICS Sector 23, industries within each 
Industry Group or Subsector currently have the same size standards and 
SBA believes it is better to keep the revised size standards also same 
unless industries are significantly different. Third, within each 
Industry Group or Subsector 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 different size standards for each industry.
    For industries where both industry specific size standards and 
common size standards have been calculated, for the above reasons, SBA 
proposes to apply common size standards. For industries and one sub-
industry (Dredging) where SBA has not estimated common size standards 
it proposes to apply industry specific size standards. As discussed 
above, lowering small business size standards is inconsistent with what 
the Federal government is doing to stimulate the economy and would 
discourage job growth for which Congress established the Recovery Act 
and Jobs Act. In addition, it would be inconsistent with the Small 
Business Act requiring the Administrator to establish size standards 
based on industry analysis and other relevant factors such as current 
economic conditions. Thus, SBA proposes to increase size standards for 
one industry and one sub-industry in NAICS Sector 23 and retain the 
current size standards for all other industries in that Sector. The 
SBA's proposed increases are in Table 7, Summary of Proposed Size 
Standards Revisions, (below).
    In addition, retaining current standards when the analytical 
results suggested lowering them 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 issued proposed rule (76 FR 14323 (March 16, 2011)) and final 
rule (77 FR 7490 (February 10, 2012)) for NAICS Sector 54, 
Professional, Scientific and Technical Services, NAICS Sector 48-49, 
Transportation and Warehousing (76 FR 27935 (May 13, 2011)), NAICS 
Sector 51, Information (76 FR 63216 (October 12, 2011)), NAICS Sector 
56, Administrative and Support, Waste Management and Remediation 
Services (76 FR 63510 (October 12, 2011)), NAICS Sector 61, Educational 
Services (76 FR 70667 (November 15, 2011)), and NAICS Sector 53, Real 
Estate and Rental and Leasing (76 FR 70680 (November 15, 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.

                              Table 7--Summary of Proposed Size Standards Revisions
----------------------------------------------------------------------------------------------------------------
                                                                                   Current size    Proposed size
                NAICS code                          NAICS Industry title            standard ($     standard ($
                                                                                     million)        million)
----------------------------------------------------------------------------------------------------------------
237210...................................  Land Subdivision.....................            $7.0           $25.5
237990 Except............................  Dredging and Surface Cleanup                    $20.0           $30.0
                                            Activities.
----------------------------------------------------------------------------------------------------------------

Evaluation of Dominance in Field of Operation

    SBA has determined that for the industries in NAICS Sector 23, 
Construction, for which it has proposed to increase size standards, no 
individual firm at or below the proposed size standard will be large 
enough to dominate its field of operation. At the proposed individual 
size standards, if adopted, the small business share of total industry 
receipts among those industries is, on average, 0.1 percent, varying 
from 0.01 percent to 0.3 percent. These market shares effectively 
preclude a firm at or below the proposed size standards from exerting 
control on any of the industries.

Request for Comments

    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 this is necessary and whether the 
proposed fixed size levels are appropriate. SBA welcomes suggestions on 
alternative approaches to simplifying small business size standards.
    2. SBA seeks feedback on whether SBA's proposal to increase two 
size standards and retain the remaining 30 size standards in NAICS 
Sector 23 is appropriate given the economic characteristics of each 
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 NAICS 
Subsectors 236 and 238, and NAICS Industry Group 2371 (Utility System 
Construction). 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; and
    b. Whether the proposed common size standards for those industries 
are at the correct levels or what would be more appropriate if what SBA 
has proposed are not appropriate.
    4. SBA's proposed size standards are based on five primary 
factors--average firm size, average assets size (as a proxy of startup 
costs and entry barriers), four-

