# Small Business Size Regulations > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A95-28449 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** November 24, 1995 - **Citation:** 60 FR 57982 ## Text SMALL BUSINESS ADMINISTRATION 13 CFR Part 121 Small Business Size Regulations AGENCY: Small Business Administration. ACTION: Proposed rule. ----------------------------------------------------------------------- SUMMARY: In response to President Clinton's government-wide regulatory reform initiative, the Small Business Administration (SBA) has completed a page-by-page, line-by-line review of all of its existing regulations to determine which might be revised or eliminated. This proposed rule would improve the Agency's size program by simplifying and clarifying language in the existing rules, conforming these rules to present SBA policies and practices, and providing some substantive modifications to streamline the delivery of services to the public. The revised regulations would be more understandable and much easier to use. The proposed rule would reduce the number of sections. It would make the definition of ``affiliation'' more concise. While no longer recognizing an absolute right to appeal size determinations, it would give the Office of Hearings and Appeals (OHA) discretionary authority to accept size appeals. The proposed rule would improve language, but would not change the existing size standards which apply to particular industries. DATES: Comments must be submitted on or before December 26, 1995. [[Page 57983]] ADDRESSES: Written comments should be addressed to David R. Kohler, Regulatory Reform Initiative Team Leader, Attention: Part 121, Office of General Counsel, Small Business Administration, 409 3rd Street, S.W., Suite 13, Washington, D.C. 20416. FOR FURTHER INFORMATION CONTACT: John W. Klein, Chief Counsel for Special Programs, Office of General Counsel, at (202) 205-6645. SUPPLEMENTARY INFORMATION: On March 4, 1995, President Clinton issued a Memorandum to federal agencies, directing them to simplify their regulations. In response to this directive, SBA has completed a page- by-page, line-by-line review of all of its existing regulations to determine which might be revised or eliminated. This proposed rule would amend SBA's regulations governing its size program which was authorized to be established by sections 3(a) and 5(b)(6) of the Small Business Act, 15 U.S.C. 632(a), 634(b)(6). It is designed to streamline the size standards operation by simplifying and clarifying existing regulatory language and by eliminating unnecessary, irrelevant, or obsolete provisions. SBA examined the purpose of each section of the existing regulation in developing this proposal. Where appropriate, it eliminated, consolidated, or rewrote sections for ease of use and clarity. The proposed unnumbered substantive category headings would be: Provisions of General Applicability, Size Standards Used to Define Small Business Concerns, Size Eligibility Requirements for SBA Financial Assistance, Size Eligibility Requirements for Government Procurement, Size Eligibility Requirements for Sales or Lease of Government Property, Size Eligibility for the Minority Enterprise Development (MED) Program, Size Eligibility Requirements for the Small Business Innovation and Research (SBIR) Program, Size Eligibility Requirements for Paying Reduced Patent Fees, Size Eligibility Requirements for Compliance with Programs of Other Agencies, Procedures for Size Protests and Requests for Formal Size Determinations, Appeals of Size Determinations and SIC Code Designations, Eligibility of Organizations for the Handicapped for Small Business Set-asides, and Waivers of the Nonmanufacturer Rule. The proposed rule would amend office titles to reflect a previous reorganization of functions within the structure of SBA. SBA has attempted to rewrite Part 121 in plain English in order to make the regulations more readable and less confusing. SBA has identified the following eight significant changes proposed by this rule. Refine the definition of ``affiliation.'' The proposed rule at Sec. 121.103(a) would make the definition of ``affiliation'' more concise. The intent in revising the provisions pertaining to affiliation is to make the definition easier to understand. Additional exclusions from ``affiliation'' coverage. Four additional exclusions from ``affiliation'' coverage are proposed in Sec. 121.103(a)(2): (1) small businesses that are members of approved pools for a joint program of research and development, (2) concerns that lease employees from a concern whose principal business is leasing employees to other businesses, (3) mentor/protege firms participating in Federal Mentor-Protege programs, and (4) for purposes of eligibility for the Small Business Investment (SBIC) program only, certain investors in SBIC portfolio concerns, provided the investors do not control the concern other than to the extent that would be permitted for SBICs under the SBIC regulations (currently, Sec. 107.801 of this title; in the revised SBIC regulations at Sec. 107.865). Revision of ``annual receipts'' definition. This definition would be simplified by incorporating figures already contained on a concern's Federal Income Tax return for purposes of calculating a concern's average annual receipts. In addition, amounts collected for another by a conference management services provider or an advertising agent would be excluded from a concern's annual receipts, similar to that of a travel agent. Grant OHA discretionary authority to hear size determination appeals. Contracting officers for procuring agencies have cited unwelcome delays in the procurement process when small business size determinations are appealed to the Office of Hearings and Appeals (OHA). Under existing SBA regulatory guidelines, a party which is adversely affected by a size determination has the right to appeal the determination to OHA. However, Federal Acquisition Regulations (48 C.F.R. 19.302) provide that a contracting officer is not required to suspend award after a size determination is made even if the determination is appealed to OHA, and further provide that the OHA decision applies to a pending acquisition only if the decision is received before award. Therefore, if the OHA decision is to have relevance, it must be rendered prior to award. In an effort to streamline consideration of size determinations and bring more speed to the decision-making process, proposed Sec. 121.1101 would eliminate appeals to OHA as a matter of right and instead give OHA discretion to review such appeals. A size determination rendered by an authorized Agency official would be considered final unless OHA agreed to review the determination. This would give OHA the latitude to consider those cases which have precedential value