[Federal Register Volume 77, Number 185 (Monday, September 24, 2012)]
[Rules and Regulations]
[Pages 58739-58747]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-23373]



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Rules and Regulations
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Federal Register / Vol. 77, No. 185 / Monday, September 24, 2012 / 
Rules and Regulations

[[Page 58739]]



SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG29


Small Business Size Standards: Educational Services

AGENCY: U.S. Small Business Administration.

ACTION: Final rule.

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

SUMMARY: The United States Small Business Administration (SBA) is 
increasing the small business size standards for nine industries in 
North American Industry Classification System (NAICS) Sector 61, 
Educational Services, and retaining the current size standards for the 
remaining eight industries and one sub-industry (``exception'') in this 
Sector. As part of its ongoing comprehensive review of all size 
standards, SBA evaluated every industry in NAICS Sector 61 to determine 
whether the existing size standards should be retained or revised.

DATES: This rule is effective October 24, 2012.

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

SUPPLEMENTARY INFORMATION: To determine eligibility for Federal small 
business assistance programs, SBA establishes small business size 
definitions (referred to as size standards) for private sector 
industries in the United States. SBA's existing size standards use two 
primary measures of business size--average annual receipts and number 
of employees. Financial assets, electric output and refining capacity 
are also used as size measures for a few specialized industries. In 
addition, SBA's Small Business Investment Company (SBIC), 7(a), and 
Certified Development Company (CDC or 504) Loan Programs determine 
small business eligibility using either the industry based size 
standards or alternative net worth and net income size based standards. 
At the start of the current comprehensive small business size standards 
review, there were 41 different size levels, covering 1,141 NAICS 
industries and 18 sub-industry activities (i.e., ``exceptions'' in 
SBA's table of size standards). Of these, 31 were based on average 
annual receipts, seven based on number of employees, and three based on 
other measures.
    Over the years, SBA has received comments that its size standards 
have not kept up with changes in the economy, in particular the changes 
in the Federal contracting marketplace and industry structure. SBA last 
conducted a comprehensive review of size standards during the late 
1970s and early 1980s. Since then, most reviews of size standards were 
limited to a few specific industries in response to requests from the 
public and Federal agencies. SBA also makes periodic inflation 
adjustments to its monetary based size standards. The latest inflation 
adjustment to size standards was published in the Federal Register on 
July 18, 2008 (73 FR 41237).
    SBA recognizes that changes in industry structure and the Federal 
marketplace since the last overall review have rendered existing size 
standards for some industries no longer supportable by current data. 
Accordingly, in 2007, SBA began a comprehensive review of its size 
standards to determine whether existing size standards have supportable 
bases relative to the current data, and to revise them, where 
necessary.
    In addition, on September 27, 2010, the President of the United 
States signed the Small Business Jobs Act of 2010 (Jobs Act). The Jobs 
Act directs SBA to conduct a detailed review of all size standards and 
to make appropriate adjustments to reflect market conditions. 
Specifically, the Jobs Act requires SBA to conduct a detailed review of 
at least one-third of all size standards during every 18-month period 
from the date of its enactment and review all size standards not less 
frequently than once every 5 years thereafter. Reviewing existing small 
business size standards and making appropriate adjustments based on 
current data is also consistent with Executive Order 13563 on improving 
regulation and regulatory review.
    Rather than review all size standards at one time, SBA is reviewing 
a group of related industries on a Sector by Sector basis.
    As part of SBA's comprehensive review of size standards, the Agency 
evaluated every industry in NAICS Sector 61, Educational Services, to 
determine whether the existing size standards should be retained or 
revised. On November 15, 2011, SBA published a proposed rule in the 
Federal Register seeking public comment on its proposal to increase the 
size standards for nine industries in NAICS Sector 61. The proposed 
rule was one of the rules that will examine industries grouped by a 
NAICS Sector.
    SBA has recently developed a ``Size Standards Methodology'' for 
establishing, reviewing and modifying size standards, where necessary. 
SBA has published the document on its Web site at www.sba.gov/size for 
public review and comment and also included it as a supporting document 
in the electronic docket of the November 15, 2011 proposed rule at 
www.regulations.gov.
    In evaluating an industry's size standard, SBA examines its 
characteristics (such as average firm size, startup costs, industry 
competition, and distribution of firms by size) and the level and small 
business share of Federal contract dollars in that industry. SBA also 
examines the potential impact a size standard revision might have on 
its financial assistance programs and whether a business concern under 
a revised size standard would be dominant in its industry. SBA analyzed 
the characteristics of each industry in NAICS Sector 61, mostly using a 
special tabulation obtained from the U.S. Bureau of the Census from its 
2007 Economic Census (the latest available). SBA also evaluated the 
level and small business share of Federal contract dollars in each of 
those industries using the data from the Federal Procurement Data 
System--Next Generation (FPDS-NG) for fiscal years 2008 to 2010. To 
evaluate the impact of changes to size standards on its loan programs, 
SBA analyzed internal data on its guaranteed loan programs for fiscal 
years 2008 to 2010.
    SBA's ``Size Standards Methodology'' provides a detailed 
description of its

