# Small Business Size Standards: Monetary-Based Industry Size Standards

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2025-16142

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** August 22, 2025
- **Citation:** 90 FR 41168

## Text

SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AI12
Small Business Size Standards: Monetary-Based Industry Size Standards

AGENCY:

U.S. Small Business Administration.

ACTION:

Proposed rule.

SUMMARY:

The U.S. Small Business Administration (SBA or the Agency) proposes to increase its monetary based small business size definitions (commonly referred to as “size standards”) for 263 industries (259 receipts based and four assets based). SBA proposes to retain receipts based size standards for 237 industries and 12 subindustries (“exceptions”) and remove one exception. SBA's proposal relied on its recently revised “Size Standards Methodology” (Revised Methodology). SBA seeks comments on its proposed changes to size standards and data sources it evaluated to develop the proposed size standards. SBA also invites comments on its proposed policy of not lowering any size standards, except for excluding dominant firms from qualifying as small. In accordance with 5 U.S.C. 553(b)(4), a summary of this rule may be found at
www.regulations.gov.

DATES:

SBA must receive comments on this proposed rule on or before October 21, 2025.

ADDRESSES:

Identify your comments by RIN 3245-AI12 or Docket No. SBA-2025-0102 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, Size Standards Division, 409 Third Street SW, Mail Code 6530, Washington, DC 20416.

SBA will post all comments on 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, Size Standards Division, 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:

Jorge Laboy-Bruno, Ph.D., Economist, Size Standards Division, (202) 205-6618 or
sizestandards@sba.gov.

SUPPLEMENTARY INFORMATION:

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 the tangible net worth and net income based alternative size standard to determine eligibility for those programs.

In September 2010, Congress passed the Small Business Jobs Act (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. Section 1831 of the National Defense Authorization Act for Fiscal Year 2017 (Pub. L. 114-328; December 23, 2016) (NDAA 2017) directed SBA to establish size standards for all agricultural enterprises in the same manner as for other industries and to include them in the five-year rolling review procedures established under section 1344(a) of the Jobs Act.

In accordance with the Jobs Act, SBA completed the first five-year review of all size standards (except size standards for agricultural enterprises) in 2016
1

and the second five-year review of size standards (including size standards for agricultural enterprises in accordance with NDAA 2017) in 2023,
2

and made appropriate adjustments to size standards for a number of industries to reflect current industry and Federal market conditions. This rule focusing on monetary based size standards is one of two proposed rules as part of the third five-year review of size standards under the Jobs Act. The other proposed rule will focus on employee based size standards and be published in the near future.

1
See “A REPORT ON THE FIRST FIVE-YEAR COMPREHENSIVE REVIEW OF SMALL BUSINESS SIZE STANDARDS UNDER THE SMALL BUSINESS JOBS ACT OF 2010” available at
https://www.sba.gov/sites/default/files/2023-09/Report%20on%20the%20First%205-Year%20Comprehensive%20Size%20Standards%20Review-508F.pdf.

2
See “A REPORT ON THE SECOND FIVE-YEAR COMPREHENSIVE REVIEW OF SMALL BUSINESS SIZE STANDARDS UNDER THE SMALL BUSINESS JOBS ACT OF 2010”, available at
https://www.sba.gov/sites/default/files/2023-07/SBA%27s%20Report%20on%20the%20Second%205%20Year%20Review%20of%20Size%20Standards_Final.pdf.

The number of monetary based size standards reviewed and revised by NAICS sector during the first five-year comprehensive review of size standards under the Jobs Act were discussed in the receipts based size standards proposed rules SBA issued as part of the second five-year comprehensive review of size standards.
3

During the second five-year review of size standards under the Jobs Act, SBA reviewed a total of 534 monetary based size standards and increased 264.

3
See Small Business Size Standards: Agriculture, Forestry, Fishing and Hunting, Mining, Quarrying, and Oil and Gas Extraction, Utilities, Construction (85 FR 62239, October 2, 2020), Small Business Size Standards: Transportation and Warehousing, Information, Finance and Insurance, Real Estate and Rental and Leasing (85 FR 62372, October 2, 2020), Small Business Size Standards: Professional, Scientific and Technical Services, Management of Companies and Enterprises, Administrative and Support and Waste Management and Remediation Services (85 FR 72584, November 13, 2020), Small Business Size Standards: Education Services, Health Care and Social Assistance, Arts, Entertainment and Recreation, Accommodation and Food Services, Other Services (85 FR 76390, November 27, 2020), and Small Business Size Standards: Wholesale Trade and Retail Trade (86 FR 28012, May 25, 2021).

The analysis of available data at that time suggested that a total of 237 size standards might be decreased, but in response to ongoing economic impacts as a result of the COVID-19 pandemic, SBA decided to retain those size standards at the current levels.
4

Table 1, Summary of Monetary Based Size Standards Reviewed in Second Five-Year Review (NAICS 2017), provides a summary of these revisions by NAICS sector.

4
See Small Business Size Standards: Agriculture, Forestry, Fishing and Hunting, Mining, Quarrying, and Oil and Gas Extraction, Utilities, Construction (87 FR 18607, March 31, 2022), Small Business Size Standards: Transportation and Warehousing, Information, Finance and Insurance, Real Estate and Rental and Leasing (87 FR 18627, March 31, 2022), Small Business Size Standards: Professional, Scientific and Technical Services, Management of Companies and Enterprises, Administrative and Support and Waste Management and Remediation Services (87 FR 18665, March 31, 2022), Small Business Size Standards: Education Services, Health Care and Social Assistance, Arts, Entertainment and Recreation, Accommodation and Food Services, Other Services (87 FR 18646, March 31, 2022), and Small Business Size Standards: Wholesale Trade and Retail Trade (87 FR 35869, June 14, 2022).

Currently, there are 102 different size standards levels, covering 978 NAICS

industries and 18 subindustries (commonly known as “exceptions” in SBA's table of size standards). Seventy-three of these size levels are based on average annual receipts covering 496 industries and 13 subindustries (“exceptions”), 27 are based on average number of employees covering 478 industries and five subindustries (“exceptions”), one is based on refining capacity covering one industry, and one is based on average assets covering four industries.

BILLING CODE 8026-09-P

EP22AU25.000

EP22AU25.001

BILLING CODE 8026-09-C

SBA also adjusts its monetary based size standards for inflation at least once every five years. An interim final rule on SBA's latest inflation adjustment to size standards, effective December 19, 2022, was published in the
Federal Register
on November 17, 2022 (87 FR 69118), which SBA finalized on July 19, 2023, adopting the November 2022 interim rule (88 FR 46048). SBA also updates its size standards, every five years, to adopt the Office of Management and Budget's (OMB) quinquennial NAICS revisions to its table of small business size standards. Effective October 1, 2022, SBA adopted the OMB's 2022 NAICS revisions to its size standards (87 FR 59240, September 29, 2022).

This proposed rule is one of the two proposed rules that will review size standards of industries grouped by the type of size standards measures,
i.e.,
monetary based size standards and employee based size standards. Rather than review all size standards in one rule, SBA is reviewing size standards by grouping industries that use the same size measure (
i.e.,
employees or monetary measures). Once SBA completes its review of size standards for a group of industries sharing the same measure of size standards, it issues 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's Administrator.

Below is a discussion of SBA's recently revised “Size Standards Methodology” (Revised Methodology), issued on September 12, 2024, and available at
www.sba.gov/size,
for establishing, reviewing, or modifying receipts 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 Federal contracting factor in terms of two disparity ratios. The first disparity ratio measures the small business share of total contracts relative to the small business share of the total population of firms that are willing, ready, and able to bid on and perform Federal contracts. The second disparity ratio represents the small business share of 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 recently revised its Methodology for establishing, reviewing, or modifying size standards when necessary. See the notification in the September 12, 2024, edition of the
Federal Register
(89 FR 74109). The Revised 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 December 11, 2023, edition of the
Federal Register
(88 FR 85852) to solicit comments from the public and notify stakeholders of the proposed changes to the Methodology. SBA considered all public comments in finalizing the Revised Methodology. For a summary of comments and SBA's responses, refer to the SBA's September 12, 2024,
Federal Register
notification.

The Revised Methodology represents two major changes from the previous methodology (2019 Methodology), which was issued on April 11, 2019 (84 FR 14587). The first change is to replace the 2019 Methodology to account for the Federal contracting factor with the disparity ratio approach. Under the 2019 Methodology, SBA defined the Federal contracting factor in terms of the difference between the small business share of total contract obligations and the small business share of industry' receipts. If the small business share of an industry total receipts exceeded the small business share of total contract obligations by ten percentage points or more, all else being the same, SBA increased that industry's current size standard by certain amount depending on the amount of that difference. If that difference was less than ten percentage points, SBA considered that the current size standard was sufficient with respect to the Federal contracting factor.
5

5
For a more detailed explanation of this approach, please see SBA's 2019 Methodology, available at
https://www.sba.gov/document/support-2019-size-standards-methodology-white-paper.

Under the disparity ratio approach, SBA computes a disparity ratio as a ratio (instead of the difference) between the small business share of contract obligations and the small business share of industry receipts. SBA also computes a second disparity ratio as a ratio between small business share of the number of contracts and the share of

small firms in the total population of firms that are willing, ready, and able to bid on and perform Federal contracts. If an industry's disparity ratio is less than 0.8, SBA would assume that small businesses are either materially underrepresented (
i.e.,
the disparity ratio is 0.5 or greater and less than 0.8) or substantially underrepresented (
i.e.,
the disparity ratio is less than 0.5) in the Federal market under that industry's current size standard and would increase the current size standard as per Table 3 (below). If an industry's disparity ratio is 0.8 or higher, small businesses are considered overrepresented (
i.e.,
the disparity ratio is 0.8 or higher and less than 1.2) or substantially overrepresented (
i.e.,
the disparity ratio is 1.2 or higher) in the Federal market in that industry under the current size standard, and that industry's size standard is maintained at the current level.

