[Federal Register Volume 76, Number 51 (Wednesday, March 16, 2011)]
[Proposed Rules]
[Pages 14323-14341]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-5876]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AG07
Small Business Size Standards: Professional, Scientific and
Technical Services
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The U.S. Small Business Administration (SBA) proposes to
increase small business size standards for 35 industries and one sub-
industry in North American Industry Classification System (NAICS)
Sector 54, Professional, Scientific and Technical Services and one
industry in NAICS Sector 81, Other Services. As part of its ongoing
comprehensive review of all size standards, SBA has evaluated 45
industries and three sub-industries in NAICS Sector 54 and one industry
in NAICS Sector 81 to determine whether the existing size standards
should be retained or revised. This proposed rule is one of a series of
proposals that will examine size standards of industries grouped by an
NAICS Sector. SBA has issued a White Paper entitled ``Size Standards
Methodology'' and published in the October 21, 2009 issue of the
Federal Register a notice that ``Size Standards Methodology'' is
available on its Web site at http://www.sba.gov/size for public review
and comments. The ``Size Standards Methodology'' White Paper explains
how SBA establishes, reviews and modifies its receipts based and
employee based small business size standards. In this proposed rule,
SBA has applied its methodology that pertains to establishing,
reviewing and modifying a receipts based size standard.
DATES: SBA must receive comments to this proposed rule on or before May
16, 2011.
ADDRESSES: You may submit comments, identified by RIN 3245-AG07 by one
of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments; or
Mail/Hand Delivery/Courier: Khem R. Sharma, PhD, Chief,
Size Standards Division, 409 Third Street, SW., Mail Code 6530,
Washington, DC 20416.
SBA will post all comments on http://www.regulations.gov. If you
wish to submit confidential business information (CBI) as defined in
the User Notice at http://www.regulations.gov,
[[Page 14324]]
please submit the information by mail to U.S. Small Business
Administration, Khem R. Sharma, PhD, Chief, Size Standards Division,
409 Third Street, SW., Mail Code 6530, Washington, DC 20416, or by e-
mail 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 the information and make
the final determination of whether it will publish the information or
not.
FOR FURTHER INFORMATION CONTACT: Khem R. Sharma, PhD, Chief, Size
Standards Division, (202) 205-6618 or [email protected].
SUPPLEMENTARY INFORMATION: To determine eligibility for Federal
government small business assistance programs, SBA establishes small
business size definitions (referred to as size standards) for most
private sector industries in the U.S. SBA's existing size standards use
two primary measures of business size--receipts and number of
employees. Financial assets, electric output and refining capacity are
used as size measures for a few specialized industries. In addition,
SBA's Small Business Investment Company (SBIC) and the Certified
Development Company (CDC) Programs determine small business eligibility
using either the industry based size standards or net worth and net
income based size standards. Currently, SBA's size standards consist of
42 different levels, covering 1,141 NAICS industries and 18 sub-
industry activities. Thirty-one of these size levels are based on
average annual receipts, eight are based on number of employees and
three are based on other measures. In addition, SBA has established 11
other size standards for its financial and procurement programs.
Over the years, SBA has received comments that its size standards
have not kept up with changes in the economy and, in particular, that
they do not reflect the changes in the Federal contracting marketplace.
The last overall review of size standards occurred during the late
1970s and early 1980s. Since then, most reviews of size standards have
been limited to a few specific industries in response to requests from
the public and Federal agencies. SBA also makes periodic inflation
adjustments to its monetary based size standards. The latest inflation
adjustment to size standards was published in the Federal Register on
July 18, 2008 (73 FR 41237).
SBA recognizes that changes in industry structure and the Federal
marketplace over time have rendered existing size standards for some
industries no longer supportable by current data. Accordingly, SBA has
begun a comprehensive review of its size standards to ensure that
existing size standards have supportable bases and to revise them when
necessary.
In addition, on September 27, 2010 the President of the United
States signed the Small Business Jobs Act of 2010 (Jobs Act). The Jobs
Act directs SBA to conduct a detailed review of all size standards and
to make appropriate adjustments to reflect market conditions.
Specifically, the Jobs Act requires SBA to conduct a detailed review of
at least one-third of all size standards during every 18-month period
from the date of its enactment and do a complete review of all size
standards not less frequently than once every 5 years thereafter.
Reviewing existing small business size standards and making appropriate
adjustments based on current data is also consistent with Executive
Order 13563 on improving regulation and regulatory review.
Rather than review all size standards at one time, SBA has adopted
a more manageable approach to reviewing a group of related industries
within an NAICS Sector. Except for manufacturing, an NAICS Sector
generally consists of 25 to 75 industries. Once SBA completes its
review of size standards for industries in an NAICS Sector, it will
issue a proposed rule to revise the size standards for industries whose
data support doing so.
Below is a discussion of SBA's size standards methodology for
establishing receipts based size standards that was applied to this
proposed rule, including analyses of industry structure, Federal
procurement trends and other factors for industries reviewed in this
proposed rule and the impact of the proposed revisions to size
standards on Federal small business assistance.
Size Standards Methodology
SBA has recently developed a ``Size Standards Methodology'' that it
uses for developing, reviewing and modifying size standards when
necessary. SBA has published the document on its Web site at http://www.sba.gov/size. SBA does not apply all features of its ``Size
Standards Methodology'' to all industries because not all are
appropriate. For example, since this proposed rule covers all
industries with receipts based standards in NAICS Sector 54, the
methodology described here mostly applies to establishing receipts
based standards. However, SBA makes the methodology available in its
entirety for parties who have an interest in SBA's overall approach to
establishing, evaluating and modifying small business size standards.
SBA always explains its analysis in individual proposed and final rules
relating to size standards for specific industries.
SBA welcomes comments from the public on a number of issues
regarding its ``Size Standards Methodology,'' such as suggestions on
alternative approaches to establishing, reviewing and modifying size
standards; whether there are alternative or additional factors or data
sources that SBA should consider; whether SBA's approach to small
business size standards makes sense in the current economic
environment; whether SBA's using anchor size standards is appropriate
in the current economy; whether there are gaps in SBA's methodology
because of the lack of comprehensive data; and whether there are other
facts or issues that SBA should consider in its methodology. Comments
on the ``Size Standards Methodology'' should be submitted via (1) the
Federal eRulemaking Portal: http://www.regulations.gov; the docket
number is SBA-2009-0008. Follow the instructions for submitting
comments; or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, PhD,
Chief, Size Standards Division, 409 Third Street, SW., Mail Code 6530,
Washington, DC 20416. As with comments received to this proposed rule,
SBA will post all comments on ``Size Standards Methodology'' on http://www.regulations.gov. As of March 16, 2011, SBA has received two
comments on ``Size Standards Methodology.'' The comments have been
published and are available to the public at http://www.regulations.gov. SBA continues to welcome comments on its
methodology from interested parties.
Congress has authorized SBA's Administrator to establish small
business size standards. 15 U.S.C. 632(a)(2). Section 3(a)(3) of the
Small Business Act (15 U.S.C. 632(a)(3)) states that ``* * * the [SBA]
Administrator shall ensure that the size standard varies from industry
to industry to the extent necessary to reflect the differing
characteristics of the various industries and consider other factors
deemed to be relevant by the Administrator.'' Accordingly, the economic
structure of an industry serves as the underlying basis for developing
and modifying small business size standards. SBA identifies the small
business segment of an industry by examining data on the economic
characteristics defining the industry structure itself (as described
below). In addition to analyzing an industry's structure, SBA considers
[[Page 14325]]
current economic conditions, together with its own mission, program
objectives, the Administration's current policies, suggestions from
industry groups and Federal Agencies, and public comments on the
proposed rule when it establishes small business size standards. SBA
also examines whether a size standard based on industry and other
relevant data successfully excludes businesses that are dominant in the
industry. Below is a discussion on SBA's analysis of the economic
characteristics of each industry reviewed in this proposed rule, the
impact of proposed size standards revisions on SBA programs and on
Federal procurement programs and whether a revised size standard
excludes dominant firms in the industry from being considered small.
This proposed rule affords the public an opportunity to review and
comment on the data and methodology SBA uses to evaluate and revise a
size standard.
Industry Analysis
For the ongoing comprehensive size standards review, SBA has
established three ``base'' or ``anchor'' size standards that apply to
most industries--$7.0 million in average annual receipts for industries
that have receipts based size standards, 500 employees for
manufacturing and other industries that have employee based size
standards (except for Wholesale Trade) and 100 employees for industries
in the Wholesale Trade Sector. SBA established 500 employees as the
anchor size standard for the manufacturing industries at its inception
in 1953. Shortly thereafter SBA established $1 million in average
annual receipts as the anchor size standard for the nonmanufacturing
industries. The receipts based anchor size standard has been adjusted
periodically for inflation. Over the years, SBA has increased the
anchor for inflation, which stands at $7.0 million today. Since 1986,
all industries in the Wholesale Trade Sector have had the 100 employee
size standard for non-procurement SBA programs. For Federal procurement
purposes, the size standard for all industries in both the Wholesale
Trade (NAICS Sector 42) and the Retail Trade (NAICS Sector 44-45) is
500 employees under the SBA's nonmanufacturer rule. 13 CFR 121.406(b).
These long standing anchor size standards have gained legitimacy
through practice and general public acceptance. An anchor size standard
is neither a minimum nor a maximum. It is a common size standard for a
large number of industries that have similar economic characteristics
and serves as a reference point in evaluating size standards for
individual industries. SBA uses the anchor in lieu of trying to
establish a unique small business size standard for each industry.
Otherwise, theoretically, the number of size standards might be as high
as the number of industries at the 6-digit NAICS level (1,141) for
which SBA establishes size standards. The data SBA analyzes are
generally static, but the U.S. economy is not. Hence, absolute
precision is impossible. Based on historical but static data,
therefore, SBA presumes an anchor size standard is appropriate for a
particular industry unless that industry displays economic
characteristics that are considerably different from those of others
with the same anchor size standard.
When evaluating a size standard, SBA compares the economic
characteristics of the specific industry under review to the average
characteristics of industries with one of the three anchor size
standards (referred to as ``anchor comparison group''). This allows SBA
to assess the industry structure and to determine whether the industry
is appreciably different from the other industries in the anchor
comparison group. If the characteristics of a specific industry under
review are similar to the average characteristics of the anchor
comparison group, the anchor size standard is considered appropriate
for that industry. SBA may consider adopting a size standard below the
anchor when (1) all or most of the industry characteristics are
significantly smaller than the average characteristics of the anchor
comparison group, or (2) other industry considerations strongly suggest
that the anchor size standard would be an unreasonably high size
standard for the industry.
If the specific industry's characteristics are significantly higher
than those of the anchor comparison group, a size standard higher than
the anchor size standard may be appropriate. The larger the differences
are between the characteristics of the industry under review and those
in the anchor comparison group, the larger will be the difference
between the appropriate industry size standard and the anchor size
standard. For industries with receipts based size standards, including
those in NAICS Sector 54 that are reviewed in this proposed rule, SBA
has developed a second comparison group consisting of industries with
the highest levels of receipts based size standards. To determine the
level of a size standard above the anchor size standard, SBA analyzes
the characteristics of this second comparison group. The size standards
for this group of industries range from $23 million to $35.5 million in
average receipts, with the weighted average size standard for the group
being $29 million. SBA refers to this comparison group as the ``higher
level receipts based size standard group.''
