[Federal Register Volume 79, Number 96 (Monday, May 19, 2014)]
[Proposed Rules]
[Pages 28631-28647]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-11269]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 79, No. 96 / Monday, May 19, 2014 / Proposed
Rules
[[Page 28631]]
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AG49
Small Business Size Standards: Employee Based Size Standards in
Wholesale Trade and Retail Trade
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The U.S. Small Business Administration (SBA or Agency)
proposes to increase employee based size standards for 46 industries in
North American Industry Classification System (NAICS) Sector 42,
Wholesale Trade, and one industry in NAICS Sector 44-45, Retail Trade
and retain the current size standards in the remaining industries in
those sectors. SBA also proposes to retain the current 500-employee
size standard for Federal procurement of supplies under the
nonmanufacturer rule. As part of its ongoing comprehensive size
standards review, SBA reviewed all 71 industries in NAICS Sector 42 as
well as the two industries in NAICS Sector 44-45 that have employee
based size standards. The proposed revisions, if adopted, will
primarily affect eligibility for SBA's financial assistance programs.
This proposed rule is one of a series of proposed rules that will
review size standards of industries grouped by NAICS Sector.
DATES: SBA must receive comments to this proposed rule on or before
July 18, 2014.
ADDRESSES: You may submit comments identified by RIN 3245-AG49 by one
of the following methods: (1) Federal eRulemaking Portal:
www.regulations.gov, following the instructions for submitting
comments; or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, Ph.D.,
Chief, Office of Size Standards, 409 Third Street SW., Mail Code 6530,
Washington, DC 20416. SBA will not accept comments to this proposed
rule submitted by email except for confidential information.
SBA will post all comments to this proposed rule on
www.regulations.gov. If you wish to submit confidential business
information (CBI) as defined in the User Notice at www.regulations.gov,
you must submit this information to U.S. Small Business Administration,
Khem R. Sharma, Ph.D., Chief, Office of Size Standards, 409 Third
Street SW., Mail Code 6530, Washington, DC 20416, or send an email to
[email protected]. Highlight the information that you consider to
be CBI and explain why you believe SBA should hold this information as
confidential. SBA will review this information and determine whether it
will make the information public.
FOR FURTHER INFORMATION CONTACT: Khem R. Sharma, Ph.D., Chief, Office
of Size Standards by phone at (202) 205-6618 or by email at
[email protected].
SUPPLEMENTARY INFORMATION:
Background
In an effort to remove possible public confusion, SBA would like to
explain the changes made to the title of this rule. When SBA initially
announced in the Fall 2012 Unified Agenda of Federal Regulatory and
Deregulatory Actions, 78 FR 1636 at 1639 (January 8, 2013) (Item
391) that it intended to propose this rule, it was titled
``Small Business Size Standards for Wholesale Trade'' under Regulatory
Information Number (RIN) 3245-AG49. SBA later realized that this rule
also addresses two industries with employee based size standards in
Retail Trade. As a result, the title of this proposed rule is changed
to read ``Small Business Size Standards: Employee Based Size Standards
in Wholesale Trade and Retail Trade.'' SBA believes that this title
change of the rule will make it easier for affected parties to
understand the scope of its coverage and will engender more public
comment and involvement.
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. SBA also has
used financial assets, electric output, and refining capacity to
measure the size in a few specialized industries. In addition, SBA's
Small Business Investment Company, Certified Development Company (CDC/
504), and 7(a) Loan Programs use either the industry based size
standards or tangible net worth and net income based alternative size
standard to determine eligibility for these programs. The new
alternative size standard, which was established under the Small
Business Jobs Act of 2010 (Jobs Act), is tangible net worth of not more
than $15 million and average net income after Federal income taxes
(excluding any carry-over losses) for the two latest fiscal years of
not more than $5 million.
At the start of the current comprehensive size standards review
when the size standards were based on NAICS 2007, there were 41
different size levels, covering 1,141 NAICS industries and 18
subindustry 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.
Presently, under NAICS 2012, there are 28 different size standards
covering 1,031 industries and 16 ``exceptions''. Of these, 533 are
based on average annual receipts, 509 on number of employees (one of
which also contains barrels per day total capacity), and five on
average assets.
SBA has received comments periodically that its size standards have
not kept up with changes in the economy and in the Federal contracting
marketplace. The last time SBA conducted a comprehensive review of its
size standards involving actual public involvement in the rulemaking
process was from 1980 to 1984. After a series of Federal Register
notices from 1980 to 1983, SBA adopted a detailed list of size
standards based on individual industry codes. Since then, SBA's
revisions to size standards have focused on inflationary adjustments to
its monetary based size standards. SBA's latest inflationary adjustment
to size standards was published in the Federal Register on July 18,
2008 (73 FR 41237). Besides inflation adjustment, SBA's reviews of size
standards since the last comprehensive review have been limited to a
few specific industries in response to public request.
When SBA established its size standard framework in 1984, it
focused
[[Page 28632]]
on having a common size standard for both its financial and Federal
procurement programs. However, SBA made an exception for the Wholesale
Trade industries and established the 100-employee size standard for
SBA's financial programs and the 500-employee size standard for Federal
procurement programs under the nonmanufacturer rule. The
nonmanufacturer rule has been periodically updated and is presently
codified in SBA's small business size regulations at 13 CFR 121.406.
The nonmanufacturer rule also applies to Federal procurement for the
industries within Retail Trade (NAICS Sector 44-45). On a Federal
procurement opportunity reserved for small business concerns to provide
supplies or goods, the 500-employee size standard under the
nonmanufacturer rule permits a firm that did not manufacture or produce
those goods to qualify as small if it is at or below 500 employees and
supplies the end item of a small domestic manufacturer. In effect, the
nonmanufacturer rule has resulted in two sets of size standards for
financial and Federal procurement programs for firms in industries in
NAICS Sectors 42 and 44-45. In this proposed rule, SBA provides
separate analyses of size standards for financial programs and the 500-
employee nonmanufacturer size standard for Federal procurement
programs.
Because of changes in the Federal marketplace and industry
structure since the last comprehensive size standards review, SBA
recognized that the latest available data might no longer support some
of its existing size standards. Thus, in 2007, SBA began a
comprehensive size standards review to determine if they were
consistent with the latest data and to adjust them where necessary.
Subsequently, 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 its size standards and to make
appropriate adjustments to reflect market conditions (Sec.1344, Pub. L.
111-240, 124 Stat 2545). 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 (September
27, 2010). In addition, the Jobs Act requires that SBA review all size
standards not less than once every five years thereafter. Reviewing
existing size standards periodically and making appropriate adjustments
based on the latest available data are also consistent with Executive
Order 13563, which calls for periodic retrospective analyses of
existing rules.
Rather than review all size standards at one time, SBA is reviewing
them on a sector by sector basis. Most NAICS sectors consist of 25 to
75 industries, except for Manufacturing (NAICS Sector 31-33) which has
more than 350 industries. Once SBA completes its review of size
standards for industries in an NAICS sector, it issues for comments a
proposed rule to revise some or all of the size standards it reviewed
in the rule. The proposed rule provides the public with opportunity to
comment on SBA's proposed size standards revisions. SBA also invites
comments on size standards that the Agency had proposed to keep them at
their current levels, if the public believes they should be revised as
well.
Below is a discussion of the size standard methodology for
establishing employee based size standards that SBA applied to this
proposed rule. It focuses primarily on industry structure but also
includes federal procurement considerations, the impact on SBA's loan
programs, and whether the revised small business size standards (if
adopted as proposed) would exclude dominant firms from being considered
small.
Size Standards Methodology
SBA has developed and refined over time its ``Size Standard
Methodology'' (methodology) for establishing, reviewing and revising,
when necessary, its small business size standards. In conjunction with
the current comprehensive size standards review, SBA has published a
document explaining this methodology in detail on its Web site at
www.sba.gov/size for public review and comment and has included it as a
supporting document in the electronic docket of this proposed rule at
www.regulations.gov. SBA does not apply all features of its methodology
to all industries, however, because not all features are appropriate.
For example, since all industries in NAICS Sector 42 and two industries
in NAICS Sector 44-45 covered by this rule have employee based size
standards, the methodology relating to receipts based size standards
does not apply to this rule.
SBA welcomes comments from the public on various issues concerning
its methodology. These include, but are not limited to, whether there
are better approaches to establishing a size standard; whether there
are additional factors that SBA should consider; whether SBA's approach
to its size standards makes sense in the current economic climate;
whether there are gaps in SBA's methodology because the data it uses
are not sufficiently current or comprehensive, and whether there are
other data, facts, and/or issues that SBA should consider. Comments on
SBA's methodology should be submitted either via (1) the Federal
Rulemaking Portal: www.regulations.gov, using docket number SBA-2009-
0008, and following the instructions for submitting comments; or (2)
Mail/Hand Delivery/Courier to Khem R. Sharma, Ph.D., Chief, Office of
Size Standards, 409 Third Street SW., Mail Code 6530, Washington, DC
20416. As with comments received to proposed rules, SBA will post all
proposed rules on its methodology on www.regulations.gov. As of April
30, 2014, SBA had received 17 comments to its methodology. The comments
are available to the public at www.regulations.gov. SBA continues to
welcome comments on its methodology from interested parties. SBA,
however, will not accept comments submitted by email.
Congress granted SBA's Administrator the discretion to establish
detailed small business size standards in 15 U.S.C. 632(a)(2).
Specifically 3(a)(3) of the Small Business Act states that ``. . . the
[SBA] Administrator shall ensure that the size standard varies from
industry to industry to reflect the differing characteristics of the
various industries and consider other factors deemed to be relevant by
the Administrator.'' 15 U.S.C. 632(a)(3). Accordingly, the economic
structure of an industry is the basis for developing and modifying
small business size standards. SBA identifies the small business
segment of an industry by examining data on the economic
characteristics relating to its industry structure, as described below.
In addition, SBA considers other factors, including current economic
conditions, its mission and program objectives, the Administration's
current policies and priorities, suggestions from industry groups and
Federal agencies, and public comments to proposed rules.
This proposed rule includes information regarding the factors SBA
evaluated and the criteria it used to propose revisions to a number of
size standards in NAICS Sectors 42 and 44-45. The rule also explains
why SBA has proposed to revise some size standards, but not others.
This proposed rule affords the public an opportunity to review and
comment on SBA's proposal to revise certain size standards in NAICS
Sectors 42 and 44-45, as well as the data and methodology the Agency
used to evaluate and propose revisions to size standards in those
sectors. SBA also invites comments on those
[[Page 28633]]
industries for which it proposes to retain their size standards at the
current levels.
Industry Analysis
For the current comprehensive size standards review, SBA has
established three base or anchor size standards as follows: $7.0
million in average annual receipts for industries that have receipts
based size standards, 500 employees for manufacturing and other
industries that have employee based size standards (except for
Wholesale Trade and Retail Trade), and 100 employees for industries in
the Wholesale Trade sector for SBA's financial and all programs other
than federal procurement. SBA generally compares the characteristics of
industries with the base or anchor size standard to other industries to
determine whether they should have a higher or in some cases a lower
size standard than the anchor.