or which might involve clear error of fact or law. Procedures for requesting discretionary review of size determinations would be set forth in part 134. Change the time when size is determined for MED application purposes. Under the present regulations, an applicant to SBA's MED program is small if, at the time of its application, it is small under the size standard for its primary industry. The proposed regulation would change the time for determining the applicant's size to the time when SBA issues its eligibility determination. Thus, under the proposed regulation, a concern which was small when it applied but which became large during SBA's consideration of its application would not be permitted to enter the program. SBA does not believe that it should admit a concern to the MED program knowing that it is no longer small in its primary business. The concern could no longer obtain 8(a) or small business set-aside contracts in its primary industry, and the concern could be perceived to be other than disadvantaged because of that success. In addition, if that were the only business that the concern was in, SBA would be put in the awkward position of admitting the concern to the program one day, but initiating termination proceedings from the program the next. Use of size standards for programs of other agencies. This proposed rule sets forth the limited circumstances under which the Secretary of a department or the head of a Federal agency may prescribe, for the use of such department or agency, a size standard other than one which has been established by SBA. Individual waivers of the ``Nonmanufacturer Rule.'' The proposed rule establishes procedures for granting waivers of the Nonmanufacturer Rule for individual products on specific solicitations. Procedures for granting individual waivers would be combined with provisions pertaining to class waivers. Other changes to Part 121. This proposed rule would also make changes in the size eligibility requirements which are identified below in the section-by-section analysis. Several [[Page 57984]] typographical errors or inadvertent omissions would be corrected, and several obsolete or irrelevant references would be eliminated. The proposed rule would not make any changes in actual size standards applicable to specific industries. Section-by-Section Analysis The following is a section by section analysis of each provision of SBA's regulations that would be affected by this proposed rule: The current Sec. 121.101 is a policy statement reciting Congressional intent as set forth in the Small Business Act. SBA proposes to revise Sec. 121.101 to state succinctly the purpose of small business size standards. Section 121.102 would be deleted and the substance of the provision moved to the revised Sec. 121.101. Present Sec. 121.201 would be deleted and the substance of subsection (a) consolidated with proposed Sec. 121.101. Present subsection (b) is a philosophical statement relating to Federal assistance in general and would be eliminated as unnecessary. The general outline of SBA's size program, contained in Sec. 121.202, would be deleted as unnecessary since revised Sec. 121.101 would provide general guidance as to the purpose of size standards and how SBA establishes them. Revised Sec. 121.201 would detail specific size standards, and revised Secs. 121.301 through 121.903 would describe the relationship of size standards for specific types of Federal assistance. Procedures for size protests and requests for size determinations would be found in proposed Sec. 121.1001. Appeals of size determinations and SIC code designations would be covered in proposed Sec. 121.1100. Section 121.102 would be amended to explain, in summary fashion, how SBA develops or revises an industry size standard. Two criteria for size standards have gained general acceptance since SBA's inception and are the most widely used definitions of small business. The first is the 500 employee size standard, which is the most common size standard among the manufacturing and mining industries. Instituted by the Smaller War Plants Administration and adopted with the formation of SBA, it applies to a majority of these industries. The second is the average annual receipts standard, which applies to most retail and service industries and also dates back to the inception of SBA. In 1953, a limit of $1.0 million in average annual receipts was applied to many of these industries. Over time, inflation and industry changes have increased that original level to $5 million. Size standards for particular industries deviate from these ``anchor standards'' depending on the structural characteristics of the industry and other factors described in SBA's rulemaking actions as important influences on an industry's structure. Proposed Sec. 121.102 would identify the factors SBA considers in setting any size standard, including degree of competition in an industry, average firm size in the industry, start-up costs and entry barriers in the industry, and distribution of firms by size in the industry. Section 121.203 would be deleted and the substance of the provision would be contained in revised Sec. 121.1006(h)(3). Section 121.204 would be deleted. The substance of the provision would be incorporated in revised Secs. 121.1006(h)(3) and 121.1007. Section 121.205 would be eliminated as unnecessary. The subject of Secs. 121.301(a) and 121.301(b) would be transferred to Sec. 121.102(b), with the provision amended for relevance. Section 121.301(c) would be deleted as unnecessary since proposed Sec. 121.201 would contain a statement that the general size standard for all industries not listed in the table in Sec. 121.201 would be $5 million. Sections 121.302 and 121.304 would be eliminated as unnecessary. The roles of the Office of General Counsel and OHA are described in Part 101 of SBA's regulations. Section 121.303 would be deleted, but the address of the Size Policy Board would be contained in the revised Sec. 121.102(c). Section 121.305 would be eliminated. SBA has materially changed the role of its regional offices, transferring to other SBA offices many of the functions formerly performed by regional offices. The descriptions of responsibilities with respect to size determinations and SIC code designations would be transferred to revised Secs. 121.402 and 121.1002. Definitions of terms, presently found in Secs. 121.401 through 407, would be transferred to a new Sec. 121.103. Changes in some definitions are proposed. The definition of affiliation in current Sec. 121.401 would be transferred to Sec. 121.103(a) and revised for clarity. Subsection (a)(1) would be redesignated as Sec. 121.103(a)(1)(iii). Subsections 121.401(a)(2)(i) and (ii) would be redesignated as subsection 121.103(a)(1)(i)(A) and (B). Provisions addressing ``identity of