Small Business Size Standards: Manufacturing and Industries With Employee-Based Size Standards in Other Sectors Except Wholesale Trade and Retail Trade

SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AH09

Small Business Size Standards: Manufacturing and Industries With Employee-Based Size Standards in Other Sectors Except Wholesale Trade and Retail Trade

AGENCY:

U.S. Small Business Administration.

ACTION:

Proposed rule.

SUMMARY:

The U.S. Small Business Administration (SBA or the Agency) has reviewed its employee-based small business size definitions (commonly referred to as “size standards”) for North American Industry Classification System (NAICS) sectors related to Mining, Quarrying, and Oil and Gas Extraction (Sector 21); Utilities (Sector 22); Manufacturing (Sector 31-33); Transportation and Warehousing (Sector 48-49); Information (Section 51); Finance and Insurance (Sector 52); Professional, Scientific and Technical Services (Sector 54); and Administrative and Support, Waste Management and Remediation Services (Sector 56) and proposes several changes. Specifically, SBA proposes to increase 150 and retain 282 employee-based size standards in those sectors. SBA also proposes to retain the current 500-employee size standard for Federal procurement of supplies under the nonmanufacturer rule. SBA's proposed revisions relied on its “Size Standards Methodology” (Methodology). SBA seeks comments on its proposed changes to size standards in the above sectors and the data sources it evaluated to develop the proposed size standards.

DATES:

SBA must receive comments to this proposed rule on or before June 27, 2022.

ADDRESSES:

Identify your comments by RIN 3245-AH09 and submit them by one of the following methods: (1) Federal eRulemaking Portal:

www.regulations.gov.

Follow the instructions for submitting comments; or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, Ph.D., Chief, Office of Size Standards, 409 Third Street SW, Mail Code 6530, Washington, DC 20416.

SBA will post all comments to this proposed rule on

www.regulations.gov.

If you wish to submit confidential business information (CBI) as defined in the User Notice at

www.regulations.gov,

you must submit such information to U.S. Small Business Administration, Khem R. Sharma, Ph.D., Chief, Office of Size Standards, 409 Third Street SW, Mail Code 6530, Washington, DC 20416, or send an email to

sizestandards@sba.gov.

Highlight the information that you consider to be CBI and explain why you believe SBA should hold this information as confidential. SBA will review your information and determine whether it will make the information public.

FOR FURTHER INFORMATION CONTACT:

Samuel Castilla, Economist, Office of Size Standards, (202) 205-6618 or

sizestandards@sba.gov.

SUPPLEMENTARY INFORMATION:

Discussion of Size Standards

To determine eligibility for Federal small business assistance, SBA establishes small business size definitions (usually referred to as “size standards”) for private sector industries in the United States. SBA uses two primary measures of business size for size standards purposes: Average annual receipts and average number of employees. SBA uses financial assets for certain financial industries and refining capacity, in addition to employees, for the petroleum refining industry to measure business size. In addition, SBA's Small Business Investment Company (SBIC), Certified Development Company (CDC/504), and 7(a) Loan Programs use either the industry-based size standards or tangible net worth and net income-based alternative size standards to determine eligibility for those programs.

In September 2010, Congress passed the Small Business Jobs Act of 2010 (Pub. L. 111-240, 124 Stat. 2504, September 27, 2010) (“Jobs Act”), requiring SBA to review all size standards every five years and make necessary adjustments to reflect current industry and market conditions. In accordance with the Jobs Act, in early 2016, SBA completed the first five-year review of all size standards—except those for agricultural enterprises for which size standards were previously set by Congress—and made appropriate adjustments to size standards for a number of industries to reflect current industry and Federal market conditions.

During the first five-year comprehensive size standards review, SBA reviewed the employee-based size standards for 25 industries within NAICS Sector 21 (Mining, Quarrying, and Oil and Gas Extraction), 364 industries within NAICS Sector 31-33 (Manufacturing), 15 industries within Sector 48-49 (Transportation and Warehousing), 12 industries within NAICS Sector 51 (Information), 2 industries and 4 subindustries (or “exceptions”) within NAICS Sector 54 (Professional, Scientific and Technical Services), and 4 industries or subindustries (“exceptions”) with employee-based size standards in other sectors covered by this proposed rule. These reviews of employee-based size standards occurred during September 2014 to January 2016. Based on analyses of the relevant industry and Federal contracting data available at that time, SBA increased 15 and decreased 3 employee-based size standards in Sector 21, increased 4 in Sector 48-49, 8 in Sector 51, 3 in Sector 54, and 2 in other sectors (81 FR 4435 (January 26, 2016)). SBA also increased 209 size standards in Sector 31-33 (81 FR 4469 (January 26, 2016)). Table 1, Size Standards Revisions During the First 5-Year Review, provides a summary of these revisions by NAICS sector.

Table 1—Size Standards Revisions During the First 5-Year Review

Sector

Sector name

Number of size

standards

reviewed

Number of size

standards

increased

Number of size

standards

decreased

Number of size

standards

maintained

21

Mining, Quarrying, and Oil and Gas Extraction

25

15

3

7

31-33

Manufacturing

364

209

0

155

48-49

Transportation and Warehousing

15

4

0

11

51

Information

12

8

0

4

54

Professional, Scientific and Technical Services

6

5

0

1

Others

Agriculture, Forestry, Fishing and Hunting (Sector 11); Utilities (Sector 22); Finance and Insurance (Sector 52); Administrative and Support, Waste Management and Remediation Services (Sector 56)

4

2

0

2

Total

426

243

3

180

Currently, there are 27 different size standards levels covering 1,023 NAICS industries and 14 subindustry activities (commonly known as “exceptions” in SBA's Table of Size Standards). Of these 27 size levels, 16 are based on average annual receipts, 9 are based on average number of employees, and 2 are based on other measures.

SBA also adjusts its monetary-based size standards for inflation at least once every 5 years. An interim final rule on SBA's latest inflation adjustment to size standards, effective August 19, 2019, was published in the

Federal Register

on July 18, 2019 (84 FR 34261). SBA also updates its size standards every five years to adopt the Office of Management and Budget's (OMB) latest NAICS revisions to its Table of Size Standards. Effective October 1, 2017, SBA adopted OMB's 2017 NAICS revisions to its size standards (82 FR 44886, September 27, 2017).

1

1

On December 21, 2021, OMB published its “Notice of NAICS 2022 Final Decisions . . .” (86 FR 72277), accepting the Economic Classification Policy Committee (ECPC) recommendations, as outlined in the July 2, 2021,

Federal Register

notice (86 FR 35350), for the 2022 revisions to the North American Industry Classification System (NAICS), . . . .” In the near future, SBA will issue a proposed rule to adopt the OMB NAICS 2022 revisions for its table of size standards. SBA anticipates updating its size standards with the NAICS 2022 revisions, effective October 1, 2022.

This proposed rule is the last of a series of proposed rules that is reviewing size standards of industries grouped by various NAICS sectors. Rather than review all size standards at one time, SBA reviewed size standards by grouping industries within various NAICS sectors that use the same size measure (

i.e.,

employees or receipts). In the current review, SBA reviewed size standards in six groups of NAICS sectors. (In the prior review, SBA reviewed size standards mostly on a sector-by-sector basis.) Once SBA completed its review of size standards for a group of sectors, it issued for public comments a proposed rule to revise size standards for those industries based on the latest available data and other factors deemed relevant by the SBA Administrator.

Below is a discussion of SBA's “Size Standards Methodology” (Methodology), issued on April 11, 2019, and available at

www.sba.gov/size,

for establishing, reviewing, or modifying employee-based size standards that SBA has applied to this proposed rule. SBA examines the structural characteristics of an industry as a basis to assess industry differences and the overall degree of competitiveness of an industry and of firms within the industry. Industry structure is typically examined by analyzing four primary factors—average firm size, degree of competition within an industry, start-up costs and entry barriers, and distribution of firms by size. To assess the ability of small businesses to compete for Federal contracting opportunities under the current size standards, as the fifth primary factor, SBA also examines, for each industry averaging $20 million or more in average annual Federal contract dollars, the small business share in Federal contract dollars relative to the small business share in total industry's receipts. When necessary, SBA also considers other secondary factors that are relevant to the industries and the interests of small businesses, including impacts of size standards changes on small businesses.

Size Standards Methodology

SBA has revised its Methodology for establishing, reviewing, or modifying size standards on April 11, 2019 (84 FR 14587). The Methodology is available on SBA's size standards web page at

www.sba.gov/size.

Prior to finalizing the revised Methodology, SBA issued a notification in the April 27, 2018, edition of the

Federal Register

(83 FR 18468) to solicit comments from the public and notify stakeholders of the proposed changes to the Methodology. SBA considered all public comments in finalizing the Methodology. For a summary of comments and SBA's responses, refer to the SBA's April 11, 2019,

Federal Register

notification cited above.

The Methodology represents a major change from the previous Methodology issued on October 21, 2009 (74 FR 53940). Specifically, SBA is replacing the “anchor” approach applied in the previous methodology with a “percentile” approach for evaluating differences in characteristics among various industries. Under the “anchor” approach, SBA generally evaluated the characteristics of individual industries relative to the average characteristics of industries with the anchor size standard to determine whether they should have a higher or a lower size standard than the anchor. In the “percentile” approach used in 2019's methodology, SBA ranks industries with the same measure of size standards (such as receipts or employees) in terms of four primary industry factors, discussed in the Industry Analysis subsection below. The “percentile” approach is explained more fully elsewhere in this proposed rule. For a more detailed explanation, please see the revised Methodology at

www.sba.gov/size.

Additionally, as the fifth factor, SBA evaluates the difference between the small business share in Federal contract dollars and the small business share in total industry's receipts to compute the size standard for the Federal contracting factor. The overall size standard for an industry is then obtained by averaging all size standards supported by each primary factor. The evaluation of the Federal contracting factor is explained more fully in the Industry Analysis section, below, in this proposed rule.

SBA does not apply all aspects of its Methodology to all proposed rules because not all features are relevant for every industry covered by each proposed rule. For example, since all industries covered by this proposed rule have employee-based size standards, the methodology described in this proposed rule applies only to establishing, reviewing, or modifying employee-based size standards.

Industry Analysis

Congress granted the SBA Administrator discretion to establish

detailed small business size standards. 15 U.S.C. 632(a)(2). Specifically, section 3(a)(3) of the Small Business Act (15 U.S.C. 632(a)(3)) requires that “. . . the [SBA] Administrator shall ensure that the size standard varies from industry to industry to the extent necessary to reflect the differing characteristics of the various industries and consider other factors deemed to be relevant by the Administrator.” Accordingly, the economic structure of an industry is the basis for establishing, reviewing, or modifying small business size standards. In addition, SBA considers current economic conditions, its mission and program objectives, the Administration's current policies, impacts on small businesses under current size and proposed or revised size standards, suggestions from industry groups and Federal agencies, and public comments on the proposed rule. SBA also examines whether a size standard based on industry and other relevant data successfully excludes businesses that are dominant in the industry.

The goal of SBA's size standards review is to determine whether its existing small business size standards reflect the current industry structure and Federal market conditions and revise them when the latest available data suggests that revisions are warranted. In the past, SBA compared the characteristics of each industry with the average characteristics of a group of industries associated with the “anchor” size standard. For example, in the first five-year comprehensive review of size standards under the Jobs Act, $7 million (now $8.0 million due to the inflation adjustment in 2019; see 84 FR 34261 (July 18, 2019)) was considered the “anchor” for receipts-based size standards and 500 employees was the “anchor” for employee-based size standards. If the characteristics of a specific industry under review were similar to the average characteristics of industries in the anchor group, SBA generally adopted the anchor size standard for that industry. If the specific industry's characteristics were significantly different from those in the anchor group, SBA assigned a size standard that was higher or lower than the anchor. To determine a size standard above or below the anchor size standard, SBA evaluated the characteristics of a second comparison group of industries with higher size standards. For industries with receipts-based standards, the second comparison group consisted of industries with size standards between $23 million and $35.5 million, with the weighted average size standard for the group equaling $29 million. For manufacturing and other industries with employee-based size standards (except for Wholesale Trade and Retail Trade), the second comparison group included industries with a size standard of 1,000 employees or 1,500 employees, with the weighted average size standard of 1,323 employees. Using the anchor size standard and average size standard for the second comparison group, SBA computed a size standard for an industry's characteristic (factor) based on the industry's position for that factor relative to the average values of the same factor for industries in the anchor and second comparison groups.

Under the “percentile” approach, for each industry factor, an industry is ranked and compared with the 20th percentile and 80th percentile values of that factor among the industries sharing the same measure of size standards (

i.e.,

receipts or employees). Combining that result with the 20th percentile and 80th percentile values of size standards among the industries with the same measure of size standards, SBA computes a size standard supported by each industry factor for each industry. In the previous methodology, comparison industry groups were predetermined independent of the data, while in the revised Methodology they are established using the actual industry data from the Economic Census tabulation.

The primary factors that SBA evaluates to examine industry structure include average firm size, startup costs and entry barriers, industry competition, and distribution of firms by size. SBA also evaluates, as an additional primary factor, small business success in receiving Federal contracts under the current size standards. Specifically, for the Federal contracting factor, SBA examines the small business share of Federal contract dollars relative to small business share of total receipts within an industry. These are, generally, five important factors (listed below) that SBA examines when establishing, reviewing, or revising a size standard for an industry. However, SBA will also consider and evaluate other secondary factors that it believes are relevant to a particular industry (such as technological changes, growth trends, SBA financial assistance, and other program factors). SBA also considers possible impacts of size standard revisions on eligibility for Federal small business assistance (including access to small business set-aside contracts and SBA's financial assistance), current economic conditions, the Administration's policies, and suggestions from industry groups and Federal agencies. Public comments on proposed rules also provide important additional information. SBA thoroughly reviews all public comments before making a final decision on its proposed revisions to size standards. Below are brief descriptions of each of the five primary factors that SBA has evaluated for each industry being reviewed in this proposed rule. A more detailed description of this analysis is provided in the SBA's Methodology, available at

www.sba.gov/size.

1. Average Firm Size

SBA computes two measures of average firm size: Simple average and weighted average. For industries with employee-based size standards, the simple average is the total employees of the industry divided by the total number of firms in the industry. The weighted average firm size is the summation of all the employees of the firms in an industry multiplied by their share of employees in the industry. The simple average weighs all firms within an industry equally regardless of their size. The weighted average overcomes that limitation by giving more weight to larger firms. The size standard supported by average firm size is obtained by averaging size standards supported by simple average firm size and weighted average firm size.

If the average firm size of an industry is higher than the average firm size for most other industries, this would generally support a size standard higher than the size standards for other industries. Conversely, if the industry's average firm size is lower than that of most other industries, it would provide a basis to assign a lower size standard as compared to size standards for most other industries.

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 an industry under review have greater capital requirements than firms in most other industries, all other factors remaining the same, this would be a basis for a higher size standard. Conversely, if the industry has smaller capital needs compared to most other industries, a lower size standard would be considered appropriate.

Given the lack of actual data on startup costs and entry barriers by industry, SBA uses average assets as a proxy for startup costs and entry barriers. To calculate average assets,

SBA begins with the sales to total assets ratio for an industry from the Risk Management Association's Annual Statement Studies, available at

https://rmau.org.

SBA then applies these ratios to the average receipts of firms in that industry obtained from the Economic Census tabulation. An industry with average assets that are significantly higher than most other industries is likely to have higher startup costs; this in turn will support a higher size standard. Conversely, an industry with average assets that are similar to or lower than most other industries is likely to have lower startup costs; this will support either lowering or maintaining the size standard.