[[Page 58740]]

analyses of various industry and program factors and data sources, and 
how the Agency uses the results to derive size standards. In the 
proposed rule, SBA detailed how it applied its ``Size Standards 
Methodology'' to review, and modify, where necessary, the existing 
standards for industries in NAICS Sector 61. SBA sought comments from 
the public on a number of issues about its ``Size Standards 
Methodology,'' such as whether there are alternative methodologies that 
SBA should consider; whether there are alternative or additional 
factors or data sources that SBA should evaluate; whether SBA's 
approach to establishing small business size standards makes sense in 
the current economic environment; whether SBA's application of anchor 
size standards is appropriate in the current economy; whether there are 
gaps in SBA's methodology because of the lack of comprehensive data; 
and whether there are other facts or issues that SBA should consider.
    SBA also sought comments on its proposal to increase the size 
standards for nine industries and retain the existing size standard for 
the remaining eight industries and one sub-industry (``exception'') in 
NAICS Sector 61. Specifically, SBA requested comments on whether the 
size standards should be revised as proposed and whether the proposed 
revisions are appropriate. SBA also invited comments on whether its 
proposed eight fixed size standard levels are appropriate and whether 
it should adopt common size standards for some industries in NAICS 
Sector 61.
    SBA's analyses supported lowering existing size standards for six 
industries and one sub-industry (``exception'' to NAICS 611519, Job 
Corps Centers). However, as SBA explained in the proposed rule, 
lowering size standards would reduce the number of firms eligible to 
participate in Federal small business assistance programs and would run 
counter to what the Federal government and SBA are doing to help small 
businesses and create jobs. Therefore, SBA proposed to retain the 
current size standards for those industries and requested comments on 
whether the Agency should lower size standards for those six industries 
and one sub-industry for which its analyses might support lowering 
them.

Summary of Comments

    There were four comments from individuals and businesses on SBA's 
proposed size standards changes for NAICS Sector 61. Two of the 
comments were on its proposal to retain the current size standard for 
NAICS 611512, Flight Training, while another was on the proposal to 
retain the current size standard for Job Corps Centers, which is an 
exception to NAICS 611519, Other Technical and Trade Schools. One was a 
general comment supporting the SBA's methodology and proposed size 
standards for NAICS Sector 61. These comments are summarized below.

NAICS 611512, Flight Training

    Two commenters opposed SBA's proposal to maintain the current $25.5 
million receipts based size standard for NAICS 611512, Flight Training, 
and recommended a higher size standard. One recommended $33 million, 
while the other recommended at least $35.5 million, preferably $50 
million. The second commenter also proposed an alternative employee 
based size standard of 1,000 employees. Except for information on a few 
recent solicitations and a general description of types of services to 
be performed for Federal contracts within this NAICS code, the 
commenters offered no alternative industry data or analyses to support 
their recommendations.
    To support the argument for a higher size standard, the first 
commenter argued that large flight training contracts, previously 
reserved for full and open competition, are being set aside for small 
businesses. This has caused, according to the commenter, small 
incumbent firms to exceed the current size standard with a few contract 
awards. The commenter added that, with revenues from two small business 
set aside contracts the commenter's firm is currently performing and 
one new set aside contract it has recently competed, the firm will 
exceed the current size standard, thereby making it ineligible to 
compete as a small business for future set aside contracts in NAICS 
611512, unless the size standard is increased. The commenter maintained 
that this will also cause significant turmoil for the Federal 
government because the incumbent small businesses will never be able to 
compete on subsequent bidding opportunities. The commenter stated that 
the current size standard for NAICS 611512 is counter to the idea of 
promoting small businesses through set aside contracts. The commenter 
concluded that given the increased size and scope of small business set 
aside contracts in NAICS 611512 the current size standard should be 
increased, not decreased, as shown by SBA's analysis.
    In response to the above comment, SBA evaluated the FPDS-NG and 
Central Contractors Registration (CCR) data for fiscal years 2008 to 
2010. The data showed that 60 percent of firms receiving new Federal 
contracts annually within NAICS 611512 were small businesses. 
Similarly, about 37 percent of all new contracts and 21 percent of 
total contract dollars in NAICS 611512 were awarded to small 
businesses. These statistics demonstrate substantial small business 
participation in the Federal market under the current size standard. 
The data also suggest that there already exists a sufficient pool of 
small businesses from which the Federal government can draw for new set 
aside contracts, even if some small incumbent businesses outgrow the 
size standard. Moreover, it should be noted that more than 97 percent 
of all firms in NAICS 611512 are small under the current $25.5 million 
size standard. Based on these data and SBA's evaluation of industry and 
Federal procurement factors as discussed in the proposed rule, the 
Agency believes that the current $25.5 million is an appropriate size 
standard for NAICS 611512. In fact, SBA's analyses of the latest 
industry and Federal procurement data available would have supported a 
lower $19 million size standard for NAICS 611512. However, in light of 
current economic conditions as explained in the proposed rule, SBA 
proposed to retain it at the current level. If the size standard were 
increased to $33 million from the current $25.5 million, as recommended 
by the commenter, the 2007 Economic Census data for NAICS 611512 show 
that only a few relatively large firms would benefit, likely at the 
expense of many smaller and startup businesses that need the Federal 
assistance the most. This result was also confirmed using the data on 
firms that were awarded Federal contracts within this industry during 
fiscal years 2008 to 2010. Thus, SBA is not adopting the commenter's 
recommendation for a $33 million size standard for NAICS 611512.
    The second commenter supported the size standards review for NAICS 
Sector 61, but similarly disagreed with SBA's proposal not to increase 
the size standard for NAICS 611512. The commenter stated that SBA's 
proposal not to increase the size standard for this industry is at odds 
with economic characteristics of the military training services, 
mission crew training, aircrew training, and courseware development 
industries. The commenter contended that the traditional definition of 
NAICS 611512 does not reflect several activities typically required for 
flight training contracts, including simulator based training, 
instructional training, simulator maintenance, courseware development 
and application, enhanced