interest'' now found in Secs. 401(a)(2)(iii) and 401(d) would be transferred to the policy statement contained in proposed Sec. 121.103(a)(1)(i)(C). The term is a legitimate concept in characterizing affiliation among parties, but it is dependent on specific facts in its application and is subject to a high degree of subjectivity in much of its implementation. While simpler, the designation of a list of family relationships that would always cause an ``identity of interest'' would penalize a number of legitimate small concerns. Close familial relationships are at times offset by estrangement of the parties. Under the circumstances, SBA has determined that a flexible approach should be retained in the size regulations. Section 121.401(b), pertaining to exclusions from the definition of affiliation, would be transferred to a new Sec. 121.103(a)(2) which would list and describe seven exclusions. In addition to the exclusion from affiliation for SBICs or Development Companies, the proposed rule would add a second exclusion, for purposes of SBIC assistance, for concerns owned by venture capital firms, pension funds, and certain charitable entities exempt from federal taxation under Sec. 501(c) of the Internal Revenue Code. Like SBICs, these entities often make financial investments in small companies when they receive ownership positions which can be held for subsequent resale. The same control limitations imposed by SBA on SBICs would be imposed on the investors covered by this affiliation exclusion. The exclusion for business concerns owned and controlled by Indian Tribes, Alaska Regional or Village Corporations organized pursuant to the Alaska Native Claims Settlement Act, or Native Hawaiian Organizations would be clarified so that affiliation would not be found solely by reason of such ownership, but still could be found where other grounds (e.g., common management) exist. The exclusion for businesses owned or controlled by Community Development Corporations was added to SBA regulations on June 7, 1995, and would be retained with only minor editorial adjustments. The proposed rule would add an exclusion be for small businesses that are members of pools approved by the Administrator, after consultation with the Attorney General and the Chairman of the Federal Trade Commission, for a joint program of research and development. Concerns which are members of such pools would not be considered affiliated with other pool members solely by reason of their joint participation on pool approved activities. Such pools have been statutorily authorized for some time, but there has not been a corresponding [[Page 57985]] exclusion from affiliation specifically recognized in the size regulations. The proposed rule would also add an exclusion from affiliation for concerns that lease administrative and/or other employees from a concern whose principal business is leasing employees to other businesses. The two concerns would not be considered affiliated solely by reason of the leasing agreements. Finally, the proposed rule would add an exclusion for firms participating in Federal Mentor-Protege Programs. Although affiliation would not be found based solely on such mentor-protege relationship, affiliation could be found to exist based on other factors. Section 121.401(c), pertaining to the nature of control, would be eliminated in the revised affiliation rule. Affiliation by stock ownership and common management would be addressed in proposed Secs. 121.103(c) and (d). The non-essential elements of affiliation expressed in current subsection 401(c) would be eliminated without sacrificing clarity or definitiveness. Section Sec. 121.401(e), redesignated as Sec. 121.103(c), would be clarified. Section 121.401(f), redesignated as Sec. 121.103(d), would clarify what constitutes an agreement in principle, and make other minor editorial changes. Section 121.401(g) now requires SBA to determine whether a voting trust was entered into primarily for a ``legitimate purpose.'' Since such a requirement is unnecessary and overly subjective, it would be eliminated. The proposed rule would redesignate Sec. 121.401(h), pertaining to common management, as Sec. 121.103(e), and clarify that common management must control both the firm whose size status is at issue and one or more other concerns in order to constitute affiliation. It would eliminate the references to key employees, but provide that affiliation can exist where the chief executive officer, one or more general partners, or one or more members of the board of directors, control the board of directors or management of another concern. The proposed rule would eliminate Secs. 121.401(i) and (j) as separate bases for affiliation. Most firms simply sharing common facilities do not act in concert, and SBA believes that there is little likelihood of abuse if this provision is eliminated. Similarly, the ``newly organized concern'' basis for affiliation seldom appears alone, and its elimination as a separate basis for affiliation would not eliminate the underlying reasons for finding affiliation on other grounds. Section 121.401(k) would be eliminated as a separate basis for affiliation, but referenced as a factor that may cause affiliation under the totality of circumstances in proposed Sec. 121.103(a)(2). Affiliation through joint ventures would be moved from Sec. 121.401(l) to Sec. 121.103(f). The proposed rule would eliminate a specific definition of the term joint venture as unnecessary. The current regulations unintentionally define a joint venture as being formed for a single, specific contract. SBA believes it to be obvious that a joint venture may be formed to carry out more than one contract, and the regulation will be so implemented. The revision also would be reworded for brevity and clarity. The provisions of Secs. 121.401(l)(2) and (3) would be redesignated as Secs. 121.103(f)(1) and (2), respectively. The provisions would be reworded for clarity, and provisions not affecting the substantive rule would be eliminated. Section 121.401(l)(4) (proposed Sec. 121.103(f)(3)) would be amended in two respects. It would clarify that whether a subcontractor should be considered a joint venturer depends on all circumstances pertaining to the subcontract arrangement between the parties and does not hinge solely on the percentage of subcontracted work. For example, the fact that a subcontractor is to perform a relatively large percentage of the total value of the contract might not cause SBA to consider the arrangement a joint venture where the prime contractor would be actively engaged in the performance of the contract and would exercise a supervisory role. In addition, subcontractors that supply materials may be distinguished from subcontractors that perform work. For example, a small business construction