3. Industry Competition

Industry competition is generally measured by the share of total industry receipts generated by the largest firms in an industry. SBA generally evaluates the share of industry receipts generated by the four largest firms in each industry. This is referred to as the “four-firm concentration ratio,” a commonly used economic measure of market competition. Using the four-firm concentration ratio, SBA compares the degree of concentration within an industry to the degree of concentration of the other industries with the same measure of size standards. If a significantly higher share of economic activity within an industry is concentrated among the four largest firms compared to most other industries, all else being equal, SBA would set a size standard that is relatively higher than for most other industries. Conversely, if the market share of the four largest firms in an industry is appreciably lower than the similar share for most other industries, the industry will be assigned a size standard that is lower than those for most other industries.

4. Distribution of Firms by Size

SBA examines the shares of industry total receipts accounted for by firms of different receipts and employment sizes in an industry. This is an additional factor SBA considers in assessing competition within an industry besides the four-firm concentration ratio. If the preponderance of an industry's economic activity is attributable to smaller firms, this generally indicates that small businesses are competitive in that industry, which would support adopting a smaller size standard. A higher size standard would be supported for an industry in which the distribution of firms indicates that most of the economic activity is concentrated among the larger firms.

Concentration is a measure of inequality of distribution. To determine the degree of inequality of distribution in an industry, SBA computes the Gini coefficient, using the Lorenz curve. The Lorenz curve presents the cumulative percentages of units (firms) along the horizontal axis and the cumulative percentages of receipts (or other measures of size) along the vertical axis. (For further detail, see SBA's Methodology on its website at

www.sba.gov/size.

) Gini coefficient values vary from zero to one. If receipts are distributed equally among all the firms in an industry, the value of the Gini coefficient will equal zero. If an industry's total receipts are attributed to a single firm, the Gini coefficient will equal one.

SBA compares the degree of inequality of distribution for an industry under review with other industries with the same type of size standards. If an industry shows a higher degree of inequality of distribution (hence a higher Gini coefficient value) compared to most other industries in the group this would, all else being equal, warrant a size standard that is higher than the size standards assigned to most other industries. Conversely, an industry with lower degree of inequality (

i.e.,

a lower Gini coefficient value) than most others will be assigned a lower size standard relative to others.

5. Federal Contracting

As the fifth factor, SBA examines the success small businesses are having in winning Federal contracts under the current size standard as well as the possible impact a size standard change may have on Federal small business contracting opportunities. The Small Business Act requires the Federal Government to ensure that small businesses receive a “fair proportion” of Federal contracts. The legislative history also discusses the importance of size standards in Federal contracting. To incorporate the Federal contracting factor in the size standards analysis, SBA evaluates small business participation in Federal contracting in terms of the share of total Federal contract dollars awarded to small businesses relative to the small business share of industry's total receipts. In general, if the share of Federal contract dollars awarded to small businesses in an industry is significantly smaller than the small business share of total industry's receipts, all else remaining the same, a justification would exist for considering a size standard higher than the current size standard. In cases where small business share of the Federal market is already appreciably high relative to the small business share of the overall market, SBA generally assumes that the existing size standard is adequate with respect to the Federal contracting factor.

The disparity between the small business Federal market share and industry-wide small business share may be due to various factors, such as extensive administrative and compliance requirements associated with Federal contracts, the different skill set required to perform Federal contracts as compared to typical commercial contracting work, and the size of Federal contracts. These, as well as other factors, are likely to influence the type of firms within an industry that compete for Federal contracts. By comparing the small business Federal contracting share with the industry-wide small business share, SBA includes in its size standards analysis the latest Federal market conditions. Besides the impact on Federal contracting, SBA also examines impacts on SBA's loan programs both under the current and revised size standards.

Sources of Industry and Program Data

SBA's primary source of industry data used in this proposed rule for evaluating industry characteristics and developing size standards is a special tabulation of the Economic Census from the U.S. Census Bureau (

www.census.gov/econ/census

). The tabulation based on the 2012 Economic Census was the latest available when this proposed rule was developed. The special tabulation provides industry data on the number of firms, number of establishments, number of employees, annual payroll, and annual receipts of companies by Industry (6-digit level), Industry Group (4-digit level), Subsector (3-digit level), and Sector (2-digit level). These data are arrayed by various classes of firms' size based on the overall number of employees and receipts of the entire enterprise (all establishments and affiliated firms) from all industries. The special tabulation also contains information for different levels of NAICS categories on average and median firm size in terms of both receipts and employment, total receipts generated by the four and eight largest firms, the Herfindahl-Hirschman Index (HHI), the Gini coefficient, and size distributions of firms by various receipts and employment size groupings.

In some cases where data were not available due to disclosure prohibitions in the Census Bureau's tabulation, SBA either estimated missing values using available relevant data or examined data at a higher level of industry aggregation, such as at the NAICS two-digit (Sector),

three-digit (Subsector), or four-digit (Industry Group) level. In some instances, SBA's analysis was based only on those factors for which data were available or estimates of missing values were possible.

To evaluate some industries that are not covered by the Economic Census, SBA used a similar special tabulation of the latest County Business Patterns (CBP) published by the U.S. Census Bureau (

www.census.gov/programs-surveys/cbp.html

). Similarly, to evaluate industries in NAICS Sector 11 that are also not covered by the Economic Census and CBP, SBA evaluated a similar special tabulation based on the 2012 Census of Agriculture (

www.nass.usda.gov

) from the National Agricultural Statistics Service (NASS). Besides the Economic Census, Agricultural Census and CBP tabulations, SBA also evaluates relevant industry data from other sources when necessary, especially for industries that are not covered by the Economic Census or CBP. These include the Quarterly Census of Employment and Wages (QCEW, also known as ES-202 data) (

www.bls.gov/cew/

) and Business Employment Dynamics (BED) data (

www.bls.gov/bdm/

) from the U.S. Bureau of Labor Statistics. Similarly, to evaluate certain financial industries that have asset-based size standards, SBA examines the data from the Statistics on Depository Institutions (SDI) database (

www5.fdic.gov/sdi/main.asp

) of the Federal Depository Insurance Corporation (FDIC) data. Finally, to evaluate the capacity component of the Petroleum Refiners (NAICS 324110) size standard, SBA evaluates the petroleum production data from the Energy Information Administration (

www.eia.gov

).

To calculate average assets, SBA used sales to total assets ratios from the Risk Management Association's Annual eStatement Studies, 2016-2018 (

https://rmau.org

). To evaluate the Federal contracting factor, SBA examined the data on Federal prime contract awards from the Federal Procurement Data System—Next Generation (FPDS-NG) (

www.fpds.gov

) for fiscal years 2016-2018. To assess the impact on financial assistance to small businesses, SBA examined its internal data on 7(a) and 504 loan programs for fiscal years 2018-2020. For some portion of impact analysis, SBA also evaluated data from FPDS-NG for fiscal years 2018-2020 and the System for Award Management (SAM) (

www.sam.gov

).

Data sources and estimation procedures SBA uses in its size standards analysis are documented in detail in SBA's Methodology, which is available at

www.sba.gov/size.

Dominance in Field of Operation

Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a small business concern as one 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 or revised 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 or revised size standard as well as the distribution of firms by size. Market share and size distribution may indicate whether a firm can exercise a major controlling influence on a national basis in an industry where a significant number of business concerns are engaged. If a contemplated size standard includes a dominant firm, SBA will consider a lower size standard to exclude the dominant firm from being defined as small.

Selection of Size Standards

In the 2009 Methodology, SBA applied to the first five-year comprehensive review of size standards, SBA adopted a fixed number of size standards levels as part of its effort to simplify size standards. In response to public comments to the 2009 Methodology white paper, and the 2013 amendment to the Small Business Act (section 3(a)(8)) under section 1661 of the National Defense Authorization Act for Fiscal Year 2013 (“NDAA 2013”) (Pub. L. 112-239, January 2, 2013), in the 2019 Methodology, SBA has relaxed the limitation on the number of small business size standards. Specifically, section 1661 of NDAA 2013 states “SBA cannot limit the number of size standards, and shall assign the appropriate size standard to each industry identified by NAICS.”

In the revised Methodology, SBA calculates a separate size standard for each NAICS industry. However, to account for errors and limitations associated with various data SBA evaluates in the size standards analysis, SBA rounds the calculated size standard value for a receipts-based size standard to the nearest $500,000, except for agricultural industries in Subsectors 111 and 112 for which the calculated size standards will be rounded to the nearest $250,000. Similarly, the calculated value for an employee-based size standard is rounded to the nearest 50 employees for industries in manufacturing and other sectors (except Wholesale Trade and Retail Trade) and to the nearest 25 employees for industries in Wholesale Trade and Retail Trade. This rounding procedure is applied both in calculating a size standard for each of the five primary factors and in calculating the overall size standard for the industry.

As a policy decision, SBA continues to maintain the minimum and maximum levels for both receipts and employee-based size standards. Accordingly, SBA will not generally propose or adopt a size standard that is either below the minimum level or above the maximum, even though the calculations may yield values below the minimum or above the maximum. The minimum size standard reflects the size an established small business should be to have adequate capabilities and resources to be able to compete for and perform Federal contracts (but does not account for small businesses that are newly formed or just starting operations). On the other hand, the maximum size standard represents the level above which businesses, if qualified as small, would outcompete much smaller businesses when accessing Federal assistance.

With respect to employee-based size standards, SBA has established 250 employees and 1,500 employees, respectively, as the minimum and maximum size standard levels for Manufacturing and other industries (excluding Wholesale and Retail Trade). SBA has established 50 employees and 250 employees, respectively, as the minimum and maximum employee-based size standard levels for Wholesale and Retail Trade. These levels reflect the current minimum of 100 employees and the current maximum of 1,500 employees in SBA's existing size standards. The industry data suggests that a 250-employee minimum and 1,500-employee maximum size standards would be too high for Wholesale and Retail Trade industries. Accordingly, SBA has established 50 employees as the minimum size standard and 250 employees as the maximum size standard for Wholesale and Retail Trade industries.

Evaluation of Industry Factors

As mentioned in the previous section, to assess the appropriateness of the current size standards, SBA evaluates the structure of each industry in terms of four economic characteristics or factors: average firm size, average assets size as a proxy for startup costs and entry barriers, the four-firm concentration ratio as a measure of industry competition, and size

distribution of firms using the Gini coefficient. For each size standard type (

i.e.,

receipts-based, or employee-based), SBA ranks industries both in terms of each of the four industry factors and in terms of the existing size standard and computes the 20th percentile and 80th percentile values for both. SBA then evaluates each industry by comparing its value for each industry factor to the 20th percentile and 80th percentile values for the corresponding factor for industries under a particular type of size standard.

If the characteristics of an industry under review within a particular size standard type are similar to the average characteristics of industries within the same size standard type in the 20th percentile, SBA will consider adopting as an appropriate size standard for that industry the 20th percentile value of size standards for those industries. For each size standard type, if the industry's characteristics are similar to the average characteristics of industries in the 80th percentile, SBA will assign a size standard that corresponds to the 80th percentile in the size standard rankings of industries. A separate size standard is established for each factor based on the amount of differences between the factor value for an industry under a particular size standard type and 20th percentile and 80th percentile values for the corresponding factor for all industries in the same type. Specifically, the actual level of the new size standard for each industry factor is derived by a linear interpolation using the 20th percentile and 80th percentile values of that factor and corresponding percentiles of size standards. Each calculated size standard is bounded between the minimum and maximum size standards levels, as discussed before. As noted earlier, the calculated value for an employee-based size standard is rounded to the nearest 50 employees for industries in Manufacturing and other sectors (except Wholesale Trade and Retail Trade) and to the nearest 25 employees for industries in Wholesale Trade and Retail Trade.

Table 2, 20th and 80th Percentiles of Industry Factors for Employee-Based Size Standards, shows the 20th percentile and 80th percentile values for average firm size (simple and weighted), average assets size, four-firm concentration ratio, and Gini coefficient for industries with employee-based size standards.

Table 2—20th and 80th Percentiles of Industry Factors for Employee-Based Size Standards

Industries/percentiles

Simple average

firm size

(number of

employees)

Weighted average

firm size

(number of

employees)

Average

assets size

($ million)

Four-firm

concentration ratio

(%)

Gini coefficient

Manufacturing and other industries, excluding Sectors 42 and 44-45

20th percentile

29.5

250.7

4.14

24.7

0.760

80th percentile

118.3

1,629.0

40.54

61.3

0.853

Industries in Sectors 42 and 44-45

20th percentile

12.6

199.8

3.19

16.1

0.794

80th percentile

27.9

1,693.8

11.53

38.9

0.865

Estimation of Size Standards Based on Industry Factors

An estimated size standard supported by each industry factor is derived by comparing its value for a specific industry to the 20th percentile and 80th percentile values for that factor. If an industry's value for a particular factor is near the 20th percentile value in the distribution, the supported size standard will be one that is close to the 20th percentile value of size standards for industries in the size standards group (

i.e.,

industries with employee-based size standards covered by this proposed rule), which is 500 employees. If a factor for an industry is close to the 80th percentile value of that factor, it would support a size standard that is close to the 80th percentile value in the distribution of size standards, which is 1,250 employees. For a factor that is within, above, or below the 20th-80th percentile range, the size standard is calculated using linear interpolation based on the 20th percentile and 80th percentile values for that factor and the 20th percentile and 80th percentile values of size standards.

For example, if an industry's simple average firm size in number of employees is 50 employees, that would support a size standard of 650 employees. According to Table 2, the 20th percentile and 80th percentile values of average number of employees are 29.5 and 118.3 employees, respectively. The 50-employee average firm size is 23.1% between the 20th percentile value (29.5 employees) and the 80th percentile value (118.3 employees) of simple average firm size in number of employees ((50 employees−29.5 employees) ÷ (118.3 employees−29.5 employees) = 0.2308 or 23.1%)). Applying this percentage to the difference between the 20th percentile value (500 employees) and 80th percentile (1,250 employees) value of size standards and then adding the result to the 20th percentile size standard value (500 employees) yields a calculated size standard value of 673 employees ([{1,250 employees−500 employees} * 0.231] + 500 employees = 673 employees). The final step is to round the calculated 673 employee size standard to the nearest 50 employees, which in this example yields 650 employees. This procedure is applied to calculate size standards supported by other industry factors. Detailed formulas involved in these calculations are presented in SBA's Methodology, which is available on its website at

www.sba.gov/size.

Derivation of Size Standards Based on Federal Contracting Factor

Besides industry structure, SBA also evaluates Federal contracting data to assess the success of small businesses in getting Federal contracts under the existing size standards. For each industry with $20 million or more in annual Federal contract dollars, SBA evaluates the small business share of total Federal contract dollars relative to the small business share of total industry receipts. All other factors being equal, if the share of Federal contracting dollars awarded to small businesses in an industry is significantly less than the small business share of that industry's total receipts, a justification would exist for considering a size standard higher than the current size standard.

Conversely, if the small business share of Federal contracting activity is near or above the small business share in total industry receipts, this will support the current size standard.

SBA increases the existing size standards by certain percentages when the small business share of total industry receipts exceeds the small business share of total Federal contract dollars by ten or more percentage points. Proposed percentage increases generally reflect employee levels needed to bring the small business share of Federal contracts on par with the small business share of industry receipts. These proposed percentage increases for employee-based size standards are given in Table 3, Proposed Adjustments to Size Standards Based on Federal Contracting Factor.