The primary factors that SBA evaluates when analyzing the
structural characteristics of an industry include average firm size,
startup costs and entry barriers, industry competition and distribution
of firms by size. 13 CFR 121.102(a) and (b). As an additional factor,
SBA evaluates the possible impact that revising size standards might
have on Federal contracting assistance to small businesses. These five
factors are generally the most important ones for establishing or
revising a size standard for an industry. However, SBA will also
consider and evaluate other information that it believes is relevant to
a particular industry (such as technological changes, industry growth
trends, SBA financial assistance and other program objectives, etc.).
SBA also considers possible impacts of size standard revisions on
eligibility for Federal small business assistance, current economic
conditions and the Administration's policies. Public comments on a
proposed size standard rule also provide important additional
information. SBA thoroughly reviews all public comments on proposed
rules and makes adjustments to proposed size standards if necessary
before making a final decision on a revised size standard. Below is a
brief description of each of the five primary factors that SBA has
evaluated in each industry in NAICS Sector 54 being reviewed in this
proposed rule. A more detailed description of this analysis is provided
in the ``SBA Size Standard Methodology'' White Paper, available on its
Web site at http://www.sba.gov/size.
1. Average firm size. SBA computes two measures of average firm
size: Simple average firm size and weighted average firm size. For
industries with receipts based size standards the simple average firm
size is the total receipts of an industry divided by the total number
of firms in that industry. The weighted average firm size is the sum of
weighted simple average firm sizes in different receipts size classes,
where weights are the shares of total industry receipts for respective
size classes. The simple average firm size weighs all firms within an
industry equally regardless of their size. The weighted average
overcomes that limitation by giving more weights to larger firms.
If the average firm size of an industry under review is
significantly higher than the average firm size of industries
[[Page 14326]]
in the anchor comparison industry group, this will generally support a
size standard higher than the anchor size standard. Conversely, if the
industry's average firm size is similar to or significantly lower than
that of the anchor comparison industry group, it will be a basis to
adopt the anchor size standard or, in rare cases, a standard lower than
the anchor.
2. Startup costs and entry barriers. Startup costs reflect a firm's
initial size in an industry. New entrants to an industry must have
sufficient capital and other assets to start and maintain a viable
business. If firms entering a particular industry have greater capital
requirements than firms in industries in the anchor comparison group,
this is a basis for establishing a size standard higher than the anchor
standard. In lieu of data on actual startup costs, SBA uses average
assets size as a proxy measure to assess the levels of capital
requirements for new entrants to an industry.
SBA begins with the sales to total assets ratios from the Risk
Management Association's Annual Statement Studies, 2007-2009. SBA then
applies these ratios to the average receipts size of firms in that
industry. An industry with a significantly higher level of average
assets than that of the anchor comparison group is likely to have
higher startup costs; this in turn will support a size standard higher
than the anchor. Conversely, if the industry has a significantly
smaller average assets size compared to the anchor comparison group,
the anchor size standard, or in rare cases one lower than the anchor,
may be appropriate.
3. Industry competition. Industry competition is generally measured
by the share of total industry receipts obtained by firms that are
among the largest in an industry. In this proposed rule, SBA evaluates
the share of industry receipts generated by the four largest firms in
the industry. This is referred to as the ``four-firm concentration
ratio.'' SBA compares the four-firm concentration ratio for an industry
under review to the average four-firm concentration ratio for
industries in the anchor comparison group. If a significant share of
economic activity within the industry is concentrated among a few
relatively large firms, SBA will establish a size standard relatively
higher than the anchor size standard. The four-firm concentration ratio
is not an important factor if its value for an industry under review is
less than 40 percent. For industries in which the four largest firms
account for 40 percent or more of an industry's total receipts, SBA
examines the average size of the four largest firms in determining a
size standard.
4. Distribution of firms by size. SBA examines the shares of
industry receipts accounted for by firms of different receipts and
employment size classes in the industry. SBA evaluates this factor in
assessing competition within an industry. If most of an industry's
economic activity is attributable to smaller firms, this indicates that
small businesses are competitive in that industry. This supports
adopting the anchor size standard. If most of an industry's economic
activity is attributable to larger firms, this indicates that small
businesses are not competitive in that industry. This supports adopting
a size standard above the anchor.
Concentration among firms is a measure of inequality of
distribution. To evaluate the degree of inequality of distribution
within an industry, SBA computes the Gini coefficient by constructing
the Lorenz curve. The Lorenz curve presents the cumulative percentages
of units (firms) in the horizontal axis and cumulative percentages of
receipts (or other measures of size) in the vertical axis. (For further
detail, please refer to SBA's ``Size Standards Methodology'' White
Paper on the SBA Web site at http://www.sba.gov/size.) Gini coefficient
values vary from zero to one. If receipts are distributed equally among
all the firms in an industry, the value of the Gini coefficient will
equal zero. If an industry's total receipts are attributed to a single
firm, the Gini coefficient will equal one.
SBA compares the degree of inequality of distribution for an
industry under review with that for industries in the anchor comparison
group. If an industry shows a higher degree of inequality of
distribution (i.e., higher Gini coefficient) compared to industries in
the anchor comparison industry group this will, all else being equal,
warrant a higher size standard than the anchor. Conversely, for
industries with similar or more equal distribution (i.e., similar or
lower Gini coefficient values) than the anchor group, the anchor
standard, or in some cases a standard lower than the anchor, may be
adopted.
5. Impact on Federal contracting and SBA loan programs. SBA
examines the possible impact a size standard change may have on the
level of Federal small business assistance. This assessment primarily
focuses on the share of Federal contracting dollars awarded to small
businesses in the industry in question. In general, if the share of
Federal contracting dollars awarded to small businesses in an industry
that receives a significant amount of Federal contracting dollars is
significantly less than the small business share of the industry's
total receipts, this will be justification to consider a size standard
higher than the existing size standard. The disparity between the small
business Federal market share and industry-wide share may have a
variety of causes, such as extensive administrative and compliance
requirements associated with Federal contracts, the different skill set
required on Federal contracts as compared to typical commercial
contracting work and the size of contracting requirements of Federal
customers. These, as well as other factors, are likely to influence the
type of firms within an industry that compete for Federal contracts
and, hence, the firms receiving such contracts are expected to possess
different characteristics than the average characteristics for all
firms in that industry. To compare the small business Federal
contracting share with the industry-wide small business share, SBA
analyzes the latest Federal contracting trends. This analysis may
indicate a size standard larger than the current standard.
SBA considers Federal procurement trends in its size standards
analysis only if (1) the small business share of Federal contracting
dollars is at least 10 percent lower than the small business share of
total industry receipts and (2) the amount of total Federal contracting
averages $100 million or more during fiscal years 2007-2009 (the latest
years for which complete Federal procurement data are available). SBA
selected these thresholds because they reflect a significant level of
contracting in which a revision to a size standard may have an impact
on expanding small business opportunities.
Besides the impact on small business Federal contracting, SBA also
evaluates the impact of a size standard revision on SBA's loan
programs. For this SBA examines the volume of SBA guaranteed loans
within an industry and the size of firms obtaining those loans. This
allows SBA to assess whether the existing or the proposed size standard
for a particular industry may restrict the level of financial
assistance to small firms. If the analysis shows that the current size
standards reduce financial assistance to small businesses, a higher
size standard would be supportable. However, if small businesses have
already 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
[[Page 14327]]
standard, consideration of this factor for determining the size
standard may not be necessary.
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 County Business Patterns (see http://www.census.gov/econ/cbp/) and data from 2007 Economic Census (see
http://www.census.gov/econ/census07/) prepared by the U.S. Bureau of
the Census (Census Bureau) for SBA. The Census tabulation provided SBA
with industry-specific data on the number of firms, number of
establishments and number of employees for companies by the size of
firm based on the 2007 County Business Patterns and estimated annual
payroll and estimated annual receipts of companies by the size of firm
based on the 2007 Census. That is, the data are by the size class of
the total company; however, the data itself, within a particular size
class, represents the company's total data for a specific industry
only. The special tabulation enables SBA to evaluate average firm size,
the four-firm concentration ratio and distribution of firms by receipts
and employment size.
In some cases, where industry data were not available due to
disclosure prohibitions in the Census Bureau's tabulation, SBA either
estimated missing values using available relevant data or examined data
at a higher level of industry aggregation, such as at the NAICS 2-digit
(Sector), 3-digit (Subsector), or 4-digit (Industry Group) level. In
some instances, SBA had to base its analysis only on those factors for
which data were available or estimates of missing values were possible.
The data from the Census Bureau's tabulation are limited down only
to the 6-digit NAICS industry level and hence do not provide economic
characteristics at the sub-industry level. Thus, when establishing,
reviewing, or modifying size standards at the sub-industry level (that
is, one of the ``exceptions'' in SBA's table of size standards), SBA
evaluates the data from the U.S. General Service Administration's
Federal Procurement Data System--Next Generation (FPDS-NG) and Central
Contractor Registration (CCR) following a two-step procedure. First,
using FPDS-NG SBA identifies product service codes (PSCs) that
correspond to specific sub-industry activities or ``exceptions'' and
then identifies firms that are active in Federal contracting involving
those PSCs. Then, SBA obtains those firms' revenue and employment data
from the CCR database. SBA uses that data to evaluate the actual size
of businesses that FPDS-NG identifies for those procurements. In this
proposed rule, SBA applied this approach to determine industry and
Federal contracting factors for ``exceptions'' under NAICS 541330,
Engineering Services.
To calculate average assets size, SBA used sales to total assets
ratios from the Risk Management Association's Annual Statement Studies,
2007-2009.
To evaluate Federal contracting trends, SBA examined Federal
contract award data for fiscal years 2007-2009 from FPDS-NG.
Data sources and estimation procedures SBA uses in its size
standards analysis are documented in detail in the ``SBA Size Standards
Methodology'' White Paper, which is available on its Web site at http://www.sba.gov/size.
To assess the impact on financial assistance to small businesses
SBA examined data on its own guaranteed loan programs for fiscal years
2007-2009.
Dominance in Field of Operation
Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a
small business concern as one that is (1) independently owned and
operated, (2) not dominant in its field of operation and (3) within a
specific small business definition or size standard established by the
SBA Administrator. SBA considers as part of its evaluation whether a
business concern at a proposed size standard would be dominant in its
field of operation. For this, SBA generally examines the industry's
market share of firms at the proposed standard. Market share and other
factors may indicate whether a firm would or could exercise a major
controlling influence at the national level in an industry that
includes a significant number of business concerns. If a contemplated
size standard would include a dominant firm, SBA would consider a lower
size standard to exclude the dominant firm from the definition of
small.
Selection of Size Standards
To simplify size standards, for the ongoing comprehensive size
standards review of receipts based size standards, SBA proposes to
select size standards for industries from a limited number of levels.
For many years, SBA has been concerned about the complexity of
determining small business status caused by a large number of varying
receipts based size standards (see 69 FR 13130 (March 4, 2004) and 57
FR 62515 (December 31, 1992)). Currently, there are 31 different levels
of receipts based size standards. They range from $0.75 million to
$35.5 million and many of them apply to one or only a few industries.
SBA believes that size standards with such a large number of small
variations among them are both unnecessary and difficult to justify
analytically. To simplify managing and using size standards SBA
proposes that there be fewer size standard levels. This will produce
more common size standards for businesses operating in related
industries. There will also be greater consistency among the size
standards for industries that have similar economic characteristics.
