[Federal Register Volume 77, Number 185 (Monday, September 24, 2012)]
[Rules and Regulations]
[Pages 58747-58755]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-23389]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AG28
Small Business Size Standards: Real Estate and Rental and Leasing
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
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SUMMARY: The United States Small Business Administration (SBA) is
increasing the small business size standards for 21 industries and one
sub-industry in North American Industry Classification System (NAICS)
Sector 53, Real Estate and Rental and Leasing, and retaining the
current standards for the remaining four industries in that Sector. As
part of its ongoing comprehensive review of all size standards, SBA
evaluated all size standards for industries in NAICS Sector 53 to
determine whether they should be retained or revised.
DATES: This rule is effective October 24, 2012.
FOR FURTHER INFORMATION CONTACT: Jon Haitsuka, Program Analyst, Size
Standards Division, (202) 205-6618 or [email protected].
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. The SBA's existing size standards use
two primary measures of business size, average annual receipts and
number of employees. Financial assets, electric output and refining
capacity are used as size measures for a few specialized industries. In
addition, SBA's Small Business Investment Company (SBIC), 7(a), and
Certified Development Company (CDC or 504) Loan Programs determine
small business eligibility using either the industry based size
standards or alternative net worth and net income size based standards.
At the start of the current comprehensive review of SBA's small
business size standards, there were 41 different size standards levels,
covering 1,141 NAICS industries and 18 sub-industry activities. Of
these, 31 were based on average annual receipts, seven based on number
of employees, and three based on other measures.
Over the years, SBA has received comments that its size standards
have not kept up with changes in the economy, and in particular, that
they do not reflect changes in the Federal contracting marketplace and
industry structure. The last comprehensive review of 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 makes periodic
inflation adjustments to its monetary based size standards. The latest
inflation adjustment to size standards was published in the Federal
Register on July 18, 2008 (73 FR 41237).
SBA recognizes that changes in industry structure and the Federal
marketplace since the last overall review have rendered existing size
standards for some industries no longer supportable by current data.
Accordingly, in 2007, SBA began a comprehensive review of its size
standards to determine whether existing size standards have supportable
bases relative to the current data, and to revise them, where
necessary.
In addition, on September 27, 2010, the President of the United
States signed the Small Business Jobs Act of 2010 (Jobs Act). The Jobs
Act directs SBA to conduct a detailed review of all size standards and
to make appropriate adjustments to reflect market conditions.
Specifically, the Jobs Act requires SBA to conduct a detailed review of
at least one-third of all size standards during every18-month period
from the date of its enactment and review of all size standards not
less frequently than once every 5 years thereafter. Reviewing existing
small business size standards and making appropriate adjustments based
on current data are also consistent with Executive Order 13563 on
improving regulation and regulatory review.
SBA has chosen not to review all size standards at one time.
Rather, it is reviewing groups of related industries on a Sector by
Sector basis.
As part of SBA's comprehensive review of size standards, the Agency
reviewed all size standards in NAICS Sector 53, Real Estate and Rental
and Leasing, to determine whether the existing size standards should be
retained or revised. After its review, SBA published a proposed rule
for public comment in the November 15, 2011 issue of the Federal
Register (76 FR 70680) on its proposal to increase the size standards
for 20 industries and one sub-industry in NAICS Sector 53. The rule was
one of a series of proposed rules that examines industries grouped by
NAICS Sector.
SBA 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 also included it as a supporting
document in the electronic docket of the 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 53, 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 contracts in each of those
industries using the data from the Federal Procurement Data System--
Next Generation (FPDS-NG) for fiscal years 2008-2010. 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-
2010.
SBA's ``Size Standards Methodology'' provides a detailed
description of its analyses of various industry and program factors and
data sources, and how the Agency uses the results to establish and
revise size standards. In the proposed rule itself, SBA detailed how it
applied its ``Size Standards Methodology'' to review and modify where
necessary, the existing size standards for industries in NAICS Sector
53. 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
[[Page 58748]]
there are other facts or issues that SBA should consider.
SBA sought comments on its proposal to increase size standards for
20 industries and one sub-industry in NAICS Sector 53 (Real Estate and
Rental and Leasing) and retain the existing size standards for the
remaining four industries in that Sector. Specifically, SBA requested
comments on whether the size standards should be revised as proposed
and whether the proposed revisions are appropriate. SBA also invited
comments on whether its proposed eight fixed size standard levels are
appropriate and whether it should adopt common size standards for
several Industry Groups in NAICS Sector 53.