[[Page 58741]]

learning through Learning Management Systems (LMS), and information 
technology (IT) and facilities support. The commenter claimed that 
these contracts may also include modification to the aircraft platforms 
and simulators. The commenter argued that the size standard for NAICS 
611512 is complex and it, therefore, requires additional review to 
provide a more favorable competitive environment for small businesses 
to grow and win Federal contracts within this industry. Besides 
referring to several solicitations assigned NAICS 611512 and NAICS 
336413, the commenter did not offer alternative industry data or 
analyses to support his arguments. The commenter recommended that SBA 
revise its proposal to address the complexity and economic 
characteristics of this industry through one or more of the following:
    1. Convert the NAICS 611512 size standard from annual receipts to 
at least 1,000 employees; or
    2. Increase the existing size threshold from $25.5 million to $35.5 
million, which is the highest proposed level for NAICS Sector 61; or
    3. Create a new NAICS code ``Aircrew Training and Support'' in 
NAICS Sector 61 with a size threshold of at least $50 million in 
average annual receipts; or
    4. Create a new NAICS code ``Aircrew Training and Support'' in 
NAICS Sector 61 with a size standard of at least 1,000 employees; or
    5. Create an exception ``Aircrew Training and Support'' within 
NAICS 611512 for Federal procurement with a size standard of at least 
$35.5 million in annual receipts or 1,000 employees.
    The commenter provided several reasons for his recommendations. 
First, the commenter contended that NAICS 611512, Flight Training, is 
similar to NAICS 336413, Other Aircraft Part and Auxiliary Equipment 
Manufacturing and should have the same 1,000-employee size standard as 
that for NAICS 336413. To support the argument, the commenter added 
that due to a low size standard for NAICS 611512, many contracting 
officers have used NAICS 336413 and its 1,000-employee size standard 
for Federal contracts involving aircrew training and related logistic 
and support services. Second, the commenter maintained that the value 
of Federal contracts has created unintended ceilings for competition. 
Third, the commenter purported that SBA's methodology does not consider 
relevant Federal contracting factors. Fourth, the commenter argued that 
SBA has not considered the complexity of multiple services required by 
the military to support a ``Flight Training'' contract.
    SBA addresses each of the commenter's recommendations above, as 
follows:
    1. Providing Flight Training Services is a service function, not 
manufacturing, and SBA does not apply employee based size standards to 
NAICS codes that represent services industries. SBA's experience and 
analyses generally support receipts based size standards for services 
industries. See SBA's Methodology, cited elsewhere in this rule.
    2. SBA's analysis of this industry does not support a size standard 
over $25.5 million, as detailed in the proposed rule (see 76 FR 70667 
(November 15, 2011)). Additional information that the commenter 
supplied did not support anything higher than that either.
    3. & 4. SBA does not establish NAICS codes. Rather, only the U.S. 
Office of Management and Budget together with the U.S. Bureau of the 
Census defines what is and what is not included within any NAICS 
Industry. Recommendations regarding NAICS industry definitions should 
be directed to the Office of Management and Budget, which is 
responsible for establishing, modifying, or updating an NAICS code.
    5. As stated above, the data do not support increasing the size 
standard for this industry beyond the current $25.5 million, and an 
employee based size standard is not appropriate. SBA has in the past 
established exceptions for a limited number of NAICS codes. However, 
that is not applicable to this industry because SBA believes the 
current size standard is already appropriate.
    SBA disagrees with the commenter's contention that NAICS 611512 is 
similar to NAICS 336413. NAICS 611512 includes establishments primarily 
engaged in offering aviation and flight training, while NAICS 336413 
comprises establishments primarily engaged in (1) manufacturing 
aircraft parts or auxiliary equipment (except engines and aircraft 
fluid power subassemblies), and/or (2) developing and making prototypes 
of aircraft parts and auxiliary equipment (such as crop dusting 
apparatus, armament racks, inflight refueling equipment, and external 
fuel tanks) (see www.census.gov/naics). Accordingly, the activities 
that are required for flight training contracts, including, according 
to the commenter, simulator based training, instructional training, 
courseware development and application, enhanced learning through LMS, 
and IT and facilities support fall under NAICS 611512, not NAICS 
336413. The industry data also demonstrates that these two industries 
are significantly different. For example, based on the 2007 Economic 
Census, firms in NAICS 336413 average about $39 million in receipts and 
145 employees, as compared to $2.6 million and 18 employees for NAICS 
611512.
    The Small Business Size Regulations require Federal agencies to 
designate the proper NAICS code and size standard in a solicitation, 
selecting the NAICS code which best describes the principal purpose of 
the product or service being acquired. Primary consideration is given 
to the industry descriptions in the NAICS United States Manual, the 
product or service description in the solicitation and any attachments 
to it, the relative value and importance of the components of the 
procurement making up the end item being procured, and the function of 
the goods or services being purchased. A procurement is usually 
classified according to the component which accounts for the greatest 
percentage of contract value. See 13 CFR 121.402(b). Therefore, if the 
principal purpose of the procurement is ``flight training,'' then NAICS 
611512 is the code that the contracting officer must apply. Similarly, 
if a solicitation involves the acquisition of aircraft parts, 
auxiliary, or other equipment, the contracting officer must apply an 
appropriate manufacturing NAICS code and the corresponding size 
standard. SBA's regulations also provide that any interested party 
adversely affected by a NAICS code designation for a specific Federal 
procurement may appeal the designation to SBA's Office of Hearings and 
Appeals. See 13 CFR 121.1102-1103.
    The commenter argued that contract values have created unintended 
ceilings for small business participation in the Federal market for 
flight training services. On the contrary, size standards are intended 
to provide ceilings; they determine the maximum size of a business that 
can compete as a small business, but do not affect the size of the 
contracts themselves. The commenter added that increased complexity and 
scope of services required for flight training contracts have rendered 
many small businesses unable to compete under the current size 
standard. To accurately reflect increased complexity and scope of 
multiple services required for flight training contracts, the commenter 
recommended a new ``Aircrew Training and Support'' NAICS code and a 
separate size standard. SBA believes most of the services required for 
flight training contracts, as cited above by the commenter, are not 
necessarily new activities warranting a new NAICS code or an exception 
under NAICS 611512; rather they are new