Table 3—Proposed Adjustments to Size Standards Based on Federal Contracting Factor

Size standards

Percentage difference between the small business shares of total Federal contract dollars in an industry

and of total industry receipts

>−10%

−10% to −30%

<−30%

Employee-based standards:

<500 employees

No change

Increase 30%

Increase 60%.

500 to <1,000 employees

No change

Increase 20%

Increase 40%.

1,000 to <1,500 employees

No change

Increase 15%

Increase 25%.

For example, if an industry with the current size standard of 750 employees had an average of $50 million in Federal contracting dollars, of which 15% went to small businesses, and if small businesses accounted for 40% of total receipts of that industry, the small business share of total Federal contract dollars would be 25% less than the small business share of total industry receipts (40%−15%). According to the adjustments shown in Table 3 (above), the new size standard for the Federal contracting factor for that industry would be set by multiplying the current 750 employee standard by 1.2 (

i.e.,

20% increase) and then by rounding the result to the nearest 50 employees, yielding a size standard of 900 employees.

SBA evaluated the small business share of total Federal contract dollars for the 210 industries covered by this proposed rule that had $20 million or more in average annual Federal contract dollars during fiscal years 2016-2018. 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 ten percentage points or more) in 64 of these industries, prompting an upward adjustment of their existing size standards based on that factor. For the remaining 146 industries that averaged $20 million or more in average annual contract dollars, the Federal contracting factor was not significant, and the existing size standard was applied for that factor. For industries with less than $20 million in average annual contract dollars, no size standard was calculated for the Federal contracting factor.

Derivation of Overall Industry Size Standard

The SBA's methodology presented above results in five separate size standards based on evaluation of the five primary factors (

i.e.,

four industry factors and one Federal contracting factor). SBA typically derives an industry's overall size standard by assigning equal weights to size standards supported by each of these five factors. However, if necessary, SBA's methodology would allow assigning different weights to some of these factors in response to its policy decisions and other considerations. For detailed calculations, see SBA's methodology, available on its website at

www.sba.gov/size

.

Calculated Size Standards Based on Industry and Federal Contracting Factors

Table 4, Size Standards Supported by Each Factor for Each Industry (Employees), below, shows the results of analyses of industry and Federal contracting factors for each industry and subindustry (“exception”) covered by this proposed rule. NAICS industries in columns 2, 3, 4, 5, 6, 7, and 8 show two numbers. The upper number is the value for the industry or Federal contracting factor shown on the top of the column and the lower number is the size standard supported by that factor. Column 9 shows a calculated new size standard for each industry. This is the average of the size standards supported by each factor (the size standard for average firm size is an average of size standards supported by simple average firm size and weighted average firm size), rounded to the nearest 50 employees for industries in Manufacturing and other sectors (except Wholesale Trade and Retail Trade) and to the nearest 25 employees for industries in Wholesale Trade and Retail Trade. Analytical details involved in the averaging procedure are described in SBA's methodology, which is available on its website at

www.sba.gov/size

. For comparison with the calculated new size standards, the current size standards are in column 10 of Table 4.

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Evaluation of Size Standards for Select NAICS Industries and Subindustry Categories or “Exceptions”

In accordance with the SBA's approach to evaluating size standards for industries or subindustries (or “exceptions”) as described in the SBA's size standards Methodology, in the following subsections, SBA evaluates the size standards for three NAICS industries and five exceptions that are not covered by the Economic Census tabulation. The three NAICS industries are NAICS 482211 (Line Haul Railroads), NAICS 482212 (Short Line Railroads), and NAICS 324110 (Petroleum Refineries), for which the refining capacity component of the size standard is not covered by the Economic Census tabulation. The five exceptions are the three Research and Development (R&D) exceptions to NAICS 541715, the Information Technology Value Added Resellers (ITVAR) exception to NAICS 541519, and the Environmental Remediation Services (ERS) exception to NAICS 562910.

NAICS 324110—Petroleum Refineries

Among all industries for which SBA establishes size standards, only NAICS 324110 (Petroleum Refineries) comprises two size measures in its size standard—number of employees and total daily refining capacity. As explained in Footnote 4 of the SBA's Table of Size Standards (13 CFR 121.201), to qualify as small for purposes of Government procurement, the petroleum refiner, including its affiliates, must be a concern that has either no more than 1,500 employees or no more than 200,000 barrels per calendar day total Operable Atmospheric Crude Oil Distillation capacity. Capacity includes all domestic and foreign affiliates, all owned or leased facilities, and all facilities under a processing agreement or an arrangement such as an exchange agreement or a throughput. To qualify under the capacity size standard, the firm, together with its affiliates, must be primarily engaged in refining crude petroleum into refined petroleum products. A firm's “primary industry” is determined in accordance with 13 CFR 121.107.

During the first five-year review of size standards, SBA proposed to increase the capacity component of the Petroleum Refiners industry (NAICS 324110) size standard from 125,000 barrels per calendar day (BPCD) total Operable Atmospheric Crude Oil Distillation capacity to 200,000 BPCD total capacity and retain the employee component at the 1,500-employee level (79 FR 54145 (November 10, 2014)). SBA also proposed to allow business concerns to qualify as small either under the 1,500-employee size standard or under the 200,000 BPCD capacity size standard, if they, together with affiliates, are primarily engaged in petroleum refining. Finally, SBA proposed to eliminate the requirement that, for purposes of Federal contracting, “[t]he total product to be delivered under the contract must be at least 90% refined by the successful bidder from either crude oil or bona fide feedstocks.” SBA determined that the 90% requirement was overly restrictive for small refiners to compete for government contracts. SBA adopted these proposed changes without amendments in a 2016 final rule (81 FR 4469 (January 26, 2016)).

To evaluate the refining capacity component of the size standard for NAICS 324110 in the current review of size standards, SBA coordinated with the Defense Logistics Agency (DLA) to obtain a special tabulation of refinery production data, maintained by the Energy Information Administration (EIA). This tabulation included data on employees and various measures of production capacity. SBA also obtained the data from SAM, FPDS-NG, and other publicly available information such as corporate 10-K filings and annual reports to evaluate the economic characteristics of NAICS 324110 in terms of production capacity.

To determine if the current size standard for Petroleum Refineries is still appropriate, SBA used the above data to analyze both total and aviation fuel capacity, as well as the number of employees of all refiners operating in the United States. SBA also examined industry trends and the Federal Government's petroleum procurement needs.

SBA's analysis of the above data showed that the production capacity of the petroleum refineries industry is concentrated among the largest 30% of firms, as measured by BPCD total capacity. Specifically, the largest 30% of firms account for over 83% of the total industry production capacity. The average size of firms exceeding 200,000 BPCD total production capacity is 40,178 employees.

Currently, about 60% of firms, representing 26% of employees, are classified as small under the 200,000 BPCD total capacity size standard. The average size of these firms is 11,064 employees. SBA's analysis showed that increasing the total capacity size standard beyond the current 200,000 BPCD level, even by 150% increase from the current level, would only marginally increase the number of small firms in this industry, and would include firms with characteristics similar to the dominant firms at the top of the size distribution. Based on this analysis, SBA proposes to maintain the refining capacity component of the size standard for Petroleum Refineries at 200,000 BPCD total Operable Atmospheric Crude Oil Distillation capacity. As presented in Table 4 (above), based on the data from the 2012 Economic Census, SBA also proposes to maintain the employee component of the size standard for Petroleum Refineries at the current 1,500-employee level.

NAICS 482111—Line Haul Railroads and NAICS 482112—Short Line Railroads

SBA's primary source of industry data used in this proposed rule is a special tabulation of the 2012 Economic Census prepared by the U.S. Bureau of the Census for SBA. The 2012 Economic Census data are the latest Economic Census data available at the time of drafting this proposed rule.

In some cases, certain industries are not covered by the Economic Census; thus, they are not represented in the Census Bureau's special tabulation. For those industries, SBA first identifies companies that are registered in SAM under those industry NAICS codes and then evaluates their employment and revenue data obtained from their SAM profiles. SBA supplements the SAM data with revenue and employment data from FPDS-NG and, in some cases, the data from other Federal agencies and industry trade groups to establish the industry characteristics necessary to evaluate the size standard for the industry. In some instances, SBA's analysis is based only on those factors for which data are available or estimates of missing values are possible. SBA applied this approach to the evaluation of industry factors for two industries in NAICS Sector 48-49 that are not covered by the Economic Census, namely Line Haul Railroads (NAICS 482111) and Short Line Railroads (NAICS 482112).

During the first five-year review of size standards, based on the data from SAM, SBA proposed to maintain the 1,500-employee size standard for Line Haul Railroads and increase the size standard for Short Line Railroads from 500 employees to 1,500 employees (79 FR 53646 (September 10, 2014)). In the final rule, SBA adopted this proposal without change (81 FR 4435 (January 26, 2016)).

To evaluate the size standard for these industries during the ongoing second

five-year size standards review, SBA relied on data from SAM, industry trade groups, and other Federal agencies. SBA sought data external to SAM because of a lack of adequate representation of firms in those industries in the SAM database. For example, the Railroad Facts 2019 Edition statistical publication of the American Association of Railroads (AAR) estimates that there were 613 railroads in the U.S. in 2017; however, the number of firms registered under NAICS 482111 or 482112 as their primary NAICS code was only 37 based on the 2019 SAM data. The data for these industries in FPDS-NG was also equally inadequate for purposes of evaluating size standards for those industries. Thus, SBA was not able to rely on the SAM and FPDS-NG data alone to determine the economic characteristics of those industries. SBA also evaluated its internal data from its 7(a), 504, and disaster loan programs for purposes of determining economic characteristics of NAICS 482111 and 482112; however, SBA found that there was very limited loan activity in those industries.

To determine the economic characteristics of NAICS 482111 and 482112 and calculate the industry factors for evaluation of their size standards, SBA relied on the 2018 data from the Railroad Retirement Board (RRB), which publishes employment data for railroad employers. SBA used this data to calculate the simple and weighted average firm size in terms of employees. SBA used the data from AAR and the American Short Line and Regional Railroad Association (ASLRRA) to calculate average assets and the four-firm concentration ratio. SBA was not able to obtain suitable data on receipts to calculate the Gini coefficient values for these industries. SBA requests suggestions on sources of data for the railroad industry that include an estimate of the receipts per firm similar to the employee data provided by the RRB.

Based on the data from the RRB, SBA was unable to reliably determine the number of railroads primarily engaged in either the Line Haul Railroad or Short Line Railroad industry. For statistical and regulatory purposes, most Federal agencies and trade associations do not classify railroads in terms of line haul or short line railroads. Instead, railroads are classified based on other characteristics, such as class, revenue, or track mileage owned/operated. For example, the Surface Transportation Board (STB), the Federal agency responsible for regulating railroad rates and service, categorizes rail carriers into three classes: Class I, Class II, and Class III. These classes are based on the carrier's annual operating revenues. For 2019, Class I carriers were defined as those earning above $504.80 million in revenue; Class II carriers as those earning $40.38 million or more in revenue and less than the Class I threshold; and Class III carriers as those earning less than the Class II minimum. The AAR identifies two groups of non-Class I railroads based on revenue and track mileage covered: Regional railroads and Local railroads. Regional railroads are line haul railroads below the Class I revenue threshold, operating at least 350 miles of railroad track and earning at least $20 million in revenue, or earning revenue between $40 million and the Class I revenue threshold, regardless of track mileage operated. Local railroads are line haul railroads below the Regional criteria, plus switching and terminal railroads. The RRB classifies railroads by Class I and non-Class I operator. Based on the available data, SBA was not able to reliably determine the composition of the railroad industry at the 6-digit NAICS industry level. Thus, for purposes of analysis, SBA combines the operators in NAICS industries 482111 and 482112 to determine a size standard for those industries.

The results from SBA's analysis are presented in Table 4 (above) of this proposed rule. The analysis supports maintaining the current size standard of 1,500 employees for both the Line Haul Railroad (NAICS 482111) and Short Line Railroad industries (NAICS 482112). SBA invites comments, along with supporting information, on this proposal as well as sources of data that more clearly define the economic characteristics of these industries.

Exception to NAICS 541519—Information Technology Value Added Resellers

Information Technology Value Added Resellers (ITVAR) is a subindustry (or “exception”) under NAICS 541519 (Other Computer Related Services). SBA first proposed to establish this subindustry category in 2002 in order to better apply small business eligibility requirements under Federal contracts that combine substantial services with the acquisition of computer hardware and software (67 FR 48419 (July 24, 2002)). The following year, SBA adopted the ITVAR industry category, as proposed, with a size standard of 150 employees (68 FR 74833 (December 28, 2003)). As stated in Footnote 18 to the SBA's Table of Size Standards, for a Federal contract to be classified under the ITVAR subindustry or “exception” and its 150-employee size standard, it must consist of at least 15% but not more than 50% of value added services, as measured by the total price less cost of computer hardware and software, and profit. If the contract consists of less than 15% of value-added services, it must be classified under the appropriate manufacturing NAICS industry. If the contract consists of more than 50% of value-added services, it must be classified under the NAICS industry that best describes the principal nature of services being procured.

In 2014, as part of the first 5-year review of size standards, SBA proposed to eliminate the ITVAR exception due to inconsistencies and misuse (79 FR 53646 (September 10, 2014)). For example, SBA's evaluation of FPDS-NG data and solicitations at that time revealed many cases of misuse where Federal agencies applied the 150-employee size standard, instead of the receipts-based size standard, for contracts that were predominantly for services. Moreover, SBA found the use of the ITVAR exception was discretionary and inconsistent with other SBA's regulations. Under the terms of the exception as stated in Footnote 18 in the SBA's Table of Size Standards, it is clear that the majority of the cost of the contracts that qualify under the ITVAR exception and its 150-employee size standard will be incurred for supplies. Thus, instead of using the ITVAR 150-employee size standard under NAICS 541519, a contracting officer could alternatively use a manufacturing NAICS code, such as NAICS 334111 (Electronic Computer Manufacturing) with a 1,000-employee size standard, to which the 500-employee nonmanufacturer size standard would also apply. Thus, firms may or may not be eligible or be able to compete as a small business for the exact same contract simply based on the contracting officer's selection of the NAICS code and size standard. SBA found that this was inconsistent with SBA's regulations that require contracting officers to select the NAICS code that best describes the principal purpose of the acquisition (see 13 CFR 121.402(b)). Many commenters to the 2014 SBA's proposed rule agreed with these findings but were strongly against the SBA's proposal to eliminate the ITVAR exception and its 150-employee size standard. Commenters viewed that the SBA's proposal would force small ITVARs with fewer than 150 employees to compete for Federal opportunities with large companies with up to 500 employees under the 500-employee nonmanufacturer size standard. To address these concerns, in the 2016 final

rule, SBA amended Footnote 18 by retaining the ITVAR exception and its 150-employee size standard and adding the requirement that the offeror on small business set-aside ITVAR contracts must comply with the manufacturing performance requirements or the nonmanufacturer rule (81 FR 4436 (January 26, 2016)).

In this proposed rule, to review the 150-employee size standard for the ITVAR exception to NAICS 541519, SBA evaluated the data from FPDS-NG and SAM using a two-step procedure. First, using FPDS-NG, SBA identified Product Service Codes (PSCs) that correspond to contracts under the ITVAR exception. SBA then identified firms that have received Federal contracts under those PSCs and evaluated their receipts and employees' data from SAM and FPDS-NG to derive the values of industry and Federal contracting factors. SBA uses this approach because the data that SBA receives from the Census Bureau's Economic Census tabulation are limited to the 6-digit NAICS industry level and therefore do not provide information on economic characteristics of firms at the subindustry level.

