[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