[[Page 58742]]

tools and methods for delivering flight training services as defined 
under NAICS 611512.
    In response to the commenter's argument that small businesses under 
the current $25.5 million are not able to compete for Federal contracts 
in NAICS 611512, SBA evaluated recent data from FPDS-NG and CCR. The 
data showed that small business account for 60 percent of all firms 
winning Federal contracts, 37 percent of all new contracts, and 21 
percent of total contract dollars in NAICS 611512. Thus, small 
businesses have been quite successful in receiving Federal contracts 
under the current size standard. The commenter's firm itself appeared 
to be very successful in getting several small business set aside 
contracts under the current size standard.
    SBA disagrees with the commenter's allegation that the methodology 
it used to evaluate size standards for NAICS Sector 61 does not 
consider relevant Federal contracting factors. As explained in the 
proposed rule as well as in SBA's ``Size Standards Methodology'' White 
Paper, Federal contracting is one of the five primary factors SBA 
evaluates when reviewing a size standard. Specifically, for each of the 
industries averaging $100 million or more in Federal contracts 
annually, SBA compares the small business share of total Federal 
contracts with the small business share of total industry receipts. If 
the difference between the former and latter is between 10 percent and 
30 percent, SBA designates a size standard one fixed level higher than 
the current one. If that difference is more than 30 percent, SBA 
designates a size standard two levels above the current size standard. 
Accordingly, the Federal contracting factor supported a higher $30 
million size standard for NAICS 611512, as compared to the current 
$25.5 million. Based on all factors combined, the calculated size 
standard was $19 million. However, in light of current economic 
conditions, SBA proposed to retain the current size standard.
    The commenter argued that SBA did not consider the complexity of 
multiple services required to support ``Flight Training'' contracts. 
SBA disagrees. As noted above, most of activities that are required for 
flight training contracts, including, according to the commenter, 
simulator based training, instructional training, courseware 
development and application, and enhanced learning through LMS are part 
of NAICS 611512. SBA believes the industry data from the Economic 
Census and procurement data from FPDS-NG that it evaluated to examine 
this industry already reflect those activities. Moreover, the current 
size standard, which is one of the highest in NAICS Sector 61, also 
reflects the characteristics of the flight training industry.
    SBA recognizes that, as in most other industries, small businesses 
in NAICS 611512 face challenges in the Federal marketplace when they 
outgrow the size standard. As stated above, more than 97 percent of 
firms already qualify as small under the current $25.5 million size 
standard. SBA is concerned that ``smaller'' small and startup companies 
would not be able to compete effectively with ``larger'' small 
businesses for Federal small business contracts if the size standards 
were too high, such as $35.5 million or $50 million in average annual 
receipts, or 1,000 employees, as recommended by the commenter. At these 
levels, only a few larger firms are likely to benefit, mostly at the 
expense of many smaller businesses. For example, based on the 2007 
Economic Census tabulation, only three firms would benefit if SBA 
increased the size standard to $35.5 million and three more firms would 
benefit if it increased to $50 million. At 1,000 employees, the 2007 
Economic Census data show that all but 12 of the largest firms, 
possibly including some of the dominant firms with annual receipts of 
several hundred million dollars, would qualify as small. The data on 
firms receiving Federal contracts within NAICS 611512 during the fiscal 
years 2008 to 2010 also confirmed that only a few large firms would 
benefit if the size standard were increased to those levels. The 
commenter argued that those higher size standards would help small 
businesses to compete for Federal contracts for several years and allow 
them to grow and develop necessary expertise. However, given that 97 
percent of firms in NAICS 611512 have less than $25.5 million in 
receipts and fewer than 100 employees, SBA believes that such high size 
standards would adversely affect the ability of many small businesses 
to compete for Federal opportunities in that industry.
    This commenter also recommended that SBA impose a temporary 
moratorium on calculation of average annual receipts based on 2008, 
2009, and 2010. In other words, the commenter recommended excluding 
year 2011 from the calculation, although he did not justify why. SBA 
does not adopt this recommendation. For SBA's size standards, annual 
receipts of a concern means the average annual receipts over its most 
recently completed three fiscal years (see 13 CFR 121.104(c)). 
Accordingly, average annual receipts for 2012 must be an average over 
2011, 2010, and 2009. Selectively excluding the most recent year or any 
other year from the calculation for one or few industries, as suggested 
by the commenter, will cause widespread inconsistency in how businesses 
calculate their average annual receipts to determine if they are small. 
In addition, this would more likely benefit successful small businesses 
that have exceeded the size standard by allowing them to prolong their 
small business eligibility, thereby reducing opportunities for other 
small and startup businesses.
    For the above reasons, SBA is not adopting any of the alternatives 
recommended by the commenter. Instead the Agency is adopting $25.5 
million as proposed. SBA has also retained the current method of 
calculating average annual receipts based on the firm's most recently 
completed three fiscal years.