The second change is to replace the 20th percentile and 80th percentile values of industry factors for evaluating size standards at subindustry levels (“exceptions”) from those calculated based on the Economic Census data in the 2019 Methodology with those calculated using the Federal Procurement Data System/System for Award Management (FPDS/SAM) data under the revised Methodology. This will ensure consistency between the 20th percentile and 80th percentile values of industry factors and industry factors for individual exceptions.

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 receipts based size standards, the Methodology described in this proposed rule applies only to establishing, reviewing, or modifying receipts based size standards. SBA's entire Methodology is available on its website at
www.sba.gov/size
and on
www.regulations.gov.

Industry Analysis

Congress granted SBA's 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 primary 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 rules. 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. Under the current Methodology, SBA uses the “percentile” approach to examine the industry structure.
6

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. A more detailed description of the percentile method is provided in the SBA's Revised Methodology, available at
www.sba.gov/size
and on
www.regulations.gov.

6
As part of revision to its size standards methodology in conjunction with the second 5-year review of size standards under the Jobs Act, SBA replaced the previous “anchor” size standards approach to analyzing industry structure with the “percentile” approach. The anchor approach is described in the SBA's 2009 Methodology, available at
https://www.sba.gov/document/support-2009-size-standards-methodology-white-paper.

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 contracting assistance under the current size standards. These are, generally, the five most important factors 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, other program factors). SBA also considers possible impacts of size standard revisions on eligibility for Federal small business 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
and on
www.regulations.gov.

1.
Average firm size.
SBA computes two measures of average firm size: simple average and weighted average. For industries with receipts based size standards, the simple average is the total receipts of the industry divided by the total number of firms in the industry. The weighted average firm size is the sum of weighted simple averages in different receipts size classes, where weights are the shares of total industry receipts for respective size classes. 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
www.rmahq.org/estatement-studies.
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 largest 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 the SBA's Methodology on its website at
www.sba.gov/size
or
www.regulations.gov.
) 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.
Besides the industry factors discussed above, for industries averaging $20 million dollars or more in total Federal contract dollars annually, SBA considers a Federal contracting factor as one of the five primary factors when establishing, reviewing, or revising size standards. 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 share” of Federal contracts. The legislative history also discusses the importance of size standards in Federal contracting.

The Federal contracting factor captures the extent to which small businesses are getting a “fair share” of Federal contracts under the current size standards. Under the current Methodology, a “fair share” is assessed in terms of two measures. One is the proportion of total contracts awarded to small businesses in relation to the proportion of small businesses in the total population of “ready, willing, and able” firms that are available to bid on or perform Federal contracts. The second one is the small business share of Federal contract obligations in an industry relative to the small business share of that industry's total receipts. Under the current Methodology, SBA accounts for these measuring using two disparity ratios, as described below.

As discussed in greater detail in the Revised Methodology available at
www.sba.gov/size,
a disparity ratio is defined as the ratio between the utilization ratio and the availability ratio. Representing the two measures to assess the extent to which small businesses are receiving a “fair share” of Federal procurements described above, SBA computes a disparity ratio using two methods. Under the first method (Disparity Ratio—Method 1), the utilization ratio is defined in terms of the small business share of total Federal contracts and the availability ratio is defined in terms of the proportion of small firms in the total population of “ready, willing, and able” firms that are available to bid on or perform Federal contracts. Under the second method (Disparity Ratio—Method 2), the utilization ratio is defined in terms of the small business share total contract obligations and the availability ratio is defined in terms of the small business share of total industry's receipts.
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This is a refinement to the 2019 Methodology, where SBA compared the small business share of total contract dollars in each industry with small business share of that industry's total receipts. If the small business share of an industry total receipts exceeded the small business share of total contract dollars by ten percentage points or more, SBA determined that small businesses were underrepresented in the Federal marketplace under the current size standard and a justification existed to increase that industry's current size standard. If that difference was less than ten percentage points, SBA considered that small businesses under the current size standard were represented well in the Federal market and the current size standard was considered adequate with respect to the Federal contracting factor.

If the disparity ratio is equal to 1.0, then there is no disparity (or there is parity) and small businesses are said to have been awarded Federal contracts in the same proportion as their representation in the industry. If the disparity ratio for an industry is 0.8 or higher (“close to or at parity” or “substantially above parity”), small businesses are said to be represented well in the Federal market, SBA considers that the current size standard for that industry as adequate. Small

businesses are said to be “materially underrepresented” in industries in which the disparity ratio is between 0.5 and 0.8 and “substantially underrepresented” in industries in which the disparity ratio is less than 0.5. If the disparity ratio for an industry is less than 0.8 (“materially below parity” or “substantially below parity”), SBA considers the current size standard for that industry as inadequate, thereby warranting an upward adjustment of the current size standard.

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 proposed 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 2017 Economic Census is the latest available. 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) for the 50 largest firms, 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 2-digit (Sector), 3-digit (Subsector), or 4-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 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 2017 Census of Agriculture (
www.nass.usda.gov
) from the National Agricultural Statistics Service (NASS). Similarly, to evaluate certain financial industries that have assets based size standards SBA examined the data from the Statistics on Depository Institutions (SDI) database and (
https://www7.fdic.gov/sdi/download_large_list_outside.asp
) of the Federal Depository Insurance Corporation (FDIC) data and data from National Credit Union Administration (NCUA) (
https://ncua.gov/analysis/credit-union-corporate-call-report-data/quarterly-data
).

To calculate average assets, SBA used sales to total assets ratios from the Risk Management Association's (RMA) Annual Statement Studies, 2021-2023 (
www.rmahq.org/estatement-studies/
). To evaluate the Federal contracting factor (
i.e.,
disparity ratios) and exceptions and to determine impacts of size standards changes on small business access to Federal contracting, SBA examined the data on Federal prime contract awards from the FPDS (
www.fpds.gov
) for fiscal years 2021-2023. To assess the impact on financial assistance to small businesses, SBA examined its internal data on 7(a), CDC/504, micro, and economic injury disaster (EID) loan programs for fiscal years 2021-2023. SBA also evaluated the data from the SAM (
www.sam.gov
) to determine disparity ratios, industry factors for some exceptions, and impacts of size standards changes.

Data sources and estimation procedures SBA uses in its size standards analysis are documented in greater detail in the SBA's Revised Methodology, which is available at
www.sba.gov/size
and on
www.regulations.gov.

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 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 is found to include 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 that SBA applied to the first five-year comprehensive review of size standards under the Jobs Act, 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, 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 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.”

As in the 2019 Methodology, in the Revised Methodology, SBA calculates a separate size standard for each 6-digit 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. 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 based 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 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 size above which businesses, if qualified as small, would outcompete much smaller businesses when accessing Federal assistance.

With respect to receipts based size standards, SBA has established $8 million and $47 million, respectively, as the minimum and maximum size standard levels (except for most agricultural industries in NAICS Subsectors 111 and 112). These levels reflect the current minimum of $8 million and the current maximum of $47 million. The industry data suggests that the $8 million minimum and $47 million maximum size standards would be too high for agricultural industries. Accordingly, SBA has established $2.25 million as the minimum size standard and $5.5 million as the maximum size standard for industries in Subsector 111 (Crop Production) and Subsector 112 (Animal Production and Aquaculture).

Evaluation of Industry Factors

As mentioned earlier, to assess the appropriateness of the current size standards, SBA evaluates the structure of each industry in terms of four economic characteristics or factors, namely 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 a receipts based size standard for each industry factor is rounded to the nearest $500,000, except for industries in Subsectors 111 and 112 for which a calculated size standard is rounded to the nearest $250,000.

Table 2, 20th and 80th Percentiles of Industry Factors for Receipts 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 receipts based size standards.

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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, which is $13.5 million. 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 $40 million. For a factor that is within, above, or below the 20-80th 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 receipts are $1.9 million, that would support a size standard of $16.5 million. According to Table 2, the 20th percentile and 80th percentile values of average receipts are $1.09 million and $8.34 million, respectively. The $1.9 million is 11.2 percent between the 20th percentile value ($1.09 million) and the 80th percentile value ($8.34 million) of simple average receipts (($1.9 million−$1.09 million) ÷ ($8.34 million−$1.09 million) = 0.112 or 11.2%). Applying this percentage to the

difference between the 20th percentile value ($13.5 million) and 80th percentile ($40 million) value of size standards and then adding the result to the 20th percentile size standard value ($13.5 million) yields a calculated size standard value of $16.46 million ([{$40 million−$13.5 million} * 0.112] + $13.5 million = $16.46 million). The final step is to round the calculated $16.46 million size standard to the nearest $500,000, which in this example yields $16.5 million. This procedure was applied to calculate size standards supported by other industry factors.

Detailed formulas involved in these calculations are presented in the SBA's Revised Methodology, which is available on its website at
www.sba.gov/size
and on
www.regulations.gov.

Derivation of Size Standards Based on Federal Contracting Factor

As discussed above, 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 computes two disparity ratios to account for the Federal contracting factor. The first disparity ratio (Disparity Ratio—Method (1) captures the extent to which small businesses are receiving a “fair share” of contracts relative to total number of Federal contracts in an industry. The second disparity ratio (Disparity Ratio- Method (2) measures the extent to which small businesses are receiving a “fair share” of Federal contract obligations relative to total obligations in an industry. All other factors being equal, if the disparity ratio is less than 0.8, either materially or substantially below parity, a justification would exist for considering a size standard higher than the current size standard. Conversely, if the disparity ratio is 0.8 or higher, close to or at parity or substantially above parity, this will support the current size standard.