The SBA's analyses supported lowering existing receipts based
standards for one industry. However, as SBA pointed out in the proposed
rule, lowering size standards will reduce the number of firms eligible
to participate in Federal small business assistance programs and this
is counter to what the Federal government and SBA are doing to help
small businesses. Therefore, SBA proposed to retain the current size
standards for that industry and requested comments on whether the
Agency should lower size standards for which its analyses might support
lowering them.
Summary of Comments
SBA received eight comments on the proposed rule. These comments
are summarized below.
Two commenters addressed SBA's proposed size standard for NAICS
532291, Home Health Equipment Rental. SBA had proposed to increase the
size standard for that NAICS code from $7 million in average annual
receipts to $30 million. Both commenters generally supported the SBA's
proposed increase. One of the commenters stated the $7 million size
standard has not kept up with changes in industry structure and the
Federal marketplace and that more small businesses will become eligible
for Federal government programs under the proposed, higher size
standard, thereby helping both small businesses and the Federal
government. However, both suggested that SBA adopt a 500-employee
standard instead of the proposed $30 million receipts based size
standard. Both argued that services provided under NAICS 532291 are
similar to those under NAICS 339112 (Air and Gas Compressor
Manufacturing), which has a 500-employee size standard. However, they
did not provide any industry data and analyses supporting the
similarities between the two industries. To support the recommendation
for a 500-employee size standard for NAICS 532291, one of the
commenters highlighted two Veterans Administration solicitations for
the same service and product (oxygen supplies) for which the Agency
used NAICS 532291 at one location and NAICS 339112 at another. The
commenters argued such inconsistent practice would not occur if SBA
adopted the 500-employee size standard for NAICS 532291. They added
that the 500-employee size standard applies to all manufacturing
industries as well as to SBA's non-manufacturer's rule. They also
argued that employment is a more suitable and stable measure of
business size as it is not influenced by inflation and changes in
economic conditions.
SBA disagrees with the commenters' arguments that companies
involved in NAICS 532291 are similar to those in NAICS 339112. NAICS
532291 comprises establishments primarily engaged in renting home-type
health equipment, such as wheel chairs, hospital beds, oxygen tanks,
walkers, and crutches, while NAICS 339112 comprises establishments
primarily engaged in manufacturing medical, surgical, ophthalmic, and
veterinary instruments and apparatus (except electrotherapeutic,
electro-medical and irradiation apparatus), such as syringes,
hypodermic needles, anesthesia apparatus, blood transfusion equipment,
catheters, surgical clamps, and medical thermometers (see
www.census.gov/naics). Two other related codes are NAICS 325120
(Industrial Gas Manufacturing) and NAICS 332420 (Metal Tank (Heavy
Gauge) Manufacturing). NAICS 325120 includes manufacturing oxygen and
NAICS 332420 includes manufacturing oxygen tanks. 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. See 13 CFR 121.402(b). Accordingly, if a solicitation
is for renting health equipment (such as oxygen tanks), Federal
agencies should apply NAICS 532291 and its corresponding size standard.
Similarly, if a solicitation involves purchasing health equipment and
supplies (such as oxygen tanks and oxygen), the contracting officers
should apply an appropriate manufacturing NAICS code and its
corresponding size standard. In a rental situation, the Federal
government is procuring a service. On the other hand, if the Federal
government is purchasing the products themselves, then the
manufacturing NAICS codes and accompanying size standards apply. An
entity that qualifies under the nonmanufacturer rule (13 CFR
121.406(b)) may also supply products it did not produce. However, it is
important to note that the nonmanufacturer rule does not apply to
service contracts. The regulations also provide that any interested
party adversely affected by a NAICS code designation for a specific
Federal procurement may appeal the designation to the Office of
Hearings and Appeals. See 13 CFR 121.1102-121.1103.
For the reasons explained in its ``Size Standards Methodology,''
SBA uses employment as the measure of size for manufacturing industries
and average annual receipts for most service industries, including all
industries in NAICS Sector 53. SBA recognizes that employment is less
influenced by inflationary factors than receipts, but it is not immune
to changes in economic conditions. For example, businesses shed
millions of employees during and after the recent economic recession.
Because receipts are sensitive to inflation, SBA defines annual
receipts as the average over a firm's three most recently completed
fiscal years. See 13 CFR 121.104. In addition, SBA adjusts its monetary
based size standards for inflation at least once every five years.
For the above reasons, SBA is not adopting the commenter's
recommendation to adopt a 500-employee size standard for NAICS 532291.