Since currently all industries in Wholesale Trade share the 100-
employee size standard for SBA's financial programs and the 500-
employee size standard for Federal procurement programs under the
nonmanufacturer rule, the `anchor' size standard approach is difficult
to apply. In its ``Size Standards Methodology'' White Paper, SBA
created an implicit anchor group for the Wholesale Trade sector by
grouping the middle half of the Wholesale Trade industries arranged in
increasing order of average firm size. Based on its own review, SBA now
believes that a quintile approach is more appropriate than the anchor
approach in reviewing size standards in Wholesale Trade. In the
quintile approach, to be detailed below, SBA measures and ranks every
industry using the four industry factors, giving equal weight to each
of them. The four industry factors are average firm size, average
assets size as proxy for startup costs and entry barriers, industry
concentration, and distribution of firms by size. Since NAICS codes in
the Wholesale Trade sector do not apply to Federal contracting, the
Federal contracting factor is not considered in reviewing industry
based size standards.
As stated above, since 1986, the size standard for all industries
in the Wholesale Trade sector has been 100 employees for SBA's
financial assistance and for most Federal programs. However, the 100-
employee size standard does not apply to Federal procurement programs.
Rather, for Federal procurement, the size standard for all industries
in Wholesale Trade (NAICS Sector 42) and for all industries in Retail
Trade (NAICS Sector 44-45) is 500 employees under the SBA's
nonmanufacturer rule. SBA's regulations also specify that NAICS codes
for the Wholesale and Retail Trade industries shall not be used to
classify Government acquisition for supplies. See 13 CFR 121.402(b).
Instead, the applicable manufacturing code shall be used to classify
acquisitions for supplies. A Wholesale Trade or Retail Trade business
concern submitting an offer on a supply acquisition is categorized as a
nonmanufacturer and deemed small if it has 500 or fewer employees and
meets the requirements of 13 CFR 121.406(b).
The long-standing anchor size standards have stood the test of time
and gained legitimacy through practice and general public
acceptability. The anchors have been the basis for analyzing the
industrial structure of industries, and for proposing and justifying
revisions to size standards under the current comprehensive size
standards review. However, as stated earlier, the anchor approach is
difficult to implement in reviewing the size standards of industries in
Wholesale Trade (NAICS Sector 42) because all industries in the sector
share the same 100-emplpoyee size standard for SBA's financial programs
and 500-employe size standard for the Federal procurement programs. In
other words, there is no subset of industries within the sector with a
distinct common size standard that in some sense could be considered
the base or the anchor and be used as the basis for evaluating
structure of other industries and revising their size standards. Thus,
in this rule, SBA is using a quintile approach in which industries are
ranked and compared using each industry factor based on where the
factor of that industry falls within the five ranked quintiles (i.e.,
less than the 20th percentile, the 20th to less than the 40th
percentile, the 40th to less than the 60th percentile, the 60th to less
than the 80th percentile, and the 80th or higher percentile) to produce
an implied size standard for each factor for each industry. The implied
size standards for each factor are then averaged to produce a
calculated industry specific size standard. The five implied size
standard levels are 50 employees, 100 employees, 150 employees, 200
employees, and 250 employees. If the value of an industry factor falls
in the first quintile (i.e., less than the 20th percentile), that
factor would support a size standard of 50 employees. If the value
falls in the second quintile (i.e., the 20th to less than the 40th
percentile), it would support 100 employees. Similarly, if the value
falls in the fifth quintile (i.e., the 80th or higher percentile), the
factor would support 250 employees.
SBA evaluates the four industry factors (viz., average firm size,
average assets as proxy for startup costs and entry barriers, industry
competition, and the distribution of firms by size). In addition, SBA
evaluates a fifth factor, namely small business participation in
Federal procurement programs under the current size standards. These
are generally the five most important factors SBA examines when
establishing or revising a size standard for an industry. In addition,
SBA also considers and evaluates small business participation in SBA's
financial programs, as well as other information that it believes is
relevant to a particular industry, such as technological changes,
growth trends, current economic conditions, and other program factors
including present Administration policies and priorities. Below are
brief descriptions of each of the five primary factors that SBA
analyzed for evaluating, and revising where necessary, size standards
for all industries in NAICS Sector 42 and two industries in NAICS
Sector 44-45 that are reviewed in this proposed rule.
1. Average firm size. SBA computes two measures of average firm
size: Simple average and weighted average. For industries with employee
based size standards, the simple average is the total number of
employees in the industry divided by the total number of firms in the
industry. The weighted average firm size is the sum of weighted simple
averages in different employee size classes, where weights are the
shares of total industry employees in their respective size classes.
The simple average weighs all firms equally within an industry
regardless of size. The weighted average overcomes that limitation by
giving more weight to larger firms. The size standards obtained from
simple average and weighted average firm size are averaged to obtain a
single size standard supported by the average firm size.
If an industry's average firm size is significantly higher than
most other industries in the sector, this will support a higher size
standard. Conversely, if the industry's firm size is appreciably lower
than most other industries, a lower size standard will be justified.
2. Startup costs and entry barriers. Startup costs affect a firm's
initial size in an industry and its capacity to grow to a competitive
size. New entrants to an industry must have sufficient capital and
other assets to start and maintain a viable business. If new firms
entering an industry under review have greater or lesser capital
requirements than new
[[Page 28634]]
firms in other industries in the same sector, this can suggest a higher
or lower size standard for the industry. Since startup costs and data
on entry barriers are difficult to obtain, SBA uses average assets as a
proxy to measure the capital requirements for new entrants into an
industry. To calculate average assets, SBA uses a ratio of sales/
receipts to total assets for an industry from the Risk Management
Association's Annual eStatement Studies. SBA then applies this ratio to
the average receipts per firm in the industry to calculate the average
assets per firm in the industry. Calculated average assets per firm
provide an estimate of entry barriers, with the larger the asset level
per firm the greater the difficulty to enter into and be successful in
an industry, warranting a higher size standard.
3. Industry competition. Industry competition is generally measured
by the share of total industry receipts associated with the largest
firms in an industry. While different measures can be used (and
generally produce similar rankings), SBA evaluates the share of
industry receipts of the four largest firms in the industry. This is
referred to as the ``four-firm concentration ratio,'' a commonly used
economic measure of industry concentration. If a higher share is
concentrated among the largest four firms in the reviewed industry,
this can suggest a higher size standard based on this factor. However,
SBA does not consider this factor important to its assessment if the
four-firm concentration ratio for the industry under review is less
than 40 percent. If an industry's four-firm concentration ratio is 40
percent or more, SBA then examines the average size (i.e., average
number of employees for employee based size standards and average
receipts for receipts based size standards) of the four largest firms
for that industry and compares this figure with other industries.
4. Distribution of firms by size. SBA examines the share of
industry receipts generated by firms of different employment size
categories in an industry with an employee based size standard and
receipts size categories for a receipts based size standard. This is
another component of industry competition within an industry, and it
complements the four-firm concentration ratio, which also measures
industry competition. If most of an industry's economic activity is
attributable to smaller firms, this generally indicates that small
businesses are competitive in the industry. This is generally
interpreted as supporting a relatively low size standard. Conversely,
if most of an industry's economic activity is generated by larger
firms, this indicates that small businesses are not particularly
competitive in that industry and can support a relatively high size
standard.
Concentration is a measure of inequality of distribution of
economic activity. To determine the degree of inequality of
distribution in an industry, SBA computes the Gini coefficient. For
this, SBA first constructs the Lorenz curve for each industry using
available data. The Lorenz curve portrays the cumulative percentages of
firms along the horizontal axis, and the cumulative percentage of
receipts along the vertical axis. (For further detail, see SBA's ``Size
Standards Methodology'' on its Web site at www.sba.gov/size.) The Gini
coefficient values vary from zero to one. If an industry's total
receipts are attributed to a single firm, the Gini coefficient would
equal one. Conversely, if every firm received the exact same amount of
revenues the Gini coefficient would approach zero.
In this rule, SBA compares the Gini coefficient value for an
industry with that for other industries in NAICS Sector 42, Wholesale
Trade. If the Gini coefficient value for an industry is higher than
most industries in the sector, this suggests a relatively high size
standard. Conversely, if an industry's Gini coefficient is lower than
most industries, a relatively low size standard would be justified.
5. Impact on Federal contracting and SBA loan programs. SBA
examines the impact a size standard change may have on Federal small
business assistance. This examination most often focuses on the share
of Federal contracting dollars awarded to small businesses in the
industry under the current size standard. Differences between small
business shares of Federal contracting dollars and small business
shares of industry total receipts can support a size standard different
from the current size standard. In general, if the small business share
of Federal contracting dollars is appreciably less than the small
business share of the industry's total receipts, there is justification
for considering a size standard higher than the current size standard.
However, SBA cannot measure differences between small business share of
Federal contracts and corresponding share of industry receipts by
industry for the Wholesale and Retail Trade industries. As described
previously, SBA's small business size regulations state that federal
agencies shall not use Wholesale or Retail Trade NAICS codes to
classify Federal Government's acquisitions for supplies. Instead,
procuring agencies must use the applicable manufacturing NAICS code
that is most closely associated with the purchase. See 13 CFR
121.402(b). A Wholesale Trade or Retail Trade business concern
submitting an offer on a supply acquisition is categorized as a
nonmanufacturer and deemed small if it has 500 or fewer employees, and
meets the other requirements of the nonmanufacturer rule (13 CFR
121.406(b), q.v). This effectively precludes the gathering of Federal
procurement statistics by industry in Wholesale and Retail Trade
sectors. As a result, Federal procurement patterns cannot be used to
evaluate the effect of the size standard on Federal procurements by
NAICS code in these sectors, because the data on Wholesale and Retail
trade nonmanufacturers are not gathered.
Besides the impact of a proposed or revised size standard on small
business Federal contracting, SBA evaluates the impact on SBA's loan
programs. For this, SBA examines the data on volume and number of 7(a)
and 504 loans within an industry and the size of firms obtaining those
loans. This allows SBA to assess whether the existing, proposed, or
revised size standard for a particular industry would restrict the
level of financial assistance to small firms. If existing size
standards are found to have impeded financial assistance to small
businesses, higher size standards may be justified. However, if small
businesses under existing size standards have been receiving
significant amounts of financial assistance through SBA's loan
programs, or if the financial assistance has been provided mainly to
businesses that are much smaller than the existing size standards, SBA
does not consider this factor when determining the size standard.
Sources of Industry and Program Data
SBA's primary source of industry data used in this proposed rule is
a special tabulation of the 2007 Economic Census (see www.census.gov/econ/census07/) as prepared by the U.S. Bureau of the Census (Census
Bureau) for SBA. The 2007 Economic Census data are the latest
available. This special tabulation provides SBA with data on the number
of firms, number of establishments, number of employees, total annual
payroll, and annual receipts of companies by sector (2-digit level),
subsector (3-digit level), industry group (4-digit level), and industry
(6-digit level). These data are arrayed by various classes of firm size
based on the overall numbers of employees (receipts in a separate
tabulation) of the entire enterprise including all establishments
[[Page 28635]]
and affiliated firms regardless of industry. This special tabulation
enables SBA to evaluate industries by average firm size, the four-firm
concentration ratio, and the size distribution of firms by various
receipts and employment size classes. Since wholesale industries use
employee size standards (500 employees for the nonmanufacturer
procurement based size standards, and 100 employees for the loan based
size standards), the data that are arrayed by employee size of firms
are reviewed in this rule to estimate industry structure and the impact
of size standard revisions on the eligibility of firms for SBA's
financial assistance programs.