SBA increases the existing size standards by certain percentages when the disparity ratio is materially below parity (
i.e.,
>= 0.5 to <0.8) or substantially below parity (
i.e.,
<0.5). The amount of increases to size standards based on disparity ratios is contingent upon (1) whether the ratio is materially or substantially below parity, and (2) the level of current size standards. These proposed percentage increases for receipts-based size standards are given in Table 3, Proposed Adjustments to Receipts Based Size Standards Based on Disparity Ratio. As explained previously, adjusted receipts based size standards are rounded to the nearest $500,000 (or nearest $250,000 for receipts based size standards in Subsectors 111 and 112).

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For example, if an industry with the current size standard of $19.5 million had disparity ratios of 0.6174 (
i.e.,
materially below parity) and 0.3006 (
i.e.,
substantially below parity) for Method 1 and Method 2, respectively. According to the above rule in Table 3, the new size standard for the first disparity ratio (Method 1) for that industry would be set by multiplying the current $19.5 million standard by 1.3 (
i.e.,
30% increase) and then by rounding the result to the nearest $500,000, yielding a size standard of $25.5 million. Similarly, the new size standard for the second disparity ratio would be set by multiplying the current $19.5 million standard by 1.6 (
i.e.,
60% increase) and then by rounding the result to the nearest $500,000, yielding a size standard of $31 million. By averaging the size standards supported by the two disparity ratios and then by rounding the result to the nearest $500,000 would yield a size standard $28.5 million for the Federal contracting factor.

Of the 513 industries or subindustries (“exceptions”) reviewed in this proposed rule, SBA evaluated the disparity ratios for 207 industries/subindustries that had $20 million or more in average annual Federal contract dollars during fiscal years 2021-2023. Based on Method 1, the disparity ratio value was 0.8 or higher for 69 industries/subindustries, between 0.5 and 0.8 for 67 industries/subindustries, and less than 0.5 for 63 industries/subindustries. According to Method 2, the disparity ratio value was 0.8 or higher for 129 industries/subindustries, between 0.5 and 0.8 for 21 industries/subindustries, and less than 0.5 for 54 industries/subindustries. These results by NAICS sector are shown in Table 4, Number of Industries with Receipts Based Size Standards by Values of Disparity Ratios (NAICS 2022). Due to the lack of relevant data, SBA could not compute the disparity ratio(s) for a few industries. Based on the disparity ratio results, the Federal contracting factor resulted in increases to size standards for 122 industries/subindustries and no change to size standards for 81 industries/subindustries.

Derivation of Overall Industry Size Standard

The SBA's Revised 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 Revised Methodology would allow assigning different weights to some of these factors for certain industries in response to its policy decisions and other considerations. For detailed calculations, see the SBA's Revised Methodology, available on its website at
www.sba.gov/size
and on
www.regulations.gov
.

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Calculated Size Standards Based on Industry and Federal Contracting Factors

Table 5, Size Standards Supported by Each Factor for Each Industry (Receipts), 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, 8, and 9 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 10 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. Similarly, the size standard for the Federal contracting factor is an average of size standards supported by two disparity ratios (Methods 1 and 2). The calculated size standards for each factor and overall size standards are rounded to the nearest $500,000 for non-agriculture industries and rounded to the nearest $250,000 for agriculture industries. Analytical details involved in the averaging procedure are described in SBA's Revised Methodology, which is available on its website at
www.sba.gov/size
and on
www.regulations.gov.
For comparison with the calculated new size standards, the current size standards are in column 11 of Table 5.

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Methodology for Agricultural Size Standards

As stated elsewhere in this rule, NDAA 2017 directed SBA to establish the size standards for agricultural industries in NAICS Subsectors 111 and 112 in the same manner that the Agency establishes the size standards for other industries and to include them in the five-year rolling review under the Jobs Act. Accordingly, in this proposed rule, SBA has evaluated those industries using the same industry and Federal contracting factors that it uses in evaluating characteristics of all other industries and their size standards. However, the industry data from the 2017 Agricultural Census tabulation reveals that firms in agricultural industries are much smaller than those in all other industries with receipts based size standards. Therefore, as stated earlier, based on the data, SBA has established $2.25 million and $5.5 million as the minimum and maximum receipts based size standard levels, respectively, for agricultural industries, as opposed to $8 million as the minimum and $47 million as the maximum receipts based size standard levels for all other industries. As shown in Table 2 (above), except for the Gini coefficient, the 20th percentile and 80th percentile values of industry factors are much lower for agricultural industries in Subsectors 111 and 112 (except NAICS 112112 and 112310) than those for other industries with receipts based size standards. Similarly, SBA rounds a calculated receipts based size standard for agricultural industries to the nearest $250,000 instead of rounding it to the nearest $500,000 as for other industries.

Of the 46 NAICS 6-digit industries in Subsectors 111 and 112, the special tabulation of the 2017 Census of Agriculture provided data for 36 industries at the NAICS 6-digit level. Of the remaining ten (10), seven (7) were aggregated at three different 5-digit NAICS levels and three (3) were aggregated at one 4-digit NAICS level. SBA ranked these 40 industry categories (
i.e.,
thirty-six (36) 6-digit, three (3) 3-digit, and one (1) 4-digit) in terms of each industry factor and obtained the 20th percentile an 80th percentile values for each factor. The results are shown in Table 2. Based on the current size standards for industries in Subsectors 111 and 112, SBA computed $2.5 million as the 20th percentile and $4 million as 80th percentile values of size standards for agricultural industries. Combining these results with the 20th percentile and 80th percentile values of industry factors for agricultural industries in Table 2, SBA computed a size standard for each factor for each industry. These results are provided in Table 5, above.

For the 10 industries for which the data did not exist at the 6-digit NAICS level, SBA estimated the size standard at the 5- or 4-digit NAICS level at which the data were available and applied the same results to the relevant 6-digit NAICS levels. These results are shown, below, in Table 7, Calculated Agricultural Size Standards at the 4- or 5-Digit NAICS Level Matched to the 6-Digit Level.

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Evaluation of Size Standards for Subindustry Categories or “Exceptions”

The SBA's table of size standards contains 13 receipts based size standards for subindustry categories below the six-digit NAICS level, which are commonly referred to as “exceptions” and used specifically for Federal Government contracting purposes. The data from the Census Bureau's 2017 Economic Census special tabulation are limited to the six-digit NAICS industry level and therefore do not provide information on economic characteristics of firms at the subindustry level. In accordance with SBA's approach to evaluating size standards for subindustry categories (or “exceptions”), SBA has evaluated the 13 exceptions covered by this rule using the procedures described in the SBA's Revised Methodology. Specifically, SBA uses data from FPDS and SAM to derive the industry and Federal contracting factors to evaluate size standards at the subindustry levels. Under the Revised Methodology, the Agency also uses the same data sources to derive the 20th and 80th percentile values of industry factors to evaluate exceptions. Based on the FPDS/SAM data for fiscal years 2021-2023, the 20th percentile and 80th percentile values of industry factors for receipts based exceptions are shown in Table 7, 20th and 80th Percentiles of Industry Factors for Receipts Based Exceptions, below. The results from the analyses of receipts based exceptions are discussed in the following subsections.

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Forest Fire Suppression and Fuel Management Services Exceptions

Forest Fire Suppression and Fuels Management Services are two subindustry categories or “exceptions” under NAICS 115310 (Support Activities for Forestry), each with the current size standard of $34 million in average annual receipts. In 2003, SBA established a different size standard for these subindustry activities (68 FR 33348, June 4, 2003). In 2013, as part of the first five-year review of size standards under the Jobs Act, SBA maintained the then existing $17.5 million as the size standard for these exceptions (78 FR 37398; June 20, 2013), and subsequently, as part of the 2014 adjustment to monetary based size standards for inflation, the Agency increased the size standard from $17.5 million to $19 million (79 FR 33647, June 12, 2014), and as part of the 2019 inflationary adjustment of monetary based size standards, it was increased from $19 million to $20.5 million (84 FR 34261, July 18, 2019).

In 2020, as part of the second five-year review of size standards under the Jobs Act, SBA proposed $25 million as the size standard for both Forest Fire Suppression and Fuel Management Services exceptions. The data supported $23.5 million but SBA proposed a higher $25 million for the reasons discussed in the October 2020 proposed rule (85 FR 62239; October 2, 2020). In the final rule, in response to public comments and results from more recent data, SBA adopted a $30 million size standard for these exceptions (87 FR 18607; March 31, 2022), which was subsequently increased to $34 million as part of the 2022 adjustment of monetary based size standards for inflation (87 FR 69118; November 17, 2022).

The data from the 2017 Census Bureau and NASS special tabulations are limited to the 6-digit NAICS industry level, and hence, do not provide separate data to evaluate a size standard at the subindustry level. As such, SBA relied upon data from other sources to evaluate the current $34 million size standard for both exceptions.

Firms engaged in the Forest Fire Suppression and Fuels Management Services subindustries or exceptions were identified from the contracting data reported in FPDS during fiscal years 2021-2023 and data obtained from the USDA Forest Service. Specifically, the contracts under Forest Fire Suppression and Fuels Management Services exceptions can be identified as those classified within NAICS 115310 under the Product and Services Code (PSC) F003 (Natural Resources/Conservation—Forest-Range Fire Suppression/Presuppression). SBA also evaluated the contract data from the USDA Forest Service National Interagency Fire Center (
https://www.fs.fed.us/managing-land/fire
and
http://www.fs.fed.us/business/incident/vipr.php
). SBA also evaluated the description of requirements of the contracts for Forest Fire Suppression and Fuels Management Services in FPDS to identify principal activities related to forest fire suppression and fuel management services and to differentiate them from other support activities for forestry. SBA identified activities associated with specialized crews, equipment and engines with trained personnel that are critical to perform the tasks of suppressing or managing fires as principal activities and other activities, such as leases of equipment, machinery and transportation vehicles, or provision of services that do not require specialized personnel or training as supporting activities. Since most firms involved in Fire Suppression Services were also found to be involved in Fuels Management Services and vice versa, SBA analyzed the two exceptions as one subindustry category.