Job Corps Centers

    SBA received one comment on its proposal to retain the current size 
standard for Job Corps Centers, which is an exception to NAICS 611519, 
Other Technical and Trade Schools. Citing its success in getting 
Federal contracts as a small business prime contractor over the years, 
the commenter argued that the commenter's firm will exceed the current 
$35.5 million size standard for Job Corps Centers within the next 2-3 
year period, making it no longer eligible to recompete for any of the 
four Job Corps Centers it now operates. The commenter added that there 
is no ``graduation plan or process'' in place allowing small businesses 
to compete as an incumbent contractors for Centers they operate when 
they exceed the current size standard. The commenter recommended that 
the size standard should be increased to $50 million. However, the 
commenter offered no alternative data on or analyses of the Job Crops 
Centers industry segment supporting his recommendation. While SBA 
recognizes the challenges small businesses face when they exceed the 
size standard for their industries, the agency is not adopting the 
commenter's recommendation for two reasons. First, only one firm would 
benefit if the size standard were increased from $35.5 million to $50 
million. Second, this will also cause adverse competitive impact on 
firms operating Job Corps Centers as small business under the current 
size standard. SBA's regulation has no ``graduation plan'' for any 
industry for Government contracting purposes, when a firm exceeds the 
size standard. Thus, SBA is adopting $35.5 million, as proposed.

[[Page 58743]]

    The fourth commenter fully supported the SBA's size standards 
methodology used to derive the proposed size standards for NAICS Sector 
61. The commenter also fully endorsed the adoption of all size 
standards, as proposed. The commenter recommended October 1, 2012 as 
the effective date, so that the Federal Government and industry will 
have enough time to prepare for the change. SBA will publish the final 
rule as soon as the necessary review and clearance as required under 
the rulemaking process is complete. The revised size standards will 
become effective after 30 days from the date of publication.
    All comments to the proposed rule are available for public review 
at http://www.regulations.gov, using RIN 3245-AG29 or docket number 
SBA-2011-0021.

Conclusion

    Based on the analyses of relevant industry and program data and 
public comments it received on the proposed rule, SBA has decided to 
increase the small business size standards for the nine industries in 
NAICS Sectors 61 to the levels it proposed. Those industries and their 
revised size standards are shown in Table 1, Summary of Revised Size 
Standards in NAICS Sector 61, below.

                          Table 1--Summary of Revised Size Standards in NAICS Sector 61
----------------------------------------------------------------------------------------------------------------
                                                                                   Current size    Revised size
                NAICS Code                          NAICS Industry title           standard  ($    standard  ($
                                                                                     million)        million)
----------------------------------------------------------------------------------------------------------------
611110...................................  Elementary and Secondary Schools.....             7.0            10.0
611210...................................  Junior Colleges......................             7.0            19.0
611310...................................  Colleges, Universities and                        7.0            25.5
                                            Professional Schools.
611420...................................  Computer Training....................             7.0            10.0
611430...................................  Professional and Management                       7.0            10.0
                                            Development Training.
611519...................................  Other Technical and Trade Schools....             7.0            14.0
611630...................................  Language Schools.....................             7.0            10.0
611699...................................  All Other Miscellaneous Schools and               7.0            10.0
                                            Instruction.
611710...................................  Educational Support Services.........             7.0            14.0
----------------------------------------------------------------------------------------------------------------

    For the reasons as stated above in this rule and in the proposed 
rule, SBA has decided to retain the current size standards for six 
industries and one sub-industry for which analytical results suggested 
lower size standards. Not lowering size standards in NAICS Sector 61 is 
consistent with SBA's recent final rules on NAICS Sector 44-45, Retail 
Trade (75 FR 61597 (October 6, 2010)), NAICS Sector 72, Accommodation 
and Food Services (75 FR 61604 (October 6, 2010)), NAICS Sector 81, 
Other Services (75 FR 61591 (October 6, 2010)), NAICS Sector 54, 
Professional, Scientific and Technical Services (77 FR 7490 (February 
10, 2012)), and NAICS Sector 48-49, Transportation and Warehousing (77 
FR 10943 (February 24, 2012)). In each of those final rules, SBA 
adopted its proposal not to reduce small business size standards for 
the same reasons. SBA is also retaining the existing size standards for 
two industries for which the results supported them at their current 
levels.

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

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
final rule is not a ``significant regulatory action'' for purposes of 
Executive Order 12866. In order to help explain the need for this rule 
and the rule's potential benefits and costs, SBA is providing a Cost 
Benefit Analysis in this section of the rule. This is also not a 
``major rule'' under the Congressional Review Act (5 U.S.C. 800).