contractor would not be deemed an affiliate of a large subcontractor from which needed asphalt constituting more than 50 percent of the value of the contract was purchased where the large business was scheduled to perform no work on the contract other than the cost of the asphalt. Section 121.401(l)(5) would be reworded for clarity and redesignated as Sec. 121.103(f)(4). The franchise rule in Sec. 121.401(m) would be rewritten for clarity and redesignated as Sec. 121.103(g). The proposed rule would revise ``annual receipts'' in proposed Sec. 121.104 (current Sec. 121.402) to mean gross or total income plus cost of goods sold as reported on a concern's Federal income tax return. The term is meant to include revenue from the sale of products or services, interest, dividends, rents, royalties, fees, commissions, or other income. The same allowances and proceeds collected for another concern currently subtracted from receipts would continue to be subtracted in the proposed rule. Accordingly, the size of a concern would be based upon the information shown on the Federal income tax return, as opposed to the present requirement of utilizing its regular books of account. SBA specifically requests comments on this proposed definition. Because SBA would use a concern's income tax return to determine ``receipts,'' the concern would not be required to restate its revenue under the accrual basis of accounting if its return was filed other than under the accrual method as is presently the case. The proposed rule would also exclude from the calculation of annual receipts amounts collected for another by conference management services firms. This action is being taken to better measure the magnitude of operations of conference management services providers. In response to a decision of the United States District Court for the District of Columbia (Civil Action No. 91-1569), the proposed rule would also exclude such ``pass-through'' amounts would also be excluded for advertising agents. The SBA reviews requests to exclude revenues of certain business activities on a case-by-case basis. In an August 25, 1992 proposed rule (See 57 FR 38452), SBA noted characteristics under which it might be appropriate to exclude from a concern's revenues certain funds received from a client firm to be transmitted to an unaffiliated third party. These include the following five characteristics: (1) A broker or agent-like relationship between a firm and its third party provider exists that represents a dominant or crucial activity of firms in these industries. (2) The pass-through funds associated with the broker or agent- like relationship is a significant proportion of total receipts. (3) As the normal business practice of firms in the industry, a firm's income remaining after the pass-through funds are remitted to a third party is typically derived from a standard commission or fee. (4) Firms do not usually consider billings that are reimbursed to other firms as their own income, preferring instead to count only those receipts that are retained for their own use. (5) Federal government agencies which engage in the collection of statistics and other industry analysts usually represent receipts of the firms on an adjusted receipts basis. An analysis of the conference management services industry suggests that most of these characteristics are shared by concerns active in this industry. Conference management [[Page 57986]] services firms provide a range of services in support of organizing and facilitating conferences, such as travel, lodging, ground transportation, honoraria and other administrative support services. The sponsoring organization is responsible for developing the conference and its contents and for all conference expenses. The conference management service provider principally acts as an agent on behalf of the sponsoring organization by arranging for various support services in connection with the conference and provides few, if any, of the support services itself. The arrangements made through the conference management services provider to a third party provider are paid using the sponsoring organization's funds or by the conference management services provider and later reimbursed by the sponsoring organization. The pass-through monies paid to third-party providers generally account for a majority of the total expenses incurred by the conference management services provider. The conference management services provider's earnings are based on fees or commissions from these activities. The scope of activities and business operations of conference management services providers appear to conform with the characteristics outlined above to support the exclusion of funds received in trust for an unaffiliated third party. The SBA believes that the revenues a conference management services provider received for a third party provider represents revenues intended for the third party. Accordingly, an exclusion of these types of revenues is warranted. The fees and commissions earned by the conference management services provider from its activities is also a more representative measure of the magnitude of operations of the firm and of the services provided. Before a final decision is made on the exclusion of pass-through revenues for conference management services firms, the SBA would find additional information helpful on the practices of firms in the conference management services industry. In particular, the SBA seeks comments from the public concerning the typical relationship between clients of conference managers and conference management services providers themselves. Pertinent information would include: (1) To what extent are funds passed through to other vendors in this industry, particularly the extent of booking costs for transportation, lodging and meeting room space? (2) To what extent are funds ``escrowed'' in which the client firm provides an account to be used by the conference facilitator to ``perform a condition'' and meet ongoing expenses? What is the typical nature of these accounts in ownership and liability terms? (3) Are conferences typically planned by the client firm or the independent conference planner? Who prepares the program and selects the speaker? Does the conference management services provider usually act as a mere facilitator or as a planner in which the entire production would be planned by the conference management services provider? (4) How does the conference management services provider recover costs and make profits? Are arrangements normally on a cost-plus fixed-fee basis, a standard commission basis or fixed price? This proposed rule does not change the current size standard of $5.0 million applicable to firms in SIC 8741, Management Services. However, if pass-through funds are excluded from the calculation of revenues