SBA found that contracting activity for the ITVAR exception is distributed over roughly 36 different PSCs. Each of these PSCs describe the activity of procuring either an IT product, or an IT service, but not both. Generally, the code structure of the PSC classification system is such that PSCs for products start with a number whereas PSCs for services begin with an alphabet. Table 5, Top 5 ITVAR Related PSCs by Average Total Dollars Obligated, below, identifies the top 5 PSCs for ITVAR related products and services. The table also displays average total dollars obligated under each PSC for fiscal years 2016-2018, and the product or services identifier for each PSC.

Table 5—Top 5 ITVAR Related PSCs by Average Total Dollars Obligated

PSC

PSC description

Average total

dollars obligated

in FY 2016-2018

($ million)

PSC type

D399

IT and telecom—other IT and telecommunications

$2,419,341

Service.

7030

Information technology software

1,824,017

Product.

D319

IT and telecom—annual software maintenance service plans

761,227

Service.

7050

Information technology components

673,647

Product.

D318

IT and telecom—integrated hardware/software/services solutions, predominantly services

664,801

Service.

Due to the involvement of numerous PSCs discussed above, SBA was unable to reliably determine a singular PSC that would adequately represent the level of activity corresponding uniquely to the ITVAR exception, which by definition includes both product and service-related activities. For purposes of analysis, and in an effort to differentiate economic activity under the ITVAR exception and determine the economic characteristics of the firms comprising this subindustry, SBA analyzed the FPDS-NG and SAM data. For this, SBA analysts first queried the FPDS-NG data for fiscal years 2016-2018 to match firms with a primary NAICS of 541519 and at least one contract with an ITVAR PSC for products to firms with a primary NAICS of 541519 and at least one contract with an ITVAR PSC for services; that is, SBA identified firms with a primary NAICS of 541519 with at least one contract under both a product and service-related PSC. This query resulted in a total of 1,210 firms. Further analysis showed that, for many of these 1,210 firms, the percentage of total revenues from ITVAR services and products PSCs was very low, which SBA used as an indication that the revenue structure of such firms was not representative of a typical ITVAR firm. Therefore, using a similar procedure that SBA applied in the analysis of the Dredging and Surface Cleanup Activities exception to NAICS 237990 (Other Heavy and Civil Engineering Construction) (85 FR 62239 (December 1, 2020)), SBA excluded firms from the analysis whose combined dollars obligated to both ITVAR services and products PSCs did not exceed 2.5% of their total receipts. SBA further refined the analysis by excluding firms with an average revenue below $1,000. After these exclusions, SBA was left with 485 firms for purposes of analysis.

2

Together, those 485 firms represented 55% of the dollars obligated to original 1,210 firms under the top 5 ITVAR-related PSCs identified in Table 5. SBA analyzed those 485 firms to obtain the four industry factors (average firm size, average assets size, four-firm ratio, and Gini coefficient) and the Federal contracting factor for the ITVAR subindustry or exception.

2

SBA analysts found that increasing the percentage of ITVAR services and products PSCs in total receipts to 5% to exclude firms for which those PSCs contributions to their receipts is very limited, and applying other refinements to the list of 1,210 firms—such as excluding firms with a majority focus on services and excluding firms having less than 1% of total receipts coming from products—ultimately produced a similar calculated size standard.

In its 2003 final rule (68 FR 74833 (December 29, 2003)), SBA used a hybrid approach to create and evaluate the ITVAR exception. Specifically, based on the assumption that ITVARs operate in NAICS Industry Group 5415 (Computer System Design and Related Services) and in NAICS 423430 (Computer and Computer Peripheral Equipment and Software Merchant Wholesalers), SBA combined part of NAICS Industry Group 5415 with part of NAICS 423430 using the 1997 Economic Census data and defined the result as the ITVAR subindustry and used it as the basis to establish the characteristics of ITVAR firms. As discussed in the 2016 final rule (81 FR 4436 (January 26, 2016)), SBA now finds several problems with that approach. First, there is no need to create the ITVAR industry in that manner because, based on their primary activity of selling computer hardware and software, ITVARs are included in NAICS 423430. Accordingly, SBA now believes the industry data for NAICS 423430 alone would provide a more accurate description of ITVAR firms than the hybrid approach, especially given significant differences in economic structure between firms in NAICS Industry Group 5415 and ITVAR firms, as suggested by the Economic Census data and also confirmed by many commenters at that time. Similar to the 2016 final rule, SBA's analysis in this proposed rule is based on the premise that ITVARs are most closely related to wholesalers, supplying computer hardware and software as nonmanufacturers. Thus, any size standard exception to the ITVARs should be addressed within the context of the nonmanufacturer rule. As such, in this proposed rule, SBA uses the 20th and 80th percentile values of industry

factors for employee-based size standards for Wholesale Trade and Retail Trade shown in Table 2 (above), along with the 20th and 80th percentile values of employee-based size standards in those sectors, as a basis for reviewing the size standard for the ITVAR exception.

Table 6, Size Standards Supported by Each Factor for the ITVAR Exception to NAICS 541519 (Employees), below, shows the results of analyses of industry and Federal contracting factors for the ITVAR exception, along with size standards supported by each industry and Federal contracting factors. The analysis supports maintaining the current size standard of 150 employees. As such, SBA proposes to retain the 150-employee size standard for the ITVAR exception with no additional changes to the terms of this industry exception SBA invites comments, along with supporting information, on this proposal as well as suggestions for alternative sources of data that more clearly define the economic characteristics of ITVARs.

Table 6—Size Standards Supported by Each Factor for the ITVAR Exception to NAICS 541519 (Employees)

[Upper value = calculated factor, lower value = size standard supported]

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

NAICS code NAICS industry title

Type

Simple

average

firm size

(number of

employees)

Weighted

average

firm size

(number of

employees)

Average

assets size

($ million)

Four-firm

ratio

(%)

Gini

coefficient

Federal

contract

factor

(%)

Calculated

size

standard

(number of

employees)

Current size

standard

(number of

employees)

541519 (ITVAR Exception)

Factor

136.5

3,594.9

$13.6

19.7

0.743

25.5

Size Std

250

250

250

75

50

150

150

150

Exceptions to NAICS 541715—Aircraft, Aircraft Engine and Engine Parts; Other Aircraft Parts and Auxiliary Equipment; and Guided Missiles and Space Vehicles, Their Propulsion Units and Propulsion Parts

Currently, NAICS 541715 (Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology)) has three subindustries or “exceptions.” As stated in Footnote 11 to the SBA's Table of Size Standards, for Research and Development (R&D) contracts requiring the delivery of a manufactured product, the appropriate size standard is that of the corresponding manufacturing industry. The three exceptions under NAICS 541715 and their corresponding manufacturing industry counterparts and their size standards are shown in Table 7, NAICS 541715 Exceptions and Corresponding Manufacturing Size Standards (Employees), below. This table also displays the proposed size standards for each of the three exceptions and corresponding manufacturing industries.

To better match size standards for the exceptions to the corresponding employee-based industry size standards in manufacturing, SBA proposes to increase the size standard of the third exception (Guided Missiles and Space Vehicles, Their Propulsion Units and Propulsion Parts) from 1,250 employees to 1,300 employees by adopting the highest size standard of that exception's corresponding manufacturing industry counterparts. As shown in Table 7 (below), SBA retains the current size standards for the other two exceptions.

Table 7—NAICS 541715 Exceptions and Corresponding Manufacturing Size Standards (Employees)

Exception

Manufacturing NAICS code and industry title

Current size

standard

Calculated

size

standard

Proposed

size

standard

Proposed

size

standard for

the exception

Current size

standard for

the exception

Aircraft, Aircraft Engine and Engine Parts

336411—Aircraft Manufacturing

336412—Aircraft Engine and Engine Parts Manufacturing

1,500

1,500

1,500

1,500

1,500

1,500

1,500

1,500

Other Aircraft Parts and Auxiliary Equipment

336413—Other Aircraft Part and Auxiliary Equipment Manufacturing

1,250

1,200

1,250

1,250

1,250

Guided Missiles and Space Vehicles, Their Propulsion Units and Propulsion Parts

336414—Guided Missile and Space Vehicle Manufacturing

336415—Guided Missile and Space Vehicle Propulsion Unit and Propulsion Unit Parts Manufacturing

1,250

1,250

1,300

1,200

1,300

1,250

1,300

1,250

336419—Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing

1,000

1,050

1,050

Exception to NAICS 562910—Environmental Remediation Services

In 2016, SBA increased the size standard for Environmental Remediation Services (ERS) exception to NAICS 562910 (Remediation Services) from 500 employees to 750 employees (81 FR 4436 (January 26, 2016)). The requirements that apply to the ERS exception and its 750-employee size standard for Federal procurement and SBA's financial assistance are defined in Footnote 14 to the SBA's Table of Size Standards (13 CFR 121.201). SBA requires that for a Government contract to be classified under the ERS exception, it should cover activities in three or more separate industries that each could be categorized in separate NAICS codes. If any activity in the procurement can be identified with a separate NAICS code, or component of a code with a distinct size standard, and that industry accounts for 50% or more of the value of the entire procurement, then the proper size standard is the one for that industry, and not the ERS exception size standard.

In 1994, SBA established the 500-employee based size standard for the ERS exception for Federal procurements and for SBA assistance (59 FR 47236 (September 15, 1994)). The Agency determined that ERS was an emergent industry in which firms perform tasks that depart from traditional activities in any one industry defined (at the time)

in the Standard Industrial Classification (SIC) system, and the types of activities were requiring larger firms to be able to perform them. When the North American Industry Classification System (NAICS) was adopted by the Federal Government in 1997, one of the new industries identified with a six-digit code was NAICS 562910 (Remediation Services), and one of the activities on the scope of NAICS 562910 was the environmental remediation services.

SBA believes that the justification for the creation of an environmental remediation services subindustry within NAICS 562910 with a special size standard in 1994 is still valid today. NAICS 562910 includes some remediation activities (

e.g.,

collection and disposal of garbage, ashes, rubbish and sweeping services), which are usually performed by smaller firms relative to the size of firms performing activities that fall under environmental remediation services.

As explained previously in the Sources of Industry and Program Data section, the data from the Census Bureau's Economic Census tabulation are limited to the 6-digit NAICS industry level and hence do not provide all the economic characteristics for the ERS subindustry. Thus, similar to the evaluation of other exceptions, in accordance with the SBA's size standards methodology, in this proposed rule, SBA analyzed the data coming from FPDS-NG and SAM to evaluate the size standard for the ERS exception.

First, using FPDS-NG data for fiscal years 2016-2018, SBA identified firms that participated in Federal contracts using the Product Service Codes (PSCs) F108 (Environmental Systems Protection—Environmental Remediation) and F999 (Other Environmental Services) within NAICS 562910. Then, SBA obtained those firms' revenue and employment data from the information related to the ERS awards in FPDS-NG, and the data from SAM was used to complement the information available in FPDS-NG.

SBA identified 1,151 firms receiving Federal contracts under NAICS 562910 and PSCs F108 and F999. Initially, the number of firms was obtained by counting the DUNS numbers, but because the DUNS numbers refer to a location, multi-establishments firms will have more than one DUNS number. So, SBA decided to identify those firms using Global DUNS numbers, reducing the number of firms to 1,033. After deleting firms with null values for number of employees or revenue, the number of firms was reduced to 979. SBA also deleted entities that could be identified as government agencies or as manufacturers, further reducing the number of ERS firms to 962.

As discussed in the SBA's size standards methodology white paper, when reviewing size standards for subindustries or “exceptions” using the SAM and FPDS-NG data, to reduce the impact of the differences between the industry data from the Economic Census and the data obtained from FPDS-NG and SAM, SBA may (i) identify and remove firms whose primary activity is not the subindustry or exception under review (in this case ERS), (ii) trim the data to prevent extreme observations from distorting the results, or (iii) apply a combination of these two approaches.

The dollars awarded by firms' employment size indicate a large concentration of the ERS activity among the largest firms. Small firms with less than or equal to 750 employees received about 37% of the total ERS dollar awards during fiscal years 2016-2018, while firms with more than 5,000 employees accounted for about 60% of the total ERS contract awards. Moreover, just two firms with more than 5,000 employees accounted for almost 40% of the total awards under ERS activities. The rest of the ERS contract dollars (3.5%) went to firms between 750 employees and 5,000 employees.

Since fiscal year 2016, the share of total ERS contract dollars awarded to small businesses decreased significantly, from an average of 50.0% in fiscal years 2013-2015 to an average of 37.0% in fiscal years 2016-2018. SBA believes that the large skewness in the distribution of ERS firms by the number of employees, the large percentage of ERS contracting dollars being concentrated among very large firms, and a decrease in the small business share of total ERS awards (especially after the adoption of the higher 750-employee size standard in 2016) are all indications that an additional increase to the ERS size standard is warranted. The large concentration of ERS awards among very large and diversified firms suggests that trimming the data is warranted to obtain a more representative picture of the ERS industry. Thus, to avoid the results being distorted by very large, diversified firms, SBA excluded from analysis 2.5% of the largest firms by the number of employees. That leaves the number of ERS firms at 937, which were used to calculate the industry and Federal contracting factors for the ERS exception. Table 8, Size Standards Supported by Each Factor for the Exception to NAICS 562910 (Employees), below, summarizes the results.

Table 8—Size Standards Supported by Each Factor for the Exception to NAICS 562910 (Employees)

[Upper value = calculated factor, lower value = size standard supported]

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

NAICS code NAICS industry title

Type

Simple

average

firm size

(number of

employees)

Weighted

average

firm size

(number of

employees)

Average

assets

size

($ million)

Four-firm

ratio

%

Gini

coefficient

Federal

contract

factor

(%)

Calculated

size

standard

(number of

employees)

Current size

standard

(Number of

employees)

562910 (Exception)

Factor

174.9

3,249.0

$22.8

35.1

0.851

64.2

Size Std

1,500

1,500

850

700

1,250

750

1,000

750

Based on the above rationale and the analysis of industry and Federal contracting factors, SBA proposes to increase the ERS size standard to 1,000 employees, which would cause a very minimal impact on currently small firms in the ERS Federal procurement market while allowing a few larger small firms an expanded runway to grow and remain competitive. SBA repeated this analysis without trimming the data, which yielded a calculated size standard of 1,200 employees; however, SBA does not believe that this method most accurately reflects the economic characteristics of firms primarily engaged in the business activities related to the ERS exception since the untrimmed data includes firms whose primary activity is unrelated to ERS. Of the 25 firms excluded from the analysis due to trimming, 12 firms had less than $1 million in ERS contracts. The share of ERS dollars obligated to these firms

was less than 0.1% in terms of both their total receipts and total dollars obligated (across all NAICS codes), indicating that the ERS exception is clearly not the primary activity for these firms. Also, among the remaining 13 excluded firms that received more contract dollars under the ERS exception, these firms' share of ERS dollars in their total receipts was, on average, only 1.2%, varying from 0.0% to 5.7%. SBA found that the vast majority of these excluded firms operated in numerous, diverse NAICS codes and none of them reported the ERS exception as being their primary activity relative to their overall operations.

As such, SBA is proposing to increase the ERS size standard to 1,000 employees in accordance with SBA's size standards methodology and the trimming approach described above. As discussed previously in this subsection, in February 2016, SBA increased the size standard for the ERS exception from 500 employees to 750 employees. In fiscal years 2018-2019, still the largest number of small ERS firms were below 500 employees, receiving the largest percentage of ERS small business contract awards. By increasing the size standard to 1,000 employees, only about 2 additional firms will gain small business status. SBA believes that this will not have a significant impact on small businesses below the current 750-employee size standard.