Instead, it is adopting the $30 million receipts based size standard,
as proposed.
SBA received one comment concerning the proposed size standard for
NAICS 531311, Residential Property Management. SBA had proposed to
increase the size standard for this NAICS code from $2 million to $7
million in average annual receipts. Opposing the SBA's proposed $7
million size standard, the commenter suggested a much higher $15
million size standard for NAICS 531313. He argued that services offered
by small businesses in this NAICS code are quite diverse and involve
services from several industries within NAICS Subsectors 541 and 561,
including NAICS 541310, 561622, 561710, 561720, 561730, and 561790. The
commenter contended that most of these industries have size standards
higher than $7 million. However, except for NAICS 561720, all of them
have a $7 million size standard currently. Furthermore, except for
NAICS 561710, current industry and Federal contracting data for those
industries do not support
[[Page 58749]]
a size standard higher than $7 million (see 77 FR 7490 (February 10,
2012) and 76 FR 63510 (October 12, 2011)). The commenter maintained
that a higher size standard would enable his business to remain
eligible for SBA's 8(a) Program; however, the commenter did not provide
other information to support why $15 million is a more appropriate size
standard for NAICS 531311 than the proposed $7 million. For the above
reasons, SBA is adopting the proposed $7 million size standard for
NAICS 531311, as proposed.
SBA received one comment on the proposed size standard for NAICS
531320, Offices of Real Estate Appraisers. The commenter supported
SBA's proposed increase from the current $2 million to $7 million in
average annual receipts. The commenter contended that the current size
standard has both prevented small businesses from participating in
government contracts and kept Federal agencies from receiving quality
services to meet their needs. The commenter stated that both small
businesses and the Federal government will benefit under the higher $7
million size standard. SBA is adopting the $7 million size standard, as
proposed.
SBA received one comment concerning the proposed size standards for
NAICS 532111, Passenger Car Rental, and NAICS 532112, Passenger Car
Leasing. For both industries, SBA had proposed to increase the size
standard from $25.5 million to $35.5 million, which is the highest
level of receipts based size standards. Arguing that SBA's proposed
increase to $35.5 million is inadequate and that it would not create a
level playing field for small businesses, the commenter suggested
increasing it to $150 million. He contended that his business and
others with fewer than 500 employees are not dominant and should be
able to qualify as small. He argued that SBA's current $25.5 million or
proposed $35.5 million size standard for the rental car industry makes
it difficult for small businesses to grow and develop and increase
their market share. To support his argument, the commenter provided
copies of testimony he presented at SBA's June 2005 Public Hearings on
Size Standards and previous correspondence with SBA. His comment also
included data on the rental car industry from 2000 to 2011, showing the
increasing market dominance of the industry by the largest companies
and high degree of industry concentration. In addition, the commenter
argued that national networks operated by large companies make
competition more limited and restrictive for his company and other
local competitors.
SBA recognizes that although the proposed $35.5 million size
standard would include 98 percent of firms in NAICS 532111 and 93
percent of firms in NAICS 532112, it includes a small percentage of
total industry receipts. However, to be consistent with SBA's size
standards methodology and with proposed and final rules for other NAICS
Sectors that SBA has issued to date, $35.5 million is the highest
receipts based size standards that SBA will propose or adopt. Thus, SBA
is adopting the $35.5 million size standard for NAICS 532111, Passenger
Car Rental and NAICS 532112, Passenger Car Leasing, as proposed.
SBA received a comment from an association representing the U.S.
equipment rental industry. The association's comments concerned the
proposed size standards for three NAICS codes: NAICS 532310 (General
Rental Centers), NAICS 532412 (Construction, Mining and Forestry
Machinery and Equipment Rental and Leasing), and NAICS 532490 (Other
Commercial and Industrial Machinery and Equipment Rental and Leasing).
The association fully supported SBA's proposal to increase the size
standard for NAICS 532412 and NAICS 532490 from the current $7 million
to $30 million. It also fully supported the SBA's proposal to establish
a common $30 million size standard for all industries within NAICS
Industry Group 5324, Commercial and Industrial Machinery and Equipment
Rental and Leasing. However, the association opposed the SBA's proposal
to retain the current $7 million size standard for NAICS 532310 and
recommended the same $30 million size standard as proposed for the
other two codes. To support its suggestion, the association argued that
many rental companies maintain a wide variety of rental goods in their
inventories to meet the needs of their customers and that they should
be treated equally for SBA's size standards.