The SBA proposes, therefore, to apply one of eight receipts based
size standards to each industry in NAICS Sector 54 that has a receipts
based standard. In this proposed rule, SBA has not reviewed the six
employee based size standards in NAICS Sector 54. Those employee based
size standards will remain on effect until SBA reviews industries that
have employee based size standards. The eight ``fixed'' receipts based
size standard levels are $5 million, $7 million, $10 million, $14
million, $19 million, $25.5 million, $30.0 million and $35.5 million.
To establish these eight receipts based size standard levels SBA
considered the current minimum, the current maximum and most commonly
used current receipts based size standards. Currently, the most
commonly used receipts based size standards cluster around the
following--$2.5 million to $4.5 million, $7 million, $9.0 million to
$10 million, $12.5 million to $14.0 million, $25.0 million to $25.5
million, and $33.5 million to $35.5 million. SBA selected $7 million as
one of eight fixed levels of receipts based size standards because this
is an anchor standard for receipts based standards. The lowest or
minimum receipts based size level that SBA is proposing will be $5
million. Other than the size standards for agriculture and those based
on commissions (such as real estate brokers and travel agents), $5
million will include those industries with the currently lowest
receipts based standards, which range from $2.0 million to $4.5
million. Among the higher levels size clusters, SBA has selected $10
million, $14 million, $25.5 million, and $35.5 million as the other
four levels of fixed size standards. Because of a large gap between two
of the size standard intervals, SBA established intermediate levels of
$19 million between $14 million and $25.5 million and $30 million
between $25.5 million and $35.5 million. These two intermediate size
levels reflect roughly
[[Page 14328]]
similar proportional differences between the two successive size
standard levels.
To simplify size standards further, SBA may propose a common size
standard for closely related industries. Although the size standard
analysis may support a specific size standard level for each industry,
SBA believes that establishing different size standards for closely
related industries may not be appropriate. For example, in cases where
many of the same businesses operate in the multiple industries,
establishing a common size standard might better reflect the Federal
marketplace. This might also make size standards among related
industries more consistent than establishing separate size standards
for each of those industries. This led SBA to establish a common size
standard for the Computer Systems Design and Related Services
industries (NAICS 541511, NAICS 541112, NAICS 541513, NAICS 541519 and
NAICS 811212), even though the industry data might have supported a
distinct size standard for each industry. 57 FR 27906 (June 23, 1992).
Businesses engaged in computer related services typically perform
activities in two or more other related industries. SBA has also
established a common size standard for certain architectural and
engineering (A&E) services industries (NAICS 541310, NAICS 541330
(excluding the ``exceptions''), NAICS 541360, NAICS 541370 and Map
Drafting which is an ``exception'' under NAICS 541340). As described
below in this proposed rule SBA has considered additional common size
standards for several related industries within NAICS Sector 54, as
alternatives to industry specific separate size standards. Whenever SBA
proposes a common size standard for closely related industries it will
provide its justification in the proposed rule.
Evaluation of Industry Structure
SBA has evaluated the structure of 45 industries and three sub-
industries in NAICS Sector 54, Professional, Scientific and Technical
Services and one industry in NAICS Sector 81, Other Services, to assess
the appropriateness of the current size standards. As described above,
SBA compared data on the economic characteristics of each industry or
sub-industry to the average characteristics of industries in two
comparison groups. The first comparison group consists of all
industries with $7.0 million size standards and is referred to as the
``receipts based anchor comparison group.'' Because the goal of SBA's
size review is to assess whether a specific industry's size standard
should be the same as or different from the anchor size standard, this
is the most logical group of industries to analyze. In addition, this
group includes a sufficient number of firms to provide a meaningful
assessment and comparison of industry characteristics.
If the characteristics of an industry under review are similar to
the average characteristics of industries in the anchor comparison
group, the anchor size standard is generally appropriate for that
industry. If an industry's structure is significantly different from
the others in the anchor group, a size standard lower or higher than
the anchor size standard might be selected. The level of the new size
standard is determined based on the difference between the
characteristics of the anchor comparison group and a second industry
comparison group. As described above, the second comparison group for
receipts based standards consists of industries with the highest
receipts based size standards, ranging from $23 million to $35.5
million. The average size standard for the group is $29 million. SBA
refers to this group of industries as the ``higher level receipts based
size standard comparison group.'' Differences in industry structure
between an industry under review and the industries in the two
comparison groups are determined by comparing data on each of the
industry factors, including average firm size, average assets size,
four-firm concentration ratio and the Gini coefficient of distribution
of firms by size. Table 1 shows two measures of the average firm size
(simple and weighted), average assets size, four-firm concentration
ratio, average receipts of the four largest firms and the Gini
coefficient for both anchor level and higher level comparison groups
for receipts based size standards.
Table 1--Average Characteristics of Receipts Based Comparison Groups
--------------------------------------------------------------------------------------------------------------------------------------------------------
Avg. firm size ($ million) Avg. receipts
-------------------------------- Avg. assets Avg. four-firm of four
Receipts based comparison group size ($ concentration largest firms Gini
Simple Weighted million) ratio (%) ($ million) coefficient
average average \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Anchor Level............................................ 1.55 28.91 0.94 18.4 249.3 0.740
Higher Level............................................ 6.22 97.10 2.85 27.0 1,773.5 0.826
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ To be used for industries with a four-firm concentration ratio of 40% or greater.
Derivation of Size Standards Based on Industry Factors
For each of the industry factors in Table 1, SBA derives a separate
size standard based on the differences between the values for an
industry under review and the values for the two comparison groups. If
the industry value for a particular factor is near the corresponding
factor for the anchor comparison group, SBA will consider the $7.0
million anchor size standard appropriate for that factor.
An industry factor with a value significantly above or below the
anchor comparison group will generally warrant a size standard above or
below the $7.0 million anchor. The level of the new size standard in
these cases is based on the proportional difference between the
industry value and the values for the two comparison groups.
For example, if an industry's simple average receipts is $4.0
million, that would support a $19 million size standard. The $4.0
million level is 52.5 percent between the average firm size of $1.55
million for the anchor comparison group and $6.22 million for the
higher level comparison group (($4.00 million - $1.55 million) / ($6.22
million - $1.55 million) = 0.525 or 52.5%). This proportional
difference is applied to the difference between the $7.0 million anchor
size standard and average size standard of $29 million for the higher
level size standard group and then added to $7.0 million to estimate a
size standard of $18.54 million ([{$29.0 million - $7.0 million{time}
* 0.525] + $7.0 million = $18.54 million). The final step is to round
the estimated $18.54 million size standard to the nearest fixed size
standard level, in this example to $19 million.
SBA applies the above calculation to derive a size standard for
each industry factor. Detailed formulas involved in these calculations
are presented in ``SBA Size Standards Methodology'' which is available
on its Web site at http://
[[Page 14329]]
www.sba.gov/size. (However, it should be noted that figures in the
``Size Standards Methodology'' White Paper are based on 2002 Economic
Census data and are different from those presented in this proposed
rule). Table 2 shows ranges of values for each industry factor and the
levels of size standards supported by those values.
Table 2--Values of Industry Factors and Supported Size Standards
----------------------------------------------------------------------------------------------------------------
Or if avg.
Or if weighted Or if avg. receipts of Then size
If simple avg. receipts size avg. receipts assets size ($ largest four Or if gini standard is ($
($ million) size ($ million) firms ($ coefficient million)
million) million)
----------------------------------------------------------------------------------------------------------------
<1.34....................... <25.81......... <0.85.......... <180.0......... <0.736......... 5.0
1.34 to 1.87................ 25.81 to 33.56. 0.85 to 1.07... 180.0 to 353.2. 0.736 to 0.746. 7.0
1.88 to 2.61................ 33.57 to 44.41. 1.08 to 1.37... 353.3 to 595.7. 0.747 to 0.759. 10.0
2.62 to 3.57................ 44.42 to 58.35. 1.38 to 1.76... 595.8 to 907.5. 0.760 to 0.777. 14.0
3.58 to 4.79................ 58.36 to 76.18. 1.77 to 2.26... 907.6 to 0.778 to 0.799. 19.0
1,305.8.
4.80 to 5.96................ 76.19 to 93.22. 2.27 to 2.74... 1,305.9 to 0.800 to 0.821. 25.5
1,686.9.
5.97 to 7.02................ 93.23 to 108.72 2.75 to 3.17... 1,687.0 to 0.822 to 0.840. 30.0
2,033.2.
>7.02....................... >108.72........ >3.17.......... >2,033.2....... >0.840......... 35.5
----------------------------------------------------------------------------------------------------------------
Derivation of Size Standards Based on Federal Contracting Factor
Besides industry structure, SBA also evaluates Federal contracting
data to assess the extent to which small businesses are successful in
getting Federal contracts under the existing size standards. However,
the available data on Federal contracting are limited to identifying
businesses as small or other than small, with no information on exact
size of businesses receiving Federal contracts in order to conduct a
more precise analysis.
Given the above limitation of Federal contracting data, for the
current comprehensive size standards review, SBA has decided to
designate a size standard at one level higher than their current size
standard for industries where the small business share of total Federal
contracting dollars is between 10 and 30 percentage points lower than
their shares in total industry receipts and at two levels higher than
the current size standard if the difference is more than 30 percentage
points.
SBA has chosen not to designate a size standard for the Federal
contracting factor alone that is higher than two levels above the
current size standard. The FPDS-NG data have a number of limitations
and there are also complex relationships among a number of variables
affecting small business participation in the Federal marketplace. SBA
believes, therefore, that a larger adjustment to size standards based
on Federal contracting activity requires a more detailed analysis of
the impact of any subsequent revision to the current size standard. In
limited situations, however, SBA may conduct a more extensive
examination of Federal contracting experience to support a different
size standard than indicated by this general rule. That would involve
SBA's taking into consideration significant and unique aspects of small
business competitiveness in the Federal contract market. SBA welcomes
comment on its methodology of incorporating the Federal contracting
factor in the size standard analysis and suggestions for alternative
methods and other relevant information on small business experience in
the Federal contract market.
Of the 46 industries reviewed in this proposed rule (including 45
industries in NAICS Sector 54 and one industry in NAICS Sector 81), 26
industries received an average of $100 million or more annually in
Federal contracting dollars during fiscal years 2007-2009. The Federal
contracting factor was significant (i.e., the difference between the
small business share of total industry receipts and small business
share of Federal contracting dollars was 10 percentage points or more)
and a separate size standard was derived for that factor in 15 of those
26 industries.
New Size Standards Based on Industry and Federal Contracting Factors
Table 3 shows the results of analyses of industry and Federal
contracting factors for each of the industries covered by this proposed
rule. Each NAICS Industry in columns 2, 3, 4, 6, 7 and 8 shows two
numbers. The upper number is the value for the industry or Federal
contracting factor shown on the top of the column; the lower number is
the size standard supported by that factor. For the four-firm
concentration ratio, a size standard is estimated based on the average
receipts of the top four firms if its value is 40 percent or more. If
the four-firm concentration ratio for an industry (column 5) is less
than 40 percent, no size standard is estimated for that factor. Column
9 shows the new size standard for each industry, calculated as the
average of size standards supported by each factor and rounded to the
nearest fixed size level. Analytical details involved in the averaging
procedure are described in the SBA ``Size Standard Methodology'' White
Paper which is available on its Web site at http://www.sba.gov/size.