In some cases, where data were not available at the 6-digit
industry level due to disclosure prohibitions in the Census Bureau's
tabulation, SBA either estimates missing values using available
relevant data or examines data at a higher level of industry
aggregation, such as at the NAICS 2-digit (sector), 3-digit
(subsector), or 4-digit (industry group) level. In some instances,
where the data could not be obtained or estimated, SBA's analysis is
based only on those factors for which data are available or estimates
of missing values are possible.
To calculate average assets (i.e., proxy of startup costs and entry
barriers), SBA used sales to total assets ratios from the Risk
Management Association's Annual eStatement studies
(www.statementstudies.org) from 2009 to 2011 and applied these ratios
to sales data from the 2007 Economic Census.
To assess the impact on financial assistance to small businesses,
SBA examined its internal data on the 7(a) and 504 loan programs for
fiscal years 2010-2012.
Data sources and estimation procedures SBA uses in its size
standards analysis are documented in detail in SBA's ``Size Standards
Methodology'' White Paper, which is available at www.sba.gov/size.
Dominance in Field of Operation
Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a
small business concern as ``one which is independently owned and
operated and which is not dominant in its field of operation.'' SBA
considers as part of its evaluation whether a business concern at or
below a proposed or revised size standard would be considered dominant
within the industry description covered by the proposed size standard.
A key component of this analysis is the market share of firms at the
proposed or revised size standard. SBA also examines distribution of
firms by size to ensure that a contemplated size standard derived from
its size standards analysis excludes the largest firms within an
industry. Market share, size distribution and other factors may
indicate whether a firm can exercise a major controlling influence on a
national basis in which a significant number of business concerns are
engaged. If a contemplated size standard includes dominant or largest
firms in an industry, SBA will consider a lower size standard than the
one suggested by the analytical results to exclude the dominant and
largest firms from being defined as small.
Selection of Size Standards
Presently all industries in the Wholesale Trade sector have a
common 100-employee size standard for SBA's loan programs. However, in
this proposed rule, SBA proposes to vary size standards in that sector
based on industry structure as required by the Small Business Act. For
this, individual industries were ranked and placed within one of the
five quintile groups for each industry factor, and one of the five size
standard levels were assigned to correspond to each of the five
quintile groups. These five levels are: 50 employees, 100 employees,
150 employees, 200 employees, and 250 employees. Besides being bases to
vary size standards to reflect differences among the industries in the
Wholesale Trade sector, these levels also include the current size
standards for NAICS 441110, New Car Dealers (200 employees) and NAICS
454310, Fuel Dealers (50 employees), which are also reviewed in this
proposed rule. The evaluation of the data on SBA's 7(a) and 504 loan
programs, since the adoption of the new alternative size standard,
explained above, shows some wholesalers with 100 to 250 employees
receiving these loans. The proposed levels would enable those firms to
maintain their eligibility for SBA's 7(a) and 504 loan programs should
the Agency decide to lower or discontinue the alternative size
standard.
SBA assigns one of the above five size standard levels for each
industry according to its ranking based on each industry factor. For
example, if an industry's ranking for an industry factor falls within
the first or lowest quintile, SBA will apply 50 employees as the size
standard for that industry for that factor. Likewise, if an industry's
ranking for a factor falls within the fifth or highest quintile, the
250-employee level will be assigned. SBA repeats this procedure for
each industry factor.
Evaluation of Industry Structure
SBA determines differences in industry structure by comparing data
on each of the four industry factors: Average firm size, average assets
size (as proxy of startup costs and entry barriers), industry
competition, and distribution of firms by size.
SBA uses two measures of average firm size: The simple average and
weighted average. Average firm size (whether simple average or weighted
average) is likely to be positively related to minimum efficient firm
size. This refers to the level of output at which firms in an industry
are able to minimize their costs of production and remain competitive.
In general, industries with high minimum efficient size tend to be
dominated by larger firms and thus their average firm size tends to be
large, thereby warranting a relatively higher size standard for those
industries. The size standards derived from the two average firm size
measures are then averaged to obtain a single size standard for average
firm size.
Startup costs reflect the amount of capital requirements new firms
must have to enter an industry and become competitive with existing
firms. Relatively high average assets per firm in an industry would
suggest high startup costs and a relatively high size standard; while
relatively low assets per firm would suggest lower startup costs and a
relatively low size standard. Given the lack of data on actual startup
costs and other measures of entry barriers (such as degree of product
differentiation, advertising expenses, economies of scale, etc.), as
explained elsewhere in the rule, SBA uses average assets size as proxy
for the levels of capital needs for a new firm entering an industry.
The third factor SBA evaluates is industry competition. A common
method of analyzing industry competition is the measurement of the
concentration of market power of the largest firms within the industry.
While numerous measures have been proposed in the literature to measure
industry competition, as explained previously, SBA uses the cumulative
share of total industry receipts of the four largest firms ranked by
order of market share, which is commonly referred to as the four-firm
concentration ratio. However, SBA does not apply this factor to all
industries. SBA only considers this factor to be important when the
four largest firms account for 40 percent or more of an industry's
total receipts. SBA further refines the process by using the average
size of the four largest firms in the industry. SBA uses employees to
calculate the average size of the four largest firms for employee based
size standards and receipts for receipts based size standards. This
produces a measure
[[Page 28636]]
that is influenced both by the relative degree of concentration (the
four-firm concentration ratio) and the absolute size of the four
largest or most dominant firms in the industry. These latter criteria
can result in a lower suggested size standard in an industry with a
higher four-firm concentration ratio than in an industry with a lower
four-firm concentration ratio, simply because the latter industry's
four largest firms are larger in absolute terms than the former
industry's four largest firms.
Finally, as discussed above, SBA computes the Gini coefficient to
measure distribution of firms by size by constructing the Lorenz curve.
The Lorenz curve focuses on the arrangement of firms in order of
increasing size (using receipts size for receipts based size standards
and employee size for employee based size standards) and expresses
inequality in terms of cumulative shares of industry's total receipts
accounted for by various size categories. Cumulative percentages of
units (firms) are on the horizontal axis and cumulative shares of
industry's receipts are on the vertical axis. A diagonal line would
represent perfect equality, which would mean that every firm in the
industry has exactly the same share of industry receipts. The ratio of
deviation from the diagonal serves is a measure of inequality. If an
industry's receipts are perfectly equally distributed among all firms
in the industry, then the Lorenz curve and the line of perfect equality
become one and the Gini coefficient value approaches zero. Conversely,
if an industry's total receipts are attributed to one firm, the Gini
coefficient would equal one. Accordingly, the Gini coefficient values
vary from zero to one, with zero implying perfect equality, and one
perfect inequality. A high Gini coefficient value (closer to one) would
thus suggest a relatively high size standard and a low value (closer to
zero) would justify a relatively low size standard.
Table 1, Values of Industry Factors by Quintile and Supported Size
Standards, portrays the various quintile ranges for each industry
factor and supported size standards that will be applied to the
industries in Wholesale Trade (NAICS Sector 42).
Table 1--Values of Industry Factors by Quintile and Supported Size Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
Supported
Simple average Weighted average Average assets Avg. number size
Quintile Percentile (%) firm size firm size size ($ employees of Gini coefficient standard
(number of (number of million) largest four (number of
employees) employees) firms * employees)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1st quintile................ <20%............. <13.5............ <78.0............ <2.8............ <700.0.......... <0.680.......... 50
2nd quintile................ 20% to <40%...... 13.5 to <17.0.... 78.0 to <141.0... 2.8 to <4.5..... 700.0 to 0.680 to <0.731. 100
<1,096.3.
3rd quintile................ 40% to <60%...... 17.0 to <20.8.... 141.0 to <202.8.. 4.5 to <.5...... 1,096.3 to 0.731 to <0.786. 150
<1,648.8.
4th quintile................ 60% to <80%...... 20.8 to <26.0.... 202.8 to <448.9.. 6.5 to <8.8..... 1,648.8 to 0.786 to <0.844. 200
<4,034.3.
5th quintile................ >=80%............ >=26.0........... >=448.9.......... >=8.8........... >=4,034.3....... >=0.844......... 250
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Used only if four-firm concentration ratio is 40 percent or more.
New Size Standards for SBA's Financial Programs
For each industry factor shown in Table 1, Values of Industry
Factors by Quintile and Supported Size Standards, SBA derives a size
standard for each industry based on where the industry falls in the
quintile rankings based on that factor. For example, if an industry's
simple average firm size is 15 employees, the industry would fall
within the second quintile and support a size standard of 100
employees. Similarly, if an industry's four-firm ratio is above 40
percent and average size of the largest four firms in that industry is
1,250 employees, the industry would fall in the third quintile group
with a supported size standard of 150 employees. This procedure is
applied to each industry for each industry factor.
The results of size standards analysis for the industries in
Wholesale Trade (NAICS Sector 42) are shown in Table 2, Size Standards
Supported by Each Factor for Each Industry (Number of Employees),
below. Columns 2, 3, 4, 6, and 7 show two numbers for each industry.
The upper number is the value of the industry factor shown on the top
of the column, and the lower number is the size standard supported by
that factor, as specified in Table 1, Values of Industry Factors by
Quintile and Supported Size Standards. For the four-firm concentration
ratio, SBA estimates a size standard only for those industries for
which its value is 40 percent or more. If the four-firm concentration
ratio for an industry is less than 40 percent, no size standard is
derived for this factor. If the four-firm concentration ratio is 40
percent or higher, SBA indicates in column 6 the average firm size of
the industry's largest four firms together with the size standard
supported by that factor. Only 11 industries in NAICS Sector 42 had the
four-firm concentration ratio of 40 percent or more and a size standard
was derived for each of them based on the average firm size of the
industry's largest firms. Column 8 shows a calculated new size standard
for each industry. This is the average of the size standards for each
factor, rounded to the nearest level. However, size standards supported
by the simple average and the weighted average firm size were averaged
together to obtain one size standard for average firm size, and
therefore received a single weight. Analytical details involved in the
averaging procedures are further described in SBA's ``Size Standards
Methodology.''