Additionally, SBA obtained receipts and employment data on forest fire suppression contractors for the fiscal years 2021-2023 from FPDS and SAM to develop industry and Federal contracting factors for evaluating the size standard for the two exceptions. SBA chose firms with receipts greater than zero and less than $1 billion. For the forest fire suppression industry, firms with receipts over $1 billion are outliers and their revenues would skew the data. For firms with receipts over $1 billion, Federal forest suppression contracts contributed to less than 0.01 percent of their total receipts. Similarly, firms with receipts at or below zero have insignificant contributions to total Federal contract dollars obligated to the fire suppression industry.

Finally, SBA also excluded from analysis firms with more than 1,500 employees, as fire suppression is not the primary activity for enterprises with over 1,500 employees. For example, for companies with over 1,500 employees, fire suppression contract dollars accounted for less than 0.01 percent of their total receipts.

Table 8, below, shows the results from the analysis of these subindustries, which support a $20 million receipts based size standard for Forest Fire Suppression and Management Services exceptions compared to the current $34 million. SBA also evaluated information from agencies that deal with fire suppression activity, and analyzed the effects of the time and intensity increases of the wildfire activity. Given the inherent uncertainty of forest fires and recent surges in forest fire incidents and significantly extended fire seasons in recent years, SBA believes that contracting officers need flexibility to hire enough small businesses, especially in the worst-case scenario. In a very busy fire season, it is plausible to assume fire seasons of 180 days of shifts of 14 hours. A crew generally consists of 18-20 firefighters. Therefore, for 6 crews (
i.e.,
the average number of crews

among a sample of firefighting contractors during 2021-2024) with 20 firefighters each at 61 dollars per person per hour (the average hourly rate estimated from a sample of fire suppression contracts for 2021 to 2024), for a season of 180 days and shifts of 14 hours, the total revenue is about $18 million. For firms with 11 crews, the total revenue could easily reach $34 million. These estimates consider only the revenue from firefighting activities during the fire seasons, not the revenue from non-firefighting activities during the off-seasons. The hourly forest fire suppression costs have increased about 42 percent since the last review of the Forest Fire Suppression and Fuel Management Services exception size standard, mainly due to increases in hourly wages, equipment, and material costs. The hourly rates include only payments to firefighters that relate to direct fire suppression activities, including wages, materials, equipment, vehicles, insurance, etc. These amounts do not include payments for fire engines, water tenders, food caterers, etc., which are classified under different NAICS codes.

SBA methodological analysis supports a $20 million size standard for Forest Fire Suppression and Fuel Management Services exceptions. Nevertheless, given the recent increases to the wildfire activity and fire suppression costs and its proposed policy of not diminishing any size standards even if analytical results might support decreases to size standards, SBA proposes to keep the size standard for the Forest Fire Suppression and Fuels Management Services exceptions at $34 million, and seeks comments on this proposal.

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Dredging and Surface Cleanup Activities

The Dredging and Surface Cleanup Activities (Dredging) size standard is an exception established by SBA within NAICS 237990 (Other Heavy and Civil Engineering Construction). As stated previously, the data from the Census Bureau's special tabulation of the Economic Census is limited to the 6-digit NAICS industry level, and hence, does not provide separate data at the subindustry level to evaluate exceptions. Accordingly, SBA relied upon the data from other sources to evaluate the current $37 million size standard for Dredging.

SBA identified firms engaged in the Dredging subindustry using the contract awards data within NAICS 237990 in FPDS for fiscal years 2021-2023. Specifically, dredging contracts were identified as those classified under one of the following Product and Service Codes (PSCs): C1KF—Architect and Engineering Construction—Dredging Facilities; M1KF—Operation of Dredging Facilities; X1KF—Lease/Rental of Dredging Facilities; Y1KF—Construction of Dredging Facilities; Y216—Construction of Dredging; Z1KF—Maintenance of Dredging Facilities; Z2KF—Repair or Alternation of Dredging Facilities; Z216—Maintenance, Repair or Alteration of Dredging; and 1955—Dredges.

SBA obtained receipts and employment data for the identified Dredging firms from SAM and FPDS to develop industry and Federal contracting factors for Dredging. Contracting data from the US Army Corps of Engineers' Navigation and Civil Works Decision Support Center (NDC) and annual reports from Dredging Contractors of America (DCA) were also considered, but not included in the analysis as neither provide business size and have lower Dredging firm coverage than FPDS. Firms with extreme observations, firms with joint venture contracts, and those for which Dredging Federal contracts dollars accounted for a very small percentage of their average annual receipts were excluded from the analysis. Following these data cleaning steps, SBA evaluated 128 resultant Dredging firms that have received Federal contracts under NAICS 237990 and the above PSCs during fiscal years 2021-2023.

Recently adopted methodological changes that impact calculated size standards include: (1) Replacing the 2019 Methodology for computing the Federal contracting factor with the disparity ratio approach to evaluate all industries and subindustries or “exceptions,” and (2) Using standardized FPDS/SAM data in place of Economic Census data for computation of the 20th percentile and 80th percentile values of industry factors to evaluate exceptions. The 20th percentile and 80th percentile values of industry factors for receipts based exceptions can be found on Table 7, above. The disparity ratio thresholds and amounts of size standards adjustments can be found on Table 3, above.

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Table 9, Size Standards Supported by Each Factor for Dredging Exception to NAICS 237990 ($ Million), above, shows the results from the analysis of the Dredging subindustry that support lowering the current $37 million size standard for the Dredging exception to $21.5 million. As shown in Table 5, the results for overall NAICS 237990 also yields a smaller calculated size standard of $30 million, as compared to the current size standard of $45 million. Thus, while the latest available industry and Federal contracting data support lowering the size standards for both overall NAICS 237990 and Dredging, the results still support maintaining a distinct, lower size standard for Dredging.

Of the 128 Dredging firms that received Federal contracts during fiscal years 2021-2023, 110 (or 85.9%) would be considered small under the current $37 million size standard. Under the calculated $21.5 million size standard, 97 firms (or 75.8%) would be considered small. Thus, 11.8 percent of currently small Dredging firms receiving Federal contracts would be impacted if SBA were to adopt the calculated $21.5 million size standard for Dredging.

For the reasons for not decreasing size standards discussed elsewhere in this proposed rule, SBA is proposing to maintain the current size standard of $45 million for the overall NAICS 237990 and the current size standard of $37 million for the Dredging exception even if the data suggested that both size standards might be decreased. However, SBA is seeking comments on whether Dredging should continue to be treated as an exception to NAICS 237990 or if it should be eliminated and subject it to the same overall NAICS 237990 industry size standard.

Non-Vessel Owning Common Carriers and Household Goods Forwarders

Non-Vessel Owning Common Carriers and Household Good Forwarders (NVOCCHGF) is an “exception” or subindustry under NAICS 488510 (Freight Transportation Arrangement), with the size standard of $34 million in average annual receipts. As stated above, the data that SBA receives from the Census Bureau's Economic Census special tabulation are limited to the 6-digit NAICS industry level and therefore do not provide information on economic characteristics of firms at the sub-industry level. Thus, for reviewing or modifying size standards at the subindustry levels (“exceptions”), SBA normally evaluates the data from FPDS and SAM using a two-step procedure. First, using FPDS, SBA identifies Product and Service Codes (PSCs) that correspond to specific exceptions. SBA then identifies firms that have received Federal contracts under those PSCs and

evaluates their receipts and employee data from SAM and FPDS to derive the values for industry and Federal contracting factors.

Contracting activity for NAICS 488510 including the NVOCCHGF exception is distributed over 70 different PSCs. Using FPDS data for fiscal years 2021-2023, SBA identified five primary PSCs that correspond to the overall industry including the exception, accounting for 97.8 percent of total dollars obligated on NAICS 488510. These PSCs are V119 (Transportation/Travel/Relocation—Transportation: Other), V111 (Transportation/Travel/Relocation—Transportation: Air Freight), V112 (Transportation/Travel/Relocation—Transportation: Motor Freight), R706 (Support—Management: Logistics Support), and V115 (Transportation/Travel/Relocation—Transportation: Vessel Freight). The top PSC, V119, alone accounts for nearly 80 percent of total dollars obligated to NAICS 488510. Table 10, Top Five PSCs of NAICS 488510 and Average Dollars Obligated, Fiscal Years 2021-2023, below, identifies these five PSCs and their average annual total dollars obligated for the fiscal years 2021-2023.

SBA analyzed the contracting activities under these PSCs, but the Agency was unable to reliably differentiate the level of activity corresponding to the NVOCCHGF exception versus the overall NAICS 488510 industry, and hence to identify any PSCs that would correspond uniquely to the exception.

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SBA also reviewed the distribution of Federal contracts awarded to small and other than small businesses in the overall NAICS 488510 industry for fiscal years 2022-2023. SBA found that only about $6 million or 1.4 percent of the $422 million obligated to the overall NAICS 488510 industry went to small businesses. Thus, while the total contracting dollars obligated to all firms in the industry is significant, the total dollars obligated to small firms is not. Additionally, the top agencies using NAICS 488510 are Departments of Army and Navy, which account for 92.4 percent of total dollars obligated during the period evaluated.