For comparison, the current size standards are also shown in column 10
of Table 3.
Table 3--Size Standards Supported by Each Factor for Each Industry
[millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
NAICS code/ Simple Weighted Average Four-firm Four-firm Gini Federal Calculated Current size
NAICS industry title average average assets size ratio (%) average coefficient contract size standard
firm size firm size size factor (%) standard
--------------------------------------------------------------------------------------------------------------------------------------------------------
541110 $1.4 $105.8 $0.3 2.5 $1,423.1 0.758 ........... $10.0 $7.0
Offices of Lawyers.......... 7.0 30.0 5.0 ........... ........... $10.0
541191 1.0 24.2 0.4 ........... ........... 0.700 ........... 5.0 7.0
Title Abstract and 5.0 5.0 5.0 ........... ........... $5.0
Settlement Offices.
541199 0.9 18.3 ........... 29.0 176.3 0.730 -21.5 7.0 7.0
[[Page 14330]]
All Other Legal Services.... 5.0 5.0 ........... ........... ........... $5.0 $10.0
541211 1.2 116.1 0.4 32.8 5,227.3 0.747 -11.7 14.0 8.5
Offices of Certified Public 5.0 35.5 5.0 ........... ........... $10.0 $14.0
Accountants.
541213 0.5 131.5 ........... ........... ........... 0.681 ........... 14.0 7.0
Tax Preparation Services.... 5.0 35.5 ........... ........... ........... $5.0
541214 7.7 113.9 6.6 ........... ........... 0.886 ........... 35.5 8.5
Payroll Services............ 35.5 35.5 35.5 ........... ........... $35.5
541219 0.5 6.1 0.2 ........... ........... 0.618 -22.4 7.0 8.5
Other Accounting Services... 5.0 5.0 5.0 ........... ........... $5.0 $14.0
541310 1.6 25.1 0.6 5.2 489.3 0.727 -13.3 7.0 4.5
Architectural Services...... 7.0 5.0 5.0 ........... ........... $5.0 $7.0
541320 0.8 6.3 0.3 6.1 80.6 0.586 ........... 5.0 7.0
Landscape Architectural 5.0 5.0 5.0 ........... ........... $5.0
Services.
541330 4.0 112.0 1.5 ........... ........... 0.868 -0.1 25.5 4.5
Engineering Services........ 19.0 35.5 14.0 ........... ........... $35.5
Except Military and 3,086.3 9,073.4 1,187.1 36.0 149,375.0 0.660 ........... 25.5 27.0
Aerospace Equipment and 35.5 35.5 35.5 $5.0
Military Weapons.
Except Contracts and NA NA NA NA NA NA NA NA 27.0
Subcontracts for NA NA NA NA NA NA NA NA
Engineering Services
Awarded Under the National
Energy Policy Act of 1992.
Except Marine Engineering 4,088.8 12,295.3 1,572.6 38.5 64,100.0 0.668 ........... 25.5 18.5
and Naval Architecture. 35.5 35.5 35.5 $25.0
541340 0.8 68.0 ........... ........... ........... 0.752 ........... 14.0 7.0
Drafting Services........... 5.0 19.0 ........... ........... ........... $10.0
Except Map Drafting......... NA NA NA NA NA NA NA NA 4.5
NA NA NA NA NA NA NA NA
541350 0.4 6.4 ........... 13.7 72.8 0.569 -31.1 7.0 7.0
Building Inspection Services 5.0 5.0 ........... ........... ........... $5.0 $14.0
541360 2.7 60.4 ........... 37.4 256.1 0.853 ........... 25.5 4.5
Geophysical Surveying and 14.0 19.0 ........... ........... ........... $35.5
Mapping Services.
541370 0.7 6.5 0.3 7.6 120.9 0.554 -25.4 5.0 4.5
Surveying and Mapping 5.0 5.0 5.0 ........... ........... $5.0 $7.0
(except Geophysical)
Services.
541380 2.6 19.2 1.2 ........... ........... 0.759 1.0 10.0 12.0
Testing Laboratories........ 10.0 5.0 $10.0 ........... ........... $10.0
541410 0.8 5.1 0.2 ........... ........... 0.557 ........... 5.0 7.0
Interior Design Services.... 5.0 5.0 5.0 ........... ........... $5.0
541420 1.3 9.5 ........... ........... ........... 0.714 ........... 5.0 7.0
Industrial Design Services.. 5.0 5.0 ........... ........... ........... $5.0
541430 0.6 4.1 0.2 3.3 79.7 0.560 ........... 5.0 7.0
Graphic Design Services.... 5.0 5.0 5.0 ........... ........... $5.0
541490 0.8 6.0 ........... 11.1 45.7 0.623 ........... 5.0 7.0
Other Specialized Design 5.0 5.0 ........... ........... ........... $5.0
Services.
541511 2.0 51.0 0.7 7.4 1,862.3 0.839 -5.2 14.0 25.0
Custom Computer Programming 10.0 14.0 5.0 ........... ........... $30.0
Services.
541512 2.9 145.9 1.0 20.0 6,243.2 0.885 -7.3 25.5 25.0
Computer Systems Design 14.0 35.5 7.0 ........... ........... $35.5
Services.
541513 7.2 150.6 ........... ........... ........... 0.918 23.0 35.5 25.0
Computer Facilities 35.5 35.5 ........... ........... ........... $35.5
Management Services.
541519 2.6 100.0 0.9 28.6 1,912.1 0.893 15.2 19.0 25.0
Other Computer Related 14.0 30.0 7.0 ........... ........... $35.5
Services.
Except Information NA NA NA NA NA NA NA NA 150 employees
Technology Value Added NA NA NA NA NA NA NA NA
Resellers.
541611 1.4 59.9 0.5 17.2 3,482.1 0.817 -12.8 14.0 7.0
Administrative Management 7.0 19.0 5.0 ........... ........... $25.5 $10.0
and General Management
Consulting Services.
541612 1.7 56.3 0.4 23.6 1,365.4 0.803 -5.3 14.0 7.0
Human Resources Consulting 7.0 14.0 5.0 ........... ........... $25.5
Services.
[[Page 14331]]
541613 1.1 20.6 0.4 7.3 489.1 0.753 -26.1 7.0 7.0
Marketing Consulting 5.0 5.0 5.0 ........... ........... $10.0 $10.0
Services.
541614 3.4 86.6 0.9 ........... ........... 0.886 -0.5 19.0 7.0
Process, Physical 14.0 25.5 7.0 ........... ........... $35.5
Distribution and Logistics
Consulting Services.
541618 0.8 19.5 0.3 17.5 226.2 0.698 -39.3 7.0 7.0
Other Management Consulting 5.0 5.0 5.0 ........... ........... $5.0 $14.0
Services.
541620 1.3 16.5 0.5 6.1 160.6 0.727 -8.9 5.0 7.0
Environmental Consulting 5.0 5.0 5.0 ........... ........... $5.0
Services.
541690 1.1 54.3 0.4 ........... ........... 0.775 -13.6 10.0 7.0
Other Scientific and 5.0 14.0 5.0 ........... ........... $14.0 $10.0
Technical Consulting
Services.
541720 2.9 24.5 1.8 26.6 451.3 0.811 1.5 19.0 7.0
Research and Development in 14.0 5.0 14.0 ........... ........... $25.5
the Social Sciences and
Humanities.
541810 2.5 53.0 0.7 26.5 2,156.7 0.812 -13.4 14.0 7.0
Advertising Agencies........ 10.0 14.0 5.0 ........... ........... $25.5 $10.0
541820 1.2 13.7 0.4 19.3 403.7 0.698 -21.6 7.0 7.0
Public Relations Agencies... 5.0 5.0 5.0 ........... ........... $5.0 $10.0
541830 4.3 65.3 ........... 36.0 320.1 0.834 ........... 25.5 7.0
Media Buying Agencies....... 19.0 19.0 ........... ........... ........... $30.0
541840 1.9 18.2 0.8 ........... ........... 0.758 ........... 7.0 7.0
Media Representatives....... 10.0 5.0 5.0 ........... ........... $10.0
541850 3.9 134.2 2.2 44.9 928.8 0.881 ........... 25.5 7.0
Display Advertising......... 19.0 35.5 19.0 ........... 19.0 $35.5
541860 4.0 45.7 1.4 ........... ........... 0.799 ........... 19.0 7.0
Direct Mail Advertising..... 19.0 14.0 14.0 ........... ........... $19.0
541870 3.2 52.4 1.3 32.7 201.1 0.849 ........... 19.0 7.0
Advertising Material 14.0 14.0 10.0 ........... ........... $35.5
Distribution Services.
541890 1.6 26.2 0.5 12.5 383.0 0.746 ........... 7.0 7.0
Other Services Related to 7.0 7.0 5.0 ........... ........... $10.0
Advertising.
541910 3.2 51.7 1.1 ........... ........... 0.832 5.4 19.0 7.0
Marketing Research and 14.0 14.0 7.0 ........... ........... $30.0
Public Opinion Polling.
541921 0.5 50.9 0.2 ........... ........... 0.563 ........... 7.0 7.0
Photography Studios, 5.0 14.0 5.0 ........... ........... $5.0
Portrait.
541922 0.5 3.3 0.2 6.5 31.8 0.494 ........... 5.0 7.0
Commercial Photography...... 5.0 5.0 5.0 ........... ........... $5.0
541930 1.0 23.8 ........... 26.9 123.8 0.752 1.6 7.0 7.0
Translation and 5.0 5.0 ........... ........... ........... $10.0
Interpretation Services.
541940 0.9 17.4 0.2 ........... ........... 0.431 ........... 5.0 7.0
Veterinary Services......... 5.0 5.0 5.0 ........... ........... $5.0
541990 0.9 24.1 0.3 16.7 696.2 0.740 -34.7 $7.0 $7.0
All Other Professional, 5.0 5.0 5.0 ........... ........... $7.0 $14.0
Scientific and Technical
Services.
811212 1.7 49.0 0.5 ........... ........... 0.832 -11.2 $19.0 $25.0
Computer and Office Repair 7.0 14.0 5.0 ........... ........... $30.0 $30.0
and Maintenance.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Common Size Standards
When many of the same businesses operate in multiple industries,
SBA believes that a common size standard can be appropriate for these
industries even if the industry and relevant program data support
different size standards. SBA has established a common size standard
for Computer Systems Design and Related Services industries (NAICS
541511, NAICS 541112, NAICS 541513, NAICS 541519 (excluding the
``exception''), and NAICS 811212.
In response to public comments to its 1998 proposed rule (63 FR
5480), SBA also established a common size standard for certain
Architectural, Engineering (A&E) and Related Services industries (NAICS
541310, NAICS 541330 (excluding the ``exceptions''), Map Drafting which
is identified as ``exception'' under NAICS 541340, NAICS 541360 and
NAICS 541370). It is very likely that firms that have expertise in
architectural, engineering and surveying activities are also likely to
be capable of performing drafting work. Similarly, general
architectural firms are very likely to have expertise in
[[Page 14332]]
landscape architectural services. Industry data also show a lot of
similarities among architectural, landscape architectural, engineering,
drafting and surveying industries. Therefore, in this proposed rule,
SBA applies the A&E common size standard to the rest of the industries
in the A&E Industry Group (NAICS 5413), including NAICS 541320, NAICS
541340, NAICS 541350 and NAICS 541380.