[[Page 28637]]
Table 2--Size Standards Supported by Each Factor for Each Industry (Number of Employees) Upper Value = Calculated Factor, Lower Value = Size Standard
Supported
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple Weighted Four-firm Calculated Current
average average Average average size size
NAICS Code NAICS U.S. industry title firm size firm size assets size Four-firm size Gini standard standard
(number of (number of ($ million) ratio % (number of coefficient (number of (number of
employees) employees) employees) employees) employees)
(1) (2) (3) (4) (5) (6) (7) (8) (9)
--------------------------------------------------------------------------------------------------------------------------------------------------------
423110 Automobile and Other Motor Vehicle 21 160 $27.1 53.5 2,115 0.931 ........... ...........
Merchant Wholesalers........................... 200 150 250 200 250 250 100
423120 Motor Vehicle Supplies and New Parts 21 197 $6.5 31.3 ........... 0.860 ........... ...........
Merchant Wholesalers........................... 150 150 200 ........... 250 200 100
423130 Tire and Tube Merchant Wholesalers....... 24 207 $6.6 ........... ........... 0.780 ........... ...........
200 200 200 ........... ........... 150 200 100
423140 Motor Vehicle Parts (Used) Merchant 8 168 $0.6 ........... ........... 0.476 ........... ...........
Wholesalers.................................... 50 150 50 ........... ........... 50 50 100
423210 Furniture Merchant Wholesalers........... 12 67 $2.0 14.3 ........... 0.681 ........... ...........
50 50 50 ........... ........... 100 50 100
423220 Home Furnishing Merchant Wholesalers..... 15 97 $3.4 22.1 ........... 0.710 ........... ...........
100 100 100 ........... ........... 100 100 100
423310 Lumber, Plywood, Millwork, and Wood Panel 24 261 $5.2 15.5 ........... 0.730 ........... ...........
Merchant Wholesalers........................... 200 200 150 ........... ........... 100 150 100
423320 Brick, Stone, and Related Construction 15 78 $5.1 24.4 ........... 0.775 ........... ...........
Material Merchant Wholesalers.................. 100 100 150 ........... ........... 150 150 100
423330 Roofing, Siding, and Insulation Material 32 212 $7.9 30.0 ........... 0.781 ........... ...........
Merchant Wholesalers........................... 250 200 200 ........... ........... 150 200 100
423390 Other Construction Material Merchant 18 132 $3.2 28.3 ........... 0.728 ........... ...........
Wholesalers.................................... 150 100 100 ........... ........... 100 100 100
423410 Photographic Equipment and Supplies 21 251 $7.4 53.2 1,374 0.844 ........... ...........
Merchant Wholesalers........................... 200 200 200 ........... 150 250 200 100
423420 Office Equipment Merchant Wholesalers.... 49 2,705 $4.4 45.4 15,798 0.870 ........... ...........
250 250 100 ........... 250 250 200 100
423430 Computer and Computer Peripheral 36 1,249 $8.8 31.5 ........... 0.891 ........... ...........
Equipment and Software Merchant Wholesalers.... 250 250 250 ........... ........... 250 250 100
423440 Other Commercial Equipment Merchant 13 89 $1.8 10.6 ........... 0.638 ........... ...........
Wholesalers.................................... 50 100 50 ........... ........... 50 50 100
423450 Medical, Dental, and Hospital Equipment 25 645 $6.5 24.3 ........... 0.889 ........... ...........
and Supplies Merchant Wholesalers.............. 200 250 150 ........... ........... 250 200 100
423460 Ophthalmic Goods Merchant Wholesalers.... 24 449 $3.4 23.6 ........... 0.739 ........... ...........
200 250 100 ........... ........... 150 150 100
423490 Other Professional Equipment and Supplies 16 203 $3.4 43.6 1,553 0.787 ........... ...........
Merchant Wholesalers........................... 100 200 100 ........... 150 200 150 100
423510 Metal Service Centers and Other Metal 20 128 $10.1 14.3 ........... 0.749 ........... ...........
Merchant Wholesalers........................... 150 100 250 ........... ........... 150 200 100
423520 Coal and Other Mineral and Ore Merchant 11 38 $14.5 30.8 ........... 0.582 ........... ...........
Wholesalers.................................... 50 50 250 ........... ........... 50 100 100
423610 Electrical Apparatus and Equipment, 22 455 $5.1 17.6 ........... 0.811 ........... ...........
Wiring Supplies, and Related Equipment Merchant 200 250 150 ........... ........... 200 200 100
Wholesalers....................................
423620 Household Appliances, Electric 22 333 $7.8 36.8 ........... 0.813 ........... ...........
Housewares, and Consumer Electronics Merchant 200 200 200 ........... ........... 200 200 100
Wholesalers....................................
423690 Other Electronic Parts and Equipment 26 469 $8.0 20.5 ........... 0.860 ........... ...........
Merchant Wholesalers........................... 250 250 200 ........... ........... 250 250 100
423710 Hardware Merchant Wholesalers............ 17 160 $3.4 20.1 ........... 0.747 ........... ...........
150 150 100 ........... ........... 150 150 100
423720 Plumbing and Heating Equipment and 22 333 $7.8 36.8 ........... 0.813 ........... ...........
Supplies (Hydronics) Merchant Wholesalers...... 200 200 200 ........... ........... 200 200 100
423730 Warm Air Heating and Air-Conditioning 25 201 $5.0 29.7 ........... 0.776 ........... ...........
Equipment and Supplies Merchant Wholesalers.... 200 150 150 ........... ........... 150 150 100
423740 Refrigeration Equipment and Supplies 17 184 $2.8 27.1 ........... 0.657 ........... ...........
Merchant Wholesalers........................... 150 150 100 ........... ........... 50 100 100
423810 Construction and Mining (except Oil Well) 34 250 $15.2 24.1 ........... 0.817 ........... ...........
Machinery and Equipment Merchant Wholesalers... 250 200 250 ........... ........... 200 250 100
423820 Farm and Garden Machinery and Equipment 16 53 $4.1 25.8 ........... 0.680 ........... ...........
Merchant Wholesalers........................... 100 50 100 ........... ........... 100 100 100
423830 Industrial Machinery and Equipment 15 94 $2.8 6.3 ........... 0.682 ........... ...........
Merchant Wholesalers........................... 100 100 100 ........... ........... 100 100 100
423840 Industrial Supplies Merchant Wholesalers. 16 78 $3.8 22.9 ........... 0.732 ........... ...........
100 100 100 ........... ........... 150 100 100
423850 Service Establishment Equipment and 14 128 $1.6 19.9 ........... 0.686 ........... ...........
Supplies Merchant Wholesalers.................. 100 100 50 ........... ........... 100 100 100
423860 Transportation Equipment and Supplies 17 112 $8.4 33.1 ........... 0.786 ........... ...........
(except Motor Vehicle) Merchant Wholesalers.... 100 100 200 ........... ........... 200 150 100
423910 Sporting and Recreational Goods and 10 66 $2.7 11.2 ........... 0.690 ........... ...........
Supplies Merchant Wholesalers.................. 50 50 50 ........... ........... 100 50 100
423920 Toy and Hobby Goods and Supplies Merchant 15 148 $4.9 43.9 1,099 0.817 ........... ...........
Wholesalers.................................... 100 150 150 ........... 150 200 150 100
[[Page 28638]]
423930 Recyclable Material Merchant Wholesalers. 17 104 $3.8 16.1 ........... 0.694 ........... ...........
100 100 100 ........... ........... 100 100 100
423940 Jewelry, Watch, Precious Stone, and 7 75 $2.7 14.9 ........... 0.472 ........... ...........
Precious Metal Merchant Wholesalers............ 50 50 50 ........... ........... 50 50 100
423990 Other Miscellaneous Durable Goods 10 108 $2.0 22.1 ........... 0.729 ........... ...........
Merchant Wholesalers........................... 50 100 50 ........... ........... 100 100 100
424110 Printing and Writing Paper Merchant 25 254 $11.1 41.9 1,567 0.866 ........... ...........
Wholesalers.................................... 200 200 250 ........... 150 250 200 100
424120 Stationery and Office Supplies Merchant 19 593 $2.6 30.4 ........... 0.838 ........... ...........
Wholesalers.................................... 150 250 50 ........... ........... 200 150 100
424130 Industrial and Personal Service Paper 17 103 $4.5 32.7 ........... 0.811 ........... ...........
Merchant Wholesalers........................... 150 100 150 ........... ........... 200 150 100
424210 Drugs and Druggists' Sundries Merchant 41 899 $31.0 43.9 4,655 0.950 ........... ...........
Wholesalers.................................... 250 250 250 ........... 250 250 250 100
424310 Piece Goods, Notions, and Other Dry Goods 10 51 $2.3 11.5 ........... 0.621 ........... ...........
Merchant Wholesalers........................... 50 50 50 ........... ........... 50 50 100
424320 Men's and Boys' Clothing and Furnishings 17 177 $4.6 20.0 ........... 0.762 ........... ...........
Merchant Wholesalers........................... 150 150 150 ........... ........... 150 150 100
424330 Women's, Children's, and Infants' 14 161 $3.1 13.4 ........... 0.711 ........... ...........
Clothing and Accessories Merchant Wholesalers.. 100 150 100 ........... ........... 100 100 100
424340 Footwear Merchant Wholesalers............ 20 293 $8.0 34.5 ........... 0.833 ........... ...........
150 200 200 ........... ........... 200 200 100
424410 General Line Grocery Merchant Wholesalers 58 1,678 $11.4 39.5 ........... 0.919 ........... ...........
250 250 250 ........... ........... 250 250 100
424420 Packaged Frozen Food Merchant Wholesalers 28 301 $6.8 22.3 ........... 0.723 ........... ...........
250 200 200 ........... ........... 100 200 100
424430 Dairy Product (except Dried or Canned) 28 419 $6.7 ........... ........... 0.813 ........... ...........
Merchant Wholesalers........................... 250 200 200 ........... ........... 200 200 100
424440 Poultry and Poultry Product Merchant 26 105 $4.8 ........... ........... 0.719 ........... ...........
Wholesalers.................................... 200 100 150 ........... ........... 100 150 100
424450 Confectionery Merchant Wholesalers....... 31 1,584 $5.9 ........... ........... 0.870 ........... ...........
250 250 150 ........... ........... 250 200 100
424460 Fish and Seafood Merchant Wholesalers.... 11 54 $1.6 9.7 ........... 0.462 ........... ...........
50 50 50 ........... ........... 50 50 100
424470 Meat and Meat Product Merchant 19 143 $3.1 20.3 ........... 0.731 ........... ...........
Wholesalers.................................... 150 150 100 ........... ........... 150 150 100
424480 Fresh Fruit and Vegetable Merchant 23 166 $2.5 8.8 ........... 0.607 ........... ...........
Wholesalers.................................... 200 150 50 ........... ........... 50 100 100
424490 Other Grocery and Related Products 29 1,019 $6.9 21.6 ........... 0.873 ........... ...........
Merchant Wholesalers........................... 250 250 200 ........... ........... 250 250 100
424510 Grain and Field Bean Merchant Wholesalers 19 129 $16.4 27.3 ........... 0.766 ........... ...........
150 100 250 ........... ........... 150 200 100
424520 Livestock Merchant Wholesalers........... 8 27 $1.6 24.4 ........... 0.258 ........... ...........
50 50 50 ........... ........... 50 50 100
424590 Other Farm Product Raw Material Merchant 9 46 $6.0 29.2 ........... 0.627 ........... ...........
Wholesalers.................................... 50 50 150 ........... ........... 50 100 100
424610 Plastics Materials and Basic Forms and 14 50 $5.5 33.8 ........... 0.735 ........... ...........
Shapes Merchant Wholesalers.................... 100 50 150 ........... ........... 150 150 100
424690 Other Chemical and Allied Products 18 192 $6.9 14.5 ........... 0.783 ........... ...........
Merchant Wholesalers........................... 150 150 200 ........... ........... 150 150 100
424710 Petroleum Bulk Stations and Terminals.... 23 70 $20.8 31.9 ........... 0.811 ........... ...........
200 50 250 ........... ........... 200 200 100
424720 Petroleum and Petroleum Products Merchant 14 62 $17.0 30.4 ........... 0.787 ........... ...........
Wholesalers (except Bulk Stations and 100 50 250 ........... ........... 200 200 100
Terminals).....................................