for conference management services firms as proposed, it would effectively increase the size standard applicable to these type of firms. At this time, the SBA does not have available data to determine if the $5.0 million size standard continues to be appropriate for the conference management services industry. Accordingly, the SBA is also seeking information on the economic characteristics of conference management services firms, such as average firm size, the degree of concentration, the size distribution of firms, start-up costs and the difficulty of entry. Other information which may influence the size standard, and the need for a new size standard, may also be submitted. The SBA will consider this information to assess the appropriateness of the current size standard, which may lead to a future rulemaking proposing a different size standard than $5.0 million. This proposed rule would also clarify that SBA may use all available information to determine annual receipts when making a size determination, especially if other information is available which disputes a firm's Income Tax returns. Section 121.402(e)(i) would be redesignated as Sec. 121.104(d) and amended to add language indicating that the annual receipts for a concern and its affiliates are calculated in accordance with proposed Sec. 121.104(b) even though this may result in different time frames being used to calculate the concern's and affiliate's revenues. Sections 121.403(a) and (b) would be redesignated as Secs. 121.105(a) and (b), respectively, and revised for clarity. A new subsection (c) would be added to make it clear that if one entity is replaced by another having the same assets and liabilities, the successor firm is not a new entity for purposes of calculating annual receipts/employees. The current definition of employees in Sec. 121.404 would be combined with the definition of number of employees in Sec. 121.407 into proposed Sec. 121.106, and rewritten for clarity. The proposed rule would eliminate the list of numerous factors bearing on the issue of whether individuals are employees of a concern or employees of an independent employment contractor, and simply authorize SBA to look at all relevant factors concerning the issue. The provisions of Sec. 121.406 would be eliminated as unnecessary. Language indicating that dominance is taken into account in the setting of industry size standards would be added to proposed Sec. 121.102. The proposed rule would add a new Sec. 121.107 which states the existence of statutory penalties for misrepresentations of size status. The substance of Sec. 121.601 would be redesignated as Sec. 121.201, which would be amended to eliminate unnecessary language. The size standards table identified by SIC industry would be greatly streamlined. The redesigned size standard table would list the size standard applying to each Division within the SIC System and each Major Group within that Division if different from the general Division size standard. Only those industries having a size standard different from the applicable Division or Major Group size standard, or those to which a footnote applies, would be specifically listed in the table by four-digit SIC code. This change would eliminate the duplication of listing four-digit SIC code after four-digit SIC code within a Division or Major Group with identical size standards. The asterisks identifying new SIC codes for 1987 would also be eliminated from the table as no longer relevant or useful. Many of the footnotes to the size standards in proposed Sec. 121.201 would be clarified and simplified. Some footnotes have been deleted resulting in the need to renumber remaining ones as identified below. Size standards themselves would not be amended by this proposed rule. Footnote 1 would be deleted as unnecessary. The Table of Size Standards itself, as well as the introductory language to the Table, indicates that size standards are in number of employees or average annual receipts unless otherwise specified. Footnote 2, redesignated as footnote 1, would be clarified to indicate that the 40 percent requirement in the footnote [[Page 57987]] applies to government procurement only. Footnotes 3, 4, and 5, redesignated as footnotes 2, 3, and 4, respectively, would be reworded for clarity. Footnote 6, redesignated as footnote 5, would be amended by replacing the words ``which it manufactured worldwide'' with the words ``comprising its total worldwide manufacture'' to clarify that SBA intended no difference in the application of those words. The substance of footnote 7 would be transferred into the size standard table for SIC code 4212, and the footnote eliminated. Footnote 8 would be incorporated into the Table, and eliminated as a separate footnote. Footnote 9 would be eliminated as unnecessary. Footnote 10, redesignated as footnote 6, would clarify that gross commissions of a travel, real estate or advertising agency are to be counted when determining such a concern's size, whether paid directly (e.g., through some sort of escrow account) or indirectly (i.e., received first by the agency and then paid to the individual) to individual agents of the concern. SIC codes relating to advertising agents (SIC codes 7311, 7312, 7313, and 7319) and that part of SIC code 8741 dealing with conference management service providers would be added to this footnote. The substance of footnotes 11 and 12 would be incorporated into the size standard table for SIC codes 4212 and 5599 respectively, and the footnotes eliminated. Footnote 13 would be deleted as duplicative of restrictions on financial assistance covered in Part 120. Footnote 14, redesignated as footnote 6, would be revised to incorporate the substance of existing Secs. 121.1402(a) and (b). Footnote 15, redesignated as footnote 7, would be rewritten for clarity. Footnote 16 would be eliminated and its substance combined with the statement at the beginning of the size standards chart dealing with the $5 million alternate size standard. Footnotes 17, 18 and 20 would be clarified for ease of use and renumbered as footnotes 9, 10, and 12, respectively. Footnotes 21 and 22 would be incorporated into the size Table, and eliminated as separate footnotes. Footnote 23 would be redesignated as footnote 13. Sections 121.801 and 121.802 (proposed Secs. 121.301 and 121.302) would be amended for clarity and ease of use. The proposed rule would eliminate differentials in size standards for Redevelopment Areas. Differentials for Redevelopment Areas would be eliminated because almost all counties are so designated, and such designations tend to be permanent or long lasting designations once designated. Section 121.803(a) (proposed Sec. 121.303(a)) would be amended to clarify that the size of an applicant for financial assistance is determined as of the