In addition to Computer Systems Design and Related Services and A&E
and Related Services, in this proposed rule, SBA considers, as an
alternative to a separate size standard for each industry, common size
standards for industries under several other NAICS Industry Groups as
shown in Table 4. SBA evaluated industry and Federal contracting
factors and derived a common size standard for each Industry Group
using the same method as described above. These results are provided in
Table 5.
Table 4--Industry Groups for Common Size Standards
------------------------------------------------------------------------
Industries: 6-digit
Industry group: NAICS codes Industry group title NAICS codes
------------------------------------------------------------------------
5411........................ Legal Services...... 541110, 451191,
541199.
5412........................ Accounting, Tax 541211, 541213,
Preparation, 541214, 541219.
Bookkeeping and
Payroll Services.
5413........................ Architectural, 541310, 541320,
Engineering and 541330 (excluding
Related Services. ``exceptions''),
541340, 541350,
541360, 541370,
541380.
5414........................ Specialized Design 541410, 541420,
Services. 541430, 541490.
5415, 811212................ Computer Systems 541511, 541512,
Design and Related 541513, 541519
Services + Computer (excluding
and Office Machine ``exception''),
Repair and 811212.
Maintenance.
5416........................ Management, 541611, 541612,
Scientific and 541613, 541614,
Technical 541618, 541620,
Consulting Services. 541690.
5418........................ Advertising and 541810, 541820,
Related Services. 541830, 541840,
541850, 541860,
541870, 541890.
5419........................ Other Professional, 541910, 541921,
Scientific, and 541922, 541930,
Technical Services. 541940, 541990.
------------------------------------------------------------------------
Table 5--Size Standards Supported by Each Factor for Each Industry Group (millions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6) (7) (8) (9)
NAICS code/Industry title Simple Weighted Average Four-firm Four-firm Gini Federal Calculated
average average assets size ratio average coefficient contract size
firm size firm size (%) size factor standard
(%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
5411............................................ $1.3 $90.0 $0.3 2.4% $1,423.1 0.755 -14.6% 10.0
Legal Services.................................. 5.0 25.5 5.0 ........... ........... $10.0 $10.0 ...........
5412............................................ 1.1 66.1 0.5 20.3% 6,033.6 0.781 -1.6% 14.0
Accounting, Tax Preparation, Bookkeeping and 5.0 19.0 5.0 ........... ........... $19.0 ........... ...........
Payroll Services...............................
5413............................................ 2.5 84.3 1.0 ........... ........... 0.837 -6.0% 19.0
Architectural, Engineering and Related Services. 10.0 25.5 7.0 ........... ........... $30.0 ........... ...........
5414............................................ 0.7 5.0 0.2 2.2% 130.0 0.583 -40.3% 7.0
Specialized Design Services..................... 5.0 5.0 5.0 ........... ........... $5.0 $14.0 ...........
5415 + 811212................................... 2.6 122.3 0.9 ........... ........... 0.876 1.3% 25.5
Computer Systems Design and Related Services + 10.0 35.5 7.0 ........... ........... $35.5 ........... ...........
Computer and Office Machine Repair and
Maintenance....................................
5416............................................ 1.4 57.1 0.4 ........... ........... 0.805 -14.8% 14.0
Management, Scientific and Technical Consulting 7.0 14.0 5.0 ........... ........... $25.5 $10.0 ...........
Services.......................................
5418............................................ 2.3 51.5 0.7 13.7% 2,854.1 0.806 -5.3% 14.0
Advertising and Related Services................ 10.0 14.0 5.0 ........... ........... $25.5 ........... ...........
5419............................................ 1.0 25.1 0.3 6.7% 1,085.4 0.650 -44.9% 7.0
Other Professional, Scientific, and Technical 5.0 5.0 5.0 ........... ........... $5.0 $14.0 ...........
Services.......................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Special Considerations
1. Three Sub-Industry Categories (or ``exceptions'') under NAICS
541330, Engineering Services
Currently, NAICS 541330 has four size standards that apply to
Federal contracts for different types of engineering services. The $4.5
million size standard is for general engineering services, while the
other three (i.e., ``exceptions'') apply to specialized types of
engineering services that the Federal government procures. They apply
only to Federal contracts for those services. The lack of relevant data
at the sub-industry level is a challenge to determine whether these
size standards (``exceptions'') should be revised or left unchanged.
Because of that, SBA did not review those exceptions in the February 3,
1998 proposed rule (63 FR 5480) and SBA did not change these size
standards in the May 14, 1999 final rule (64 FR 26275). However, SBA
has increased these size standards over the years for inflation. The
latest inflation adjustment was effective August 18, 2008 (73 FR 41237
(July 18, 2008)).
As noted previously, the data from the Economic Census special
tabulation are limited down to the 6-digit NAICS industry level and
hence do not provide data to assess economic characteristics at the
sub-industry level. For example, the Economic Census data for NAICS
541330 are aggregates of both general engineering services and
specialized engineering services under the three
[[Page 14333]]
``exceptions.'' Thus, the results based on the Economic Census data may
not accurately reflect the characteristics of businesses providing
specialized services included under those ``exceptions.''
To determine whether the Agency should propose revising the three
exceptions under NAICS 541330, SBA evaluated the data from FPDS-NG and
CCR. From FPDS-NG, SBA first identified PSCs that correspond to each
specific sub-industry activity or ``exception'' under that NAICS code
and then identified firms that are active in Federal contracting
involving those PSCs. The data for fiscal year 2008 (the latest year
for which the detailed CCR data are available) showed numerous firms
doing contracts under Military and Aerospace Equipment and Military
Weapons and Marine Engineering and Naval Architecture. SBA analyzed
those firms' revenue and employment data from CCR and contract dollars
from FPDS-NG to evaluate industry and Federal procurement factors.
These results in Table 3 support a size standard of $25.5 million for
both Military and Aerospace Equipment and Military Weapons and Marine
Engineering and Naval Architecture. However, SBA proposes to retain the
current standard of $27.0 million for Military and Aerospace Equipment
and Military Weapons as SBA is not proposing to lower any size
standards in view of the current economic conditions. The FPDS-NG
showed very few actions involving Contracts and Subcontracts for
Engineering Services Awarded Under the National Energy Policy Act of
1992. This made it difficult to evaluate industry and Federal
contracting factors and to derive a separate size standard for that
sub-industry category. Currently, both Contracts and Subcontracts for
Engineering Services Awarded Under the National Energy Policy Act of
1992 and contracts for Military and Aerospace Equipment and Military
Weapons both have the same $27.0 million size standard. Thus, SBA
proposes to retain the current $27.0 million size standard for
Contracts and Subcontracts for Engineering Services Awarded Under the
National Energy Policy Act of 1992. SBA proposes to increase the size
standard for Marine Engineering and Naval Architecture to $25.5 million
as supported by the data. SBA invites comments along with supporting
information on this proposal.
2. Map Drafting Services
Map Drafting Services is currently identified as an ``exception''
under NAICS 541340, Drafting Services. Prior to adopting NAICS for its
size standards, SBA had established separate but common size standards
for Map Drafting Services, Mapmaking (Including Aerial) and
Photogrammetric Mapping Services as exceptions under Standard
Industrial Classification (SIC) code 7389, Business Services, N.E.C.
(Not Elsewhere Classified). Size standards at the sub-industry levels
(``exceptions'') are primarily intended for Federal government
procurement purposes. However, for NAICS 541340 (which includes Map
Drafting Services), there were less than $10 million total contracting
dollars annually during fiscal years 2007-2009, as compared to more
than $2 billion in total revenue for the industry. Therefore, SBA feels
that there is no need for a separate size standard for Map Drafting
Services for Federal procurement and proposes to remove it as an
exception to NAICS 541340. The proposed $14.0 million common A&E size
standard will apply to Drafting Services, including Map Drafting
Services. SBA invites comments along with supporting information on
this proposal.
3. Information Technology Value Added Resellers
On July 24, 2002 SBA proposed establishing a 500 employee size
standard for Information Technology Value Added Resellers (ITVAR) as a
new sub-industry (``exception'') under NAICS 541519 (67 FR 48419). This
was to better reflect the Federal government's acquisition of computer
hardware and software services. In response to public comments and the
results from further analyses of relevant industry data, on December
29, 2003, SBA published the final rule adopting 150 employee size
standard for ITVAR (68 FR 74833). In this proposed rule, SBA proposes
to retain the current 150 employee size standard for ITVAR. SBA invites
comments along with supporting information on this proposal.
4. Computer and Office Machine Repair and Maintenance (NAICS 811212)
The Computer and Office Machine Repair and Maintenance industry
(NAICS 811212) currently has the same size standard as the Computer
Design and Related Services Industry Group (NAICS 5415). Therefore, in
its October 21, 2009 proposed rule for Other Services Sector (74 FR
53941), SBA did not review the size standard for NAICS 811212 and
proposed to retain the current $25 million size standard until it
reviews the Computer Design and Related Services Industries in NAICS
Sector 54. The history of the Computer and Office Machine Repair
industry supports this decision. Under the SIC System, SBA had
established a common size standard for all industries in SIC Industry
Group 737, ``Computer Programming, Data Processing and Other Computer
Related Services'' (56 FR 38364 (August 13, 1991) and 57 FR 27907 (June
23, 1992)). In 1997, SBA replaced the SIC System with the NAICS and
moved most of the industries in SIC Sector 737 to NAICS Sector 54,
Professional, Scientific and Technical Services. However, the Computer
Maintenance and Repair activity was moved to NAICS Sector 81, Other
Services, and was combined with Computer and Office Machine Repair
Maintenance services to form NAICS 811212. Because Computer Maintenance
and Repair was the largest component of the new industry, SBA continued
to apply the size standard for computer services (64 FR 57188 (October
22, 1999) and 65 FR 30836 (May 15, 2000)). SBA continues to believe
that a common size standard should apply to all of the computer
services related industries, including NAICS 811212. SBA welcomes
comments on whether it should continue to apply the same size standard
for computer services to the Computer and Office Machine Repair
Maintenance industry or consider a different size standard based on its
industry characteristics.
5. Research and Development (R&D) in Biotechnology (NAICS 541711) and
R&D in the Physical, Engineering and Life Sciences (Except
Biotechnology) (NAICS 541712)
The current size standards for NAICS 541711 and NAICS 541712
(including three sub-industry groups or ``exceptions'') are based on
number of employees. Moreover, footnote 11 to SBA's Table of
Size Standards states that for R&D contracts requiring the delivery of
a manufactured product, the appropriate size standard is that of the
manufacturing industry. For example, the size standard for aircraft
related R&D contracts under NAICS 541712 is 1,500 employees, the same
as that for Aircraft Manufacturing (NAICS 336411). Therefore, SBA plans
to review the size standards for NAICS 541711 and NAICS 541712 when it
reviews the size standards for the Manufacturing Sector (NAICS Sector
31-33). SBA proposes, therefore, to leave the size standards for those
two industries at their current levels until it reviews NAICS Sector
31-33.
Evaluation of SBA Loan Data
Before deciding on an industry's size standard, SBA also considers
the impact
[[Page 14334]]
of new or revised standards on SBA's loan programs. SBA examined 7(a)
Business Loan Program data for fiscal years 2007-2009 to assess whether
the existing or proposed size standards need further adjustments to
ensure credit opportunities for small businesses through that program.
For the industries reviewed in this proposed rule, users of SBA's 7(a)
Business Loan Program are mostly much smaller than the current size
standards. Based on that analysis, none of the size standards for these
industries needs an adjustment based on this factor.