[[Page 42208]]

firm concentration ratio, distribution of firms by size, and the total 
share and small business share of Federal contracting dollars of the 
evaluated industries. SBA welcomes comments on these factors and/or 
suggestions of other factors that it should consider when evaluating or 
revising size standards. SBA also seeks information on relevant data 
sources, other than what it uses, if available.
    5. 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 suggested weights for each 
factor along with supporting information.
    6. For NAICS 237210, Land Subdivision, based on its analysis of 
industry and program data alone, SBA proposes to increase the existing 
size standards by a large amount, while it proposes to retain the 
current size standards for most other industries in NAICS Sector 23. 
SBA seeks feedback on whether, as a policy, it should limit the 
increase to a size standard or 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.
    7. In addition to comments on its proposal to increase the size 
standard for Dredging and Surface Cleanup Activities from current $20 
million to $30 million, SBA also seeks comments regarding the 
requirement for a dredging concern to qualify as small on a Federal 
procurement that it must perform at least 40 percent of the volume 
dredged with its own equipment or equipment owned by another small 
dredging concern (see Footnote 2 in 13 CFR 121.201). This requirement 
has been in SBA's small business size regulations since 1974 (see 30 FR 
24669, July 5, 1974 and 39 FR 31302, August 28, 1974). This proposed 
rule retains the requirement set forth in Footnote 2 in order to ensure 
that small Dredging firms perform a significant and meaningful portion 
of a Dredging project set aside for small business. However, SBA has 
heard from small dredging firms that believe they should be able to 
lease equipment from any size firm as long as employees from the small 
firm perform the work on the contract. SBA specifically request 
comments as to whether the footnote is necessary. Comments pertaining 
to this requirement should address: (1) Whether there continues to be a 
need to retain the current 40 percent equipment requirement; (2) 
whether the 40 percent equipment requirement should be revised, and if 
so, the rationale for an alternative percentage; and (3) whether a 
different and more verifiable requirement based on an alternative 
measure (such as value of contract or personnel involved) may achieve 
the same objective of ensuring that small businesses perform 
significant and meaningful work on Dredging contracts.
    8. For analyzing the dredging size standard, a sub-industry 
(``exception'') within NAICS 237990, SBA used PSCs within NAICS 237990 
to identify contracting activity reported in FPDS-NG, and firms in the 
dredging sub-industry during fiscal years 2008-2010. Using the receipts 
and employment data for those identified firms from CCR, SBA analyzed 
the industry factors for this sub-industry. SBA seeks suggestions or 
comments on the use of the data sources and the proposed size standard.
    9. SBA is also interested in comments on the elimination of the 
sub-industry category for Dredging, and the application of the same 
size standard as for the rest of the NAICS 237990. Comments on applying 
the same NAICS 237990 size standard for Dredging should address the 
basis for why that industry size standard is more suitable than a 
specific dredging sub-industry size standard or why dredging firms 
should continue to be evaluated as a discrete sub-industry for SBA's 
size standards purposes.
    10. 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 its size standard methodology and its proposed size 
standards revisions 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 in their industries, 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.

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 
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.

Regulatory Impact Analysis

1. Is there a need for the regulatory action?
    SBA believes that proposed size standards revisions in NAICS Sector 
23, Construction, will better reflect the economic characteristics of 
small businesses in this Sector 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 determine 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 
size definitions. The Act also requires that small business definitions 
vary to reflect industry differences. The recently enacted 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.
2. What are the potential benefits and costs of this regulatory action?
    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

[[Page 42209]]