date the application for such assistance is received by SBA (or, in the case of the preferred lenders program, the date of approval of the loan by the Preferred Lender). The current Sec. 121.803(b) would be eliminated since it is covered in revised Sec. 121.103(d). Section 121.803(c), redesignated as Sec. 121.303(b), would be rewritten for clarity. Sections 121.804 through 121.806 (proposed Secs. 121.304 through 121.306) would be rewritten for clarity and ease of use. SBA's Government Contracting Area Directors also would be substituted for staff in regional offices. They are familiar with size issues and principles because of their work in the government procurement area and have sufficient knowledge and expertise to make size determinations pertaining to financial assistance. Proposed Sec. 121.307 would clarify that a MED concern which qualifies for award of a specific 8(a) subcontract would be eligible for SBA financial assistance to finance the subcontract. Section 121.901, redesignated as Sec. 121.401, would clarify that it covers MED issues, but that additional size issues pertaining to the MED program are discussed in Secs. 121.601 through 121.604. Sections 121.902 and 121.903 would be redesignated as Secs. 121.402 and 121.403, respectively, and revised for clarity. Section 121.904, redesignated as Sec. 121.404, would be rewritten for clarity and ease of use. The substance of subsection 121.904(b) has been transferred to proposed Sec. 121.103(a)(4). Subsection (c) has been eliminated, and subsection (d) redesignated as subsection (b). This section would also call for determining size as of the date of best and final offers in negotiated procurements (rather than the date of self-certification) when a size protest alleges that a small business dealer is not supplying the product of a small business manufacturer or that a small business' subcontracting plan creates a joint venture that should be considered large. A concern's proposed supplier or subcontractors often will change during the process of negotiation, and it is unreasonable to expect subcontracting plans to be finalized at the time a concern self-certifies and submits its initial offer on the solicitation. Sections 121.905 and 121.906, redesignated as Secs. 121.405 and 121.406, respectively, would be amended for clarity and ease of use. Section 121.907 would be redesignated as Sec. 121.407, with the example deleted as unnecessary. Section 121.908 would be redesignated as Sec. 121.408. Subsections (a) and (b) would be consolidated and would clarify that a formal size determination is required if the size status of an applicant for a COC is at issue. Subsection (c) would be eliminated as duplicative (see Sec. 121.404), and subsection (d) redesignated as subsection (b). Section 121.909 would be redesignated as Sec. 121.409. Section 121.910 would be redesignated as Sec. 121.410. Minor editorial changes and a corrected cross-reference would be made in subsections (a) and (b). Language referring to subcontracting for financial services under section 8(d) of the Small Business Act would be transferred to a new subsection (c). Section 121.911 would be redesignated as Sec. 121.411, and rewritten for clarity. Cross-references to sections would be corrected and a clarification made that prime contractors must notify unsuccessful offerors for Section 8(d) subcontracts of the apparent successful offeror to enable unsuccessful offerors to timely protest the size of the apparent successful offeror where appropriate. A new Sec. 121.412 would be added to the regulations to clarify that a concern must meet the applicable size standard only for that portion of a partial small business set-aside that is set-aside for small business. The concern is not required to qualify as a small business for that portion of a requirement that is open to both small and large business concerns. For instance, to be eligible as a small business concern for petroleum refining in SIC Code 2911, a concern is required to refine 90 percent of the petroleum from either crude oil or bona fide feedstocks. On a partial small business set-aside, a concern would have to meet this requirement on the portion of the offer that is set-aside, but would not have to meet this requirement on the unrestricted portion. Sections 121.1001 through 121.1003 would be redesignated as Secs. 121.501 through 121.503, and reworded for clarity. Section 121.1004(a) would be redesignated as Sec. 121.504, and reworded for clarity. The substance of subsection [[Page 57988]] (b) would be transferred to proposed Sec. 121.103(a)(4). Section 121.1005 would be redesignated as Sec. 121.505, and reworded for brevity. Proposed Sec. 121.506 consolidates definitions (important for sales and leases of Government-owned timber) that are presently contained in different sections. Section 121.1006, redesignated as Sec. 121.507, clarifies that the Alaskan resale limitation applies when the original purchaser, and not necessarily the repurchaser, is an Alaskan business. Sections 121.1006 through 121.1010 would be renumbered as Secs. 121.507 through 121.511, and reworded for clarity and brevity. Section 121.1011, redesignated as Sec. 121.512, would clarify that SBA considers a concern's affiliates in determining the size of a stockpile purchaser. Sections 121.1012 and 121.1013 would be redesignated as Secs. 121.513 and 121.514, respectively, and amended for clarity and brevity. Section 121.1101 would be eliminated as unnecessary. Section 121.1102 would be reorganized for clarity. The substance of subsections (a)(1), (a)(2), and (b)(1) would be redesignated as Secs. 121.601, 121.604(a), and 121.603, respectively. The substance of subsections (b)(2), (c) and (d) would be consolidated into Sec. 121.402. Section 121.1103 would be reorganized for clarity. The substance of subsections (a), (b), and (c) would be redesignated as Secs. 121.602, 121.604(a), and 121.605, respectively. The substance of subsection (d) would be consolidated into Sec. 121.404(b). Section 121.1104 would be redesignated as Sec. 121.604, and amended for clarity. Sections 121.1105 and 121.1106 would be consolidated into Secs. 121.405 and 121.406, respectively. The substance of 121.1108 would be redesignated as Sec. 121.605. Section 121.1201 would be redesignated as Sec. 121.701 and the definition of funding agreement in Sec. 121.1202(b) would be moved to this section in order to keep definitions in one place. Section 121.1202 would be redesignated as Sec. 121.702 and the language would be simplified. Section 121.1203 would be redesignated as Sec. 121.703 and rewritten for clarity. Section 121.1204 would be redesignated as Sec. 121.704. The reference to a firm of more than 500 employees being ineligible for award would be deleted as duplicative of revised Sec. 121.702. Section 121.1205 