To differentiate the NVOCCHGF exception from the overall NAICS 488510 industry and to determine its economic characteristics, as part of the second five-year review of size standards, in the 2020 proposed rule (85 FR 62372, October 2, 2020), SBA evaluated the 2012 Economic Census subindustry data found in the U.S. Census Bureau American FactFinder. The 2012 Economic Census data divided NAICS 488510 in two sub-components identified with an additional digit (such break down was not available in the 2017 Economic Census data). The first 7-digit NAICS 4885101 corresponded to Freight Forwarders and the second 7-digit NAICS 4885102 corresponded to Arrangement of Transportation of Freight and Cargo. The NAICS 4885101 includes non-vessel operating common carrier (NVOCC) service as one of the principal activities. SBA understood that NAICS 4885101 corresponds to the activity classified as an exception to the general NAICS 6-digit 488510. NAICS 4885101 includes multimodal activities supporting transportation, and the firms assume responsibility for delivery of the goods.
9

9
The Census definition is: “This U.S. Census Bureau NAICS-based industry comprises establishments primarily engaged in undertaking the transportation of goods from shippers to receivers for a charge covering the entire transportation, and in turn making use of the services of various freight carriers in affecting delivery, paying transportation charges, and assuming responsibility for delivery of the goods. There is no relationship between shippers and the various freight carriers delivering the goods.”

In the 2020 proposed rule, SBA compared the economic characteristics of NAICS 4885101 to those for the

overall industry and found them to be similar. The results are provided in Table 6 of the 2020 proposed rule (p. 62382), Industry Comparison NAICS 488510 and NAICS 4885101. Despite the similarities between the overall NAICS 488510 industry and the NVOCCHGF exception, in light of important distinctions between freight forwarders and NVOCCs, as discussed in the 2020 proposed rule, SBA proposed to retain the exception with a higher $30 million size standard than the proposed $17.5 million size standard for the overall industry, which SBA adopted in the final rule (87 FR 18627, March 31, 2022).

Nevertheless, in this proposed rule, considering similarities in economic characteristics between the NVOCCHGF exception and the overall NAICS 488510 industry, absence of uniquely identifiable PSCs corresponding to the exception, and a lack of other industry data to adequately evaluate the exception industry, SBA is proposing to eliminate the NVOCCHGF exception to NAICS 488510. Furthermore, considering very low utilization of small businesses in Federal contracting under the current size standard, SBA proposes to apply to the general NAICS 488510 industry a higher $34 million size standard that currently applies to the NVOCCHGF exception. The evaluation of the most industry and Federal contracting factors of firms receiving Federal contracts under the above mentioned top five PSCs in NAICS 488510 using the FPDS data also suggests that a size standard that is significantly higher than the current $20 million standard is warranted for NAICS 488510. Additionally, the proposed higher $34 million size standard would enable firms that currently qualify as small under the NVOCCHGF exception size standard to continue their eligibility for small business assistance. Finally, this is also consistent with SBA's proposed policy of not decreasing any size standards except for excluding dominant firms from qualifying as small.

SBA invites comments, along with supporting information, on this proposal as well as suggestions on whether the proposed elimination of the NVOCCHGF exception to NAICS 488510 and the application of the proposed $34 million for the overall NAICS 488510 industry are appropriate, even though the analytical results support a lower $23.5 million size standard for that industry.

Exception to NAICS Industry Group 5311 (Lessors of Real Estate): Leasing of Building Space to the Federal Government by Owners

The current size standard for Federal contracts for Leasing of Building Space to Federal Government by Owners (“exception” to NAICS Industry Group 5311 (NAICS 531110, 531120, 531130, and 531190)) is $47 million in average annual receipts. This size standard applies only to certain Federal contracting opportunities that meet specific criteria. Footnote 9 of SBA's table of size standards (13 CFR 121.201) reads: “For Government procurement, a size standard of $47 million in gross receipts applies to the owners of building space leased to the Federal Government. This size standard does not apply to an agent.”

To determine if the current $47 million size standard to the exception is appropriate, SBA evaluated average firm size, average assets size, market concentration, and size distribution of firms involved in Leasing of Building Space to Federal Government by Owners. SBA used data from FPDS and SAM and followed the two-step procedure described in Revised Methodology. Based on the data for fiscal years 2021-2023, Federal contracts awarded to NAICS 531110, 531120, 531130, and 531190 averaged about $203 million annually, with the largest percentage going to NAICS 531120 (55.2%). First, SBA chose to analyze firms that were awarded contracts to the following Product and Service Codes (PSCs): X111/X1AA (Lease/Rental of Office Buildings), X1FA (Lease/Rental of Family Housing Facilities), X1AZ (Lease/Rental of Other Administrative Facilities and Service Buildings), X1FZ (Lease/Rental of Other Residential Buildings), and X1GZ/X179 (Lease/Rental of Other Warehouse Buildings) across the four industries within NAICS Industry Group 5311. As shown in Table 11, Selected PSCs in NAICS Industry Group 5311 and Average Total Dollars Obligated, Fiscal Years 2021-2023, below, dollars obligated to these PSCs averaged $97 million annually in fiscal years 2021-2023, which represents 47.9 percent of total dollars obligated to these four NAICS 6-digit industries. The Lease/Rental of Office Buildings, X111/X1AA, alone, accounted for 30.3 percent. Then, SBA evaluated the size and contract data on those firms from FPDS and SAM to obtain industry and Federal contracting factors. The results, as shown in Table 12, Size Standards Supported by Each Factor for Leasing of Building Space to the Federal Government by Owners Exception to NAICS 5311 ($ Million), below, support a size standard of $43.5 million.

However, for reasons for not decreasing size standards as explained elsewhere in this proposed rule, SBA is retaining the current $47 million size standard for Leasing of Building Space to the Federal Government by Owners, even though the analytical results support a lower $43.5 million size standard.

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Exceptions to NAICS 541330: Military and Aerospace Equipment and Military Weapons; Contracts and Subcontracts for Engineering Services Awarded Under the National Energy Policy Act of 1992; Marine Engineering and Naval Architecture

Currently, NAICS 541330 (Engineering Services) has four size standards that apply to Federal contracts for different classifications of engineering services. In addition to general Engineering Services with a size standard of $25.5 million in average annual receipts, there are three subindustry groups or “exceptions”, each with a size standard of $47 million: Exception 1—Military and Aerospace Equipment and Military Weapons (MAEMW), Exception 2—Contracts and Subcontracts for Engineering Services Awarded Under the National Energy Policy Act of 1992, and Exception 3—Marine Engineering and Naval Architecture (MENA).

SBA's recent changes to its size standards methodology that impact calculated size standards for the exceptions include: (1) Replacing the 2019 Methodology for computing the Federal contracting factor with the disparity ratio approach, and (2) Using standardized FPDS/SAM data to compute the 20th percentile and 80th percentile values of industry factors to evaluate exceptions. Table 3, above, shows the disparity ratio thresholds and size standard adjustment amounts. Table 7, above, shows the 20th percentile and 80th percentile values of industry factors for receipts based exceptions.

As stated previously, the data in the 2017 Economic Census special tabulation is limited to the 6-digit NAICS industry level; subindustry level data to evaluate exceptions are not available. FPDS/SAM is the primary data source to evaluate exceptions, including the current $47 million size standard for the three exceptions under NAICS 541330. The Economic Census data for NAICS 541330 are aggregates of both general engineering services and specialized engineering services that fall under the three exceptions. Thus, the results based on the Economic Census data for NAICS 541330 may not accurately reflect the characteristics of businesses providing specialized services included under those exceptions. The lack of relevant data at the subindustry level makes it challenging to determine whether the current $47 million size standard for the three exceptions should be revised or left unchanged.

To determine whether the Agency should consider revising the current $47 million size standard for three exceptions under NAICS 541330, SBA evaluated the FY 2021-2023 data from FPDS/SAM using a two-step procedure. First, using FPDS, SBA identified Product and Service Codes (PSCs) that correspond to the MAEMW and MENA exceptions. SBA then identified firms that have received Federal contracts under those PSCs and evaluated their size data from FPDS/SAM to derive the values of industry and Federal contracting factors for evaluating those exceptions.

Using the FPDS data for fiscal years 2021-2023, SBA identified 91 PSCs that correspond to the MAEMW exception. A total of 304 unique firms were found to have received contracts under those 91 PSCs. SBA analyzed the size and contracting data of these firms to derive the industry and Federal contracting factors for the MAEMW exception. As shown in Table 13, below, the results supported a $41 million size standard for the MAEMW exception, as compared to the current $47 million size standard.

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Of the 304 firms that received Federal contracts for engineering services under the MAEMW exception, 245 or 80.6 percent were classified as small under the current $47 million size standard. The calculated $41 million size standard would classify 243 firms, or 79.9 percent, as “small”. Thus, if SBA were to adopt a lower $41 million calculated size standard for the MAEMW exception, it would cause only two currently small MAEMW firms, or 0.7 percent, to lose their small business status. Those two firms received about $63.2 million in annual small business contract dollars during fiscal years 2021-2023, accounting for less than 1 percent of total contract dollars that were awarded to all firms under the MAEMW exception. Causing those firms to lose their small business status would put about 286 engineering jobs at risk. Such a proposal would also run counter to SBA's proposed policy of not lowering size standards, except for excluding dominant firms from qualifying as small.

Similarly, SBA identified 42 PSCs that correspond to the scope of work under the MENA exception, covering a total of 129 unique firms. SBA analyzed the size and contracting data of these firms to derive the industry and Federal contracting factors for the MENA exception. As shown in Table 13, above, the results supported a $26 million size standard for the MENA exception.

Of the 129 firms that received Federal contracts for engineering services under the MENA exception, 108 or 83.7 percent were classified as small under the current $47 million size standard. The calculated $26 million size standard would classify 98 firms, or 76.0 percent, as “small”. Thus, if SBA were to adopt a lower $26 million calculated size standard for the MENA exception, it would cause 10 currently small MENA firms, or 7.8 percent, to lose their small business status. Those 10 firms received about $301.7 million in annual small business contract dollars, accounting for more than 4.6 percent of total contract dollars that were awarded to all firms under the MENA exception. Causing those firms to lose their small business status would put about 1,365 engineering jobs at risk. As stated above with respect to decreasing the size standard for the MAEMW exception, such a proposal would also run counter to SBA's proposed policy of not lowering size standards, except for excluding dominant firms from qualifying as small.