The association provided several reasons supporting the proposed
increase to the size standard for NAICS 532412 and NAICS 532490. First,
as it stated, the equipment rental industry has undergone significant
structural changes, thereby warranting a significant increase to the
current size standard. Second, as the association pointed out, the
equipment rental industry has larger capital requirements and higher
barriers to entry than the construction industry, and yet the size
standard for most equipment rental industries is only $7 million as
compared to $33.5 million for most construction related industries.
Third, it added that since equipment rental companies derive a
significant portion of their revenue from the construction equipment
rental sector, the size standards for the equipment rental industries
should be in line with those for construction industries. Fourth, the
association noted that small businesses at the current $7 million size
standard lack resources and equipment to compete with their larger
counterparts and that they will be able to more effectively compete
with large companies under the proposed, higher size standard.
SBA recognizes that many companies operating under NAICS 532310 may
also be engaging in activities within one or more of the other
equipment rental NAICS codes, including NAICS 532412 and NAICS 532490.
However, based on the industry and Federal procurement data, there
exist significant differences between the companies that are primarily
engaged in NAICS 532310, General Rental Centers, and those that are
primarily engaged in one of the industries within NAICS Industry Group
5324. For example, companies primarily engaged in industries within
NAICS Industry Group 5324 have four times the average revenues and six
times the average assets (proxy for start-up costs entry barriers) than
companies primarily engaged in NAICS 532310. In addition, during fiscal
years 2008 to 2010, Federal contracting dollars averaged less than $5
million for NAICS 532310 as compared to $675 million for industries
within NAICS Industry Group 5324.
The association generally supported the five factors SBA evaluates
in reviewing a size standard, but suggested giving more weight to
average assets size and Federal procurement factor for the equipment
rental industry. However, it did not provide any specific values.
For the above reasons, SBA is adopting the proposed $30 million
common size standard for all industries within NAICS Industry Group
5324 (including NAICS 532412 and 532490) and the proposed $7 million
size standard for NAICS 532310.
A national association representing recreational vehicle rental
companies commented on the proposed size standard for NAICS 532120,
Truck, Utility Trailer and RV (Recreational Vehicle) Rental and
Leasing. SBA had proposed to increase the size standard for NAICS
532120 from $25.5 million to $35.5 million. The association fully
supported the proposed increase and noted that this increase is
consistent with the $30 million size standard that
[[Page 58750]]
SBA adopted for NAICS 441210, Recreational Vehicle Dealers, in 2010. It
stated that changes in industry structure since SBA first established a
size standard for the RV industry in the 1980s warranted an increase to
the current size standard. The association argued that a higher size
standard would create opportunity for businesses that have either
exceeded or may be about to exceed the current size standard for
Federal small business loans and contracts. Accordingly, SBA is
adopting the proposed $35.5 million size standard for NAICS 532120.
SBA received two comments on its proposal to increase the size
standard for NAICS 531210, Offices of Real Estate Agents and Brokers,
from $2 million to $7 million. Both commenters generally supported the
SBA's proposed increase to the size standard for NAICS 531210 as it
would help small businesses better compete with large businesses, but
they recommended a higher increase. Specifically, one commenter
recommended at least $19 million, while the other suggested $10
million.
One commenter argued that there is a gap between the current $2
million, or proposed $7 million size standard, and revenues of large
real estate brokerage firms receiving Federal contracts, thereby
hurting small businesses with revenues above the size standard but way
below the size of large firms. The commenter pointed out that the
General Services Administration (GSA) recently awarded four prime
contracts to large firms with revenues ranging from $225 million to $4
billion, but provided no information on whether those contracts could
have been awarded to small businesses if the size standard were much
higher than the current $2 million or proposed $7 million. He added
that because of the low size standard, many otherwise small businesses
must compete with large firms as a large business. As a result, the
commenter stated, large brokerage firms continue to increase their
Federal market share at the expense of qualified small businesses. The
commenter contended that currently GSA does not have small business set
aside contracts for real estate brokerage services, because of its
perception that companies below the current $2 million size standard
are too small to be sufficiently qualified to complete the work. He
argued that raising the size standard to $19 million would increase the
pool of eligible of small businesses for Federal contracting
opportunities and encourage Federal agencies to set aside more
contracts for small businesses. The commenter, who suggested a higher
$10 million size standard for NAICS 531210, added that small firms must
grow much larger to compete with largest firms in the industry, some of
which exceed $1 billion in sales.