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's size standards for a variety of other regulatory and 
program purposes. These programs assist small businesses to become more 
knowledgeable, stable, and competitive. SBA estimates that in one 
industry and one sub-industry for which SBA has proposed to increase 
size standards more than 400 firms in NAICS 23, not small under the 
existing size standards, will become small under the proposed size 
standards and therefore become eligible for these programs. That is 
about 0.1 percent of all firms classified as small under the current 
size standards in NAICS Sector 23. If adopted as proposed, this will 
increase the small business share of total receipts in all industries 
within NAICS Sector 23 from about 49.7 percent to 50 percent. In 
addition, as stated above, there will be reduced fees, less paperwork, 
and fewer compliance requirements for more businesses.
    Three groups will benefit from the proposed size standards 
revisions in this rule, 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 a 
larger pool of small businesses from which to draw for their small 
business procurement programs.
    SBA estimates that firms gaining small business status under the 
proposed size standards could receive Federal contracts totaling $17 
million to $20 million annually under SBA's small business, 8(a), SDB, 
HUBZone, WOSB, and SDVO SBC Programs, and other unrestricted 
procurements. The added competition for many of these procurements can 
also result in lower prices to the Government for procurements reserved 
for small businesses, but SBA cannot quantify this benefit.
    Under SBA's 7(a) and 504 Loan Programs, based on the fiscal years 
2008-2010 data, SBA estimates about up to five additional loans 
totaling about $0.5 million to $1 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 is be impractical to try to estimate exactly the number and 
total amount of loans. There are two reasons for this: (1) Under the 
Jobs Act, SBA can now guarantee substantially larger loans than in the 
past; and, (2) as described above, the Jobs Act established an 
alternative size standard ($15 million in tangible net worth and $5 
million in net income after income taxes) for business concerns that do 
not meet the size standards for their industry. Therefore, SBA finds it 
difficult to quantify the actual impact of these proposed size 
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 this impact.
    To the extent that those 400 newly defined additional small firms 
could become active in Federal procurement programs, the proposed 
changes, if adopted, may entail some additional administrative costs to 
the government associated with there being more bidders on small 
business procurement opportunities. In addition, there will be more 
firms seeking SBA's guaranteed loans, more firms eligible for 
enrollment in the Central Contractor Registration (CCR)'s Dynamic Small 
Business Search database, and more firms seeking certification as 8(a) 
or HUBZone firms or 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. SBA believes that these added administrative 
costs will be minimal because mechanisms are already in place to handle 
these requirements.
    Additionally, Federal government contracts may have higher costs. 
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. However, the additional 
costs associated with fewer bidders are expected to be minor since, by 
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. In addition, there 
may be higher costs when more full and open contracts are awarded to 
HUBZone businesses that receive price evaluation preferences.
    The proposed size standards revisions, if adopted, may have some 
distributional effects among large and small businesses. Although SBA 
cannot estimate with certainty the actual outcome of the gains and 
losses among small and large businesses, it can identify several 
probable impacts. There may be a transfer of some Federal contracts to 
small businesses from large businesses. Large businesses may have fewer 
Federal contract opportunities as Federal agencies decide to set aside 
more Federal contracts for small businesses. In addition, some Federal 
contracts may be awarded to HUBZone concerns instead of large 
businesses since these firms may be eligible for 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 from large and currently defined small businesses. SBA cannot 
estimate the potential distributional impacts of these transfers with 
any degree of precision. The proposed revisions to the existing size 
standards for one industry and one-sub-industry in NAICS Sector 23, 
Construction, 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 42210]]

Executive Order 13563

    A description of the need for this regulatory action and benefits 
and costs associated with this action including possible distributional 
impacts that relate to Executive Order 13563 is included above in the 
Regulatory Impact Analysis under Executive Order 12866.
    In an effort to engage interested parties in this action, SBA has 
presented its size standards methodology (discussed above under 
Supplementary Information) to various industry associations and trade 
groups. SBA also met with a number of 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 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's size standards and whether 
current size 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 23, Construction, is 
consistent with Executive Order 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, in 2007, 
SBA began a comprehensive review of its size standards to ensure that 
existing size standards have supportable bases and to revise them when 
necessary. In addition, the Jobs Act requires 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 
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.