Proposed Changes to Size Standards
The results of SBA analyses of industry specific size standards
from Table 3 and results for common size standards from Table 5 are
summarized in Table 6. In terms of industry specific size standards,
the results support increases in size standards in 22 industries and
one sub-industry, decreases in 14 industries and one sub-industry and
no changes in 10 industries. Similarly based on common size standards,
the results would support increases in 36 industries and one sub-
industry, decreases in two sub-industries and no changes in 10
industries.
SBA believes that lowering small business size standards is not in
the best interests of small businesses under current economic
conditions. The U.S. economy was in recession from December 2007 to
June 2009, the longest and deepest of any recessions since World War
II. The economy lost a total of nearly 8.5 million non-farm jobs during
2008-2009. In response, Congress passed and the President signed 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 has been
9.4 percent or higher since May 2009 and is forecast to remain above 9
percent through the end of 2011. More recently, Congress passed and the
President signed the Small Business Jobs Act of 2010 (Jobs Act) to
promote small business job creation. The Jobs Act puts more capital
into the hands of entrepreneurs and small business owners; strengthens
small businesses' ability to compete for contracts, including
recommendations from the President's Task Force on Federal Contracting
Opportunities for Small Business; creates a better playing field for
small businesses; promotes small business exporting, building on the
President's National Export Initiative; expands training and
counseling; and provides $12 billion in tax relief to help small
businesses invest in their firms and create jobs.
Table 6--Summary of Size Standards Analysis
----------------------------------------------------------------------------------------------------------------
Calculated
industry Calculated
NAICS codes NAICS industry title specific size common size Current size standard ($
standard ($ standard ($ million)
million) million)
----------------------------------------------------------------------------------------------------------------
541110................... Offices of Lawyers..... $10.0 $10.0 $7.0
541191................... Title Abstract and 5.0 10.0 7.0
Settlement Offices.
541199................... All Other Legal 7.0 10.0 7.0
Services.
541211................... Offices of Certified 14.0 14.0 8.5
Public Accountants.
541213................... Tax Preparation 14.0 14.0 7.0
Services.
541214................... Payroll Services....... 35.5 14.0 8.5
541219................... Other Accounting 7.0 14.0 8.5
Services.
541310................... Architectural Services. 7.0 19.0 4.5
541320................... Landscape Architectural 5.0 19.0 7.0
Services.
541330................... Engineering Services... 25.5 19.0 4.5
Except................... Military and Aerospace 25.5 .............. 27.0
Equipment and Military
Weapons.
Except................... Contracts and NA .............. 27.0
Subcontracts for
Engineering Services
Awarded Under the
National Energy Policy
Act of 1992.
Except................... Marine Engineering and 25.5 .............. 18.5
Naval Architecture.
541340................... Drafting Services...... 14.0 19.0 7.0
Except................... Map Drafting........... NA .............. 4.5
541350................... Building Inspection 7.0 19.0 7.0
Services.
541360................... Geophysical Surveying 25.5 19.0 4.5
and Mapping Services.
541370................... Surveying and Mapping 5.0 19.0 4.5
(except Geophysical)
Services.
541380................... Testing Laboratories... 10.0 19.0 12.0
541410................... Interior Design 5.0 7.0 7.0
Services.
541420................... Industrial Design 5.0 7.0 7.0
Services.
541430................... Graphic Design Services 5.0 7.0 7.0
541490................... Other Specialized 5.0 7.0 7.0
Design Services.
541511................... Custom Computer 14.0 25.5 25.0
Programming Services.
541512................... Computer Systems Design 25.5 25.5 25.0
Services.
541513................... Computer Facilities 35.5 25.5 25.0
Management Services.
541519................... Other Computer Related 19.0 25.5 25.0
Services.
Except................... Information Technology NA .............. 150 employees
Value Added Resellers.
541611................... Administrative 14.0 14.0 7.0
Management and General
Management Consulting
Services.
541612................... Human Resources 14.0 14.0 7.0
Consulting Services.
541613................... Marketing Consulting 7.0 14.0 7.0
Services.
541614................... Process, Physical 19.0 14.0 7.0
Distribution and
Logistics Consulting
Services.
541618................... Other Management 7.0 14.0 7.0
Consulting Services.
541620................... Environmental 5.0 14.0 7.0
Consulting Services.
541690................... Other Scientific and 10.0 14.0 7.0
Technical Consulting
Services.
541720................... Research and 19.0 .............. 7.0
Development in the
Social Sciences and
Humanities.
541810................... Advertising Agencies... 14.0 14.0 7.0
541820................... Public Relations 7.0 14.0 7.0
Agencies.
541830................... Media Buying Agencies.. 25.5 14.0 7.0
541840................... Media Representatives.. 7.0 14.0 7.0
[[Page 14335]]
541850................... Display Advertising.... 25.5 14.0 7.0
541860................... Direct Mail Advertising 19.0 14.0 7.0
541870................... Advertising Material 19.0 14.0 7.0
Distribution Services.
541890................... Other Services Related 7.0 14.0 7.0
to Advertising.
541910................... Marketing Research and 19.0 7.0 7.0
Public Opinion Polling.
541921................... Photography Studios, 7.0 7.0 7.0
Portrait.
541922................... Commercial Photography. 5.0 7.0 7.0
541930................... Translation and 7.0 7.0 7.0
Interpretation
Services.
541940................... Veterinary Services.... 5.0 7.0 7.0
541990................... All Other Professional, 7.0 7.0 7.0
Scientific and
Technical Services.
811212................... Computer and Office 19.0 25.5 25.0
Repair and Maintenance.
----------------------------------------------------------------------------------------------------------------
Reducing size standards would decrease the number of firms that can
participate in Federal financial and procurement assistance.
Furthermore, lowering size standards for those 14 industries would cut
off nearly 1,200 currently eligible small business firms from those
very programs, which would run counter to what the Federal government
is trying to do for small businesses. Reducing size eligibility for
Federal procurement opportunities, especially under current economic
conditions, would not preserve or create more jobs; rather, it would
have the opposite effect. Therefore, SBA has decided not to propose to
reduce the size standards for those industries. SBA has decided to
retain the current size standards in this proposed rule. SBA 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. SBA intends for the proposed size standards, if adopted, to
remain in effect unless and until it receives information or data that
suggests a change is needed.
Based on comparisons between industry specific size standards and
common size standards within each Industry Group, SBA finds that common
size standards are more appropriate for several reasons. First,
analyzing industries at a more aggregated Industry Group level
simplifies size standards analysis and the results are more consistent
among related industries. Second, in most cases, industries within each
Industry Group currently have the same size standards and it is better
to keep the revised size standards also the same. Third, within each
Industry Group many of the same businesses tend to operate in the same
multiple industries. Establishing the common size standard would,
therefore, better reflect the Federal marketplace in those industries
than establishing different size standards for each industry. Fourth,
industry specific size standards and common size standards are mostly
within a reasonably close range.
For industries where both industry specific size standards and
common size standards have been derived, SBA, for the above reasons,
proposes to apply common size standards. For industries (including sub-
industries) where common size standards have not been estimated, SBA
proposes to apply industry specific size standards.
As discussed above, SBA has decided that lowering small business
size standards would be inconsistent with what the Federal government
is doing to stimulate the economy and encourage job growth through the
Recovery Act and Jobs Act. Therefore, SBA proposes to retain the
current size standards for those industries for which its analyses
suggested decreasing their size standards. Thus, of the 45 industries
and three sub-industries in NAICS Sector 54 and one industry in NAICS
Sector 81 that were reviewed in this proposed rule, SBA proposes to
increase size standards for 36 industries and one sub-industry and
retain current standards for 10 industries and two sub-industries. As
discussed above, SBA also proposes to eliminate Map Drafting Services
as an ``exception'' to NAICS 541340, Drafting Services. Industries and
their proposed size standards are shown in Table 7.
Table 7--Summary of Proposed Revisions to Size Standards
------------------------------------------------------------------------
Proposed size Current size
NAICS codes NAICS industry standard ($ standard ($
title million) million)
------------------------------------------------------------------------
541110.............. Offices of Lawyers $10.0 $7.0
541191.............. Title Abstract and 10.0 7.0
Settlement
Offices.
541199.............. All Other Legal 10.0 7.0
Services.
541211.............. Offices of 14.0 8.5
Certified Public
Accountants.
541213.............. Tax Preparation 14.0 7.0
Services.
541214.............. Payroll Services.. 14.0 8.5
541219.............. Other Accounting 14.0 8.5
Services.
541310.............. Architectural 19.0 4.5
Services.
541320.............. Landscape 19.0 7.0
Architectural
Services.
541330.............. Engineering 19.0 4.5
Services.
Except.............. Marine Engineering 25.5 18.5
and Naval
Architecture.
541340.............. Drafting Services. 19.0 7.0
541350.............. Building 19.0 7.0
Inspection
Services.
541360.............. Geophysical 19.0 4.5
Surveying and
Mapping Services.
541370.............. Surveying and 19.0 4.5
Mapping (except
Geophysical)
Services.
[[Page 14336]]
541380.............. Testing 19.0 12.0
Laboratories.
541511.............. Custom Computer 25.5 25.0
Programming
Services.
541512.............. Computer Systems 25.5 25.0
Design Services.
541513.............. Computer 25.5 25.0
Facilities
Management
Services.
541519.............. Other Computer 25.5 25.0
Related Services.
541611.............. Administrative 14.0 7.0
Management and
General
Management
Consulting
Services.
541612.............. Human Resources 14.0 7.0
Consulting
Services.
541613.............. Marketing 14.0 7.0
Consulting
Services.
541614.............. Process, Physical 14.0 7.0
Distribution and
Logistics
Consulting
Services.
541618.............. Other Management 14.0 7.0
Consulting
Services.
541620.............. Environmental 14.0 7.0
Consulting
Services.
541690.............. Other Scientific 14.0 7.0
and Technical
Consulting
Services.
541720.............. Research and 19.0 7.0
Development in
the Social
Sciences and
Humanities.
541810.............. Advertising 14.0 7.0
Agencies.
541820.............. Public Relations 14.0 7.0
Agencies.
541830.............. Media Buying 14.0 7.0
Agencies.
541840.............. Media 14.0 7.0
Representatives.
541850.............. Display 14.0 7.0
Advertising.
541860.............. Direct Mail 14.0 7.0
Advertising.
541870.............. Advertising 14.0 7.0
Material
Distribution
Services.
541890.............. Other Services 14.0 7.0
Related to
Advertising.
811212.............. Computer and 25.5 25.0
Office Repair and
Maintenance.
------------------------------------------------------------------------
Evaluation of Dominance in Field of Operation
In the industries and sub-industries for which SBA proposes to
revise size standards, there are no individual firms at or below the
proposed size standard large enough to dominate their field of
operation. A firm at the proposed size standard in each of these
industries generates less than two percent of total industry receipts.
This level of market share effectively precludes a firm at or below the
proposed size standard from exerting a controlling effect on the
industry.
Request for Comments
SBA invites public comments on the proposed rule, especially on the
following areas.
1. To simplify size standards, SBA proposes eight fixed size levels
for receipts based size standards: $5.0 million, $7.0 million, $10.0
million, $14.0 million, $19.0 million, $25.5 million, $30.0 million and
$35.5 million. SBA invites comments on whether simplification of size
standards in this way is necessary and if these proposed fixed size
levels are appropriate, or suggestions on alternative approaches to
simplifying small business size standards.