424810 Beer and Ale Merchant Wholesalers........ 61 273 $10.0 14.0 ........... 0.704 ........... ...........
250 200 250 ........... ........... 100 200 100
424820 Wine and Distilled Alcoholic Beverage 45 1,569 $13.3 28.1 ........... 0.852 ........... ...........
Merchant Wholesalers........................... 250 250 250 ........... ........... 250 250 100
424910 Farm Supplies Merchant Wholesalers....... 18 234 $7.2 19.3 ........... 0.779 ........... ...........
150 200 200 ........... ........... 150 200 100
424920 Book, Periodical, and Newspaper Merchant 31 556 $5.8 33.8 ........... 0.886 ........... ...........
Wholesalers.................................... 250 250 150 ........... ........... 250 200 100
424930 Flower, Nursery Stock, and Florists' 16 141 $1.2 7.5 ........... 0.589 ........... ...........
Supplies Merchant Wholesalers.................. 100 150 50 ........... ........... 50 100 100
424940 Tobacco and Tobacco Product Merchant 48 1,063 $10.2 53.0 4,554 0.870 ........... ...........
Wholesalers.................................... 250 250 250 ........... 250 250 250 100
424950 Paint, Varnish, and Supplies Merchant 17 152 $4.6 42.3 943 0.818 ........... ...........
Wholesalers.................................... 150 150 150 ........... 100 200 150 100
424990 Other Miscellaneous Nondurable Goods 7 42 $1.1 11.0 ........... 0.585 ........... ...........
Merchant Wholesalers........................... 50 50 50 ........... ........... 50 50 100
425110 Business to Business Electronic Markets.. 7 40 $9.3 63.7 77 0.417 ........... ...........
50 50 250 ........... 50 50 100 100
[[Page 28639]]
425120 Wholesale Trade Agents and Brokers....... 7 471 $4.2 22.8 ........... 0.563 ........... ...........
50 250 100 ........... ........... 50 100 100
441110 New Car Dealers.......................... 53 444 $9.4 6.0 ........... 0.594 ........... ...........
250 200 250 ........... ........... 50 200 200
454310 Fuel Dealers............................. 15 219 $1.6 16.4 ........... 0.605 ........... ...........
100 200 50 ........... ........... 50 100 50
--------------------------------------------------------------------------------------------------------------------------------------------------------
Size Standards for NAICS 441110, New Car Dealers and NAICS 454310, Fuel
Dealers
As stated above, this proposed rule also covers NAICS 441110 (New
Car Dealers) and NAICS 454310 (Fuel Dealers) that currently have
employee based size standards in NAICS Sector 44-45 (Retail Trade). The
size standards for these industries are, respectively, 200 employees
and 50 employees for SBA's financial assistance and other federal
nonprocurement programs. However, as explained elsewhere in this
proposed rule, for Federal Government procurement of supplies or
products, the applicable size standards for all industries in Retail
Trade and Wholesale Trade is 500 employees under the nonmanufacturer
rule and NAICS codes within these sectors do not apply to such
procurements.
Because there are only two industries with employee based size
standards in Retail Trade (Sector 44-45), it is not possible to rank
and compare their characteristics with other industries in the sector,
as done for Wholesale Trade (Sector 42). It is also not possible to
determine whether they warrant a higher or lower employee based size
standard relative to other industries, because the rest of the
industries in the sector have receipts based size standards. The 200-
employee size standard for NAICS 441110 and 50-employee size standard
for NAICS 454310 are used for SBA's loan and other Federal
nonprocurement programs as the 100-employee size standard for all
industries in Wholesale Trade. SBA, therefore, derived the new size
standards for these two Retail Trade industries by applying the same
methodology that it applied for the Wholesale Trade industries. In
other words, the two industries in Retail Trade were ranked with all
industries in Wholesale Trade based on each industry factor. The
results for each industry factor and supported size standards for NAICS
codes 441110 and 454310 are also shown in the last two rows of Table 2,
Size Standards Supported by Each Factor for Each Industry (Number of
Employees), above. The results support the current 200-employee size
standard for NAICS 441110 and a higher 100-employee size standard for
NAICS 454310.
Size Standard for Federal Procurement
The previous sections presented SBA's analyses of size standards
for all industries in Wholesale Trade and two industries in Retail
Trade for firms seeking SBA's financial assistance. SBA proposed
replacing the common 100-employee size standard currently in place for
financial programs for all industries in Wholesale Trade (NAICS Sector
42) with separate size standards based on characteristics of individual
industries within the sector. For purposes of Federal procurement
programs, however, SBA proposes to retain the single size standard for
nonmanufacturers instead of breaking the sector into separate, industry
specific size standards. SBA's regulation requires that a Wholesale
Trade or Retail Trade business concern submitting an offer or quote on
a supply acquisition as a nonmanufacturer is deemed small if it, along
with its affiliates, has 500 or fewer employees. Under the regulation,
NAICS codes in Wholesale Trade and Retail Trade sectors cannot be used
for classifying Federal Government acquisitions for supplies or
products. Instead, the applicable manufacturing NAICS code associated
with manufacturing, production, or processing of the product being
procured shall be used.
SBA believes that a single size standard is more appropriate than
separate size standards to determine eligibility of Wholesale or Retail
Trade firms that compete for a small business supply acquisition as
nonmanufacturers, regardless of which Wholesale or Retail Trade NAICS
codes they belong to. Moreover, the current 500-employee single size
standard under the nonmanufacturer rule has gained general public
acceptability and seems to be working well in practice. Firms in
Wholesale Trade and Retail Trade industries generally carry multiple
items from different industries as inventory, and therefore identify
themselves with multiple NAICS codes. Different size standards for
individual industries in Wholesale Trade and Retail Trade under the
nonmanufacturer rule would further complicate the contracting decision
process, which already entails the decision to establish an applicable
manufacturing industry, along with its size standard, associated with
manufacturing, production, or processing of the product being procured.
While SBA supports a single size standard for Wholesale and Retail
Trade firms bidding for Federal procurements of supplies or products as
nonmanufacturers, in this proposed rule, the Agency still examined
whether the current 500-employee size standard is appropriate. For
this, SBA compared the average industry factors (i.e., average firm
size, average assets, industry concentration, and distribution of firms
by size) of all Wholesale and Retail Trade industries combined with
those of the manufacturing industries in the 500-employee size standard
group by applying the Agency's ``Size Standards Methodology'' for
employee based size standards. SBA believes this makes sense because
Wholesale and Retail Trade firms have to compete with manufacturers for
supply or product contracts set aside for small businesses. Moreover,
the 500-employee size standard that currently applies to
nonmanufacturers is also the anchor and most common size standard for
the manufacturing industries. The results supported the current 500-
employee size standard under the nonmanufacturer rule.
[[Page 28640]]
Proposed Changes to Size Standards
The results from Table 2, Size Standards Supported by Each Factor
for Each Industry (Number of Employees), are summarized in Table 3,
Summary of Size Standards Analysis, below. The summary pertains to the
size standards that apply for SBA's financial assistance programs. Of
the 71 industries in Wholesale Trade, the results might support
increases in size standards for 47 industries, decreases for nine
industries, and no changes for 16 industries. Of the two Retail Trade
industries that SBA reviewed in this proposed rule, the results support
an increase in size standard for one and no change in other.
Table 3--Summary of Size Standards Analysis
------------------------------------------------------------------------
Calculated Current size
NAICS U.S. size standard standard
NAICS Code industry title (number of (number of
employees) employees)
------------------------------------------------------------------------
423110................ Automobile and 250 100
Other Motor
Vehicle
Merchant
Wholesalers.
423120................ Motor Vehicle 200 100
Supplies and
New Parts
Merchant
Wholesalers.
423130................ Tire and Tube 200 100
Merchant
Wholesalers.
423140................ Motor Vehicle 50 100
Parts (Used)
Merchant
Wholesalers.
423210................ Furniture 50 100
Merchant
Wholesalers.
423220................ Home Furnishing 100 100
Merchant
Wholesalers.
423310................ Lumber, Plywood, 150 100
Millwork, and
Wood Panel
Merchant
Wholesalers.
423320................ Brick, Stone, 150 100
and Related
Construction
Material
Merchant
Wholesalers.
423330................ Roofing, Siding, 200 100
and Insulation
Material
Merchant
Wholesalers.
423390................ Other 100 100
Construction
Material
Merchant
Wholesalers.
423410................ Photographic 200 100
Equipment and
Supplies
Merchant
Wholesalers.
423420................ Office Equipment 200 100
Merchant
Wholesalers.
423430................ Computer and 250 100
Computer
Peripheral
Equipment and
Software
Merchant
Wholesalers.
423440................ Other Commercial 50 100
Equipment
Merchant
Wholesalers.
423450................ Medical, Dental, 200 100
and Hospital
Equipment and
Supplies
Merchant
Wholesalers.
423460................ Ophthalmic Goods 150 100
Merchant
Wholesalers.
423490................ Other 150 100
Professional
Equipment and
Supplies
Merchant
Wholesalers.
423510................ Metal Service 200 100
Centers and
Other Metal
Merchant
Wholesalers.
423520................ Coal and Other 100 100
Mineral and Ore
Merchant
Wholesalers.
423610................ Electrical 200 100
Apparatus and
Equipment,
Wiring
Supplies, and
Related
Equipment
Merchant
Wholesalers.
423620................ Household 200 100
Appliances,
Electric
Housewares, and
Consumer
Electronics
Merchant
Wholesalers.
423690................ Other Electronic 250 100
Parts and
Equipment
Merchant
Wholesalers.
423710................ Hardware 150 100
Merchant
Wholesalers.
423720................ Plumbing and 200 100
Heating
Equipment and
Supplies
(Hydronics)
Merchant
Wholesalers.
423730................ Warm Air Heating 150 100
and Air-
Conditioning
Equipment and
Supplies
Merchant
Wholesalers.
423740................ Refrigeration 100 100
Equipment and
Supplies
Merchant
Wholesalers.
423810................ Construction and 250 100
Mining (except
Oil Well)
Machinery and
Equipment
Merchant
Wholesalers.
423820................ Farm and Garden 100 100
Machinery and
Equipment
Merchant
Wholesalers.
423830................ Industrial 100 100
Machinery and
Equipment
Merchant
Wholesalers.
423840................ Industrial 100 100
Supplies
Merchant
Wholesalers.
423850................ Service 100 100
Establishment
Equipment and
Supplies
Merchant
Wholesalers.
423860................ Transportation 150 100
Equipment and
Supplies
(except Motor
Vehicle)
Merchant
Wholesalers.
423910................ Sporting and 50 100
Recreational
Goods and
Supplies
Merchant
Wholesalers.
423920................ Toy and Hobby 150 100
Goods and
Supplies
Merchant
Wholesalers.
423930................ Recyclable 100 100
Material
Merchant
Wholesalers.
423940................ Jewelry, Watch, 50 100
Precious Stone,
and Precious
Metal Merchant
Wholesalers.
423990................ Other 100 100
Miscellaneous
Durable Goods
Merchant
Wholesalers.
424110................ Printing and 200 100
Writing Paper
Merchant
Wholesalers.
424120................ Stationery and 150 100
Office Supplies
Merchant
Wholesalers.
424130................ Industrial and 150 100
Personal
Service Paper
Merchant
Wholesalers.
424210................ Drugs and 250 100
Druggists'
Sundries
Merchant
Wholesalers.