As shown in Table 5, above, the results support a $29 million size standard for the general NAICS 541330 engineering industry. Thus, with a $41 million calculated size standard for the MAEMW exception and a $26 million calculated size standard for the MENA exception, the results continue to support maintaining MAEMW, but not MENA as separate exception categories under NAICS 541330 with a higher size standard. Moreover, although the analytical results suggest decreases from the current $47 million to the calculated $41 million for the MAEMW exception and to $26 million for the MENA

exception, consistent with SBA's policy of not lowering any size standards, SBA proposes to maintain the current $47 million size standard for both exceptions.

The FPDS showed very few actions involving Contracts and Subcontracts for Engineering Services Awarded Under the National Energy Policy Act of 1992. However, section 3021 of the National Energy Policy Act of 1992 provides that for purposes of contracts and sub-contracts requiring engineering services, the applicable size standard shall be that established for military and aerospace equipment and military weapons (106 Stat. 2776; Pub. L. 102-486 (October 24, 1992)). Accordingly, SBA also proposes to retain the same $47 million receipts based size standard for the exception that applies to Contracts and Subcontracts for Engineering Services Awarded Under the National Energy Policy Act of 1992.

Definitions of Engineering Services Exceptions

Based on its review of PSCs designated under NAICS 541330, using FPDS/SAM information, SBA found imprecise use of PSCs by agencies in applying the MAEMW and MENA exceptions to engineering contracts. For example, agencies have applied certain PSCs (
e.g.,
R425—Support-Professional: Engineering/Technical) that seem to pertain to general engineering services as opposed to specialized engineering services under those exceptions. SBA attributes this imprecision in PSC selection by agencies to the lack of definitions of these exceptions. Accordingly, based on reviews of pertinent SBA Office of Hearings of Appeal (OHA) NAICS code appeal cases, the NAICS 541330 industry definition, descriptions of PSCs, and descriptions of contracts that clearly pertain to the exceptions, SBA is proposing to include the following definitions for engineering services exceptions to its table of size standards in 13 CFR 121.201 as Footnotes 19 and seeking comment on whether the proposed definitions are appropriate.

19. NAICS code 541330—(a) “Engineering Services” means applying physical laws and principles of engineering in the design, development, and utilization of machines, materials, instruments, structures, processes, and systems. These may involve any of the following activities: provision of advice, preparation of feasibility studies, preparation of preliminary and final plans and designs, provision of technical services during the construction or installation phase, inspection and evaluation of engineering projects, and related services.

(b) Exception 1—Military Equipment, Aerospace Equipment, and Military Weapons:

This exception applies when agencies procure highly specialized engineering services that are specifically and directly related to military and aerospace platforms, systems, and technologies. This includes work on military equipment, such as tanks, armored vehicles, drones, missile systems, C4ISR systems, radar and sonar systems, and other tactical or ground-based technologies. It also includes aerospace systems, such as satellites, launch vehicles, spacecraft, navigation and propulsion systems, and defense-related aeronautical engineering. Additionally, the exception covers military weapons and weapon systems, including guns, torpedoes, ballistic missile defense, nuclear weapons systems, and emerging technologies like directed energy weapons (
e.g.,
lasers). Associated specialized services, such as systems integration, sustainment engineering, testing and evaluation, tech refreshes, and modeling/simulation designed for military or aerospace purposes also qualify. This exception is not limited to military contracts; it can also apply to civilian agencies or commercial efforts that involve defense-related equipment or applications. However, it excludes standard civil and commercial engineering services (
e.g.,
roads, bridges, utilities, and facilities), and non-defense aerospace projects.

(c) Exception 2—Contracts and Subcontracts for Engineering Services Awarded Under the National Energy Policy Act of 1992: This exception applies to contracts and subcontracts for engineering services, as defined in (a) above, awarded under the National Energy Policy Act of 1992 (NEPA). Section 3021 of NEPA provides that for purposes of contracts and sub-contracts requiring engineering services, the applicable size standard shall be that established for military and aerospace equipment and military weapons (106 Stat. 2776; Pub. L. 102-486 (October 24, 1992)).

(d) Exception 3—Marine Engineering and Naval Architecture under NAICS 541330: This exception applies when work involves highly specialized engineering services that are specifically and directly related to marine vessels and naval systems. Covered areas include ship and vessel design, such as Navy ships, submarines, Coast Guard cutters, commercial or military cargo vessels, and special-purpose vessels like icebreakers and autonomous ships. It also includes marine engineering, such as propulsion and steering systems, HVAC, electrical, fuel, ballast, and onboard fluid handling systems, as well as the integration of weapons systems and onboard system modeling. Naval architectural services, such as hull form development, hydrodynamic performance, buoyancy and stability analysis, weight distribution, seakeeping, and propulsion system design are also included. Also covered are support services, such as ship modification, modernization, damage control, survivability engineering, sea trials instrumentation, and assistance with regulatory certifications. Excluded from this exception are general civil marine structures (
e.g.,
docks, piers, canals), environmental engineering not related to ships, and architectural services for shipyards or administrative buildings.

Exception to NAICS 611519: Job Corps Centers

The current size standard for Federal contracts for Job Corps Centers (“exception” to NAICS 611519, Other Technical and Trade Schools) is $47 million in average annual receipts. This size standard applies to Federal contracts that meet specific criteria. The criteria required of a Job Corps Center contract or SBA-recognized operator are detailed in Footnote 16 to SBA's table of size standards (13 CFR 121.201), which reads: “For classifying a Federal procurement, the purpose of the solicitation must be for the management and operation of a U.S. Department of Labor Job Corps Center. The activities involved include admissions activities, life skills training, educational activities, comprehensive career preparation activities, career development activities, career transition activities, as well as the management and support functions and services needed to operate and maintain the facility. For SBA assistance as a small business concern, other than for Federal Government procurements, a concern must be primarily engaged in providing the services to operate and maintain Federal Job Corps Centers.”

As noted previously, the data from the 2017 Economic Census special tabulation are limited to the 6-digit NAICS industry level and hence do not provide data to assess economic characteristics at the subindustry level. For example, the Economic Census data for NAICS 611519 are aggregates of both Other Technical and Trade Schools and the more specialized establishments under the Job Corps Centers (JCC) exception. Thus, the results based on the Economic Census data alone may not accurately reflect the characteristics of businesses providing specialized services included under the exception. The lack of relevant data at the subindustry level is a challenge to determining whether the size standard for the JCC exception should be revised or left unchanged.

To determine whether the Agency should propose revising the size standard for the JCC exception under NAICS 611519, SBA analyzed data from the U.S. Department of Labor (DOL) website which includes a list of Job Corps Centers and their respective operators (available at
https://www.dol.gov/agencies/eta/jobcorps/contact
). SBA found a total of 24 unique entities (including two government-owned entities and one joint venture) listed on the DOL website that support the operations of about 120 Job Corps Centers around the country. SBA evaluated the data from FPDS and SAM to obtain size information of those 21 non-governmental operators. Two governmental entities and a joint venture were excluded from the analysis. From FPDS, SBA first identified firms that have a principal NAICS code of 611519. SBA then identified Product and Service Codes (PSCs) that correspond to the JCC exception by filtering the data for contracts awarded to private firms providing job corps services. SBA identified five PSCs from this search, namely: M1CZ—
Operation of Other Educational Buildings,
U006—
Education/Training—Vocational/Technical,
M139—
Operation of Govt Other Educational Buildings,
U099—
Education/Training—Other,
and U009—
Education/Training—General.
Using this method, SBA identified 219 unique firms that had a principal NAICS code of 611519 (including the 21 non-governmental JCC operators found on the DOL website) and were active in Federal contracting involving the above identified PSCs. For fiscal years 2021-2023, the total annual average contract dollars obligated to all PSCs under NAICS 611519 was $1,476.3 million. The total annual average contract dollars obligated under the above five PSCs was $1,437.9 million, which represents 97.4 percent of the total dollars obligated to NAICS 611519 during fiscal years 2021-2023. Among the five PSCs, M1CZ, alone, accounted for 80.1 percent of total dollars obligated to all PSCs under NAICS 611519.

The results from SBA's analysis are presented in Table 12, Size Standards Supported by Each Factor for Job Corps Centers Exception to NAICS 611519 ($ Million), below. The results support decreasing the current size standard for the JCC exception to $36 million. However, for reasons discussed below in the “Justification for Not Decreasing Size Standards” section of this proposed rule, below, SBA proposes to retain the current $47 million receipts base size standard for the JCC exception and seeks comment, along with supporting information, on whether the SBA's proposal is appropriate or the Agency should adopt the calculated size standard of $36 million.

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Evaluation of Size Standard for NAICS 491110, Postal Service

NAICS 491110 is one of a few industries that are not covered by both Economic Census and County Business Patterns Reports. Because of the lack of industry data to review the industry structure, SBA is proposing to leave the size standard for NAICS 491110 at the current level of $9 million in average annual revenue. However, one of the disparity ratios (Disparity Ratio—Method 1) supported a $14.5 million size standard. SBA invites comments on this proposal as well as suggestions, along with supporting information, if the $14.5 million or a different size standard would be more appropriate.