2. SBA seeks feedback on whether the proposed levels of size
standards are appropriate given the economic characteristics of each
industry or sub-industry. SBA also seeks feedback and suggestions on
alternative standards, if they would be more appropriate, including
whether an employee based standard for certain industries or sub-
industries is a more suitable measure of size and what that employee
level should be.
3. For industries within several Industry Groups, including Legal
Services (NAICS 5411), Accounting and Related Services (NAICS 5412),
A&E and Related Services (NAICS 5413, except for the exceptions),
Specialized Design Services (NAICS 5414), Computer Related Services
(NAICS 5415 and NAICS 811212), Consulting Services (NAICS 5416),
Advertising and Related Services (NAICS 5418) and Other Professional,
Scientific, and Technical Services (NAICS 5419), SBA proposes a common
size standard. SBA invites comments or suggestions along with
supporting information with respect to the following:
a. Whether SBA should adopt a common size standard for those
industries or establish a separate size standard for each industry.
b. Whether the proposed common size standards for those industries
are at the correct levels or what are more appropriate size standards
if the proposed standards are not suitable.
4. SBA proposes to increase the size standard for Marine
Engineering and Naval Architecture, one of the three exceptions under
NAICS 541330, to $25.5 million from $18.5 million. For the other two
exceptions under NAICS 541330, namely Military and Aerospace Equipment
and Military Weapons and the Contracts and Subcontracts for Engineering
Services Awarded Under the National Energy Policy Act of 1992, SBA
proposes to retain the current $27.0 million size standard. SBA
requests comments, along with supporting information, on whether the
proposed size standards are appropriate or suggestions on alternative
size standards if the proposed standards are inappropriate.
5. SBA feels that there is no need for a separate size standard for
Map Drafting Services for Federal procurement and proposes to remove it
as an exception to NAICS 541340. As stated above, there were less than
$10 million in total contracting dollars annually during fiscal years
2007-2009, as compared to more than $2 billion in total revenue for the
industry in this NAICS code. Given this relatively insignificant level
of Federal contracting for Map Drafting Services (an ``exception''
under NAICS 541340, Drafting Services), SBA proposes to eliminate this
exception. SBA invites comments on whether SBA should remove or retain
the Map Drafting Services as an exception under NAICS 541340.
6. SBA's proposed size standards are based on its evaluation of
five primary factors--average firm size, average assets size (as a
proxy of startup costs and entry barriers), four-firm concentration
ratio, distribution of firms by size and the level and small business
share of Federal contracting dollars. SBA welcomes comments on these
factors and/or suggestions on other factors that it should consider for
assessing industry characteristics when evaluating or revising size
standards.
[[Page 14337]]
SBA also seeks information on relevant data sources, if available.
7. SBA gives equal weight to each of the five primary factors in
all industries. SBA seeks feedback on whether it should continue giving
equal weight to each factor or whether it should give more weight to
one or more factors for certain industries. Recommendations to weigh
some factors more than others should include suggestions on specific
weights for each factor for those industries along with supporting
information.
8. For some industries, SBA proposes to increase the existing size
standards by a large amount (e.g., for certain A&E industries, proposed
size standards are more than three times the current size standards)
while for others the proposed increases are modest. SBA seeks feedback
on whether it should, as a policy, limit the increase to a size
standard and/or whether it should, as a policy, establish minimum or
maximum values for its size standards. SBA seeks suggestions on
appropriate levels of changes to size standards and on their minimum or
maximum levels.
9. SBA requests comments on whether it should lower size standards.
SBA has proposed not to reduce small business size standards where
applying its ``Size Standards Methodology,'' might suggest lowering
them. Rather, SBA opted to retain the current standards for those
industries. SBA explained its reasons for this in the Supplementary
Information above. SBA seeks comments, as it does in its ``Size
Standards Methodology'' (see Policy Issue i on page 47) on whether it
should reduce size standards at all. Because this is a policy issue,
please provide documentation to reinforce your comments either in
support of or opposition to this issue.
10. For analytical simplicity and efficiency, in this proposed
rule, SBA has refined its size standard methodology to obtain a single
value as a proposed size standard instead of a range of values in its
past size regulations. SBA welcomes any comments on this procedure and
suggestions on alternative methods.
Public comments on the above issues are very valuable to SBA for
validating its size standard methodology and proposed revisions to size
standards in this proposed rule. This will help SBA to move forward
with its review of size standards for other NAICS Sectors. Commenters
addressing size standards for a specific industry or a group of
industries should include relevant data and/or other information
supporting their comments. If comments relate to using size standards
for Federal procurement programs, SBA suggests that commenters provide
information on the size of contracts awarded, the size of businesses
that can undertake the contracts, start-up costs, equipment and other
asset requirements, the amount of subcontracting, other direct and
indirect costs associated with the contracts, the use of mandatory
sources of supply for products and services and the degree to which
contractors can mark up those costs.
Compliance With Executive Orders 12866, 12988, 13132 and 13563, the
Paperwork Reduction Act (44 U.S.C. Ch. 35) and the Regulatory
Flexibility Act (5 U.S.C. 601-612). Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
proposed rule is a ``significant'' regulatory action for purposes of
Executive Order 12866. Accordingly, the next section contains SBA's
Regulatory Impact Analysis. This is not a major rule, however, under
the Congressional Review Act, 5 U.S.C. 800.
Regulatory Impact Analysis
1. Is there a need for the regulatory action?
SBA believes that proposed size standards for a number of
industries in NAICS Sector 54, Professional, Scientific and Technical
Services, will better reflect the economic characteristics of small
businesses and the Federal government marketplace. SBA's mission is to
aid and assist small businesses through a variety of financial,
procurement, business development and advocacy programs. To assist the
intended beneficiaries of these programs, SBA must establish distinct
definitions of which businesses are deemed small businesses. The Small
Business Act (15 U.S.C. 632(a)) delegates to SBA's Administrator the
responsibility for establishing small business definitions. The Act
also requires that small business definitions vary to reflect industry
differences. The supplementary information section of this proposed
rule explains SBA's methodology for analyzing a size standard for a
particular industry.
2. What are the potential benefits and costs of this regulatory action?
The most significant benefit to businesses obtaining small business
status because of this rule is gaining eligibility for Federal small
business assistance programs. These include SBA's financial assistance
programs, economic injury disaster loans and Federal procurement
programs intended for small businesses. Federal procurement provides
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 business concerns (SDVO SBC). Other
Federal agencies also may use SBA size standards for a variety of
regulatory and program purposes. Through the assistance of these
programs, small businesses become more knowledgeable, stable and
competitive. In 36 industries and one sub-industry for which SBA has
proposed increasing size standards, SBA estimates that about 9,450
additional firms will obtain small business status and become eligible
for these programs. That number is 1.2 percent of the total number of
firms in those industries defined as small under the current standards.
If adopted as proposed, this would increase the small business share of
total industry receipts in those industries from about 35.0 percent
under the current size standards to 41.0 percent.
The benefits of SBA's proposed increased size standards will accrue
to three groups: (1) Businesses that are above the current size
standards will gain small business status under the higher size
standards, thereby being able to participate in Federal small business
assistance programs; (2) growing small businesses that are close to
exceeding the current size standards will be able to retain their small
business status under the higher size standards, thereby being able to
continue their participation in the programs; and (3) Federal agencies
will have a larger pool of small businesses from which to draw for
their small business procurement programs.
During fiscal years 2007-2009, nearly 90 percent of Federal
contracting dollars spent in industries reviewed in this proposed rule
were accounted for by the 36 industries for which SBA has proposed to
increase size standards. SBA estimates that additional firms gaining
small business status in those industries under the proposed size
standards could potentially obtain Federal contracts totaling up to
$650 million per year under SBA's small business, 8(a), HUBZone, WOSB,
and SDVO SBC Programs and other unrestricted procurements. The added
competition for many of these procurements also could result in lower
prices to the Government for procurements reserved for small
[[Page 14338]]
businesses, but SBA cannot quantify this benefit.
Under SBA's 7(a) Business Loan and 504 Programs, SBA estimates 75-
100 additional loans totaling $15 million to $20 million in Federal
loan guarantees could be made to these newly defined small businesses
under the proposed standards. Increasing the size standards will likely
result in an increase in small business guaranteed loans to businesses
in these industries, but it would be impractical to try to estimate
exactly the extent of their number and the total amount loaned.
The newly defined small businesses would also benefit from SBA's
Economic Injury Disaster Loan (EIDL) Program. Since this program is
contingent upon the occurrence and severity of a disaster, no
meaningful estimate of benefits can be projected for future disasters.
To the extent that 9,450 additional firms could become active in
Federal procurement programs, this may entail some additional
administrative costs to the Federal Government associated with
additional bidders for Federal small business procurement
opportunities, additional firms seeking SBA guaranteed lending
programs, additional firms eligible for enrollment in the Central
Contractor Registration's Dynamic Small Business Search database and
additional firms seeking certification as 8(a) or HUBZone firms or
those qualifying for small business, WOSB, SDVO SBC, and SDB status.
Among businesses in this group seeking SBA assistance, there could be
some additional costs associated with compliance and verification of
small business status and protests of small business status. These
added costs are likely to be minimal because mechanisms are already in
place to handle these administrative requirements.
The costs to the Federal Government may be higher on some Federal
contracts. With a greater number of businesses defined as small,
Federal agencies may choose to set aside more contracts for competition
among small businesses rather than using full and open competition. The
movement from unrestricted to small business set-aside contracting
might result in competition among fewer total bidders, although there
will be more small businesses eligible to submit offers. In addition,
higher costs may result when more full and open contracts are awarded
to HUBZone and SDB businesses that receive price evaluation
preferences. The additional costs associated with fewer bidders,
however, are likely to be minor since, as a matter of law, procurements
may be set aside for small businesses or reserved for the 8(a),
HUBZone, WOSB, or SDVO SBC Programs only if awards are expected to be
made at fair and reasonable prices.
The proposed size standards may have distributional effects among
large and small businesses. Although SBA cannot estimate the actual
outcome of the gains and losses among small and large businesses with
certainty, it can identify several likely impacts. There will likely be
a transfer of some Federal contracts to small businesses from large
businesses. Large businesses may have fewer Federal contract
opportunities as Federal agencies decide to set aside more Federal
contracts for small businesses. In addition, some Federal contracts may
be awarded to HUBZone or SDB concerns instead of large businesses since
those two categories of small businesses may be eligible for an
evaluation adjustment for contracts when they compete on a full and
open basis. Similarly, currently defined small businesses may obtain
fewer Federal contracts due to the increased competition from more
businesses defined as small. This transfer may be offset by a greater
number of Federal procurements set aside for all small businesses. The
number of newly defined and expanding small businesses that are willing
and able to sell to the Federal Government will limit the potential
transfer of contracts away from large and currently defined small
businesses. SBA cannot estimate the potential distributional impacts of
these transfers with any degree of precision because FPDS-NG data only
identify the size of businesses receiving Federal contracts as small
business or other than small businesses; FPDS-NG does not provide the
exact size of the business.
The proposed revisions to the existing size standards for
Professional, Scientific and Technical Services industries is
consistent with SBA's statutory mandate to assist small business. This
regulatory action promotes the Administration's objectives. One of
SBA's goals in support of the Administration's objectives is to help
individual small businesses succeed through fair and equitable access
to capital and credit, Government contracts and management and
technical assistance. Reviewing and modifying size standards, when
appropriate, ensures that intended beneficiaries have access to small
business programs designed to assist them.