SBA recognizes that many mid-sized companies face challenges in the
Federal market for brokerage and real estate services when they outgrow
the size standard. Under the $7 million size standard, more than 98
percent of firms will qualify as small. SBA did not propose a higher
standard because it is very concerned that ``smaller'' small firms
cannot compete effectively with ``larger'' small businesses for Federal
small business contracts when the size standards are too large, such as
$19 million or $10 million as suggested by the commenters. SBA is also
very aware that the small business share of Federal contracts in NAICS
531210 is very low under the current $2 million size standard. However,
SBA estimates that about 5,700 more businesses above the current $2
million threshold will now qualify as small under the $7 million size
standard. This will not only provide more opportunities for small
businesses and increase small business share in the Federal market, but
it will also encourage Federal agencies to set aside more contracts for
small businesses because there will be a much larger pool of more
qualified small businesses. Small businesses will also be able to grow
and still maintain their small business status under the higher $7
million size standard.
One of the commenters argued that raising the size standard for
NAICS 531210 to $19 million would make small businesses providing real
estate services to the Federal government at par with other
professional and property/facility related services, such as
Architectural Services (NAICS 541310), Landscape Architectural Services
(NAICS 541320), Engineering Services (NAICS 541330), Building
Inspection Services (NAICS 541350), Marketing Consulting Services
(NAICS 541613), and Advertising Services (NAICS 541810). However, the
commenter did not provide any reasons or supporting information on why
NAICS 531210 should have the same size standard as these industries. In
fact, in the recently published Final Rule, Small Business Size
Standards: Professional, Technical, and Scientific Services, SBA
adopted the $7 million size standard for NAICS 541310, 541320 and
541350 (see 77 FR 7490 (February 10, 2012)).
One commenter suggested continuing the SBA's exclusion of funds
received in trust for an unaffiliated third party from the calculation
of annual receipts for NAICS 531210. SBA did not propose to discontinue
the exclusion of funds received in trust for unaffiliated third
parties, and is continuing the exclusion under this rule. In addition,
the commenter proposed to add to the exclusion commissions paid to
third party brokers, independent contractors, or third party firms. SBA
is not adopting this recommendation for two reasons. First, commissions
shared with third party brokers, independent contractors, or third
party firms are not the same as the funds received in trust for an
unaffiliated third party. When brokers or independent contractors work
for or with a brokerage firm, the firm earns income by sharing a
certain percentage of their commissions. SBA treats commissions paid
out to brokers and independent contractors as costs of doing business,
similar to subcontractor costs (such as fees paid to a third-party or
independent agent), employee based costs (such as wages and payroll
taxes), and material costs. For SBA's size standards, receipts means
``total income'' plus ``costs of goods sold.'' The definition of
receipts (see 13 CFR 121.104) provides a number of exclusions, but
``cost of doing business'' is not one of them. Second, SBA is concerned
that very large brokerage firms with hundreds of brokers and
contractors may qualify as small if the firms are allowed to exclude
commissions paid out to brokers and contractors, thereby causing
competitive disadvantage to small firms with fewer brokers and
contractors. Thus, SBA is not adopting the commenter's proposal.
For the above reasons, SBA is adopting the $7 million size standard
for NAICS 531210, as proposed, and retaining the current definition of
receipts without modification.
SBA received no comments on the SBA's proposal to revise size
standards for other industries in NAICS Sector 53. SBA also received no
comments on its proposal to retain the current size standards where
analyses suggested lowering them.
All comments to the proposed rule are available for public review
at http://www.regulations.gov, using RIN-3245-AG28 or docket number
SBA-2011-0020.
Conclusion
Based on the analyses of relevant industry and program data and
evaluation of public comments it received on the proposed rule, SBA has
decided to increase the small business size standards for the 20
industries and one sub-industry in NAICS Sector 53 to the levels it
proposed. Those industries and their revised size standards are
[[Page 58751]]
shown in Table 1, Summary of Size Standards Revisions, below.
Table 1--Summary of Size Standards Revisions
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Current size Revised size
NAICS Codes NAICS Industry title standard ($ standard ($
million) million)
----------------------------------------------------------------------------------------------------------------
531110................................... Lessors of Residential Buildings and $7.0 $25.5
Dwellings.
531120................................... Lessors of Nonresidential Buildings 7.0 25.5
(except Miniwarehouses).
531190................................... Lessors of Other Real Estate Property 7.0 25.5
Except,.................................. Leasing of Building Space to Federal 20.5 35.5
Government by Owners.
531210................................... Offices of Real Estate Agents and 2.0 7.0
Brokers.