Cost Benefit Analysis

1. Is there a need for the regulatory action?

    SBA believes that the revised changes to small business size 
standards for nine industries in NAICS Sector 61, Educational Services, 
reflect changes in economic characteristics of small businesses in 
those industries and the Federal procurement market. SBA's mission is 
to aid and assist small businesses through a variety of financial, 
procurement, business development, and advocacy programs. To assist the 
intended beneficiaries of these programs effectively, SBA establishes 
distinct definitions to determine which businesses are deemed small. 
The Small Business Act delegated to SBA's Administrator the 
responsibility for establishing small businesses definitions (15 U.S.C. 
632(a)). The Act also requires that small business definitions vary to 
reflect industry differences. The Jobs Act requires the Administrator 
to review at least one-third of all size standards within each 18-month 
period from the date of its enactment, and review all size standards at 
least every five years thereafter. The supplementary information 
sections of the November 15, 2011 proposed rule and this final rule 
explained in detail SBA's methodology for analyzing a size standard for 
a particular industry.

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

    The most significant benefit to businesses obtaining small business 
status as a result of this final rule is gaining eligibility for 
Federal small business assistance programs, including SBA's financial 
assistance programs and Federal procurement opportunities reserved for 
small businesses. Federal small business programs provide targeted 
opportunities for small businesses under various SBA's business 
development programs, such as the 8(a) Business Development program and 
programs benefitting small businesses located in Historically 
Underutilized Business Zones (HUBZone), women owned small businesses 
(WOSB), and service disabled veteran owned small businesses (SDVOSB). 
Other Federal agencies also may use SBA size standards for a variety of 
regulatory and program purposes. These programs help small businesses 
become more knowledgeable, stable and competitive. In the nine 
industries in NAICS Sector 61 for which SBA has decided to increase 
size standards, SBA estimates that about 1,500 firms exceeding the 
current size standards will gain small business status and become 
eligible for these programs. That number is 2.1 percent of the total 
number of firms that

[[Page 58744]]

are currently classified as small in all industries in NAICS Sector 61. 
SBA estimates that this would increase the small business share of 
total industry receipts in those industries from about 18 percent under 
the current size standards to 23 percent.
    The benefits of increasing size standards to a more appropriate 
level will accrue to three groups in the following ways: (1) Some 
businesses that are above the current size standards will gain small 
business status under the higher size standards, thereby enabling them 
to participate in Federal small business assistance programs; (2) 
growing small businesses that are close to exceeding the current size 
standards will be able to retain their small business status under the 
higher size standards, thereby enabling them to continue their 
participation in the programs; and (3) Federal agencies will have a 
larger pool of small businesses from which to draw for their small 
business procurement programs.
    For the November 15, 2011 proposed rule, SBA analyzed FPDS-NG data 
for fiscal years 2007 to 2009 and found that 88 percent of Federal 
contracting dollars in Sector 61 were accounted for by those nine 
industries for which SBA has increased size standards. This also held 
true in SBA's updated analysis using the FY 2008-2010 FPDS-NG data. SBA 
estimates that additional firms gaining small business status in those 
industries under the revised size standards could potentially obtain 
Federal contracts totaling between $20 million and $25 million annually 
through the 8(a), HUBZone, WOSB and SDVOSB programs, and other 
unrestricted procurements. The added competition for many of these 
procurements may also result in lower prices to the Government for 
procurements reserved for small businesses, although SBA cannot 
quantify this benefit.
    Under SBA's 7(a) and 504 Loan Programs, based on the data for 
fiscal years 2008 to 2010, SBA estimates that around 16 to 20 
additional loans totaling between $3 million and $4 million in new 
Federal loan guarantees will be made for newly defined small businesses 
under the revised size standards. Under the Jobs Act, SBA can now 
guarantee substantially larger loans than in the past. In addition, the 
Jobs Act established an alternative size standard for SBA's 7(a) and 
504 Loan Programs for those applicants that do not meet the size 
standards for their industries. That is, under the Jobs Act, if a firm 
applies for a SBA's 7(a) or 504 loan but does not meet the size 
standard for its industry, it might still qualify if, including its 
affiliates, it has a tangible net worth that does not exceed $15 
million and also has average net income after Federal income taxes 
(excluding any carry-over losses) for its preceding two completed 
fiscal years that do not exceed $5 million. Thus, increasing the size 
standards will likely result in an increase in small business 
guaranteed loans to small businesses in these industries, but it is 
impractical to try to estimate the extent of their number and the total 
amount loaned.
    The newly defined small businesses will also benefit from SBA's 
Economic Injury Disaster Loan (EIDL) Program. Since this program is 
contingent on the occurrence and severity of disasters, SBA cannot make 
a meaningful estimate of future EIDL benefits.
    To the extent that all 1,500 newly defined small firms under the 
revised size standards could become active in Federal procurement 
programs, this may entail some additional administrative costs to the 
Federal Government associated with additional bidders for Federal small 
business procurement opportunities, additional firms seeking SBA 
guaranteed lending programs, additional firms eligible for enrollment 
in the Central Contractor Registration's Dynamic Small Business Search 
database and additional firms seeking certification as 8(a) or HUBZone 
firms or those qualifying for small business, WOSB, SDVOSB, and SDB 
status. Among businesses in this group seeking SBA's assistance, there 
could be some additional costs associated with compliance and 
verification of small business status and protests of small business 
status. These added costs are likely to be minimal because mechanisms 
are already in place to handle these administrative requirements.
    The costs to the Federal Government may be higher on some Federal 
contracts under the higher revised size standards. With a greater 
number of businesses defined as small, Federal agencies may choose to 
set aside more contracts for competition among small businesses rather 
than using full and open competition. The movement from unrestricted to 
set-aside contracting will likely result in competition among fewer 
total bidders, although there will be more small businesses eligible to 
submit offers. In addition, higher costs may result when additional 
full and open contracts are awarded to HUBZone businesses because of a 
price evaluation preference. The additional costs associated with fewer 
bidders, however, will likely be minor since, as a matter of law, 
procurements may be set aside for small businesses or reserved for the 
small business, 8(a), HUBZone, WOSB, or SDVOSB Programs only if awards 
are expected to be made at fair and reasonable prices.
    The revised size standards may have some distributional effects 
among large and small businesses. Although SBA cannot estimate with 
certainty the actual outcome of gains and losses among small and large 
businesses, there are several likely impacts. There may be a transfer 
of some Federal contracts from large businesses to small businesses. 
Large businesses may have fewer Federal contract opportunities as 
Federal agencies decide to set aside more Federal contracts for small 
businesses. In addition, some agencies may award more Federal contracts 
to HUBZone concerns instead of large businesses since HUBZone concerns 
may be eligible for price evaluation adjustments when they compete on 
full and open bidding opportunities. Similarly, currently defined small 
businesses may obtain fewer Federal contracts due to the increased 
competition from more businesses defined as small under the revised 
size standards. This transfer may be offset by more Federal 
procurements set aside for all small businesses. The number of newly 
defined and expanding small businesses that are willing and able to 
sell to the Federal Government will limit the potential transfer of 
contracts away from large and small businesses under the existing size 
standards. The SBA cannot estimate with precision the potential 
distributional impacts of these transfers.
    The revisions to the existing size standards for Sector 61, 
Educational Services, 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.