Summary of Calculated Size Standards

Of the 427 industries and 5 subindustries (

i.e.,

“exceptions”) reviewed in this proposed rule, the results from analyses of the latest available data on the five primary factors discussed above would support increasing employee-based size standards for 157 industries and 2 subindustries (“exceptions”), decreasing size standards for 216 industries, and maintaining size standards for 54 industries and 3 subindustries (“exceptions”). Table 9, Summary of Calculated Size Standards, below, summarizes these results by NAICS sector.

Table 9—Summary of Calculated Size Standards

NAICS

sector

NAICS sector title

Number of size

standards

reviewed

Number of size

standards

increased

Number of size

standards

decreased

Number of size

standards

maintained

21

Mining, Quarrying, and Oil and Gas Extraction

24

15

9

0

22

Utilities

11

11

0

0

31-33

Manufacturing

360

123

187

50

48-49

Transportation and Warehousing

15

5

8

2

51

Information

12

3

7

2

54

Professional, Scientific and Technical Services

7

1

3

3

Other

Agriculture, Forestry, Fishing and Hunting (Sector 11); Finance and Insurance (Sector 52); Administrative and Support, Waste Management and Remediation Services (Sector 56)

3

1

2

0

Total

432

159

216

57

Evaluation of SBA Loan Data

Before proposing or deciding on size standard revisions, SBA also considers the impact of size standards revisions on its loan programs. Accordingly, SBA examined its internal 7(a) and 504 loan data for fiscal years 2018-2020 to assess whether the calculated size standards in Table 4 (above) need further adjustments to ensure credit opportunities for small businesses through those programs. For the industries reviewed in this proposed rule, the data shows that it is mostly businesses much smaller than the current or calculated size standards that receive SBA's 7(a) and 504 loans. For example, for industries covered by this rule, more than 99.0% of SBA's 7(a) and 504 loans in fiscal years 2018-2020 went to businesses below the calculated size standards.

Evaluation of Calculated Size Standards for Dominance in Field of Operation

The Small Business Act provides that a small business concern must not be dominant in its field of operation. Accordingly, to ensure that neither an existing nor a calculated or proposed size standard includes the dominant or potentially dominant firms in any industry, besides the calculation of the Gini coefficient, SBA further assessed the distribution of firms in each industry by employee size and a firm's share of total industry's receipts at the existing or calculated size standard. Generally, SBA believes shares below 40% would preclude dominant firms from qualifying as small and exerting control on any industry. Accordingly, based on the results, SBA is proposing to retain the size standards for nine industries at their current levels, even though the analytical results suggested that an increase is warranted. These industries include NAICS 212222, 212291, 311213, 221116, 212113, 212392, 311512, 316992, and 212324, for which a firm's share of total industry's receipts or employees at the calculated size standard was more than 40%. SBA proposes to adopt a smaller increase to the size standard for NAICS 221114 to ensure that the industry's dominant firms are not included in the definition of small business for the industry. SBA estimates that at the calculated size standard of 700 employees for NAICS 221114, based on the 2012 Economic Census data, a firm's share of total industry receipts would be 41.1% and the share of employees 44.2%. Thus, SBA is proposing a smaller increase to the size standard for NAICS 221114 from the current 250 employees to 500 employees to ensure that a firm's share of total industry receipts or employees at the proposed size standard is not greater than 40%. These adjustments would affect only the one or two largest firms in each of those industries. Similarly, based on the results from dominance analysis using

the 2012 Economic Census data, SBA considered proposing to reduce the size standard for NAICS 221118 from 250 employees to 100 employees, even though the analytical results supported a higher size standard of 650 employees. The results showed that the share of total receipts for a firm at the 250-employee current size standard or at the 650-employee calculated size standard would be much higher than the 40% threshold. However, after considering the level of Federal contracting activity and the Federal contracting factor for this industry as presented in Table 4 above, SBA proposes to adopt the calculated size standard of 650 employees for NAICS 221118 as there are a number of large firms participating in Federal contracting in this industry that are not classified under NAICS 221118 in the Economic Census data. Based on the FPDS-NG data for fiscal years 2018-2020, on an annual basis, SBA identified 131 firms receiving 443 contracts under NAICS 221118. The average annual total dollars obligated to these firms was about $216.0 million. Together, these firms had total employees of 1.5 million, averaging 11,771 employees. These figures are much greater than the total of 224 employees and average of 14 employees for NAICS 221118 based on the 2012 Economic Census data. Using the data from FPDS-NG for fiscal years 2018-2020 for NAICS 221118, SBA estimates the share of receipts of a firm at the calculated size standard of 650 employees to be 0.07%, which effectively precludes a firm of this size from exerting control over the industry. Thus, these results demonstrate that the Economic Census Economic Census data for this industry do not correlate well with the Federal market data from FPDS-NG that supports a higher size standard.

As explained elsewhere in this proposed rule, in industries where small business share of the Federal market is already appreciably high relative to the small business share of the overall market, SBA generally assumes that the existing size standard is adequate with respect to the Federal contracting factor. Regarding NAICS 221118 specifically, using the Federal market data for fiscal years 2016-2018, SBA estimated a Federal contracting factor of −64.4% (

i.e.,

the difference between the small business share of Federal market and the small business share of industry receipts) that supports increasing the size standard to 400 employees (see Table 4 above). Using the FPDS-NG data from fiscal years 2018-2020, SBA estimates the small business share of dollars obligated to NAICS 221118 to be 4.4% and the small business share of industry receipts, based on the 2012 Economic Census data, to be 71.6%, thereby yielding a Federal contracting factor of −67.2%.

Therefore, based on the reasons presented above, SBA is proposing to adopt the 650-employee calculated size standard for NAICS 221118 to further promote competition among all firms and create additional opportunities for small firms. Table 10, Proposed Adjustments to Calculated Size Standards Based on Dominance Analysis, below, summarizes adjustments to calculated size standards based on SBA's evaluation of dominance in field of operation.

Table 10—Proposed Adjustments of Calculated Size Standards Based on Dominance Analysis

NAICS code

NAICS industry title

Current size

standard

(employees)

Calculated

size standard

(employees)

Adjusted/

proposed size

standard

(employees)

212113

Anthracite Mining

250

600

250

212222

Silver Ore Mining

250

1,100

250

212291

Uranium-Radium-Vanadium Ore Mining

250

900

250

212324

Kaolin and Ball Clay Mining

750

1,050

750

212392

Phosphate Rock Mining

1,000

1,350

1,000

221114

Solar Electric Power Generation

250

700

500

221116

Geothermal Electric Power Generation

250

1,050

250

221118

Other Electric Power Generation

250

650

650

311213

Malt Manufacturing

500

900

500

311512

Creamery Butter Manufacturing

750

1,000

750

316992

Women's Handbag and Purse Manufacturing

750

850

750

Special Considerations

On March 13, 2020, the ongoing Coronavirus Disease 2019 (COVID-19) was declared a pandemic of enough severity and magnitude to warrant an emergency declaration for all U.S. states, territories, and the District of Columbia. With the COVID-19 emergency, many small businesses nationwide experienced economic hardship as a direct result of the Federal, State, and local public health measures that were being taken to minimize the public's exposure to the virus. In addition, based on the advice of public health officials, other measures, such as keeping a safe distance from others or even stay-at-home orders, were implemented, resulting in a dramatic decrease in economic activity as the public avoided malls, retail stores, and other businesses.

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act or the Act) (Pub. L. 116-136) was signed on March 27, 2020, to provide emergency assistance and health care response for individuals, families, and businesses affected by the coronavirus pandemic. Section 1102 of the Act temporarily permitted SBA to guarantee 100% of 7(a) loans under a new program titled the Paycheck Protection Program (PPP). Section 1106 of the Act provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the PPP. The PPP and loan forgiveness are intended to provide economic relief to small businesses nationwide adversely impacted by COVID-19. On April 24, 2020, additional funding for the CARES Act, including for the PPP, was provided (see The Paycheck Protection Program and Health Care Enhancement Act, Pub. L. 116-139). On December 27, 2020, Congress passed the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act as part of the Consolidation Appropriations Act, approving additional funding for the PPP loan program and allowing the hardest-hit small businesses to receive a second draw PPP loan (Pub. L. 116-260). Additionally, the law approved grants for shuttered-venue operators. On March 11, 2021, the American Rescue Plan Act of 2021 (Pub. L. 117-2) was

signed into law. This act provided additional relief for the Nation's small businesses and hard-hit industries by adding new support to the recovery effort, including additional funding for the PPP and the Shuttered Venue Operators Grant programs. The act also provided additional funding for targeted Economic Injury Disaster Loan (EIDL) Advance payments.

The Agency is following closely the development of the pandemic and the economic situation. A variety of economic indicators such as the Gross Domestic Product (GDP) and the unemployment rate show that the economic recession from the COVID-19 pandemic was significantly worse than any other recession since World War II. According to the Bureau of Economic Analysis (BEA), the real GDP decreased 5.1%, and the real personal consumption in goods and services decreased 6.9% in the first quarter of 2020. In the second quarter, the real GDP decreased 31.2% and the real personal consumption in goods and services decreased 33.4%. In the third quarter, the real GDP increased 33.8%, and the real personal consumption in goods and services increased 41.4%. The real GDP showed a more moderate increase of 4.5% and the real personal consumption expenditures increased 3.4% in the fourth quarter of 2020. The real GDP decreased 3.4% in 2020 from 2019 (from the 2019 annual level to the 2020 annual level), compared with an increase of 2.3% in 2019 from 2018. The real GDP increased 6.3% in the first quarter of 2021 and 6.7% in the second quarter. The real personal consumption in goods and services grew 11.4% in the first quarter of 2021 and 12.0% in the second quarter. The growth rates of both the real GDP and real personal consumption expenditures slowed significantly in the third quarter, increasing just 2.3% and 2.0%, respectively. Economic growth accelerated in the fourth quarter, with real GDP and real personal consumption expenditures increasing 6.9% and 2.5%, respectively. The real GDP increased 5.7% in 2021 from 2020 (from the 2020 annual level to the 2021 annual level), compared with an decrease of 3.4% in 2020 from 2019.

3

3

Source: gdp4q21_3rd.pdf (

bea.gov

), March 30, 2022. This report represents the BEA's March 30, 2022, full News Release on the U.S. Economic data for the fourth quarter of 2021 and year 2021, and associated figures and tables. Specifically included in the report are, among other things, GDP (third estimate), personal consumption expenditures (PCE), Corporate Profits, and GDP by industry for the fourth of 2021 and year 2021. Provided in the report are levels of various economic measures and percentage changes from preceding period. The report provides annual data for years 2019, 2020 and 2021, and quarterly data from the first quarter of 2018 to the fourth quarter of 2021.

In March 2022, the unemployment rate fell to 3.6%, and the number of unemployed persons to 6.0 million. Although both measures are significantly lower than their April 2020 highs (14.8% and 23.1 million, respectively), they are still higher than their pre-pandemic levels in February 2020 (3.5% and 5.7 million, respectively). Specifically, for the sectors evaluated in this proposed rule, in March 2022, the average unemployment rate was 3.4%. In February 2020, the average unemployment rate for these sectors was 3.8%.

SBA believes that lowering size standards under the current economic environment could stifle the momentum of the ongoing economic recovery by causing a large number of currently small firms to become ineligible for SBA's financial assistance and Federal contracting programs at a time when these programs could be particularly helpful to businesses in need of Federal assistance the most to survive the economic impacts of the ongoing COVID-19 pandemic. SBA is meeting the need for increased support by not lowering size standards even though analytical results suggest that some size standards might be lowered. Moreover, reducing the number of small businesses in the economy may also lead to fewer set-aside opportunities overall as it would reduce the pool of eligible firms that the Federal Government could select from when setting aside procurement opportunities for small businesses. Thus, SBA believes that lowering size standards at this time would be counter to its mission to aid, counsel, assist and protect the interests of small business concerns, preserve free competitive enterprise, and maintain and strengthen the overall economy of our Nation.

Proposed Changes to Size Standards

Based on the analytical results and SBA's policy of not lowering size standards in response to the ongoing economic impacts of the COVID-19 pandemic and Government response to mitigate the impacts discussed above, SBA proposes to increase size standards for 150 industries or subindustries (or “exceptions”) and retain the current size standards for 282 industries. The proposed size standards are presented in Table 11, Proposed Size Standards Revisions. Also presented in Table 11 are current and calculated size standards for comparison.

Table 11—Proposed Size Standards Revisions

NAICS code

NAICS industry title

Current size

standard

(employees)

Calculated

size standard

(employees)

Proposed size

standard

(employees)

212113

Anthracite Mining

250

600

250

212210

Iron Ore Mining

750

1,400

1,400

212222

Silver Ore Mining

250

1,100

250

212230

Copper, Nickel, Lead, and Zinc Mining

750

1,400

1,400

212291

Uranium-Radium-Vanadium Ore Mining

250

900

250

212299

All Other Metal Ore Mining

750

1,250

1,250

212313

Crushed and Broken Granite Mining and Quarrying

750

850

850

212319

Other Crushed and Broken Stone Mining and Quarrying

500

550

550

212322

Industrial Sand Mining

500

750

750

212324

Kaolin and Ball Clay Mining

750

1,050

750

212325

Clay and Ceramic and Refractory Minerals Mining

500

650

650

212391

Potash, Soda, and Borate Mineral Mining

750

1,050

1,050

212392

Phosphate Rock Mining

1,000

1,350

1,000

212393

Other Chemical and Fertilizer Mineral Mining

500

600

600

212399

All Other Nonmetallic Mineral Mining

500

600

600

221111

Hydroelectric Power Generation

500

750

750

221112

Fossil Fuel Electric Power Generation

750

950

950

221113

Nuclear Electric Power Generation

750

1,150

1,150

221114

Solar Electric Power Generation

250

700

500

221115

Wind Electric Power Generation

250

1,150

1,150

221116

Geothermal Electric Power Generation

250

1,050

250

221117

Biomass Electric Power Generation

250

550

550

221118

Other Electric Power Generation

250

650

650

221121

Electric Bulk Power Transmission and Control

500

950

950

221122

Electric Power Distribution

1,000

1,100

1,100

221210

Natural Gas Distribution

1,000

1,150

1,150

311111

Dog and Cat Food Manufacturing

1,000

1,250

1,250

311119

Other Animal Food Manufacturing

500

650

650

311211

Flour Milling

1,000

1,050

1,050

311212

Rice Milling

500

750

750

311213

Malt Manufacturing

500

900

500

311221

Wet Corn Milling

1,250

1,300

1,300

311224

Soybean and Other Oilseed Processing

1,000

1,250

1,250

311225

Fats and Oils Refining and Blending

1,000

1,100

1,100

311230

Breakfast Cereal Manufacturing

1,000

1,300

1,300

311313

Beet Sugar Manufacturing

750

1,150

1,150

311314

Cane Sugar Manufacturing

1,000

1,050

1,050

311411

Frozen Fruit, Juice, and Vegetable Manufacturing

1,000

1,100

1,100

311422

Specialty Canning

1,250

1,400

1,400

311511

Fluid Milk Manufacturing

1,000

1,150

1,150

311512

Creamery Butter Manufacturing

750

1,000

750

311514

Dry, Condensed, and Evaporated Dairy Product Manufacturing

750

1,000

1,000

311611

Animal (except Poultry) Slaughtering

1,000

1,150

1,150

311824

Dry Pasta, Dough, and Flour Mixes Manufacturing from Purchased Flour

750

850

850

311920

Coffee and Tea Manufacturing

750

1,000

1,000

311930

Flavoring Syrup and Concentrate Manufacturing

1,000

1,100

1,100

311941

Mayonnaise, Dressing, and Other Prepared Sauce Manufacturing

750

850

850

311942

Spice and Extract Manufacturing

500

650

650

311991

Perishable Prepared Food Manufacturing

500

700

700

311999

All Other Miscellaneous Food Manufacturing

500

700

700

312111

Soft Drink Manufacturing

1,250

1,400

1,400

312112

Bottled Water Manufacturing

1,000

1,100

1,100

312140

Distilleries

1,000

1,100

1,100

313220

Narrow Fabric Mills and Schiffli Machine Embroidery

500

550

550

313230

Nonwoven Fabric Mills

750

850

850

314999

All Other Miscellaneous Textile Product Mills

500

550

550

315190

Other Apparel Knitting Mills

750

850

850

315990

Apparel Accessories and Other Apparel Manufacturing

500

600

600

316110

Leather and Hide Tanning and Finishing

500

800

800

316992

Women's Handbag and Purse Manufacturing

750

850

750

321113

Sawmills

500

550

550

321114

Wood Preservation

500

550

550

321211

Hardwood Veneer and Plywood Manufacturing

500

600

600

322110

Pulp Mills

750

1,050

1,050

322122

Newsprint Mills

750

1,050

1,050

323111

Commercial Printing (except Screen and Books)