531311................................... Residential Property Managers........ 2.0 7.0
531312................................... Nonresidential Property Managers..... 2.0 7.0
531320................................... Offices of Real Estate Appraisers.... 2.0 7.0
531390................................... Other Activities Related to Real 2.0 7.0
Estate.
532111................................... Passenger Car Rental................. 25.5 35.5
532112................................... Passenger Car Leasing................ 25.5 35.5
532120................................... Truck, Utility Trailer, and RV 25.5 35.5
(Recreational Vehicle) Rental and
Leasing.
532210................................... Consumer Electronics and Appliances 7.0 35.5
Rental.
532220................................... Formal Wear and Costume Rental....... 7.0 19.0
532230................................... Video Tape and Disc Rental........... 7.0 25.5
532291................................... Home Health Equipment and Rental..... 7.0 30.0
532411................................... Commercial, Air, Rail, and Water, 7.0 30.0
Transportation Equipment and Rental.
532412................................... Construction, Mining and Forestry 12.5 30.0
Machinery and Equipment Rental and
Leasing.
532420................................... Office Machinery and Equipment Rental 25.5 30.0
and Leasing.
532490................................... Other Commercial, and Industrial 7.0 30.0
Machinery and Equipment Rental and
Leasing.
533110................................... Lessors of Nonfinancial Intangible 7.0 35.5
Assets (except Copyrighted Works).
----------------------------------------------------------------------------------------------------------------
For the reasons as stated above in this rule and in the proposed
rule, SBA has decided to retain the current receipts based size
standards for one industry for which analytical results suggested lower
size standards. Not lowering size standards in NAICS Sector 53 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 receipts based
size standards for three 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 20 industries and one sub-industry in NAICS Sector 53,
Real Estate and Rental and Leasing, reflect changes in economic
characteristics of small businesses in those industries and the Federal
procurement market. SBA's mission is to aid and assist small businesses
through a variety of financial, procurement, business development, and
advocacy programs. To assist the intended beneficiaries of these
programs effectively, SBA establishes distinct definitions to determine
which businesses are deemed small businesses. The Small Business Act
(15 U.S.C. 632(a)) delegated to the SBA's Administrator the
responsibility for establishing definitions for small business. The Act
also requires that small business definitions vary to reflect industry
differences. The Jobs Act requires the Administrator to review 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 section of the May
13, 2011 proposed rule and this rule explained in detail SBA's
methodology for analyzing a size standard for a particular industry.
2. What are the potential benefits and costs of this regulatory action?
The most significant benefit to businesses obtaining small business
status as a result of this rule is gaining eligibility for Federal
small business assistance programs, including SBA's financial
assistance programs, economic injury disaster loans, and Federal
procurement opportunities intended for small businesses. Federal small
business programs provide targeted opportunities for small businesses
under SBA's various business development and contracting programs.
These include the 8(a), small disadvantaged businesses (SDB), small
businesses located in Historically Underutilized Business Zones
(HUBZone), women owned small businesses (WOSB), and the service
disabled veteran owned small business (SDVOSB) Programs. Other Federal
agencies also may use SBA's size standards for a variety of regulatory
and program purposes. These programs help small businesses become more
knowledgeable, stable, and competitive. In the 20 industries and one
sub-industry in NAICS Sector 53 for which SBA has decided to increase
size standards, SBA estimates that about 13,000 additional firms will
gain small business status and become eligible for
[[Page 58752]]
these programs. That number is 5 percent of the total number of firms
in industries in NAICS Sector 53 that have receipts based size
standards. SBA estimates that this would increase the small business
share of total industry receipts in those industries from 27 percent
under the current size standards to 39 percent.
The benefits of increasing size standards to a more appropriate
level will accrue to three groups: (1) Some businesses that are above
the current size standards will gain small business status under the
higher size standards, thereby enabling them to participate in Federal
small business assistance programs; (2) growing small businesses that
are close to exceeding the current size standards will be able to
retain their small business status under the higher size standards,
thereby enabling them to continue their participation in the programs;
and (3) Federal agencies will have a larger pool of small businesses
from which to draw for their small business procurement programs.