Executive Order 13563

    A description of the need for this regulatory action and benefits 
and costs associated with this action including possible distributions 
impacts that relate to Executive Order 13563 is included above in the 
Cost Benefit Analysis.
    In an effort to engage interested parties in this action, SBA has 
presented

[[Page 58745]]

its methodology (discussed under Supplementary Information in the 
proposed rule and this final rule) to various industry associations and 
trade groups. SBA also met with various industry groups to obtain their 
feedback on its methodology and other size standards issues. SBA also 
presented its size standards methodology to businesses in 13 cities in 
the U.S. and sought their input as part of the Jobs Act tours. The 
presentations also included information on the latest status of the 
comprehensive size standards review and how interested parties can 
provide SBA with input and feedback on the size standards review.
    Additionally, SBA sent letters to the Directors of the Offices of 
Small and Disadvantaged Business Utilization (OSDBU) at several Federal 
agencies with considerable procurement responsibilities requesting 
their feedback on how the agencies use SBA size standards and whether 
current standards meet their programmatic needs (both procurement and 
non-procurement). SBA gave appropriate consideration to all input, 
suggestions, recommendations, and relevant information obtained from 
industry groups, individual businesses, and Federal agencies in 
preparing the proposed rule and this final rule for Sector 61.
    Furthermore, when SBA issued the proposed rule, it provided notice 
of its publication to individuals and companies that had in recent 
years exhibited an interest by letter, email, or phone, in size 
standards for NAICS Sector 61 so they could comment.
    The review of size standards in NAICS Sector 61, Educational 
Services, is consistent with Section 6 of Executive Order 13563 calling 
for retrospective analyses of existing rules. The last overall review 
of size standards occurred during the late 1970s and early 1980s. Since 
then, except for periodic adjustments for monetary based size 
standards, most reviews of size standards were limited to a few 
specific industries in response to requests from the public and Federal 
agencies. SBA recognizes that changes in industry structure and the 
Federal marketplace over time have rendered existing size standards for 
some industries no longer supportable by current data. Accordingly, in 
2007, SBA began a comprehensive review of all size standards to ensure 
that existing size standards have supportable bases and to revise them 
when necessary. In addition, the Jobs Act directs SBA to conduct a 
detailed review of all size standards and to make appropriate 
adjustments to reflect market conditions. Specifically, the Jobs Act 
requires SBA to conduct a detailed review of at least one-third of all 
size standards during every 18-month period from the date of its 
enactment and do a complete review of all size standards not less 
frequently than once every 5 years thereafter.

Executive Order 12988

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

Executive Order 13132

    For purposes of Executive Order 13132, SBA has determined that this 
final 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 final 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 final rule would not impose any new 
reporting or record keeping requirements.

Final Regulatory Flexibility Analysis

    Under the Regulatory Flexibility Act (RFA), this final rule may 
have a significant impact on a substantial number of small entities in 
NAICS Sector 61, Educational Services. As described above, this final 
rule may affect small entities seeking Federal contracts, SBA's 7(a), 
504 and economic injury disaster loans, and various small business 
benefits under other Federal programs.
    Immediately below, SBA sets forth a final regulatory flexibility 
analysis of this final rule addressing the following questions: (1) 
What are the need for and objective of the rule? (2) What are SBA's 
description and estimate of the number of small entities to which the 
rule will apply? (3) What are the projected reporting, record keeping, 
and other compliance requirements of the rule? (4) What are the 
relevant Federal rules which may duplicate, overlap or conflict with 
the rule? and (5) What alternatives will allow the Agency to accomplish 
its regulatory objectives while minimizing the impact on small 
entities?