Paperwork Reduction Act

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

Initial Regulatory Flexibility Analysis

    Under the Regulatory Flexibility Act (RFA), this proposed rule, if 
adopted, may have a significant impact on a substantial number of small 
businesses in NAICS Sector 23, Construction. As described above, this 
rule may affect small businesses seeking Federal contracts, loans under 
SBA's 7(a), 504 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 are SBA's description and estimate of the number of small 
businesses to which the rule will apply?; (3) What are the projected 
reporting, recordkeeping, and other compliance requirements of the 
rule?; (4) What are the relevant Federal rules that may duplicate, 
overlap, or conflict with the rule?; and (5) What alternatives will 
allow the Agency to accomplish its regulatory objectives while 
minimizing the impact on small businesses?
1. What are the need for and objective of the rule?
    Changes in industry structure, technological changes, productivity 
growth, mergers and acquisitions, and updated industry definitions have 
changed the structure of many industries in NAICS Sector 23. Such 
changes can be sufficient to support revisions to current size 
standards for some industries. Based on the analysis of the latest data 
available, SBA believes that the revised standards in this proposed 
rule more appropriately reflect the size of businesses that need 
Federal assistance. The recently enacted Jobs Act also requires SBA to 
review all size standards and make necessary adjustments to reflect 
market conditions.
2. What are SBA's description and estimate of the number of small 
businesses to which the rule will apply?
    If the proposed rule is adopted in its present form, SBA estimates 
that more than 400 additional firms will become small because of 
increased size standards one industry and one sub-industry in NAICS 
Sector 23. That represents 0.1 percent of total firms that are small 
under current size standards in all industries within that Sector. This 
will result in an increase in the small business share of total 
industry receipts for the Sector from 49.7 percent under the current 
size standards to 50 percent under the proposed size standards. The 
proposed size standards, if adopted, will enable more small businesses 
to retain their small business status for a longer period. Many firms 
may 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.
3. What are the projected reporting, record keeping and other 
compliance requirements of the rule?
    The proposed size standard changes impose no additional reporting 
or record keeping requirements on small businesses. However, qualifying 
for Federal procurement and a number of other programs requires that 
businesses

[[Page 42211]]

register in the CCR database and certify in the Online Representations 
and Certifications Application (ORCA) that they are small at least once 
annually. 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's programs that assist small 
businesses, but does not impose a regulatory burden because 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 to do 
otherwise. In 1995, SBA published in the Federal Register a list of 
statutory and regulatory size standards that identified the application 
of SBA's size standards as well as other size standards used by Federal 
agencies (60 FR 57988 (November 24, 1995)). SBA is not aware of any 
Federal rule that would duplicate or conflict with establishing size 
standards.
    However, the Small Business Act and SBA's regulations allow Federal 
agencies to develop different size standards if they believe that SBA's 
size standards are not appropriate for their programs, with the 
approval of SBA's Administrator (13 CFR 121.903). The Regulatory 
Flexibility Act authorizes an Agency to establish an alternative small 
business definition, after consultation with the Office of Advocacy of 
the U.S. Small Business Administration (5 U.S.C. 601(3)).
5. What alternatives will allow the Agency to accomplish its regulatory 
objectives while minimizing the impact on small entities?
    By law, SBA is required to develop numerical size standards for 
establishing eligibility for Federal small business assistance 
programs. Other than varying size standards by industry and changing 
the size measures, no practical alternative exists to the systems of 
numerical size standards.

List of Subjects in 13 CFR Part 121

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

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

PART 121--SMALL BUSINESS SIZE REGULATIONS

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

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

    2. In Sec.  121.201, in the table, revise the entries for 
``237210'', and ``Except'' under entry ``237990'', 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    in millions of   in number of
                          title               dollars        employees
------------------------------------------------------------------------
 
                              * * * * * * *
237210          Land Subdivision........           $25.5
 
                              * * * * * * *
Except,         Dredging and Surface            \2\ 30.0
                 Cleanup Activities \2\.
 
                              * * * * * * *
------------------------------------------------------------------------
* * * * * * *
\2\ NAICS code 237990--Dredging: To be considered small for purposes of
  Government procurement, a firm must perform at least 40 percent of the
  volume dredged with its own equipment or equipment owned by another
  small dredging concern.

* * * * *

    Dated: February 28, 2012.
Karen G. Mills,
Administrator.
[FR Doc. 2012-17440 Filed 7-17-12; 8:45 am]
BILLING CODE 8025-01-P