Evaluation of Size Standards for NAICS Subsector 525, Funds, Trusts and Other Financial Vehicles

NAICS Subsector 525 includes six 6-digit codes. Of those six, the 2017 Economic Census special tabulation includes data only for two NAICS codes within NAICS Subsector 525: NAICS 525910, Open-End Investment Funds, and NAICS 525990, Other Financial Vehicles, for which calculated receipts based size standards are, as shown in Table 5 (above), $36.5 million and $31.5 million, respectively. For NAICS 525120, Health and Welfare Funds, the Federal contracting factor (Disparity ratio—Method 1), supports a receipts based size standard of $47 million. All industries in that Subsector currently share the same $40 million receipts based size standard. In the previous reviews, SBA applied the results for NAICS 525910 and 525990, specifically the largest size standard between the two industries (
i.e.,
$36.5 million), to all remaining industries within Subsector 525. However, doing so with the current results would mean decreases to size standards for all industries in that Subsector, which would run counter to SBA's proposed policy of not decreasing any size standards, even though the data suggests some size standards might be decreased. Thus, for SBA's reasons for not decreasing size standards as discussed elsewhere in this proposed rule, the Agency is proposing to maintain the size standards for those industries at their current $40 million level. SBA seeks comments on this proposal as well as suggestion on alternative data sources, if any, to evaluate size standards for those industries.

Evaluation of the Assets Based Size Standards

In 1984, SBA published a
Federal Register
notice allowing financial services that prime contractors procure from small minority owned and controlled financial institutions to qualify as subcontracts for purposes of meeting subcontracting goals and credits (49 FR 13091, April 2, 1984). Concurrently, SBA also published a proposed rule that a financial institution with total assets of not more than $100 million would be considered small (49 FR 13052, April 2, 1984). SBA adopted the $100 million in total assets as the size standard for financial institutions (49 FR 49398, October 16, 1984). Over time, the definition of small depository institutions was extended to all financial institutions within NAICS Industry Group 5221, Depository Credit Intermediation. Since then, along with other monetary based size standards, SBA periodically adjusted the assets based size standard for inflation, reaching $175 million with the 2008 inflation adjustment (73 FR 41237, July 18, 2008). As part of the first five-year review of size standards under the Jobs Act, in 2013, SBA increased the financial institutions' size standard to $500 million in assets (78 FR 37409, June 20, 2013), which was subsequently increased to $550 million as part of the 2014 adjustment for inflation (79 FR 33647, June 12, 2014). It was further increased to $600 million with inflation adjustment in 2019 (84 FR 34261, July 18, 2019), to $750 million as part of the second five-year review of size standards under the Jobs Act (87 FR 18627, March 31, 2022), and finally to $850 million with the latest inflation adjustment in 2022 (87 FR 69118, November 17, 2022).

Currently, the $850 million assets based size standard applies to three industries within NAICS Industry Group 5221 (Depository Credit Intermediation) and one industry within NAICS Industry Group 5222 (Nondepository Credit Intermediation). These include NAICS 522110 (Commercial Banking), NAICS 522130 (Credit Unions), NAICS 522180 (Savings Institutions and Other Depository Credit Intermediation), and NAICS 522210 (Credit Card Issuing).

Because only a small number of industries have assets based size standards, no 20th percentile and 80th percentile values of industry factors could be developed to assess differing characteristics of individual industries based on total assets. Thus, most of the SBA's current size standards methodology is not applicable to analyzing the assets based size standards for financial institutions. Consequently, in this proposed rule, SBA examined the changes since 2018 (the latest year for which the financial

institution data were available when the assets based size standard was reviewed as part of the second five-year review of size standards under the Jobs Act) in financial industry factors and small business assets shares to assess whether the current $850 million assets based size standard is adequate or should it be modified to reflect today's financial industry structure. Specifically, for industry factors, SBA evaluated changes from 2018 to 2023 (the latest year for which the financial institution data are available) in average firm size, industry concentration, and distribution of firms by size (
i.e.,
Gini coefficient) for financial institutions. SBA also examined the changes in shares of total assets held by small businesses between 2018 and 2023. As in the first and second five-year reviews of size standards under the Jobs Act, in this proposed rule as part of the current third five-year review of size standards, SBA both evaluated all depository institutions as a whole and the minority owned and controlled depository institutions separately.

Depository Institutions

SBA evaluated all depository institutions using the Statistics on Depository Institutions (SDI) data from the Federal Deposit Insurance Corporation (FDIC). The SDI data does not provide the NAICS definition for every firm included in the database. However, it has a field called Asset Concentration Hierarchy, which can be used to identify each institution's primary specialization in terms of asset concentration, such as credit card services. Another field, Bank Charter Class, identifies the institutions as banks or thrifts. SDI does not include data on Credit Unions (NAICS 522130). Because the data are not separated by NAICS code, and the differences among services offered by different financial institutions (such as commercial banks, saving institutions, and credit card issuing companies) have greatly diminished over the recent decades, SBA has analyzed these financial institutions as one industry group.

The number of all depository institutions, total assets and calculated industry factors for 2018 and 2023 are shown on Table 13, Calculated Industry Factors for Depository Institutions. All data were collected at the end of the corresponding calendar year. For comparability, all monetary values are expressed in 2023 dollars, using the Bureau of Economic Analysis (BEA) GDP price index.

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During the 2018 to 2023 period, as shown on Table 13, the financial industry continued to show a decrease in the total number of depository institutions. The total number of depository institutions decreased by 15.1 percent from 5,415 in 2018 to 4,596 in 2023, while their average firm size (measured in total assets in 2023 dollars) increased by 10.2 percent. The simple average firm size increased by a factor of about 1.3, while the weighted average firm size increased by a factor of about 1.2. On the other hand, the four largest institutions' share of total assets (also referred to as four-firm concentration ratio or CR4) decreased slightly (from 39.4% to 39.3%), and the Gini coefficient value decreased slightly from 0.818 in 2018 to 0.817 in 2023. Overall, the changes in values of these factors suggest a size standard of $840 million,
10

a slight reduction from current size standard of $850 million for the depository institutions. On the other hand, the share of small businesses in 2018 under the size standard of $750 million was 78.1 percent in terms of the number of institutions, and of 4.8 percent in terms of their assets; while for 2023, the respective shares under the current size standard of $850 million were 74.5 percent and 4.1 percent. To increase the 2023 share of small businesses assets to the same level of 2018, the size standard should be increased to about $1 billion in assets. Averaging both results, one based on industry factors and the other based on the small business assets shares, the suggested size standard would be about $920 million for the Depository Institutions.

10
Getting the average of percentage changes for each of the four factors (
i.e.,
simple average, weighted average, CR4 and Gini coefficient) between 2018 and 2023 in Table 13 and applying it to the $750 million size standard, we reached the value of $840 million. The financial industry data for 2018 supported a size standard of $750 million that SBA adopted as part of the second five-year review of size standard in April 2022 (87 FR 18627, March 31, 2022) which was increased to $850 million by inflation adjustment in December 2022 (87 FR 69118, November 17, 2022).

NAICS 522130, Credit Unions

A credit union is a cooperative, not-for-profit financial institution owned and controlled by its members. Credit unions are established and operated for the purpose of promoting thrift and providing credit at competitive rates and other financial services to their membership. Generally, they could be corporate credit unions, Federal, or State credit unions. Because this industry includes only not-for-profit institutions, SBA does not consider them small business concerns for Federal government assistance. The small business regulations state that a business concern eligible for assistance from SBA as a small business is a business entity organized for profit, with a place of business located in the United States (see 13 CFR 121.05(a)(1)). However, SBA has established a size standard for this industry because it is useful for other purposes, such as

rulemaking. Table 15, Calculated Industry Factors for Credit Unions, below, provides the calculated factors for Credit Unions. Between 2018 and 2023, the total number of concerns diminished by 14.4 percent, but at the same time the total assets increased by 29.5 percent. The simple average increased by 51.2 percent between 2018 and 2023 in real terms, and the weighted average grew by 54.3 percent. The four-firm concentration ratio increased by a factor of 1.04. Gini coefficient did not change much during the period. Changes in these factors would support an increase of size standard for Credit Unions from $850 million to $960 million in assets.
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Moreover, in 2018 the share of total Credit Unions assets held by small businesses under the $750 million size standard (which SBA adopted as part of the second five-year review of size standards) were 26.4 percent, and that in 2023 this ratio diminished to 21.3 percent under the current $850 million size standard. In order to increase this ratio to the 2018 level, the size standard would need to be increased to about $940 million. Averaging both results, one based on industry factors and the other based on the small business assets shares, the suggested size standard for Credit Unions would be about $950 million.

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Getting the average of percentage changes for each factor (
i.e.,
simple average, weighted average. CR4, and Gini Coefficient between 2018 and 2023 from Table 15 and applying it to the inflation preadjusted size standard (
i.e.
$750 million), we reached the value of $960 million. The financial industry data for 2018 supported a size standard of $750 million, which was increased to $850 million by inflation adjustment in December 2022.

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Federal Contracting Factor

For the four assets based industries listed above, Federal contracting dollars averaged about $164 million per year during fiscal years 2021-2023. This reflects a large increase in dollars awarded to those industries as compared to fiscal years 2016-2018, when the average total dollars obligated to them was about $130 million. Of those four industries, NAICS 522110, Commercial Banking, accounts for 99.0 percent of the average total dollars obligated during fiscal years 2021-2023. Thus, under the SBA's Revised Methodology, Federal contracting is a significant factor for reviewing the assets based size standard for the financial industries. The data yields the disparity ratios of 0.23 under Method 1 and 17.78 under Method 2. The disparity ratio under Method 1 would support a size standard of $1,063 million (
i.e.,
increasing the current $850 million size standard by 25% as per Table 3 (above)) and disparity ratio under Method 2 would support the current $850 million. The average of the two values equals to $956 million, which is the size standard supported by Federal contracting factor.