Executive Order 13563
A description of the need for this regulatory action and benefits
and costs associated with this action including possible distributions
impacts that relate to Executive Order 13563 is included above in the
Regulatory Impact Analysis under Executive Order 12866.
In an effort to engage interested parties in this action, SBA has
presented its methodology (discussed above under Supplementary
Information) to various industry associations and trade groups,
representing various industry Sectors including Professional Scientific
and Technical Services. SBA also met with various industry groups to
get their feedback on its methodology and other size standards issues.
Several of these groups expressed concerns and suggestions for size
standards for a number of industries in NAICS Sector 54.
Also, SBA sent letters to the Directors of the Offices of Small and
Disadvantaged Business Utilization (OSDBU) and a several Federal
agencies with considerable procurement responsibilities requesting
their feedback on how the agencies use SBA size standards and whether
current standards meet their programmatic needs (both procurement and
non-procurement). SBA gave appropriate consideration to all input,
suggestions, recommendations, and relevant information obtained from
industry groups, individual businesses, and Federal agencies in
preparing this proposed rule.
The review of NAICS Sector 54, Professional, Scientific and
Technical Services, is consistent with Sector 6 of EO 13653, 6. calling
for retrospective analyses of existing rules. The last overall review
of size standards occurred during the late 1970s and early 1980s. Since
then, except for periodic adjustments for monetary based size
standards, most reviews of size standards have been 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, SBA
has begun a comprehensive review of its size standards to ensure that
existing size standards have supportable bases and to revise them when
necessary. In addition, on September 27, 2010 the President of the
United States signed the Small Business Jobs Act of 2010 (Jobs Act).
The Jobs Act directs SBA to conduct a detailed review of all size
standards and to make appropriate adjustments to reflect market
conditions. Specifically, the Jobs Act requires SBA to conduct a
detailed
[[Page 14339]]
review of at least one-third of all size standards during every 18-
month period from the date of its enactment and do a complete review of
all size standards not less frequently than once every 5 years
thereafter.
Executive Order 12988
For purposes of Executive Order 12988, SBA has determined that this
rule is drafted, to the extent practicable, in accordance with the
standards set forth in that Order.
Executive Order 13132
For purposes of Executive Order 13132, SBA has determined that this
rule does not have any Federalism implications warranting the
preparation of a federalism assessment.
Paperwork Reduction Act
For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA has determined that this rule would not impose new reporting or
record keeping requirements, other than those required of SBA.
Initial Regulatory Flexibility Analysis
Under the Regulatory Flexibility Act (RFA), this rule, if
finalized, may have a significant impact on a substantial number of
small entities in NAICS Sector 54, Professional, Scientific and
Technical Services. As described above, this rule may affect small
entities seeking Federal contracts, SBA (7a) and 504 Guaranteed Loan
Programs, SBA Economic Injury Disaster Loans and other Federal small
business programs.
Immediately below, SBA sets forth an initial regulatory flexibility
analysis (IRFA) of this proposed rule addressing the following
questions: (1) What is the need for and objective of the rule? (2) what
is SBA's description and estimate of the number of small entities to
which the rule will apply? (3) what are the projected reporting, record
keeping and other compliance requirements of the rule? (4) what are the
relevant Federal rules which may duplicate, overlap or conflict with
the rule? and (5) what alternatives will allow the Agency to accomplish
its regulatory objectives while minimizing the impact on small
entities?
(1) What is the need for and objective of the rule?
As described above in the supplementary section, SBA reviewed and
modified size standards for NAICS 541310, NAICS 541330, NAICS 541340,
NAICS 541360 and NAICS 541370 in 1998 and 1999. Most of the remaining
size standards in NAICS Sector 54, Professional, Scientific and
Technical Services, have not been reviewed since the early 1980s.
Technology, productivity growth, international competition, mergers and
acquisitions and updated industry definitions may have changed the
structure of many industries in that Sector. Such changes can be
sufficient to support a revision to size standards for some industries.
Based on the analysis of the latest data available to the Agency, SBA
believes that the revised standards in this proposed rule more
appropriately reflect the size of businesses in those industries that
need Federal assistance.
(2) What is SBA's description and estimate of the number of small
entities to which the rule will apply?
If the proposed rule is adopted in its present form, SBA estimates
that about 9,450 additional firms will become small because of
increases in size standards in 36 industries and one sub-industry. That
represents 1.2 percent of total firms in those industries and sub-
industries. This will result in an increase in the small business share
of total industry receipts for this Sector from about 35.0 percent
under the current size standard to 41.0 percent under the proposed
standards. SBA does not anticipate a significant competitive impact on
smaller businesses in these industries because businesses in this
Sector have been requesting SBA to increase these standards. The
proposed standards, if adopted, will enable more small businesses to
retain their small business status for a longer period. Many have lost
their eligibility and find it difficult to compete at such low levels
with companies that are significantly larger than they are. SBA
believes the competitive impact will be positive for existing small
businesses and for those that exceed the size standards but are on the
very low end of those that are not small. They might otherwise be
called or referred to as mid-sized businesses, although SBA only
defines what is small; other entities are other than small.
(3) What are the projected reporting, record keeping and other
compliance requirements of the rule and an estimate of the classes of
small entities, which will be subject to the requirements?
Proposed size standards changes do not impose any additional
reporting or record keeping requirements on small entities. However,
qualifying for Federal procurement and a number of other programs
requires that entities register in the CCR database and certify at
least annually that they are small in the Online Representations and
Certifications Application (ORCA). Therefore, businesses opting to
participate in those programs must comply with CCR and ORCA
requirements. There are no costs associated with either CCR
registration or ORCA certification. Changing size standards alters the
access to SBA programs that assist small businesses, but does not
impose a regulatory burden as they neither regulate nor control
business behavior.
(4) What are the relevant Federal rules, which may duplicate, overlap
or conflict with the rule?
Under Sec. 3(a)(2)(C) of the Small Business Act, 15 U.S.C.
632(a)(2)(c), Federal agencies must use SBA's size standards to define
a small business, unless specifically authorized by statute. In 1995,
SBA published in the Federal Register a list of statutory and
regulatory size standards that identified the application of SBA's size
standards as well as other size standards used by Federal agencies (60
FR 57988 (November 24, 1995)). SBA is not aware of any Federal rule
that would duplicate or conflict with establishing size standards.
However, the Small Business Act and SBA's regulations allow Federal
agencies to develop different size standards if they believe that SBA's
size standards are not appropriate for their programs, with the
approval of SBA's Administrator (13 CFR 121.903). The Regulatory
Flexibility Act authorizes an Agency to establish an alternative small
business definition, after consultation with the Office of Advocacy of
the U.S. Small Business Administration (5 U.S.C. 601(3)).
(5) What alternatives will allow the Agency to accomplish its
regulatory objectives while minimizing the impact on small entities?
By law, SBA is required to develop numerical size standards for
establishing eligibility for Federal small business assistance
programs. Other than varying size standards by industry and changing
the size measures, no practical alternative exists to the systems of
numerical size standards.
List of Subjects in 13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Individuals with
disabilities, Loan programs--business, Reporting and recordkeeping
requirements, Small businesses.
For the reasons set forth in the preamble, SBA proposes to amend
part 13 CFR Part 121 as follows.
[[Page 14340]]
PART 121--SMALL BUSINESS SIZE REGULATIONS
1. The authority citation for part 121 continues to read as
follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 637(a), 644 and
662(5); and Pub. L. 105-135, sec. 401 et seq., 111 Stat. 2592.
2. In Sec. 121.201, in the table, revise the entries for
``541110'', ``541191'', ``541199'', ``541211'', ``541213'', ``541214'',
``541219'', ``541310'', ``541320'', ``541330 introductory entry and
third sub-entry'', ``541340'', ``541350'', ``541360'', ``541370'',
``541380'', ``541511'', ``541512'', ``541513'', ``541519 introductory
entry'', ``541611'', ``541612'', ``541613'', ``541614'', ``541618'',
``541620'', ``541690'', ``541720'', ``541810'', ``541820'', ``541830'',
``541840'', ``541850'', ``541860'', ``541870'', ``541890'', and
``811212'' to read as follows:
Sec. 121.201 What size standards has SBA identified by North American
Industry Classification System codes?
* * * * *
------------------------------------------------------------------------
Size standards Size standards
NAICS codes NAICS U.S. in millions of in number of
industry title dollars employees
------------------------------------------------------------------------
* * * * * * *
541110.............. Offices of Lawyers $10.0 ..............
541191.............. Title Abstract and 10.0 ..............
Settlement
Offices.
541199.............. All Other Legal 10.0 ..............
Services.
541211.............. Offices of 14.0 ..............
Certified Public
Accountants.
541213.............. Tax Preparation 14.0 ..............
Services.
541214.............. Payroll Services.. 14.0 ..............
541219.............. Other Accounting 14.0 ..............
Services.
541310.............. Architectural 19.0 ..............
Services.
541320.............. Landscape 19.0 ..............
Architectural
Services.
541330.............. Engineering 19.0 ..............
Services.
* * * * * * *
Except,............. Marine Engineering 25.5 ..............
and Naval
Architecture.
541340.............. Drafting Services. 19.0 ..............
541350.............. Building 19.0 ..............
Inspection
Services.
541360.............. Geophysical 19.0 ..............
Surveying and
Mapping Services.
541370.............. Surveying and 19.0 ..............
Mapping (except
Geophysical)
Services.
541380.............. Testing 19.0 ..............
Laboratories.
* * * * * * *
541511.............. Custom Computer 25.5 ..............
Programming
Services.
541512.............. Computer Systems 25.5 ..............
Design Services.
541513.............. Computer 25.5 ..............
Facilities
Management
Services.
541519.............. Other Computer 25.5 ..............
Related Services.
* * * * * * *
541611.............. Administrative 14.0 ..............
Management and
General
Management
Consulting
Services.
541612.............. Human Resources 14.0 ..............
Consulting
Services.
541613.............. Marketing 14.0 ..............
Consulting
Services.
541614.............. Process, Physical 14.0 ..............
Distribution and
Logistics
Consulting
Services.
541618.............. Other Management 14.0 ..............
Consulting
Services.
541620.............. Environmental 14.0 ..............
Consulting
Services.
541690.............. Other Scientific 14.0 ..............
and Technical
Consulting
Services.
* * * * * * *
541720.............. Research and 19.0 ..............
Development in
the Social
Sciences and
Humanities.
541810.............. Advertising \10\ 14.0 ..............
Agencies \10\.
541820.............. Public Relations 14.0 ..............
Agencies.
541830.............. Media Buying 14.0 ..............
Agencies.
541840.............. Media 14.0 ..............
Representatives.
541850.............. Display 14.0 ..............
Advertising.
541860.............. Direct Mail 14.0 ..............
Advertising.
541870.............. Advertising 14.0 ..............
Material
Distribution
Services.
541890.............. Other Services 14.0 ..............
Related to
Advertising.
* * * * * * *
811212.............. Computer and 25.5 ..............
Office Repair and
Maintenance.
* * * * * * *
------------------------------------------------------------------------
[[Page 14341]]
Dated: March 9, 2011.
Karen G. Mills,
Administrator.
[FR Doc. 2011-5876 Filed 3-15-11; 8:45 am]
BILLING CODE 8025-01-P