(1) What are the need for and objective of the rule?

    Most of SBA's size standards in NAICS Sector 61, Educational 
Services, had not been reviewed since the 1980s. Technological changes, 
productivity growth, international competition, mergers and 
acquisitions and updated industry definitions may have changed the 
structure of many industries in that Sector. Such changes can be 
sufficient to support a revision to size standards for some industries. 
Based on the analysis of the latest industry and program data 
available, SBA believes that the revised standards in this rule more 
appropriately reflect the size of businesses in those industries that 
need Federal assistance. Additionally, the Jobs Act requires SBA to 
review all size standards and make appropriate adjustments to reflect 
current data and market conditions.

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

    SBA estimates that approximately 1,500 additional firms will become 
small because of increases in size standards in nine industries in 
NAICS Sector 61. That number is 2.1 percent of the total number of 
firms that are currently classified as small in all industries in NAICS 
Sector 61. This will result in an increase in the small business share 
of total industry receipts in those industries from about 18 percent 
under the current size standards to 23 percent under the revised size 
standards. SBA does not anticipate a significant competitive impact on 
smaller businesses in these industries. The revised size standards will 
enable more small businesses to retain their small business status for 
a longer period. Under current size standards, many small businesses 
may have lost their eligibility or found it difficult to compete with 
companies that are significantly larger than they are, and this final 
rule attempts to correct that impact. SBA believes these changes will 
have a positive impact for existing small businesses and for those that 
have either exceeded or are about to exceed current size standards.

(3) What are the projected reporting, record keeping, and other 
compliance requirements of the rule?

    Revising size standards does not impose any additional reporting or 
record keeping requirements on small entities. However, qualifying for 
Federal procurement and a number of other Federal programs requires 
that entities register in the Central Contractor

[[Page 58746]]

Registration (CCR) database and certify at least annually that they are 
small in the Online Representations and Certifications Application 
(ORCA). Therefore, businesses opting to participate in those programs 
must comply with CCR and ORCA requirements. There are no costs 
associated with either CCR registration or ORCA certification. Revising 
size standards alters the access to Federal programs that are designed 
to assist small businesses, but does not impose a regulatory burden as 
they neither regulate nor control business behavior.

(4) What are the relevant Federal rules which may duplicate, overlap or 
conflict with the rule?

    Under section 3(a)(2)(C) of the Small Business Act, 15 U.S.C. 
632(a)(2)(c), Federal agencies must use SBA's size standards to define 
a small business, unless specifically authorized by statute. In 1995, 
SBA published in the Federal Register a list of statutory and 
regulatory size standards that identified the application of SBA's size 
standards as well as other size standards used by Federal agencies (60 
FR 57988, November 24, 1995). SBA is not aware of any Federal rule that 
would duplicate or conflict with establishing or revising size 
standards.
    However, the Small Business Act and SBA's regulations allow Federal 
agencies to develop different size standards if they believe that SBA's 
size standards are not appropriate for their programs, with the 
approval of SBA's Administrator (13 CFR 121.903). The Regulatory 
Flexibility Act authorizes an agency to establish an alternative small 
business definition after consultation with the Office of Advocacy of 
the U.S. Small Business Administration (5 U.S.C. 601(3)).

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

    By law, SBA is required to develop numerical size standards for 
establishing eligibility for Federal small business assistance 
programs. Other than varying size standards by industry and changing 
the size measures, no practical alternative exists to the existing 
system of numerical size standards. The possible alternative size 
standards considered for the individual industries within NAICS Sector 
61 are discussed in the supplementary information to the proposed rule 
and this final rule.

List of Subjects in 13 CFR Part 121

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

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

PART 121--SMALL BUSINESS SIZE REGULATIONS

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

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

0
2. In Sec.  121.201, in the table, revise the entries for ``611110,'' 
``611210,'' ``611310,'' ``611420,'' ``611430,'' ``611519,'' ``611630,'' 
``611699,'' and ``611710,'' to read as follows:


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

                                 Small Business Size Standards by NAICS Industry
----------------------------------------------------------------------------------------------------------------
                                                                                  Size standards  Size standards
               NAICS  Codes                      NAICS U.S. Industry title        in millions of   in number of
                                                                                      dollars        employees
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
611110...................................  Elementary and Secondary Schools.....            10.0  ..............
611210...................................  Junior Colleges......................            19.0  ..............
611310...................................  Colleges, Universities and                       25.5  ..............
                                            Professional Schools.
 
                                                  * * * * * * *
611420...................................  Computer Training....................            10.0  ..............
611430...................................  Professional and Management                      10.0  ..............
                                            Development Training.
 
                                                  * * * * * * *
611519...................................  Other Technical and Trade Schools....            14.0  ..............
 
                                                  * * * * * * *
611630...................................  Language Schools.....................            10.0  ..............
 
                                                  * * * * * * *
611699...................................  All Other Miscellaneous Schools and              10.0  ..............
                                            Instruction.
611710...................................  Educational Support Services.........            14.0  ..............
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------



[[Page 58747]]

    Dated: June 22, 2012.
Karen G. Mills,
Administrator.
[FR Doc. 2012-23373 Filed 9-21-12; 8:45 am]
BILLING CODE 8025-01-P