Based on the data for fiscal years 2008-2010, more than 99 percent
of total Federal contracting dollars spent in industries reviewed in
this proposed rule were accounted for by the 20 industries and one sub-
industry for which SBA is increasing size standards. The SBA estimates
that additional firms gaining small business status in those industries
under the revised size standards could potentially obtain Federal
contracts totaling up to $75 million to $80 million per year under the
small business, 8(a), SDB, 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) Business Loan and 504 Programs, based on the 2008-
2010 data, SBA estimates that approximately 50 to 60 additional loans
totaling $15 million to $20 million in new Federal loan guarantees
could be made to the newly defined small businesses under the revised
size standards. Under the Jobs Act, SBA can now guarantee substantially
larger loans than in the past. In addition, the Jobs Act established an
alternative size standard for SBA's 7(a) and 504 Loan Programs for
those applicants that do not meet the size standards for their
industries. That is, under the Jobs Act, if a firm applies for a 7(a)
or 504 loan but does not meet the size standard for its industry, it
might still qualify if, including its affiliates, it has a tangible net
worth that does not exceed $15 million and also has 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 may result in an increase in small
business guaranteed loans to small businesses in these industries, but
it would be impractical to try to estimate the extent of their number
and the total amount loaned.
Newly defined small businesses will also benefit from SBA's
Economic Injury Disaster Loan Program. Since this program is contingent
on the occurrence and severity of a disaster, SBA cannot make a
meaningful estimate of benefits for future disasters.
To the extent that all 13,000 newly defined small firms under the
revised size standards could become active in Federal procurement
programs, this may entail some additional administrative costs to the
Federal Government associated with additional bidders for Federal small
business procurement opportunities, additional firms seeking SBA
guaranteed lending programs, additional firms eligible for enrollment
in the Central Contractor Registration's Dynamic Small Business Search
database and additional firms seeking certification as 8(a) or HUBZone
firms or those qualifying for small business, WOSB, SDVOSB, and SDB
status. Among businesses in this group seeking SBA assistance, there
could be some additional costs associated with compliance and
verification of small business status and protests of small business
status. These added costs are likely to be minimal because mechanisms
are already in place to handle these administrative requirements.
The costs to the Federal Government may be higher on some Federal
contracts under the higher revised size standards. With a greater
number of businesses defined as small, Federal agencies may choose to
set aside more contracts for competition among small businesses rather
than using full and open competition. The movement from unrestricted to
set-aside contracting will likely result in competition among fewer
total bidders, although there will be more small businesses eligible to
submit offers. In addition, higher costs may result when additional
full and open contracts are awarded to HUBZone businesses because of a
price evaluation preference. The additional costs associated with fewer
bidders, however, will likely be minor since, as a matter of law,
procurements may be set aside for small businesses or reserved for the
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 53, Real
Estate and Rental and Leasing, are consistent with SBA's statutory
mandate to assist small business. This regulatory action promotes the
Administration's objectives. One of SBA's goals in support of the
Administration's objectives is to help individual small businesses
succeed through fair and equitable access to capital and credit,
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 58753]]
its methodology (discussed under SUPPLEMENTARY INFORMATION in the
proposed rule and this rule) to various industry associations and trade
groups. The SBA also met with various industry groups to obtain their
feedback on its methodology and other size standards issues. The 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). The 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 for Sector 53.
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 53 so they could comment.
The review of size standards in NAICS Sector 53, Real Estate and
Rental and Leasing, 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. The 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 rule may have a
significant impact on a substantial number of small entities in NAICS
Sector 53, Real Estate and Rental and Leasing. As described above, this
rule may affect small entities seeking Federal contracts, SBA's 7(a)
and 504 Guaranteed Loans, SBA's Economic Injury Disaster Loans, and
various small business benefits under other Federal programs.
Immediately below, SBA sets forth a final regulatory flexibility
analysis of this final rule addressing the following questions: (1)
What are the need for and objective of the rule? (2) What are SBA's
description and estimate of the number of small entities to which the
rule will apply? (3) What are the projected reporting, record keeping,
and other compliance requirements of the rule? (4) What are the
relevant Federal rules which may duplicate, overlap or conflict with
the rule? and (5) What alternatives will allow the Agency to accomplish
its regulatory objectives while minimizing the impact on small
entities?
(1) What are the need for and objective of the rule?
Most of SBA's size standards for the Real Estate and Rental and
Leasing industries had not been reviewed since the 1980s. Technological
changes, productivity growth, international competition, mergers and
acquisitions and updated industry definitions may have changed the
structure of many industries in that Sector. Such changes can be
sufficient to support a revision to size standards for some industries.
Based on the analysis of the latest industry and program data
available, SBA believes that the revised standards in this rule more
appropriately reflect the size of businesses in those industries that
need Federal assistance. Additionally, the Jobs Act requires SBA to
review all size standards and make appropriate adjustments to reflect
current data and market conditions.
(2) What are SBA's description and estimate of the number of small
entities to which the rule will apply?