424310................ Piece Goods, 50 100
Notions, and
Other Dry Goods
Merchant
Wholesalers.
424320................ Men's and Boys' 150 100
Clothing and
Furnishings
Merchant
Wholesalers.
424330................ Women's, 100 100
Children's, and
Infants'
Clothing and
Accessories
Merchant
Wholesalers.
424340................ Footwear 200 100
Merchant
Wholesalers.
424410................ General Line 250 100
Grocery
Merchant
Wholesalers.
424420................ Packaged Frozen 200 100
Food Merchant
Wholesalers.
424430................ Dairy Product 200 100
(except Dried
or Canned)
Merchant
Wholesalers.
424440................ Poultry and 150 100
Poultry Product
Merchant
Wholesalers.
424450................ Confectionery 200 100
Merchant
Wholesalers.
424460................ Fish and Seafood 50 100
Merchant
Wholesalers.
424470................ Meat and Meat 150 100
Product
Merchant
Wholesalers.
424480................ Fresh Fruit and 100 100
Vegetable
Merchant
Wholesalers.
424490................ Other Grocery 250 100
and Related
Products
Merchant
Wholesalers.
424510................ Grain and Field 200 100
Bean Merchant
Wholesalers.
424520................ Livestock 50 100
Merchant
Wholesalers.
424590................ Other Farm 100 100
Product Raw
Material
Merchant
Wholesalers.
424610................ Plastics 150 100
Materials and
Basic Forms and
Shapes Merchant
Wholesalers.
424690................ Other Chemical 150 100
and Allied
Products
Merchant
Wholesalers.
424710................ Petroleum Bulk 200 100
Stations and
Terminals.
[[Page 28641]]
424720................ Petroleum and 200 100
Petroleum
Products
Merchant
Wholesalers
(except Bulk
Stations and
Terminals).
424810................ Beer and Ale 200 100
Merchant
Wholesalers.
424820................ Wine and 250 100
Distilled
Alcoholic
Beverage
Merchant
Wholesalers.
424910................ Farm Supplies 200 100
Merchant
Wholesalers.
424920................ Book, 200 100
Periodical, and
Newspaper
Merchant
Wholesalers.
424930................ Flower, Nursery 100 100
Stock, and
Florists'
Supplies
Merchant
Wholesalers.
424940................ Tobacco and 250 100
Tobacco Product
Merchant
Wholesalers.
424950................ Paint, Varnish, 150 100
and Supplies
Merchant
Wholesalers.
424990................ Other 50 100
Miscellaneous
Nondurable
Goods Merchant
Wholesalers.
425110................ Business to 100 100
Business
Electronic
Markets.
425120................ Wholesale Trade 100 100
Agents and
Brokers.
441110................ New Car Dealers. 200 200
454310................ Fuel Dealers.... 100 50
------------------------------------------------------------------------
Although the results might support lowering size standards for some
industries, as shown in the above table, SBA believes that lowering
small business size standards is not in the best interest of small
businesses in the current economic environment. The U.S. economy was in
recession from December 2007 to June 2009, the longest and deepest of
any recessions since before World War II. The economy lost more than
eight million non-farm jobs during 2008-2009. In response, Congress
passed and the President signed into law the American Recovery and
Reinvestment Act of 2009 (Recovery Act) to promote economic recovery
and to preserve and create jobs. Although the recession officially
ended in June 2009, the unemployment rate is still high at 6.3 percent
in April 2014 (www.bls.gov) and is forecast to remain around this level
at least through the end of 2014 (http://www.federalreserve.gov/monetarypolicy/mpr_20140211_part3.htm).
In 2010, Congress passed and the President signed the Jobs Act to
promote small business job creation. The Jobs Act puts, among many
other measures to help small businesses grow and create jobs, more
capital into the hands of entrepreneurs and small business owners. A
proposal to reduce size standards will have an immediate impact on
jobs, and it would be contrary to the expressed will of the President
and the Congress.
Lowering size standards would decrease the number of firms that
participate in SBA's financial assistance programs for small
businesses. It would also affect small businesses that are now exempt
or receive some form of relief from other Federal programs that use
SBA's size standards. That impact could take the form of increased
fees, extra paperwork, or other compliance requirements for small
businesses. Furthermore, size standards based solely on analytical
results without any other considerations can cut off currently eligible
small firms from those programs and benefits. In the nine industries
for which analytical results might have supported lowering their size
standards, about 875 businesses would lose their small business
eligibility for SBA's financial assistance if their size standards were
lowered. That would run counter to what SBA and the Federal government
are doing to help small businesses and create jobs. Reducing size
eligibility for Federal small business assistance, especially under
current economic conditions, would not preserve or create more jobs;
rather, it would have the opposite effect. Therefore, in this proposed
rule, SBA does not intend to reduce size standards for any industries.
Accordingly, for industries where analyses might seem to support
lowering size standards, SBA proposes to retain the current size
standards.
Furthermore, as stated previously, the Small Business Act requires
the SBA's Administrator to ``. . . consider other factors deemed to be
relevant . . .'' to establishing small business size standards. The
current economic conditions and the impact on job creation are quite
relevant factors when establishing small business size standards. SBA,
nevertheless, invites comments and suggestions on whether it should
lower size standards as suggested by analyses of industry and program
data or retain the current standards for those industries in view of
current economic conditions.
As discussed above, lowering small business size standards will be
inconsistent with what the Federal government is doing to stimulate the
economy and would discourage job growth for which Congress established
the Recovery Act and Jobs Act. In addition, it would be inconsistent
with the Small Business Act requiring the Administrator to establish
size standards based on industry analysis and other relevant factors
such as current economic conditions. Thus, of the 73 industries (71 in
Sector 42 and two in Sector 44-45) reviewed in this rule, SBA proposes
to increase size standards for 47 industries and retain the current
size standards for 26 industries, including nine for which the results
might support lowering their size standards. The proposed size
standards are in Table 4, Summary of Proposed Size Standards Revisions,
below.
[[Page 28642]]
Table 4--Summary of Proposed Size Standards Revisions
------------------------------------------------------------------------
Proposed size Current size
NAICS U.S. standard standard
NAICS Code industry title (number of (number of
employees) employees)
------------------------------------------------------------------------
423110................ Automobile and 250 100
Other Motor
Vehicle
Merchant
Wholesalers.
423120................ Motor Vehicle 200 100
Supplies and
New Parts
Merchant
Wholesalers.
423130................ Tire and Tube 200 100
Merchant
Wholesalers.
423310................ Lumber, Plywood, 150 100
Millwork, and
Wood Panel
Merchant
Wholesalers.
423320................ Brick, Stone, 150 100
and Related
Construction
Material
Merchant
Wholesalers.
423330................ Roofing, Siding, 200 100
and Insulation
Material
Merchant
Wholesalers.
423410................ Photographic 200 100
Equipment and
Supplies
Merchant
Wholesalers.
423420................ Office Equipment 200 100
Merchant
Wholesalers.
423430................ Computer and 250 100
Computer
Peripheral
Equipment and
Software
Merchant
Wholesalers.
423450................ Medical, Dental, 200 100
and Hospital
Equipment and
Supplies
Merchant
Wholesalers.
423460................ Ophthalmic Goods 150 100
Merchant
Wholesalers.
423490................ Other 150 100
Professional
Equipment and
Supplies
Merchant
Wholesalers.
423510................ Metal Service 200 100
Centers and
Other Metal
Merchant
Wholesalers.
423610................ Electrical 200 100
Apparatus and
Equipment,
Wiring
Supplies, and
Related
Equipment
Merchant
Wholesalers.
423620................ Household 200 100
Appliances,
Electric
Housewares, and
Consumer
Electronics
Merchant
Wholesalers.
423690................ Other Electronic 250 100
Parts and
Equipment
Merchant
Wholesalers.
423710................ Hardware 150 100
Merchant
Wholesalers.
423720................ Plumbing and 200 100
Heating
Equipment and
Supplies
(Hydronics)
Merchant
Wholesalers.
423730................ Warm Air Heating 150 100
and Air-
Conditioning
Equipment and
Supplies
Merchant
Wholesalers.
423810................ Construction and 250 100
Mining (except
Oil Well)
Machinery and
Equipment
Merchant
Wholesalers.
423860................ Transportation 150 100
Equipment and
Supplies
(except Motor
Vehicle)
Merchant
Wholesalers.
423920................ Toy and Hobby 150 100
Goods and
Supplies
Merchant
Wholesalers.
424110................ Printing and 200 100
Writing Paper
Merchant
Wholesalers.
424120................ Stationery and 150 100
Office Supplies
Merchant
Wholesalers.
424130................ Industrial and 150 100
Personal
Service Paper
Merchant
Wholesalers.
424210................ Drugs and 250 100
Druggists'
Sundries
Merchant
Wholesalers.
424320................ Men's and Boys' 150 100
Clothing and
Furnishings
Merchant
Wholesalers.
424340................ Footwear 200 100
Merchant
Wholesalers.
424410................ General Line 250 100
Grocery
Merchant
Wholesalers.
424420................ Packaged Frozen 200 100
Food Merchant
Wholesalers.
424430................ Dairy Product 200 100
(except Dried
or Canned)
Merchant
Wholesalers.
424440................ Poultry and 150 100
Poultry Product
Merchant
Wholesalers.
424450................ Confectionery 200 100
Merchant
Wholesalers.
424470................ Meat and Meat 150 100
Product
Merchant
Wholesalers.
424490................ Other Grocery 250 100
and Related
Products
Merchant
Wholesalers.
424510................ Grain and Field 200 100
Bean Merchant
Wholesalers.
424610................ Plastics 150 100
Materials and
Basic Forms and
Shapes Merchant
Wholesalers.
424690................ Other Chemical 150 100
and Allied
Products
Merchant
Wholesalers.
424710................ Petroleum Bulk 200 100
Stations and
Terminals.
424720................ Petroleum and 200 100
Petroleum
Products
Merchant
Wholesalers
(except Bulk
Stations and
Terminals).
424810................ Beer and Ale 200 100
Merchant
Wholesalers.
424820................ Wine and 250 100
Distilled
Alcoholic
Beverage
Merchant
Wholesalers.
424910................ Farm Supplies 200 100
Merchant
Wholesalers.
424920................ Book, 200 100
Periodical, and
Newspaper
Merchant
Wholesalers.
424940................ Tobacco and 250 100
Tobacco Product
Merchant
Wholesalers.
424950................ Paint, Varnish, 150 100
and Supplies
Merchant
Wholesalers.
454310................ Fuel Dealers.... 100 50
------------------------------------------------------------------------
Maintaining current size standards when the analytical results
suggested lowering them 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)); NAICS Sector 48 49,
Transportation and Warehousing (77 FR 10943 (February 24, 2012)); NAICS
Sector 51, Information (77 FR 72702 (December 6, 2012)); NAICS Sector
53, Real Estate and Rental and Leasing (77 FR 88747 (September 24,
2012)); NAICS Sector 56, Administrative and Support, Waste Management
and Remediation Services (77 FR 72691 (December 6, 2012)); NAICS Sector
61, Educational Services (77 FR 58739 (September 24, 2012)); and NAICS
Sector 62, Health Care and Social Assistance (77 FR 58755 (September
24, 2012)); NAICS Sector 11, Agriculture, Forestry, Fishing and Hunting
(78 FR 37398 (June 20, 2013)); NAICS Subsector 213, Support Activities
for Mining (78 FR 37404 (June 20, 2013)); NAICS Sector 52, Finance and
Insurance and Sector 55, Management of Companies and Enterprises (78 FR
37409 (June 20, 2013)); NAICS Sector 71, Arts, Entertainment and
Recreation (78 FR 37417 (June 20, 2013)); and NAICS Sector 23,
Construction (78 FR 77334) (December 23, 2013)). In each of those final
rules, SBA retained the existing
[[Page 28643]]
size standards for those that it could have reduced.