500

650

650

323120

Support Activities for Printing

500

550

550

324122

Asphalt Shingle and Coating Materials Manufacturing

750

1,100

1,100

324191

Petroleum Lubricating Oil and Grease Manufacturing

750

900

900

324199

All Other Petroleum and Coal Products Manufacturing

500

950

950

325110

Petrochemical Manufacturing

1,000

1,300

1,300

325120

Industrial Gas Manufacturing

1,000

1,200

1,200

325130

Synthetic Dye and Pigment Manufacturing

1,000

1,050

1,050

325220

Artificial and Synthetic Fibers and Filaments Manufacturing

1,000

1,050

1,050

325311

Nitrogenous Fertilizer Manufacturing

1,000

1,050

1,050

325312

Phosphatic Fertilizer Manufacturing

750

1,350

1,350

325314

Fertilizer (Mixing Only) Manufacturing

500

550

550

325320

Pesticide and Other Agricultural Chemical Manufacturing

1,000

1,150

1,150

325412

Pharmaceutical Preparation Manufacturing

1,250

1,300

1,300

325520

Adhesive Manufacturing

500

550

550

325611

Soap and Other Detergent Manufacturing

1,000

1,100

1,100

325612

Polish and Other Sanitation Good Manufacturing

750

900

900

325613

Surface Active Agent Manufacturing

750

1,100

1,100

325910

Printing Ink Manufacturing

500

750

750

325991

Custom Compounding of Purchased Resins

500

600

600

325998

All Other Miscellaneous Chemical Product and Preparation Manufacturing

500

650

650

326121

Unlaminated Plastics Profile Shape Manufacturing

500

600

600

326130

Laminated Plastics Plate, Sheet (except Packaging), and Shape Manufacturing

500

650

650

326220

Rubber and Plastics Hoses and Belting Manufacturing

750

800

800

326299

All Other Rubber Product Manufacturing

500

650

650

327211

Flat Glass Manufacturing

1,000

1,100

1,100

327410

Lime Manufacturing

750

1,050

1,050

327910

Abrasive Product Manufacturing

750

900

900

327992

Ground or Treated Mineral and Earth Manufacturing

500

600

600

327999

All Other Miscellaneous Nonmetallic Mineral Product Manufacturing

500

750

750

331313

Alumina Refining and Primary Aluminum Production

1,000

1,300

1,300

331315

Aluminum Sheet, Plate, and Foil Manufacturing

1,250

1,400

1,400

331420

Copper Rolling, Drawing, Extruding, and Alloying

1,000

1,050

1,050

331491

Nonferrous Metal (except Copper and Aluminum) Rolling, Drawing, and Extruding

750

900

900

331492

Secondary Smelting, Refining, and Alloying of Nonferrous Metal (except Copper and Aluminum)

750

850

850

331512

Steel Investment Foundries

1,000

1,050

1,050

331513

Steel Foundries (except Investment)

500

700

700

331523

Nonferrous Metal Die-Casting Foundries

500

700

700

331524

Aluminum Foundries (except Die-Casting)

500

550

550

332112

Nonferrous Forging

750

950

950

332114

Custom Roll Forming

500

600

600

332117

Powder Metallurgy Part Manufacturing

500

550

550

332215

Metal Kitchen Cookware, Utensil, Cutlery, and Flatware (except Precious) Manufacturing

750

1,000

1,000

332439

Other Metal Container Manufacturing

500

600

600

332613

Spring Manufacturing

500

600

600

332722

Bolt, Nut, Screw, Rivet, and Washer Manufacturing

500

600

600

332812

Metal Coating, Engraving (except Jewelry and Silverware), and Allied Services to Manufacturers

500

600

600

332992

Small Arms Ammunition Manufacturing

1,250

1,300

1,300

332996

Fabricated Pipe and Pipe Fitting Manufacturing

500

550

550

333131

Mining Machinery and Equipment Manufacturing

500

900

900

333243

Sawmill, Woodworking, and Paper Machinery Manufacturing

500

550

550

333314

Optical Instrument and Lens Manufacturing

500

600

600

333924

Industrial Truck, Tractor, Trailer, and Stacker Machinery Manufacturing

750

900

900

333991

Power-Driven Hand Tool Manufacturing

500

950

950

333993

Packaging Machinery Manufacturing

500

600

600

333995

Fluid Power Cylinder and Actuator Manufacturing

750

800

800

333997

Scale and Balance Manufacturing

500

700

700

334290

Other Communications Equipment Manufacturing

750

800

800

334416

Capacitor, Resistor, Coil, Transformer, and Other Inductor Manufacturing

500

550

550

334511

Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing

1,250

1,350

1,350

334512

Automatic Environmental Control Manufacturing for Residential, Commercial, and Appliance Use

500

650

650

334514

Totalizing Fluid Meter and Counting Device Manufacturing

750

850

850

334517

Irradiation Apparatus Manufacturing

1,000

1,200

1,200

334519

Other Measuring and Controlling Device Manufacturing

500

600

600

335122

Commercial, Industrial, and Institutional Electric Lighting Fixture Manufacturing

500

600

600

335129

Other Lighting Equipment Manufacturing

500

550

550

335311

Power, Distribution, and Specialty Transformer Manufacturing

750

800

800

335912

Primary Battery Manufacturing

1,000

1,300

1,300

335931

Current-Carrying Wiring Device Manufacturing

500

600

600

335991

Carbon and Graphite Product Manufacturing

750

900

900

335999

All Other Miscellaneous Electrical Equipment and Component Manufacturing

500

600

600

336310

Motor Vehicle Gasoline Engine and Engine Parts Manufacturing

1,000

1,050

1,050

336414

Guided Missile and Space Vehicle Manufacturing

1,250

1,300

1,300

336419

Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing

1,000

1,050

1,050

336611

Ship Building and Repairing

1,250

1,300

1,300

336991

Motorcycle, Bicycle, and Parts Manufacturing

1,000

1,050

1,050

337125

Household Furniture (except Wood and Metal) Manufacturing

750

950

950

337214

Office Furniture (except Wood) Manufacturing

1,000

1,100

1,100

339113

Surgical Appliance and Supplies Manufacturing

750

800

800

339910

Jewelry and Silverware Manufacturing

500

700

700

339930

Doll, Toy, and Game Manufacturing

500

700

700

339991

Gasket, Packing, and Sealing Device Manufacturing

500

600

600

339994

Broom, Brush, and Mop Manufacturing

500

750

750

339999

All Other Miscellaneous Manufacturing

500

550

550

483111

Deep Sea Freight Transportation

500

1,050

1,050

483113

Coastal and Great Lakes Freight Transportation

750

800

800

483114

Coastal and Great Lakes Passenger Transportation

500

550

550

483211

Inland Water Freight Transportation

750

1,050

1,050

483212

Inland Water Passenger Transportation

500

550

550

511199

All Other Publishers

500

550

550

512230

Music Publishers

750

900

900

512250

Record Production and Distribution

250

900

900

541715 (Exception 3)

Guided Missiles and Space Vehicles, Their Propulsion Units and Propulsion Parts

1,250

1,300

1,300

562910 (Exception)

Environmental Remediation Services

750

1,000

1,000

As shown in the above table, SBA proposes to increase size standards for 150 industries or subindustries (“exceptions”) in those sectors, including 10 industries in NAICS Sector 21 (Mining, Quarrying, and Oil and Gas Extraction), 10 industries in NAICS Sector 22 (Utilities), 120 industries in NAICS Sector 31-33 (Manufacturing), 5 industries in Sector 48-49 (Transportation and Warehousing), 3 industries in NAICS Sector 51 (Information), and 1 subindustry (or “exception”) each in NAICS Sector 54 (Professional, Scientific and Technical Services) and in NAICS Sector 56 (Administrative and Support, Waste Management and Remediation Services). Table 12, Summary of Proposed Size Standards Revisions by Sector, below, summarizes the proposed changes to size standards by NAICS sector.

Table 12—Summary of Proposed Size Standards Revisions by Sector

Sector

Sector name

Number of

size standards

reviewed

Number of

size standards

increased

Number of

size standards

decreased

Number of

size standards

maintained

21

Mining, Quarrying, and Oil and Gas Extraction

24

10

0

14

22

Utilities

11

10

0

1

31-33

Manufacturing

360

120

0

240

48-49

Transportation and Warehousing

15

5

0

10

51

Information

12

3

0

9

54

Professional, Scientific and Technical Services

7

1

0

6

Other Sectors

Agriculture, Forestry, Fishing and Hunting; Finance and Insurance; Administrative and Support, Waste Management and Remediation Services

3

1

0

2

Total

432

150

0

282

Evaluation of Proposed Size Standards for Dominance in Field of Operation

For the vast majority of industries with proposed changes to size standards, the share of receipts of a firm at the proposed size standard levels in Table 11 (above) is, on average, 8.9%, varying from 0.2% to 38.9%. Generally, SBA believes shares below 40% would preclude dominant firms from qualifying as small and exerting control on any industry. Based on the results from the 2012 Economic Census data, only two industries had those shares above 40% at their proposed size standards levels, namely NAICS 221118 (Other Electric Power Generation) and NAICS 311213 (Malt Manufacturing). SBA proposes to increase the size standard for NAICS 221118 from 250 employees to 650 employees and to retain the current 500-employee size standard for NAICS 311213 although the industry data supported a higher 900-employee size standard.

Regarding NAICS 221118, as discussed in the Evaluation of Calculated Size Standards for Dominance in Field of Operation section above, after considering the level of Federal contracting activity and the Federal contracting factor for this industry, SBA is proposing to adopt the calculated size standard of 650 employees. Based on the Economic Census data, SBA estimated the share of industry receipts of a firm with 650 employees to be above 40%, suggesting that a dominant firm may qualify as small at the proposed size standard level. However, considering the limitation of the Economic Census data in characterizing the firms that participate in the Federal market in NAICS 221118, SBA estimates, using the data from FPDS-NG for fiscal years 2018-2020, the share of receipts of a firm at the proposed size standard of 650 employees to be 0.07%, which would effectively preclude a firm of this size from being dominant and exerting control over the industry.

Regarding NAICS 311213, SBA evaluated the industry's distribution of firms by employee size to determine whether any potentially dominant firms

existed near the proposed size standard level. SBA identified only 1 firm close to or around the proposed 500-employee size standard and determined that this firm is not dominant in its field of operation because its share of total industry receipts is only 26.5%, well below the 40% threshold that SBA considers for adjusting calculated or proposed size standards to exclude dominant firms. Thus, SBA determined that the market shares under the proposed size standards revisions for all industries effectively preclude a firm at or below the proposed size standards from exerting control on any of the industries. In the Request for Comments section below, SBA seeks comments on its proposed revisions to size standards, including its proposal to, based on the results from dominance analysis, retain the current size standards in certain industries for which analytical results supported higher size standards.

Alternatives Considered

By law, SBA is required to develop numerical size standards for establishing eligibility for Federal small business assistance programs and to review every five years all size standards and make necessary adjustments to reflect the current industry structure and Federal market conditions. Other than varying the levels of size standards by industry and changing the measures of size standards (

e.g.,

using annual receipts vs. the number of employees), no practical alternatives exist to the systems of numerical size standards.

In response to the unprecedented economic impacts of the ongoing COVID-19 pandemic on small businesses and Government response, SBA is proposing to increase size standards where the data suggested increases are warranted, and to retain, in response to the COVID-19 pandemic and resultant economic impacts on small businesses, all current size standards where the data suggested lowering is appropriate. SBA is also retaining all current size standards where the data suggested no changes to the current size standards.

Nonetheless, SBA considered two other alternatives. Alternative Option One was to propose changes exactly as suggested by the analytical results, including the evaluation of dominance in field of operation. In other words, Alternative Option One would entail increasing size standards for 150 industries or subindustries (“exceptions”), decreasing for 216 industries, and retaining at their current levels for 66 industries. Alternative Option Two was to retain all current size standards, even though the analytical results suggested that changes are warranted.

SBA did not propose Alternative Option One, because it would cause, if adopted, a substantial number of currently small businesses to lose their small business status and hence to lose their eligibility for Federal small business assistance, especially small business set-aside contracts and SBA's financial assistance in some cases. Lowering size standards in the current environment would also run counter to various measures the Federal Government has implemented to help small businesses and the overall economy recover from the ongoing COVID-19 pandemic. Considering the impacts of the Great Recession and Government actions that followed to support small businesses and the overall economy, SBA also adopted a general policy of not decreasing size standards during the first five-year review of size standards, even though the data supported decreases.

As part of Alternative Option One, SBA also considered increasing 150 size standards as suggested by the analytical results and mitigating the impact of decreases to 216 size standards by adjusting the calculated size standards to minimize the impact on small business access to Federal contracts and SBA's loans. However, considering the impact of the ongoing COVID-19 pandemic on businesses and the overall economy, in the Regulatory Impact Analysis section (below), SBA presents the impacts of adopting the analytical results without adjustment to Alternative Option One and proposes to retain all size standards for which the evaluation of principal industry and Federal contracting factors suggested reductions, and to adopt only the increases based on the analytical results.

Under Alternative Option Two, given the current COVID-19 pandemic and resultant uncertainty, SBA considered retaining all size standards at their current levels even though the analytical results supported changes. Under this option, as the current situation evolves, SBA would be able to assess new data available on economic indicators, Federal procurement, and SBA loans before adopting changes to size standards. However, SBA is not adopting Alternative Option Two because the results discussed in the Regulatory Impact Analysis section show that retaining all size standards at their current levels would cause the otherwise qualified small businesses to forgo various small business benefits becoming available to them under the SBA's proposal of increasing 150 and retaining 282 size standards. Such benefits would include access to Federal contracts set aside for small businesses and capital through SBA's loan and SBIC programs, and exemptions from paperwork and other compliance requirements.

Federal Procurement Size Standard for Nonmanufacturers

Small business concerns must meet certain requirements when they offer to the Government an end item they did not manufacture, process, or produce. These requirements are known as the nonmanufacturer rule. The nonmanufacturer rule is codified in SBA's small business size regulations at 13 CFR 121.406.