The SBA estimates that approximately 13,000 additional firms will
become small because of increases in size standards in 20 industries
and one sub-industry in NAICS Sector 53. That represents 5 percent of
total firms in industries in that Sector that have receipts based size
standards. This will result in an increase in the small business share
of total industry receipts in those industries from about 27 percent
under the current size standards to nearly 39 percent under the revised
size standards. The 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. The SBA believes
these changes will have a positive impact for existing small businesses
and for those that have either exceeded or are about to exceed current
size standards.
(3) What are the projected reporting, record keeping, and other
compliance requirements of the rule and an estimate of the classes of
small entities which will be subject to the requirements?
Revising size standards does not impose any additional reporting or
record keeping requirements on small entities. However, qualifying for
Federal procurement and a number of other
[[Page 58754]]
Federal programs requires that entities register in the Central
Contractor 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 SBA programs that are
designed to assist small businesses, but does not impose a regulatory
burden as they neither regulate nor control business behavior.
(4) What are the relevant Federal rules which may duplicate, overlap,
or conflict with the rule?
Under 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 (see 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.
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), 662, and 694a(9).
0
2. In Sec. 121.201, amend the table ``Small Business Size Standards by
NAICS Industry'' as follows:
0
a. Under the heading Sector 53 Real Estate and Rental and Leasing,
revise the entries for ``531110'', ``531120'', ``531190'', ``Except'',
``531210'', ``531311'', ``531312'', ``531320'', ``531390'', ``532111'',
``532112'', ``532120'', ``532210'', ``532220'', ``532230'', ``532291'',
``532411'', ``532412'', ``532420'', ``532490'', and ``533110'' to read
as follows:
0
b. Revise footnote 9 as shown below after the table.
Sec. 121.201. What size standards has SBA identified by North
American Industry Classification System codes?
* * * * *
Small Business Size Standards by NAICS Industry
----------------------------------------------------------------------------------------------------------------
Size Size
standards in standards in
NAICS Codes NAICS U.S. Industry title millions of number of
dollars employees
----------------------------------------------------------------------------------------------------------------
.....................................
531110................................... Lessors of Residential Buildings and $25.5 ..............
Dwellings.
531120................................... Lessors of Nonresidential Buildings 25.5 ..............
(except Miniwarehouses).
* * * * * * *
531190................................... Lessors of Other Real Estate Property 25.5 ..............
Except,.................................. Leasing of Building Space to Federal \9\ 35.5 ..............
Government by Owners \9\.
531210................................... Offices of Real Estate Agents and \10\ 7.0 ..............
Brokers\10\.
531311................................... Residential Property Managers........ 7.0 ..............
531312................................... Nonresidential Property Managers..... 7.0 ..............
531320................................... Offices of Real Estate Appraisers.... 7.0 ..............
531390................................... Other Activities Related to Real 7.0 ..............
Estate.
* * * * * * *
532111................................... Passenger Car Rental................. 35.5 ..............
532112................................... Passenger Car Leasing................ 35.5 ..............
532120................................... Truck, Utility Trailer, and RV 35.5 ..............
(Recreational Vehicle) Rental and
Leasing.
532210................................... Consumer Electronics and Appliances 35.5 ..............
Rental.
532220................................... Formal Wear and Costume Rental....... 19.0 ..............
532230................................... Video Tape and Disc Rental........... 25.5 ..............
532291................................... Home Health Equipment Rental......... 30.0 ..............
* * * * * * *
532411................................... Commercial Air, Rail, and Water 30.0 ..............
Transportation Equipment Rental and
Leasing.
532412................................... Construction, Mining and Forestry 30.0 ..............
Machinery and Equipment Rental and
Leasing.
532420................................... Office Machinery and Equipment Rental 30.0 ..............
and Leasing.
532490................................... Other Commercial and Industrial 30.0 ..............
Machinery and Equipment Rental and
Leasing.
[[Page 58755]]
* * * * * * *
533110................................... Lessors of Nonfinancial Intangible 35.5 ..............
Assets (except Copyrighted Works).
* * * * * * *
----------------------------------------------------------------------------------------------------------------
* * * * *
Footnotes
* * * * *
9. NAICS code 531190--Leasing of building space to Federal
Government by Owners: For Government procurement, a size standard of
$35.5 million in gross receipts applies to the owners of building
space leased to the Federal Government. The standard does not apply
to an agent.
* * * * *
Dated: June 22, 2012.
Karen G. Mills,
Administrator.
[FR Doc. 2012-23389 Filed 9-21-12; 8:45 am]
BILLING CODE 8025-01-P