SBA also proposes to retain the current 500-employee size standard
under the nonmanufacturer rule.
Evaluation of Dominance in Field of Operation
SBA has determined that for the industries for which it has
proposed to increase size standards in this proposed rule, no
individual firm at or below the proposed size standard will be large
enough to dominate its field of operation. At the proposed size
standards, if adopted, the small business share of total industry
receipts among those industries for which SBA has proposed to increase
their size standards is, on average, 0.5 percent, varying from a
minimum of 0.02 percent to a maximum of 7.8 percent. These market
shares effectively preclude a firm at or below the proposed size
standards from exerting control on any of the industries.
Request for Comments
SBA invites public comments on this proposed rule, especially on
the following issues:
1. SBA proposes to replace the current 100-employee common size
standard for SBA's financial programs for all industries in Wholesale
Trade with five separate industry specific size standards, namely 50
employees, 100 employees, 150 employees, 200 employees, and 250
employees. SBA invites comments on whether replacing the 100-employee
level with these five different levels is necessary and appropriate.
SBA also welcomes suggestions, along with supporting data and analysis,
on different size standards levels if the commenters believe they will
be more appropriate.
2. Of the 73 industries (71 in Sector 42 and 2 in Sector 44-45)
reviewed in this proposed rule, SBA proposes to increase size standards
for 47 and retain the current size standards for remaining 26,
including the nine for which the results might support lowering their
size standards. SBA seeks comments on whether the proposed increases
are appropriate given the industry data. SBA also invites comments on
whether its proposal to retain the current size standards for 26
industries is appropriate, including the nine for which the analytical
results supported lower size standards. SBA welcomes suggestions, along
with supporting data and analysis, on different size standards if they
would be more appropriate.
3. While SBA proposes to replace the current 100-employee size
standard for Wholesale Trade industries with separate industry specific
size standards for its financial programs, the Agency proposes to
retain the current 500-employee size standard for firms in Wholesale
and Retail Trade industries to qualify as nonmanufacturers for the
Federal government procurement of supplies or products. SBA invites
comments on whether it should continue using a common size standard
under its nonmanufacturer rule and on whether the current 500-employee
size standard is appropriate. SBA also welcomes suggestions, with
supporting data, on whether a different size standard would be more
appropriate for the nonmanufacturer rule.
4. For several industries in NAICS Sector 42, based on industry
structure, SBA proposes relatively large increases for some industries,
while for others the proposed increases are modest. SBA seeks feedback
on whether, as a policy, the Agency should limit the increase or
decrease of a size standard, or establish minimum or maximum values for
its size standards. SBA also invites suggestions on alternative levels
of changes to size standards and on their minimum or maximum levels if
commenters think they are more appropriate.
5. SBA's proposed size standards for its financial programs are
based on the evaluation of four industry factors--average firm size,
average assets size (as a proxy of startup costs and entry barriers),
four-firm concentration ratio, and the distribution of firms by size.
SBA welcomes comments on the appropriateness of these factors, and/or
suggestions of other factors that it should consider when evaluating or
revising size standards. SBA also seeks information on alternative data
sources, if the data it used have weaknesses or issues.
6. SBA gives equal weight to each industry factor in all industries
in this rule. These include average firm size (as measured by the
average of the simple average and the weighted average), startup cost
and entry barriers as measured by average asset size per firm in an
industry, industry competition as measured by the four-firm
concentration ratio, and the size distribution of economic activity as
measured by the Gini coefficient of receipts within employee firm size
distributions within an industry. SBA seeks feedback on whether it
should continue giving equal weights to each factor, or whether it
should give more weight to one or more factors for certain industries.
Recommendations to weigh some factors more than others should include
suggested weights for each factor along with supporting information.
7. For analytical simplicity and efficiency, in this proposed rule,
SBA has refined its size standard methodology to obtain a single value
as a proposed size standard instead of a range of values in the past.
SBA welcomes any comments on this procedure and suggestions on
alternative methods.
Public comments on the above issues are very valuable to SBA for
validating its proposed size standards revisions and size standards
methodology that the Agency applied in this proposed rule. Commenters
addressing size standards for specific industries or a group of
industries should include relevant data and/or other information
supporting their comments or suggestions. If comments relate to using
size standards for federal procurement programs, SBA suggests that
commenters provide information on the size of contracts in their
industries, the size of businesses that can undertake the contracts,
startup costs, equipment and other asset requirements, the amount of
subcontracting, other direct and indirect costs associated with the
contracts, the use of mandatory sources of supply for products and
services, and the degree to which contractors can mark up those costs.
Compliance With Executive Orders 12866, 13563, 12988 and 13132, the
Paperwork Reduction Act (44 U.S.C. Ch. 35) and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
proposed rule is not a ``significant regulatory action'' for purposes
of Executive Order 12866. In order to help explain the need of this
rule and the rule's potential benefits and costs, SBA is providing a
Cost Benefit Analysis of this proposed rule below. This is also not a
``major rule'' under the Congressional Review Act.
Cost Benefit Analysis
1. Is there a need for the regulatory action?
SBA believes that proposed revisions to employee based size
standards in Wholesale Trade and Retail Trade sectors will better
reflect the economic characteristics of small businesses in those
sectors and maximize benefits small businesses receive from Federal
programs. SBA's mission is to aid and assist small businesses through a
variety of financial, procurement, business development, and advocacy
programs. To determine the intended beneficiaries of these programs,
SBA establishes
[[Page 28644]]
distinct definitions of which businesses are deemed small businesses.
The Small Business Act (15 U.S.C. 632(a)) delegates to SBA's
Administrator the responsibility for establishing small business
definitions. The Act also requires that small business definitions vary
to reflect industry differences. The Small Business Jobs Act of 2010
also requires SBA to review all size standards and make necessary
adjustments to reflect market conditions. The supplementary information
section of this proposed rule explains SBA's methodology for analyzing
the size standards of industries covered by this rule.
2. What are the potential benefits and costs of this regulatory action?
The most significant benefit to businesses obtaining small business
status because of proposed increases in employee based size standards
in this proposed rule, if adopted, is gaining eligibility for SBA's
financial assistance programs. These include SBA's 7(a), CDC/504, and
Economic Injury Disaster Loan (EIDL) programs. The following groups
would benefit from the proposed size standards revisions in this rule,
if adopted as proposed: (1) Some businesses that are above the current
size standards would gain small business status under the higher size
standards, thereby enabling them to participate in SBA's financial
assistance programs; and (2) growing small businesses that are close to
exceeding the current size standards would be able to retain their
small business status under the higher size standards, thereby enabling
them to continue their participation in those programs.
SBA estimates that in 47 industries for which it proposes to
increase employee based size standards in Sectors 42 and 44-45, nearly
4,000 firms, not small under the existing size standards, will become
small under the proposed size standards, if adopted, and therefore will
become eligible for SBA's financial assistance programs. That is an
increase of 1.1 percent of all firms classified as small under the
current employee based size standards in those sectors. For the
industries reviewed in this rule, the data indicate that it is mostly
businesses much smaller than the current size standards that use the
SBA's 7(a) and 504 loan programs. Based on the fiscal years 2010-2012
data, SBA estimates up to about 50 loans totaling about $20 million
could be made under its 7(a) and CDC/504 Programs to these newly
defined small businesses under the proposed size standards. Increasing
the size standards will likely result in more small business guaranteed
loans to businesses in those industries, but it is be impractical to
try to estimate exactly the number and total amount of loans. There are
two reasons for this: (1) Under the Jobs Act, SBA can now guarantee
substantially larger loans than in the past; and (2) as described
above, the Jobs Act established a higher alternative size standard,
explained above, for business concerns that do not meet the size
standards for their industry. Therefore, SBA finds it difficult to
quantify the actual impact of these proposed size standards on its 7(a)
and 504 Loan Programs.
Newly defined small businesses will also benefit from SBA's EIDL
program. Since this program is contingent on the occurrence and
severity of a disaster, SBA cannot make a meaningful estimate of this
impact.
Since NAICS codes in Wholesale Trade and Retail Trade sectors and
their industry specific size standards do not apply to Federal
procurement programs and SBA has proposed no change to the 500-employee
size standard under the nonmanufacturer rule, the proposed changes in
industry specific size standards would have no impact on Federal
procurement dollars. However, SBA's proposal to retain the current 500-
employee size standard under the nonmanufacturer rule will enable firms
in Wholesale and Retail Trade industries to maintain their eligibility
for Federal supply procurements intended for small businesses. Federal
procurement programs provide targeted opportunities for small
businesses under SBA's business development programs, such as 8(a),
Small Disadvantaged Businesses (SDB), small businesses located in
Historically Underutilized Business Zones (HUBZone), women-owned small
businesses (WOSB), and service-disabled veteran-owned small businesses
(SDVOSB).
More businesses will benefit from a variety of Federal regulatory
and other programs that use SBA's size standards. Such benefits may
include, but are not limited to, reduced fees, less paperwork, or
exemption from compliance or other regulatory requirements.
To the extent that those 4,000 newly defined additional small firms
under the proposed employee based size standards become active in
seeking Federal assistance, the proposed changes, if adopted, may
entail some additional administrative costs to the government as a
result of more businesses being eligible for Federal small business
programs. For example, there will be more firms seeking SBA's
guaranteed loans, more firms eligible for enrollment in the System of
Award Management (SAM) database, and more firms seeking certification
as 8(a) or HUBZone firms or qualifying for small business, WOSB,
EDWOSB, SDVOSB, and SDB status. Among those newly defined small
businesses 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. However, SBA believes
that these added administrative costs will be minimal because
mechanisms are already in place to handle these requirements.
The proposed revisions to the existing employee based size
standards in Sectors 42 and 44-45 are consistent with SBA's statutory
mandate to assist those businesses that it considers small. 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 that relate to Executive Order
13563 is included above in the Cost Benefit Analysis under Executive
Order 12866.
In an effort to engage interested parties in this action, SBA has
presented its size standards methodology (discussed above under
Supplementary Information) to various industry associations and trade
groups. SBA also met with a number of industry groups and individual
businesses to get their feedback on its methodology and other size
standards issues. In addition, SBA presented its size standards
methodology to businesses in 13 cities in the U.S. and sought their
input as part of Jobs Act tours. The presentation also included
information on the latest status of the comprehensive size standards
review and on how interested parties can provide SBA with input and
feedback on size standards review.
Additionally, SBA sent letters to the Directors of the Offices of
Small and Disadvantaged Business Utilization (OSDBU) at several federal
agencies with considerable procurement responsibilities requesting
their feedback on how the agencies use SBA's size standards and whether
current size standards meet their programmatic
[[Page 28645]]
needs (both procurement and non-procurement). SBA considered all input,
suggestions, recommendations, and relevant information obtained from
industry groups, individual businesses, and federal agencies in
preparing this proposed rule.