To qualify for a Federal Government supply contract set aside for small business, a nonmanufacturer must have an average of 500 or fewer employees over the past 12 months, be primarily engaged in the wholesale or retail trade activities, and supply the product of a U.S. small manufacturer.

4

Under SBA's regulation, NAICS codes in Wholesale Trade (Sector 42) and Retail Trade (Sector 44-45) sectors cannot be used for classifying Federal Government acquisitions of supplies or products. Instead, the applicable manufacturing NAICS code associated with manufacturing, production, or processing of the product being procured must be used. For other purposes, such as SBA's financial assistance programs, SBA uses industry-based size standards in Sectors 42 and 44-45 to determine eligibility of applicants in those sectors. In effect, the nonmanufacturer rule has resulted in two sets of size standards for industries in NAICS Sectors 42 and 44-45—industry-based size standards for SBA's financial assistance and other Federal non-procurement programs and 500-employee size standard for Federal procurement programs under the nonmanufacturer rule.

4

On November 2, 2021, SBA issued a proposed rule implementing section 863 of the National Defense Authorization Act for Fiscal Year 2021, Public Law 116-283, which changed the averaging period for calculating employees for SBA's employee-based size standards from 12 months to 24 months (86 FR 60396 (November 2, 2021)).

SBA believes that, for purposes of determining eligibility for Federal set-aside procurement opportunities, using a single size standard is more appropriate than separate industry-based size standards for Wholesale or Retail Trade firms because firms in these sectors generally offer multiple products from different industries, and therefore identify themselves with multiple NAICS codes across a wide

spectrum of products and supplies. Thus, different size standards for individual industries in Wholesale Trade and Retail Trade under the nonmanufacturer rule would further complicate the contracting process, which already entails the decision to establish an applicable manufacturing NAICS code, along with its size standard, associated with manufacturing, production, or processing of the product being procured. Businesses and contracting officers would likely find it confusing if the principal NAICS code for a solicitation could vary based on factors other than the requirements prescribed at 13 CFR 121.402(b), which requires contracting officers to categorize solicitations by selecting the single NAICS code that best describes the principal purpose of the product being acquired.

While the nonmanufacturer rule applies to firms primarily engaged in business activities within Sectors 42 and 44-45, SBA did not review the 500-employee nonmanufacturer size standard in a recently published proposed rule, which reviewed industry-based size standards in Sectors 42 and 44-45 (86 FR 28012 (May 5, 2021)). In that proposed rule, SBA proposed to retain the nonmanufacturer size standard at 500 employees. Accordingly, in this proposed rule, SBA is examining whether the current 500-employee size standard for nonmanufacturers is appropriate. SBA received a total of nine comments to its May 5, 2021, proposed rule, one of which was submitted by Members of the U.S. House of Representatives Subcommittee on Contracting and Infrastructure requesting that SBA evaluate the current 500-employee size standard under the nonmanufacturer rule. Specifically, they expressed concern that because the level of revenues is immaterial to the determination of size under the 500-employee nonmanufacturer size standard, the current rule may allow a firm with billions of dollars in revenues to qualify as a small business. They suggested that SBA conduct an assessment of the nonmanufacturing industry based on revenue and/or other factors to determine what may be considered small for the size of a business qualifying as a nonmanufacturer.

In response to the Congressional comment, SBA analyzed the size standard applicable to nonmanufacturers under the nonmanufacturer rule by comparing the employee-based average industry factors (

i.e.,

average firm size, average assets, industry concentration, and distribution of firms by size) of all Wholesale Trade and Retail Trade industries combined with those of the manufacturing industries using the SBA's “Size Standards Methodology” for employee-based size standards. SBA believes this approach is logical because Wholesale Trade and Retail Trade firms have to compete with manufacturers for supply or product contracts set aside for small businesses. Since NAICS codes in the Wholesale Trade and Retail Trade sectors cannot be used to classify Government acquisitions for supplies, and only the applicable manufacturing code can be applied (13 CFR 121.402(b)(2)), the Federal contracting factor is not considered in evaluating industry-based size standards in these sectors.

The analytical results, presented in Table 13, Size Standards Supported by Each Factor for Nonmanufacturers (Employees), below, support raising the size standard for nonmanufacturers from 500 employees to 550 employees. However, to maintain continuity with general public familiarity with and long acceptability of the 500-employee size standard, SBA is proposing to maintain the current 500-employee size standard which, in practice, continues to work well for the majority of firms to which it applies. Moreover, the 500-employee size standard is also the most common size standard among the manufacturing industries. It is a common practice for manufacturers to bid on supply contracts where they do not propose to produce the particular product to be supplied with their own labor force, notwithstanding that they are capable of doing so. Such manufacturers must qualify as small businesses under the nonmanufacturer rule. Therefore, in an effort to minimize the adverse consequences upon such concerns and promote fair competition among manufacturers and nonmanufacturers, SBA is proposing to adopt the predominant 500-employee size standard for manufacturers as the size standard for nonmanufacturers who desire to bid on Federal supply contracts.

Table 13—Size Standards Supported by Each Factor for Nonmanufacturers (Employees)

[Upper value = calculated factor, lower value = size standard supported]

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

NAICS code/NAICS sector title

Type

Simple

average firm

size

(employees)

Weighted

average firm

size

(employees)

Average

assets size

($ million)

Four-firm ratio

(%)

Gini

coefficient

Federal

contract

factor

(%)

Calculated

size

standard

Proposed

size

standard

Wholesale Trade (Sector 42) & Retail Trade (Sector 44-45)

Factor

Size Std

21.1

450

63.3

400

$4.1

400

4.2

250

0.828

1,050

550

500

SBA also evaluated the size standard for nonmanufacturers by comparing the average receipts-based industry factors of all Wholesale Trade and Retail Trade industries combined with those of receipts-based industries to calculate a receipt-based size standard for nonmanufacturers. SBA calculated a receipts-based size standard for all industries in Wholesale Trade and Retail Trade combined to be $27.0 million. Although SBA has evaluated a receipt-based size standard for nonmanufacturers, SBA believes that adopting a receipts-based size standard instead of an employee-based size standard would be inappropriate for several reasons. Specifically, the Small Business Act provides that the size of manufacturing firms be based on the number of employees and that the size of services firms be based on average annual receipts. Adopting a receipts-based size standard under the nonmanufacturer rule, which currently applies only to Government acquisitions for supplies, would cause many manufacturing concerns supplying products to the Government as nonmanufacturers under the nonmanufacturer rule to be evaluated under a receipts-based size standard. This would be contrary to the requirements of the Small Business Act.

Moreover, based on data from the 2012 Economic Census, SBA determined that under the calculated $27.0 million receipt-based size standard, a significant number of firms would lose their small business status that they currently have under the 500-employee nonmanufacturer size

standard. SBA estimates that only 95.3% of the 975,625 firms in the Wholesale Trade and Retail Trade sectors would qualify as small under the $27.0 million receipts-based size standard whereas 99.1% of firms qualify as small under the current 500-employee nonmanufacturer size standard. Even if SBA were to adopt the maximum receipts-based size standard of $41.5 million as the size standard for nonmanufacturers, only 96.6% of firms in the Wholesale Trade and Retail Trade sectors would qualify as small. Thus, SBA believes that adopting a receipts-based size standard could cause thousands of firms to lose their small business status and may likely lead to fewer set-aside opportunities for all small businesses since it would reduce the pool of eligible small firms that the Federal Government could select from when setting aside procurement of supplies for small businesses.

Regarding the concern that firms with large revenues are eligible to receive small business set-aside contracts under the nonmanufacturer rule, SBA notes that revenues are not germane to the calculation of size for firms subject to SBA's employee-based size standards. Likewise, the number of employees is not germane to the calculation of size for firms subject to SBA's receipts-based size standards. Thus, firms under any size standard may argue that the size threshold for their industry is unfair because it may allow large firms under the non-germane measure of size to compete as a small business. However, SBA's selection of size measure is not discretionary for most industries. As stated previously, the Small Business Act provides that the size of manufacturing firms be based on the number of employees and that the size of services firms be based on average annual receipts. The choice of a size measure for an industry also depends on which measure that best represents the magnitude of operations of a business concern. That is, the measure should account for the level of real business activity generated by firms in the industry. Generally, SBA prefers employees as a measure of size in industries that are highly capital intensive, horizontally structured, or have low operational costs relative to receipts. When applied to the subset of firms participating in the Federal contracting market as nonmanufacturers, these considerations, when taken together, support an employee-based size standard for nonmanufacturers. However, although SBA proposes to retain the current 500-employee size standard for nonmanufacturers participating in the Federal contracting market, in the Request for Comments section below, SBA requests comments on the appropriateness of the current 500-employee size standard and suggestions for alternative measures to an employee-based size standard that would be more appropriate for size determination of nonmanufacturers.

Request for Comments

SBA invites public comments on proposed size standards in this proposed rule, especially focusing on the following issues:

1. SBA seeks feedback on whether SBA's proposal to increase 150 employee-based size standards and retain 282 employee-based size standards is appropriate given the results from the latest available industry and Federal contracting data of each industry and subindustry (“exception”) reviewed in this proposed rule, along with ongoing uncertainty and impact on the economic activity due to the COVID-19 pandemic. SBA also seeks suggestions, along with supporting facts and analysis, for alternative size standards, if they would be more appropriate than the proposed size standards in this rule.

2. SBA seeks comments on whether SBA should retain size standards in view of the COVID-19 pandemic and its adverse impacts on small businesses as well as on the overall economy when the analytical results suggest they could be lowered. SBA believes that lowering size standards under the current economic environment would run counter to what Congress and the Federal Government are doing to aid and provide relief to the Nation's small businesses impacted by the COVID-19 pandemic.

3. SBA seeks feedback on whether SBA's proposal to maintain the current 500-employee size standard under the nonmanufacturer rule is appropriate given the results from the latest available industry data. SBA also seeks suggestions, along with supporting facts and analysis, on alternative size standards, such as annual receipts or a different level of employees, if they would be more appropriate than the current and proposed 500-employee size standard for nonmanufacturers. SBA also invites input on whether the Agency should allow the use of industry-based size standards in Wholesale Trade and Retail Trade sectors to define whether a wholesaler or retailer is a small business concern for the acquisition of supplies.

4. In calculating the overall industry size standard, SBA has assigned equal weight to each of the five primary factors in all industries and subindustries covered by this proposed rule. SBA seeks feedback on whether it should assign equal weight to each factor or on whether it should give more weight to one or more factors for certain industries or subindustries. Recommendations to weigh some factors differently than others should include suggested weights for each factor along with supporting facts and analysis.

5. SBA seeks comments on the appropriateness of its proposal to, based on the results from dominance analysis, retain current size standards in certain industries for which analytical results supported increases. For those industries, based on the data from the 2012 Economic Census, the share of industry receipts of a firm at the calculated size standard level was above the 40% threshold that SBA generally uses in determining whether the proposed or calculated size standard for the industry would include a dominant or potentially dominant firm qualifying as small. SBA invites industry analyses or suggestions for sources of more recent data that would show changes in industry structure, including a firm's share of industry receipts at various size thresholds.

6. Line Haul Railroads (NAICS 482111) and Short Line Railroads (NAICS 482112) are not covered by the Economic Census. Based on the evaluation of economic characteristics of these industries using the data from the Railroad Retirement Board (RRB) and American Short Line and Regional Railroad Association (ASLRRA), SBA is proposing to retain the current 1.500-employee size standard for both NAICS 482111 and 482112. SBA invites comments, along with supporting information, on this proposal as well as sources of data that more clearly define the economic characteristics of these industries.

7. The Economic Census tabulation does not provide the data to evaluate the size standard for the Information Technology Value Added Resellers (ITVAR) exception to NAICS 541519 (Other Computer Related Services). Based on the analysis of the FPDS-NG and SAM data, SBA is proposing to retain the current 150-employee size standard for the ITVAR exception. SBA invites comments, along with supporting information, on this proposal as well as suggestions for alternative sources of data that more clearly define the economic characteristics of ITVARs.

8. Finally, SBA seeks comments on data sources it used to examine industry

and Federal market conditions, as well as suggestions on relevant alternative data sources that the Agency should evaluate in reviewing or modifying size standards for industries or subindustries covered by this proposed rule.

Public comments on the above issues are very valuable to SBA for validating its proposed size standards revisions in this proposed rule. 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 the application of size standards for Federal procurement programs, SBA suggests that commenters provide information on the size of contracts in their industries, the size of businesses that can undertake the contracts, start-up costs, equipment, and other asset requirements, the amount of subcontracting, other direct and indirect costs associated with the contracts, the use of mandatory sources of supply for products and services, and the degree to which contractors can mark up those costs.

Compliance With Executive Order 12866, the Congressional Review Act (5 U.S.C. 801-808), the Regulatory Flexibility Act (5 U.S.C. 601-612), Executive Orders 13563, 12988, and 13132, and the Paperwork Reduction Act (44 U.S.C. Ch. 35)

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, in the next section SBA provides a Regulatory Impact Analysis of this proposed rule, including: (1) A statement of the need for the proposed action, (2) An examination of alternative approaches, and (3) An evaluation of the benefits and costs—both quantitative and qualitative—of the proposed action and the alternatives considered.

Regulatory Impact Analysis

1. What is the need for this regulatory action?

SBA's mission is to aid and assist small businesses through a variety of financial, procurement, business development and counseling, and disaster assistance programs. To determine the actual intended beneficiaries of these programs, SBA establishes numerical size standards by industry to identify businesses that are deemed small. Under the Small Business Act (Act) (15 U.S.C. 632(a)), SBA's Administrator is responsible for establishing small business size definitions (or “size standards”) and ensuring that such definitions vary from industry to industry to reflect differences among various industries. The Jobs Act requires SBA to review every five years all size standards and make necessary adjustments to reflect current industry and Federal market conditions. This proposed rule is part of the second five-year review of size standards in accordance with the Jobs Act. The first five-year review of size standards was completed in early 2016. Such periodic reviews of size standards provide SBA with an opportunity to incorporate ongoing changes to industry structure and Federal market environment into size standards and to evaluate the impacts of prior revisions to size standards on small businesses. This also provides SBA with an opportunity to seek and incorporate public input to the size standards review and analysis. SBA believes that proposed size standards revisions for industries being reviewed in this rule will make size standards more reflective of the current economic characteristics of businesses in those industries and the latest trends in Federal marketplace.

The proposed revisions to the existing employee-based size standards for 150 industries or subindustries (or “exceptions”), including 120 industries in Sector 31-33 and 30 industries and subindustries in other sectors are consistent with SBA's statutory mandates to help small businesses grow and create jobs and to review and adjust size standards every five years. This regulatory action promotes the Administration's goals and objectives as well as meets the SBA's statutory responsibility. One of SBA's goals in support of promoting the Administration's objectives is to help small businesses succeed through fair and equitable access to capital and credit, Federal Government contracts and purchases, and management and technical assistance. Reviewing and modifying size standards, when appropriate, ensures that intended beneficiaries are able to access Federal small business programs that are designed to assist them to become competitive and create jobs.

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

OMB directs agencies to establish an appropriate baseline to evaluate any benefits, costs, or transfer impacts of regulatory actions and alternative approaches considered. The baseline should represent the agency's best assessment of what the world would look like absent the regulatory action. For a new regulatory action promulgating modifications to an existing regulation (such as modifying the existing size standards), a baseline assuming no change to the regulation (

i.e.,

making no changes to current size standards) generally provides an appropriate benchmark for evaluating benefits, costs, or transfer impacts of proposed regulatory changes and their alternatives.