would be redesignated as Sec. 121.705 and amended for clarity. Sections 121.1301 through 121.1305 would be redesignated as Secs. 121.801 through 805, respectively, with slight changes for clarity. Sections 121.1401 through 121.1405 would be deleted as unnecessary since size eligibility of financial institutions for subcontracting purposes would be addressed in proposed Sec. 121.410(c) and footnote 9 of proposed Sec. 121.201. Section 121.1501, redesignated as Sec. 121.901 and rewritten for clarity, would address the procedures for size determinations and discretionary appeals currently set forth in Sec. 121.1505. Sections 121.1502 and 121.1503 would be consolidated into a new Sec. 121.902. A proposed amendment of Sec. 121.1502 was published in the Federal Register (58 Fed. Reg. 44620) for public comment on August 23, 1993. It would have implemented Section 222 of Public Law 102-366, amending the Small Business Act, to delineate the limited circumstances under which a Federal department or agency may prescribe its own standard for determining whether an entity is a small business concern. After reviewing public comments, SBA has decided to publish for further comment a new proposal for the rule as part of this proposed rule. After publication of the initial proposal, Congress modified Section 3(a)(2) of the Small Business Act further, thereby affecting two aspects of the proposed rule (See Sec. 301, Public Law 103-403). Public Law 103-403 modified the time period for determining the size of a manufacturing concern from ``over a period of not less than three years'' to ``a manufacturing concern's pay periods for the preceding 12 months.'' This modification makes the time period of measurement of a manufacturing concern's size consistent with the time period used by SBA in calculating the size of other business concerns subject to an employee-based size standard. Public Law 103-403 then expanded upon the types of size standard measures that could be used for certain industries. While Sec. 301 requires that the number of employees be used to determine the size of a manufacturing concern, and gross receipts used to determine the size of concerns providing services, Sec. 301 permits these or some other measure of size to be used for size standards for all other industry categories (e.g., retail trade, wholesale trade, and construction). Other measures of size standards could include net worth, net income, or some other quantitative measure that appropriately delineates business concerns by size. These statutory modifications have been incorporated into this final rule. The current statutory provisions under Section 3(a)(2) of the Small Business Act establish certain requirements for the development of size standards by a Federal department or agency. Those requirements would be repeated in the regulations under this proposal. The head of a Federal department or agency may only prescribe a size standard different from that prescribed by SBA when it is for use in connection with a program of the department or agency, and other statutory criteria are met. SBA proposes to adopt appropriate measures to implement this statutory authority. As stated in revised Sec. 121.901, SBA applies the rules and procedures contained in this regulation when making size determinations for other agencies. This includes the definition of the size standard measure as well as all other criteria related to the size standard. SBA will consider the use of alternative definitions and other size related criteria by other agencies where appropriate. As required by statute, SBA also is publishing a list of non-SBA size standards currently in effect. The list contained in this proposed rule will be updated periodically by notices published in the Federal Register as non-SBA size standards become established or when additional existing non-SBA size standards are identified. The current list is as follows: Table of Statutory and Regulatory Size Standards Set by Agencies Other Than SBA ---------------------------------------------------------------------------------------------------------------- Agency/Program Size standard Cite ---------------------------------------------------------------------------------------------------------------- Bureau of Land Management, Timber SBA size standards........... 43 CFR 5400.0-5 Sales. Department of Agriculture, SBIR Fewer than 500 employees; all 7 CFR 3403.2(o) program. requirements of 13 CFR 121. [[Page 57989]] Department of the Air Force, SBA size standards........... 32 CFR 841.4 Licensing Government-Owned Inventions. Department of the Army, Timber Sales. SBA size standards........... 32 CFR 644.509 Department of Commerce, International ``Small business'' means any 19 CFR 353.12 Trade Administration, Antidumping business concern which, in Duty Procedures. the agency's judgment, due to its small size, has neither adequate internal resources nor financial ability to obtain qualified outside assistance in preparing and filing petitions and applications for remedies and benefits under trade laws. (19 USC 1339). Department of Commerce, International ``Small business'' means any 19 CFR 355.12 Trade Administration, Countervailing business concern which, in Duty Procedures. the agency's judgment, due to its small size, has neither adequate internal resources nor financial ability to obtain qualified outside assistance in preparing and filing petitions and applications for remedies and benefits under trade laws. (19 USC 1339). Department of Commerce, Licensing SBA size standards........... 37 CFR 404.3 Government-Owned Inventions. Department of Commerce, Patent Rights SBA size standards........... 37 CFR 401.14 Clause. Department of Commerce, Rights to SBA size standards........... 37 CFR 401.2 Inventions. Department of Defense, Business Type 13 CFR part 121.............. 48 CFR 252.211-7020 Certification--Commercial Items. Department of Defense, Contract Goals Section 8(d) of the Small 10 USC 2323 for Small Disadvantaged Businesses. Business Act. Department of Defense, Notice of 13 CFR part 121.............. 48 CFR 252.219-7001 Partial Small Business Set-aside. Department of Energy, Domestic ``[A]s defined by SBA''...... 10 CFR 760.1 Uranium Project. Department of Energy, Electric and 13 CFR 121.310............... 10 CFR 791.3 Hybrid Vehicle Research, Development, Demonstration and Production Loan Guaranties. Department of Energy, Financial Not dominant in its field; 10 CFR 600.3 Assistance Rules. independently owned and operated; meets criteria of SBA. Department of Energy, Financial Not dominant in its field; 10 CFR 600.3 Assistance Rules--Grants. independently owned and operated; meets criteria of SBA. Department of Energy, Geothermal Loan Not dominant in field; does 10 CFR 790.5 Guaranty Program. not have assets in excess of $9 million or net worth in excess of $4 million; does not have average net income, after Federal income tax, for the preceding 2 years in excess of $400,000. Department of Energy, Patent Rights 13 CFR 121.3-8, 121.3-12..... 