The review of employee based size standards in NAICS Sectors 42 and
44-45 is consistent with E.O. 13563, Sec. 6, calling for retrospective
analyses of existing rules. The last comprehensive review of size
standards occurred during the late 1970s and early 1980s. Since then,
except for periodic adjustments for monetary based size standards, most
reviews of size standards were limited to a few specific industries in
response to requests from the public and federal agencies. SBA
recognizes that changes in industry structure and the Federal
marketplace over time have rendered existing size standards for some
industries no longer supportable by current data. Accordingly, in 2007,
SBA began a comprehensive review of its size standards to ensure that
existing size standards have supportable bases and to revise them when
necessary. In addition, the Jobs Act of 2010 requires SBA to conduct a
detailed review of all size standards and to make appropriate
adjustments to reflect market conditions. Specifically, it 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 than once every
five years thereafter.
Executive Order 12988
This action meets applicable standards set forth in Sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.
Executive Order 13132
For purposes of Executive Order 13132, SBA has determined that this
proposed rule will not have substantial, direct effects on the States,
on the relationship between the national government and the States, or
on the distribution of power and responsibilities among the various
levels of government. Therefore, SBA has determined that this proposed
rule has no federalism implications warranting preparation of a
federalism assessment.
Paperwork Reduction Act
For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA has determined that this proposed rule will not impose any new
reporting or record keeping requirements.
Initial Regulatory Flexibility Analysis
Under the Regulatory Flexibility Act (RFA), this proposed rule, if
adopted, may have a significant impact on a substantial number of small
businesses in Sector 42, Wholesale Trade, and some small businesses in
Sectors 44-45, Retail Trade. As described above, this rule may affect
small businesses seeking loans under SBA's 7(a), 504, and Economic
Injury Disaster Loan Programs, and assistance under other federal small
business programs.
Immediately following, SBA sets forth an initial regulatory
flexibility analysis (IRFA) of this proposed rule addressing the
following questions: (1) What are the need for and objectives of the
rule? (2) What are SBA's description and estimate of the number of
small businesses to which the rule will apply? (3) What are the
projected reporting, record keeping, and other compliance requirements
of the rule? (4) What are the relevant federal rules that may
duplicate, overlap, or conflict with the rule? and (5) What
alternatives will allow the Agency to accomplish its regulatory
objectives while minimizing the impact on small businesses?
1. What are the need for and objective of the rule?
Changes in industry structure, technological changes, productivity
growth, mergers and acquisitions, and updated industry definitions have
changed the structure of many industries in Sectors 42 and 44-45. Such
changes can be sufficient to support revisions to current size
standards for some industries. Based on the analysis of the latest data
available, SBA believes that the revised standards in this proposed
rule more appropriately reflect the size of businesses that need
Federal assistance. The Jobs Act also requires SBA to review all size
standards and make necessary adjustments to reflect market conditions.
2. What are SBA's description and estimate of the number of small
businesses to which the rule will apply?
If the proposed rule is adopted in its present form, nearly 4,000
more firms in Sectors 42 and 44-45 will become small for financial
assistance under the revised employee based size standards. That
represents 1.1 percent of total firms that are small under current
employee based size standards in all industries within those sectors
that are covered by this proposed rule. The proposed size standards, if
adopted, will enable more small businesses to retain their small
business status for a longer period. Additionally, many firms that may
have exceeded the current size standards and lost their eligibility for
SBA's financial assistance and other Federal programs for small
businesses will regain eligibility for those programs under the
proposed employee based size standards, if adopted.
3. What are the projected reporting, record keeping and other
compliance requirements of the rule?
The proposed size standard changes impose no additional reporting
or record keeping requirements on small businesses. Qualifying for
SBA's financial does not require that businesses register in the
Systems of Award Management (SAM) database and certify in SAM that they
are small at least once annually. However, some newly qualified small
businesses under the proposed size standards may want to participate in
the federal government procurement and other programs that require
firms to register and certify in SAM. Therefore, those businesses must
comply with SAM requirements. There are no costs associated with either
SAM registration or annual certification. Changing size standards
alters the access to SBA's financial and other Federal programs that
assist small businesses, but does not impose a regulatory burden
because they neither regulate nor control business behavior.
4. What are the relevant federal rules, which may duplicate, overlap,
or conflict with the rule?
Under 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 to do
otherwise. In 1995, SBA published in the Federal Register a list of
statutory and regulatory size standards that identified the application
of SBA's size standards as well as other size standards used by Federal
agencies (60 FR 57988 (November 24, 1995)). SBA is not aware of any
Federal rule that would duplicate or conflict with establishing 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 RFA authorizes a
Federal agency to establish an alternative small business definition,
after consultation with the Office of Advocacy of the U.S. Small
[[Page 28646]]
Business Administration (5 U.S.C. 601(3)).
5. What alternatives will allow the Agency to accomplish its regulatory
objectives while minimizing the impact on small entities?
By law, SBA is required to develop numerical size standards for
establishing eligibility for Federal small business assistance
programs. Other than varying size standards by industry and changing
the size measures, no practical alternative exists to the systems of
numerical size standards.
List of Subjects in 13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Individuals with
disabilities, Loan programs--business, Reporting and recordkeeping
requirements, Small businesses.
For the reasons set forth in the preamble, SBA proposes to amend
part 13 CFR part 121 as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
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, in the table ``Small Business Size Standards by
NAICS Industry'' revise the entries for ``423110'', ``423120'',
``423130'', ``423310'', ``423320'', ``423330'', ``423410'', ``423420'',
``423430'', ``423450'', ``423460'', ``423490'', ``423510'', ``423610'',
``423620'', ``423690'', ``423710'', ``423720'', ``423730'', ``423810'',
``423860'', ``423920'', ``424110'', ``424120'', ``424130'', ``424210'',
``424320'', ``424340'', ``424410'', ``424420'', ``424430'', ``424440'',
``424450'', ``424470'', ``424490'', ``424510'', ``424610'', ``424690'',
``424710'', ``424720'', ``424810'', ``424820'', ``424910'', ``424920'',
``424940'', ``424950'', and ``454310'' to read as follows:
Sec. 121.201 What size standards has SBA identified by North American
Industry Classification Codes?
* * * * *
Small Business Size Standards by NAICS Industry
------------------------------------------------------------------------
Size standards Size standards
NAICS C odes NAICS U.S. industry in millions of in number of
title dollars employees
------------------------------------------------------------------------
* * * * * * *
423110........... Automobile and Other .............. 250
Motor Vehicle
Merchant Wholesalers.
423120........... Motor Vehicle .............. 200
Supplies and New
Parts Merchant
Wholesalers.
423130........... Tire and Tube .............. 200
Merchant Wholesalers.
* * * * * * *
423310........... Lumber, Plywood, .............. 150
Millwork, and Wood
Panel Merchant
Wholesalers.
423320........... Brick, Stone, and .............. 150
Related Construction
Material Merchant
Wholesalers.
423330........... Roofing, Siding, and .............. 200
Insulation Material
Merchant Wholesalers.
* * * * * * *
423410........... Photographic .............. 200
Equipment and
Supplies Merchant
Wholesalers.
423420........... Office Equipment .............. 200
Merchant Wholesalers.
423430........... Computer and Computer .............. 250
Peripheral Equipment
and Software
Merchant Wholesalers.
* * * * * * *
423450........... Medical, Dental, and .............. 200
Hospital Equipment
and Supplies
Merchant Wholesalers.
423460........... Ophthalmic Goods .............. 150
Merchant Wholesalers.
423490........... Other Professional .............. 150
Equipment and
Supplies Merchant
Wholesalers.
423510........... Metal Service Centers .............. 200
and Other Metal
Merchant Wholesalers.
* * * * * * *
423610........... Electrical Apparatus .............. 200
and Equipment,
Wiring Supplies, and
Related Equipment
Merchant Wholesalers.
423620........... Household Appliances, .............. 200
Electric Housewares,
and Consumer
Electronics Merchant
Wholesalers.
423690........... Other Electronic .............. 250
Parts and Equipment
Merchant Wholesalers.
423710........... Hardware Merchant .............. 150
Wholesalers.
423720........... Plumbing and Heating .............. 200
Equipment and
Supplies (Hydronics)
Merchant Wholesalers.
423730........... Warm Air Heating and .............. 150
Air-Conditioning
Equipment and
Supplies Merchant
Wholesalers.
* * * * * * *
423810........... Construction and .............. 250
Mining (except Oil
Well) Machinery and
Equipment Merchant
Wholesalers.
* * * * * * *
423860........... Transportation .............. 150
Equipment and
Supplies (except
Motor Vehicle)
Merchant Wholesalers.
* * * * * * *
423920........... Toy and Hobby Goods .............. 150
and Supplies
Merchant Wholesalers.
* * * * * * *
424110........... Printing and Writing .............. 200
Paper Merchant
Wholesalers.
424120........... Stationery and Office .............. 150
Supplies Merchant
Wholesalers.
424130........... Industrial and .............. 150
Personal Service
Paper Merchant
Wholesalers.
424210........... Drugs and Druggists' .............. 250
Sundries Merchant
Wholesalers.
[[Page 28647]]
* * * * * * *
424320........... Men's and Boys' .............. 150
Clothing and
Furnishings Merchant
Wholesalers.
* * * * * * *
424340........... Footwear Merchant .............. 200
Wholesalers.
424410........... General Line Grocery .............. 250
Merchant Wholesalers.
424420........... Packaged Frozen Food .............. 200
Merchant Wholesalers.
424430........... Dairy Product (except .............. 200
Dried or Canned)
Merchant Wholesalers.
424440........... Poultry and Poultry .............. 150
Product Merchant
Wholesalers.
424450........... Confectionery .............. 200
Merchant Wholesalers.
* * * * * * *
424470........... Meat and Meat Product .............. 150
Merchant Wholesalers.
* * * * * * *
424490........... Other Grocery and .............. 250
Related Products
Merchant Wholesalers.
424510........... Grain and Field Bean .............. 200
Merchant Wholesalers.
* * * * * * *
424610........... Plastics Materials .............. 150
and Basic Forms and
Shapes Merchant
Wholesalers.
424690........... Other Chemical and .............. 150
Allied Products
Merchant Wholesalers.
424710........... Petroleum Bulk .............. 200
Stations and
Terminals.
424720........... Petroleum and .............. 200
Petroleum Products
Merchant Wholesalers
(except Bulk
Stations and
Terminals).
424810........... Beer and Ale Merchant .............. 200
Wholesalers.
424820........... Wine and Distilled .............. 250
Alcoholic Beverage
Merchant Wholesalers.
424910........... Farm Supplies .............. 200
Merchant Wholesalers.
424920........... Book, Periodical, and .............. 200
Newspaper Merchant
Wholesalers.
* * * * * * *
424940........... Tobacco and Tobacco .............. 250
Product Merchant
Wholesalers.
424950........... Paint, Varnish, and .............. 150
Supplies Merchant
Wholesalers.
* * * * * * *
454310........... Fuel Dealers......... .............. 100
* * * * * * *
------------------------------------------------------------------------
Dated: May 5, 2014.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2014-11269 Filed 5-16-14; 8:45 am]
BILLING CODE 8025-01-P