Proposed Changes to Size Standards

Based on the results from the analyses of the latest industry and Federal contracting data, as well as consideration of impact of size standards changes on small businesses and significant adverse impacts of the COVID-19 emergency on small businesses and the overall economic activity, of the total of 432 industries and subindustries (or “exceptions”) in Sector 31-33 and other sectors that have employee-based size standards, SBA proposes to increase size standards for 150 industries or subindustries (“exceptions”) and maintain current size standards for the remaining 282 industries or subindustries (“exceptions”).

The Baseline

For purposes of this regulatory action, the baseline represents maintaining the “status quo,”

i.e.,

making no changes to the current size standards. Using the number of small businesses and levels of benefits (such as set-aside contracts, SBA's loans, disaster assistance, etc.) they receive under the current size standards as a baseline, one can examine the potential benefits, costs, and transfer impacts of proposed changes to size standards on small businesses and on the overall economy.

Based on the 2012 Economic Census (the latest available when this proposed rule was prepared), of a total of about 337,524 businesses in industries in Sectors 31-33 and other sectors with employee-based size standards, 96.9% are considered small under the current size standards. That percentage varies from 86.1% in NAICS Sector 22 to 99.8% in Sector 11. Based on the data from FPDS-NG for fiscal years 2018-2020, about 43,168 unique firms in those industries received at least one Federal contract during that period, of which 83.6% were small under the current size standards. A total of $231 billion in average annual contract dollars were awarded to businesses in those industries during the period of evaluation, and 18.6% of the dollars awarded went to small businesses. For industries and subindustries (“exceptions”) reviewed in this proposed rule, providing contract

dollars to small business through set-asides is quite important. From the total small business contract dollars awarded during the period considered, 47.1% were awarded through various small business set-aside programs and 52.9% were awarded through non-set aside contracts. Based on the SBA's internal data on its loan programs for fiscal years 2018-2020, small businesses in those industries received, on an annual basis, a total of 4,997 7(a) and 504 loans in that period, totaling about $3.1 billion, of which 75.7% was issued through the 7(a) program and 24.3% was issued through the 504/CDC program. During fiscal years 2018-2020, small businesses in those industries also received 243 loans through the SBA's Economic Injury Disaster Loan (EIDL) program, totaling about $10.7 million on an annual basis.

5

Table 14, Baseline for All Industries, below, provides these baseline results by Manufacturing (Sector 31-33) and all other sectors.

5

The analysis of the disaster loan data excludes physical disaster loans that are available to anyone regardless of size, disaster loans issued to nonprofit entities, and EIDLs issued under the COVID-19 relief program. Effective January 1, 2022, SBA stopped accepting applications for new COVID EIDL loans or advances. Thus, the disaster loan analysis presented here pertains to the regular EIDL loans only.

SBA estimates impacts of size standards changes on EIDL loans by calculating the ratio of businesses getting EIDL loans to total small businesses (based on the Economic Census data) and multiplying it by the number of impacted small firms. Due to data limitations, for FY 2019-20, some loans with both physical and EIDL loan components could not be broken into the physical and EIDL loan amounts. In such cases, SBA applied the ratio of EIDL amount to total (physical loan + EIDL) amount using FY 2016-18 data to the FY 2019-20 data to obtain the amount attributable to the EIDL loans.

Table 14—Baseline for All Industries Under Current Size Standards

Sector 31-33

Other sectors

Total

Number of industries or subindustries (“exceptions”) reviewed in this proposed rule

360

72

432

Total firms in industries reviewed in this proposed rule (2012 Economic Census)

1

266,774

70,750

337,524

Total small firms in those industries under current size standards (2012 Economic Census)

1

258,290

68,679

326,969

Small firms as % of total firms (2012 Economic Census)

1

96.8%

97.1%

96.9%

Total contract dollars ($ million) (FPDS-NG FY 2018-2020)

$181,818

$49,198

$231,016

Total small business contract dollars under current standards ($ million) (FPDS-NG FY2016-2018)

$28,713

$14,326

$43,039

Small business dollars as % of total dollars (FPDS-NG FY 2018-2020)

15.8%

29.1%

18.6%

Total number of unique firms getting Federal contracts (FPDS-NG FY 2018-2020)

34,209

8,959

43,168

Total number of unique small firms getting small business contracts (FPDS-NG FY 2018-2020)

29,037

7,065

36,102

Small firms getting Federal contracts as % of total firms getting Federal contracts (FPDS-NG FY 2018-2020)

84.9%

78.9%

83.6%

Number of 7(a) and 504/CDC loans (FY 2018-2020)

4,484

513

4,997

Amount of 7(a) and 504 loans ($ million) (FY 2018-2020)

$2,863

$235

$3,098

Number of EIDL loans (FY 2018-2020)

2

202

41

243

Amount of EIDL loans ($million) (FY 2018-2020)

2

$8.3

$2.4

$10.7

1

These figures do not include two 6-digit NAICS industries and 5 subindustries or “exceptions” for which Economic Census data is not available.

2

Excludes COVID-19 related EIDL loans due to their temporary nature. Effective January 1, 2022, SBA stopped accepting applications for new COVID EIDL loans or advances.

Increases to Size Standards

As stated above, of 432 employee-based size standards in Sectors 31-33 and other sectors that are reviewed in this rule, based on the results from analyses of latest industry and Federal market data as well as impacts of size standards changes on small businesses and considerations for the impacts from the COVID-19 pandemic, SBA proposes to increase 150 size standards, including 120 in Sector 31-33 and 30 in other sectors. Below are descriptions of the benefits, costs, and transfer impacts of these proposed increases to size standards.

Benefits of Increases to Size Standards

The most significant benefit to businesses from proposed increases to size standards is gaining eligibility for Federal small business assistance programs or retaining that eligibility for a longer period. These include SBA's business loan programs, EIDL program, and Federal procurement programs intended for small businesses. Federal procurement programs provide targeted, set-aside opportunities for small businesses under SBA's various business development and contracting programs. These include the 8(a)/Business Development (BD) Program, the Small Disadvantaged Businesses (SDB) Program, the Historically Underutilized Business Zones (HUBZone) Program, the Women-Owned Small Businesses (WOSB) Program, the Economically Disadvantaged Women-Owned Small Businesses (EDWOSB) Program, and the Service-Disabled Veteran-Owned Small Businesses (SDVOSB) Program.

Besides set-aside contracting and financial assistance discussed above, small businesses also benefit through reduced fees, less paperwork, and fewer compliance requirements that are available to small businesses through the Federal Government programs. However, SBA has no data to estimate the number of small businesses receiving such benefits.

Based on the 2012 Economic Census (latest available when this proposed rule was prepared), SBA estimates that in 150 industries or subindustries (“exceptions”) in NAICS Sector 31-33 and other sectors with employee-based size standards for which it has proposed to increase size standards, 248 firms (see Table 15), not small under the current size standards, will become small under the proposed size standards increases and therefore become eligible for these programs. That represents about 0.3% of all firms classified as small under the current size standards in industries for which SBA has proposed increasing size standards. If adopted, proposed size standards would result in an increase to the small business share of total receipts in those industries from 26.0% to 26.5%.

With more businesses qualifying as small under the proposed increases to size standards, Federal agencies will have a larger pool of small businesses from which to draw for their small business procurement programs.

Growing small businesses that are close to exceeding the current size standards will be able to retain their small business status for a longer period under the higher size standards, thereby enabling them to continue to benefit from the small business programs.

Based on the FPDS-NG data for fiscal years 2018-2020, SBA estimates that 111 firms that are active in Federal contracting in those industries would gain small business status under the proposed size standards. Based on the same data, SBA estimates that those newly-qualified small businesses under the proposed increases to size standards, if adopted, could receive Federal small business contracts totaling $253 million annually. That represents a 2.4% increase to small business contract dollars from the baseline. Table 15, Impacts of Proposed Increases to Size Standards, provides these results by NAICS sector.

The added competition from more businesses qualifying as small can result in lower prices to the Government for procurements set aside or reserved for small businesses, but SBA cannot quantify this impact. Costs could be higher when full and open contracts are awarded to HUBZone businesses that receive price evaluation preferences. However, with agencies likely setting aside more contracts for small businesses in response to the availability of a larger pool of small businesses under the proposed increases to size standards, HUBZone firms might receive more set-aside contracts and fewer full and open contracts, thereby resulting in some cost savings to agencies. SBA cannot estimate such cost savings as it is impossible to determine the number and value of unrestricted contracts to be otherwise awarded to HUBZone firms will be awarded as set-asides. However, such cost savings are likely to be relatively small as only a small fraction of full and open contracts are awarded to HUBZone businesses.

As shown in Table 15, under SBA's 7(a) and 504 loan programs, based on the data for fiscal years 2018-2020, SBA estimates up to about 9 SBA 7(a) and 504 loans totaling about $5.6 million could be made to these newly-qualified small businesses in those industries under the proposed size standards. That represents a 0.7% increase to the loan amount compared to the baseline.

Table 15—Impacts of Proposed Increases to Size Standards

Sector 31-33

Other sectors

Total

Number of industries or subindustries (“exceptions”) with proposed increases to size standards

120

30

150

Total current small businesses in industries with proposed increases to size standards (2012 Economic Census)

1

68,925

5,914

74,839

Additional firms qualifying as small under proposed increases to size standards (2012 Economic Census)

1

194

54

248

% of additional firms qualifying as small relative to current small businesses in industries with proposed increases to size standards (2012 Economic Census)

1

0.3%

0.9%

0.3%

Number of current unique small firms getting small business contracts in industries with proposed increases to size standards (FPDS-NG FY 2018-2020)

2

13,759

815

14,574

Additional number of small business firms gaining small business status under proposed increases to size standards (FPDS-NG FY 2018-2020)

87

24

111

% increase to number of small businesses relative to current unique small firms getting small business contracts in industries with proposed increases to size standards (FPDS-NG FY 2018-2020)

0.6%

2.9%

0.8%

Total small business contract dollars under current size standards in industries or subindustries with proposed increases to size standards ($ million) (FPDS-NG FY 2018-2020)

$9,465

$1,243

$10,708

Estimated small business dollars available to newly-qualified small firms ($ million) (FPDS-NG FY 2018-2020)

3

$73

$180

$253

% increase to small business dollars relative to total small business contract dollars under current standards in industries with proposed increases to size standards

0.8%

14.6%

2.4%

Total number of 7(a) and 504 loans to small business in industries with proposed increases to size standards (FY 2018-2020)

1,144

62

1,206

Total amount of 7(a) and 504 loans to small businesses in industries with proposed increases to size standards ($ million) (FY 2018-2020)

$741

$350

$776

Estimated number of 7(a) and 504 loans to newly-qualified small firms

5

4

9

Estimated 7(a) and 504 loan amount to newly-qualified small firms ($ million)

$3.2

$2.4

$5.6

% increase to 7(a) and 504 loan amount relative to the total amount of 7(a) and 504 loans in industries with proposed increases to size standards

0.4%

7.0%

0.7%

Total number of EIDL loans to small businesses in industries with proposed increases to size standards (FY 2018-2020)

4

67

12

79

Total amount of EIDL loans to small businesses in industries with proposed increases to size standards ($ million) (FY 2018-2020)

4

$2.9

$0.8

$3.7

Estimated no. of EIDL loans to newly-qualified small firms

4

3

4

7

Estimated EIDL loan amount to newly-qualified small firms ($ million)

4

$0.1

$0.2

$0.3

% increase to EIDL loan amount relative to the total amount of disaster loans in industries with proposed increases to size standards

4

4.5%

36.3%

9.1%

1

These figures do not include two 6-digit NAICS industries and 5 subindustries or “exceptions” for which Economic Census data is not available.

2

Total impact represents total unique number of firms impacted to avoid double counting as some firms participate in more than one industry.

3

Additional dollars are calculated multiplying average small business dollars obligated per unique firm times change in number of firms. Numbers of firms are calculated using the SBA's current size standards, not the contracting officer's size designation.

4

Excludes COVID-19 related EIDL loans due to their temporary nature. Effective January 1, 2022, SBA stopped accepting applications for new COVID EIDL loans or advances.

Newly-qualified small businesses will also benefit from the SBA's EIDL program. Since the benefit provided through this program is contingent on the occurrence and severity of a disaster in the future, SBA cannot make a precise estimate of this impact. However, based on the disaster loan program data for fiscal years 2018-2020, SBA estimates that, on an annual basis, the newly-defined small businesses under the proposed increases to size standards, if adopted, could receive seven disaster loans, totaling about $0.3 million. Additionally, the newly-defined small businesses would also benefit through reduced fees, less paperwork, and fewer compliance requirements that are available to small businesses through the Federal Government, but SBA has no data to quantify this impact.

Costs of Increases to Size Standards

Besides having to register in the System of Award Management (SAM) to be eligible to participate in Federal contracting and update the SAM profile annually, small businesses incur no direct costs to gain or retain their small business status as a result of proposed increases to size standards. All businesses willing to do business with the Federal Government must register in SAM and update their SAM profiles annually, regardless of their size status. SBA believes that a vast majority of impacted businesses that are willing to participate in Federal contracting are already registered in SAM and update their SAM profiles annually. More importantly, this proposed rule does not establish the new size standards for the very first time; rather it intends to modify the existing size standards in accordance with a statutory requirement, the latest data, and other relevant factors.

To the extent that the newly-qualified small businesses could become active in Federal procurement, the proposed increases to size standards, if adopted, may entail some additional administrative costs to the Federal Government as a result of more businesses qualifying as small for Federal small business programs. For example, there will be more firms seeking SBA's loans, more firms eligible for enrollment in the Dynamic Small Business Search (DSBS) database or in

certify.sba.gov,

more firms seeking certification as 8(a)/BD or HUBZone firms or qualifying for small business, SDB, WOSB, EDWOSB, and SDVOSB status, and more firms applying for SBA's 8(a)/BD mentor-protégé programs. With an expanded pool of small businesses, it is likely that Federal agencies would set aside more contracts for small businesses under the proposed increases to size standards. One may surmise that this might result in a higher number of small business size protests and additional processing costs to agencies. However, the SBA's historical data on the number of size protests processed shows that the number of size protests decreased following the increases to size standards as part of the first five-year review of size standards. Specifically, on an annual basis, the number of size protests fell from about 600 during fiscal years 2011-2013 (review of most receipts-based size standards was completed by the end of FY 2013), as compared to about 500 during fiscal years 2018-2020 when size standard increases were in effect. That represents a 17% decline.

Among those newly-defined small businesses seeking SBA's loans, there could be some additional costs associated with verification of their small business status. However, small business lenders have an option of using the tangible net worth and net income based alternative size standard instead of using the industry-based size standards to establish eligibility for SBA's loans. For these reasons, SBA believes that these added administrative costs will be minor because necessary mechanisms are already in place to handle these added requirements.

Additionally, some Federal contracts may possibly have higher costs. With a greater number of businesses defined as small due to the proposed increases to size standards, Federal agencies may choose to set aside more contracts for competition among small businesses only instead of using a full and open competition. The movement of contracts from unrestricted competition to small business set-aside contracts might result in competition among fewer total bidders, although there will be more small businesses eligible to submit offers under the proposed size standards. However, the additional costs associated with fewer bidders are expected to be minor since, by law, procurements may be set aside for small businesses under the 8(a)/BD, SDB, HUBZone, WOSB, EDWOSB, or SDVOSB programs only if awards are expecte

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