Summary of Calculated Size Standards for Depository Institutions and Credit Unions

Based on the analyses of industry factors and differences of the shares of small businesses in total assets between 2018 and 2023, the calculated size standard for depository institutions is $918 million in assets, which would apply to the following three industries within NAICS Subsector 522, Credit Intermediation and Related Activities: NAICS 522110 (Commercial Banking), NAICS 522180 (Savings Institutions and Other depository Credit Intermediation), and NAICS 522210 (Credit Card Issuing). Based on the similar results, the calculated size standard for NAICS 522130 (Credit Unions) is $948 million in assets. The weighted average of the calculated size standards for depository institutions and credit unions is $921 million. These results are shown in Table 15, Summary of Calculated Size Standards for Depository Institutions and Credit Unions, below.

As discussed above, Federal contracting factor (
i.e.,
disparity ratio analysis) supports a size standard of $956 million and industry factors support a size standard of $921 million. In calculating the overall industry size standard, the SBA's methodology assigns a weight of 0.8 to four industry factors combined and a weight of 0.20 to the Federal contracting factor. The weighted average of the two calculated size standards using these weights gives an overall size standard of $928 million (
i.e.,
(0.8 * 921) + (0.2 * 956) = 928), which is rounded to $925 million.

Accordingly, consistent with its historical practice of maintaining the same size standard for all financial industries, SBA is proposing to increase the size standard for all four financial industries from the current $850 million to $925 million in assets. If adopted, the proposed size standard would apply to the following industries: NAICS 522110 (Commercial Banking), NAICS 522180 (Savings Institutions and Other depository Credit Intermediation), NAICS 522210 (Credit Card Issuing), and NAICS 522130 (Credit Unions). SBA is seeking comment on whether SBA should consider establishing separate size standards for each of the four industries or continue using a common size standard.

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Summary of Calculated Size Standards

Of 500 industries and thirteen (13) subindustries (“exceptions”) reviewed in this proposed rule, the results from analyses of the latest available data on the five primary factors from Table 5 (above), along with similar results for various exceptions and assets based size standards in subsequent tables, would support increasing size standards for 263 industries (259 receipts based and four assets based) and decreasing size standards for 203 industries and nine (9) subindustries or exceptions. The results supported retaining current size standards for 38 receipts-based industries. Table 16, Summary of Calculated Size Standards, summarizes these results by NAICS sector.

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Evaluation of SBA Loan Data

Before proposing or deciding on an industry's size standard revision, SBA also considers the impact of size standards revisions on SBA's loan programs. Accordingly, SBA examined its internal 7(a) and 504 loan data for fiscal years 2021-2023 to assess whether the calculated size standards in Table 5 (above) need further adjustments to ensure credit opportunities for small businesses through those programs. For the industries reviewed in this rule, the data shows that it is mostly businesses much smaller than the current or proposed size standards that receive SBA's 7(a) and 504 loans. For example, for industries covered by this rule, 98.0 percent of 7(a) and 504 loans in fiscal years 2021-2023 went to businesses at or below the current or calculated size standards. The data suggests that no calculated size standards need further adjustments based on evaluation of the loan data.

Justification for Not Decreasing Size Standards

Decreasing size standards would cause many businesses that are small under the current size standards, especially those that are larger, more experienced and capable small businesses just below the current size standards, to lose their small business status and eligibility for Federal small business assistance. SBA believes that decreasing size standards under the current economic environment could stifle the ongoing economic growth following the COVID-19 pandemic by causing many currently qualified and capable small firms to become ineligible for SBA's financial assistance and Federal contracting programs. SBA is meeting the continued need for increased SBA's support for small businesses to support ongoing economic growth and job creation by not decreasing size standards, even though analytical results suggest that some size standards might be decreased.

As discussed below in greater detail, reducing the number of small businesses may lead to fewer set-aside opportunities for small businesses overall as it would reduce the pool of eligible qualified firms that the Federal Government could select from when setting aside procurements for small businesses. SBA believes that decreasing size standards would run 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. For these and other reasons, discussed below in a greater detail, SBA believes that it has the discretion to propose a policy of not decreasing any size standards because the only Congressionally mandated requirement is that SBA exclude dominant firms from qualifying small, even though the data suggests some size standards might be decreased.

As discussed below, decreasing small business size standards, which would lower the threshold for what qualifies as a small business, could have negative impacts on many aspects of the economy, including Government contracting, subcontracting and supply chains, access to capital, competition and industry consolidation, innovation and entrepreneurship, job creation, economic growth, defense industrial base and national security, and small business industrial base.

Government Contracting:
Decreasing small business size standards can have a significant impact on Government contracting, particularly in terms of access, competition, contract fulfillment, and the Federal Government's ability to meet its Congressionally mandated small business procurement goals. Businesses that no longer qualify as small may lose preference and access to Federal set-aside contracts, thereby forcing them to compete with large companies with significantly more resources and extensive qualifications for contracting opportunities. Businesses that would lose small business status, were the size standards reduced according to analytical results, based on the procurement data for fiscal years 2021-2023, would lose more than $2 billion annually in Federal contracts for small businesses. Larger small companies that lose access to small business set-aside contracts and will be forced to compete with large corporations may face difficulties securing Government contracts under full and open competition. This can reduce their revenue streams from Government contracts and limit their ability to grow and create jobs, with potentially far-reaching implications in the broader economy. The exclusion of larger small firms from the small business category may reduce the overall pool of companies available to compete for Federal contracts, thereby limiting the number of qualified suppliers in some industries, particularly those that are highly dependent on Government contracts, such as defense, construction, and IT services. This could lead to fewer competitive bids, especially for contracts requiring specialized skills or capabilities that smaller small businesses may not possess, potentially driving up costs to consumers and Government agencies, especially in industries where larger small businesses are key players. Losing small business status and associated advantage could make it harder for these firms to participate in large projects, especially in industries like construction, technology, and defense. As stated previously, larger small businesses that lose their small business status will no longer qualify for certain set-aside contracts, which may lead to a shift in contract awards from these firms to smaller small businesses. However, smaller small businesses may lack the necessary resources, qualifications, or capacity to handle larger or more complex Government projects. If too many larger small firms lose access to small business set-asides, the pool of contractors capable of fulfilling high-value or technically demanding contracts may shrink, potentially leading to delays or lower-quality work in certain sectors, such as defense, construction, and IT, where performance and scale are critical. With fewer businesses qualifying as small, the Government may have to work harder to find qualified contractors capable of fulfilling certain requirements. This could complicate the process of meeting Government's small business procurement goals, particularly for larger or more complex projects.

Subcontracting and Supply Chains:
Businesses that lose their small business status may struggle to secure subcontracting work from large companies, as prime contractors may prefer to work with businesses that still qualify as small to meet their small business subcontracting goals. This could reduce the number of viable small business subcontractors for large Government contracts, potentially affecting the overall supply chain and project execution. With fewer businesses qualifying as small, large prime contractors will face difficulties meeting their small business subcontracting goals.

Access to Capital and Other Benefits:
Businesses that lose their small business status could face difficulties accessing capital through SBA-backed loans and benefits from other support programs, potentially slowing their growth. They may struggle to secure favorable loans and financing options, especially if they have relied on SBA-backed loan programs in the past. Without SBA loans, or loan guarantees, they might struggle to invest in growth, equipment, technology, or workforce development. This could result in a slowdown in expansion and economic activity for these businesses. As firms that lose their small business status may no longer be eligible for SBA-backed loans or other forms of small business financing, these firms might be forced to turn to more expensive financing options. Businesses losing small business status would also lose other benefits such as lower taxes and exemptions from certain compliance and paperwork requirements.

Competition and Industry Consolidation:
Businesses that lose their small business status may now be forced to compete directly against larger corporations for unrestricted Government contracts, which could put them at a significant competitive disadvantage. Some of these companies will struggle to survive or even be forced to merge with larger corporations or exit the market altogether, contributing to increased industry consolidation and reduced competition and market diversity. The loss of small business status for many small businesses could lead to increased mergers and acquisitions as these businesses seek ways to survive and remain competitive. This could result in reduction in the number of independent businesses in key sectors of the economy, such as manufacturing, construction and IT, leading to less innovation, greater industry consolidation, reducing diversity and consumer choices in the marketplace, and potentially leading to monopolistic practices in some sectors dominated by large players. This would run counter to Executive Order 14267 (90 FR 15629, April 9, 2025), which directs Federal agencies to reduce anticompetitive regulatory Barriers.

Job Creation and Employment:
Small businesses are significant job creators, accounting for two-thirds of total new job creation in the U.S. and nearly half of the private sector workforce. Larger small businesses that lose their small business status might be forced to reduce hiring, downsize, or even lay off

employees as they lose access to revenue streams from Government contracts and SBA's loans that helped them start and expand. Larger small firms could become less willing to hire from smaller subcontractors, reducing opportunities for growth and employment. Job losses could occur in industries where small businesses are a significant part of the overall labor market. As stated earlier, decreasing size standards for 213 industries/subindustries, solely based on analytical results, would force about 7,900 businesses to lose their small business designation in industries covered by this proposed rule. These businesses are estimated to support about 604,850 employees, which would be at risk of being laid off if they lose their small business status and associated benefits, in particular access to Government contracts and SBA financial assistance intended for small businesses.

Economic Growth:
According to SBA's Office of Advocacy, small businesses contribute approximately 44 percent of the U.S. gross domestic product (GDP). Companies on the higher end of the size spectrum, which might lose their small business status because of decreases to size standards, could face financial challenges, stalling their growth and possibly impacting broader economic activity. Businesses that lose their small business status may struggle to compete with large corporations with significantly more resources and capabilities and could face slower growth, stagnation, or even downsizing. This may particularly affect firms in industries, such as manufacturing, construction, and IT, where larger small firms often play a crucial role. If small businesses are forced to downsize or shut down due to the loss of small business status, it could negatively affect local economies that rely on these companies for jobs, taxes, and local commerce. In regions where small businesses are a major source of employment, this could lead to higher unemployment, economic stagnation or decline. If a significant number of small businesses lose access to Government contracts, capital,

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2025-16142. Public record. Not legal advice.