10 CFR 600.33 of Grantees. Department of Energy, State Energy SBA regulations.............. 10 CFR 420.2 Conservation Program. Department of Housing and Urban SBA size standards........... 24 CFR 135.5 Development, Employment Opportunities for Businesses and Lower Income Persons in Connection with Assisted Projects. Department of Labor, OSHA, 19 or fewer employees........ 29 CFR 1910.1027(p)(2) Occupational Safety and Health Standards, Cadmium. Department of Transportation, Section 3 of the Small 49 CFR 23.62 Implementation of Sec. 105(f) of Business Act and SBA the Surface Transportation regulations, except that a Assistance Act of 1982. small business concern will not include any concern or group of concerns controlled by the same socially and economically disadvantaged individual(s) which has average annual gross receipts in excess of $15 million over the previous 3 fiscal years (amount is increased annually for inflation). Department of Transportation, Size See note below for size 49 CFR 23.89 Standards for Airport standards for specific Concessionaires. airport concessionaires. Department of Transportation, Uniform Small business is a business 49 CFR 24.2(t) Relocation Assistance and Real having not more than 500 Property Acquisition for Federal and employees working at the Federally Assisted Programs. site being acquired or displaced by a project or program, which site is the location of economic activity. Sites occupied solely by outdoor advertising signs, displays, or devices do not qualify as a business. Environmental Protection Agency, Section 3 of the Small 40 CFR 30.6015 Cooperative Agreements and Superfund Business Act. State Contracts for Superfund Response Actions. Environmental Protection Agency, SBA size standards........... 40 CFR 21.2 Issuance of Statements Required by Sec. 7(g) of the Small Business Act. Environmental Protection Agency, Small Business Act........... 40 CFR 33.005 Procurement Under Assistance Agreements. Environmental Protection Agency, 100 employees................ 42 USC 7661(f) Stationary Source Technical and Environmental Compliance Assistance Program. Family and Medical Leave Act......... Fewer than 50 employees...... Public Law 103-1, Sec. 101 [[Page 57990]] FAR, Patent Rights, Retention by Section 2 of the Small 48 CFR 52.227-11 Contractor (Short Form). Business Act and SBA regulations. FAR, Patent Rights, Retention by Section 2 of the Small 48 CFR 52.227-12 Contractor (Long Form). Business Act and SBA regulations. FAR, Patent Rights Under Government 16 USC 632 and SBA 48 CFR 27.301 Contracts. regulations. FAR, Size Standards.................. SBA size standards........... 48 CFR 19.102 FAR, Small Business Competitiveness Emerging small business: size 48 CFR 19.1002 Demonstration Program. is no greater than 50% of numerical SIC size standard. FAR, Socioeconomic Programs.......... 13 CFR 121 and not dominant 48 CFR 19.001 in field. FAR, Utilization of Small Business Section 3 of the Small 48 CFR 52.219-8 Concerns and Small Disadvantaged Business Act and SBA Business Concerns. regulations. General Services Administration, 13 CFR part 121.............. 48 CFR 552.219-1 Small Business Concern Representation. Internal Revenue Service, Dollar- Average annual gross receipts 26 CFR 1.472-8 value Method of Pricing LIFO of the taxpayer for the 3 Inventories. preceding taxable years do not exceed $5 million. Internal Revenue Service, Loss on (1) Post-1978 stock: capital 26 CFR 1.1244(c)-2 Small Business Stock. receipts of small business corporation may not exceed $1 million (capital receipts means aggregate dollar amount received by the corporation for its stock). (2) Pre-1978 stock: sum of aggregate amount to be paid for pre-1978 stock may not exceed $500,000. Internal Revenue Service, S Fewer than 35 shareholders; 26 CFR 1.1361-1 Corporation Defined. no shareholder (other than an estate or trust) who is not an individual; no nonresident alien as shareholder; only one class of stock. Internal Revenue Service, Simplified Average annual gross receipts 26 USC 474 Dollar-value LIFO Method for Certain of the taxpayer for the 3 Small Businesses. preceding taxable years do not exceed $5 million. Internal Revenue Service, Subchapter Fewer than 35 shareholders; 26 USC 1361(b)(1)(A) S Corporation. no shareholder (other than an estate or trust) who is not an individual; no nonresident alien as shareholder; only one class of stock. International Trade Commission, Trade SBA size standards........... 19 CFR 213.2 Remedy Assistance. Interstate Commerce Commission, Small Business Act........... 49 USC 10701 Negotiated Rates Act. NASA, Licensing of Inventions........ 13 CFR 121.3-8 and 121.3-12.. 14 CFR 1245.202 NASA, Patent Rights--Retention by 13 CFR 121.3-8 and 121.3-12.. 14 CFR 1260 App. Grantee. National Science Foundation, Patent 13 CFR 121.3-8 and 121.3-12.. 45 CFR 650.4 Rights of Grantee. Patent and Trademark Office.......... 13 CFR 121.12................ 37 CFR 1.9 Regulatory Flexibility Act........... Section 3 of the Small 5 USC 601 Business Act, unless an agency, after consultation with the Office of Advocacy of SBA and after opportunity for public comment, establishes one or more definitions of such term which are appropriate to the activities of the agency and publishes such definition(s) in the Federal Register. Securities & Exchange Commission, Small business issuer- 17 CFR 228.10 Integrated Disclosure System for revenues less than $25 Small Business Issuers. million; US or Canadian issuer; not an investment company; if a majority owned subsidiary, parent corporation must also be a small business issuer. Securities & Exchange Commission Small business issuer- 17 CFR 240.12b-2 Registration and Reporting. revenues less than $25 million; US or Canadian issuer; not an investment company; if a majority owned subsidiary, parent corporation must also be a small business issuer. Selective Service, Placement of 500 employees................ 50 App. USC 468(a) Orders. Federal Communications Commission, $40 million in average annual 47 CFR 24.720(b)(1) Licensing of Broadband Personal gross revenues. Communications Services. Federal Communications Commission, $40 million in average annual 47 CFR 24.320(b) Licensing of Narrowband Personal gross revenues and $40 Communications Services. million in personal net worth. Federal Communications Commission, $40 million in average annual 47 CFR 21.961(b) Licensing of Multipoint Distribution gross revenues. Services (Wireless Cable). Federal Communications Commission, Small cable systems of 15,000 47 CFR 76.901(c) Regulatory Relief for Small Cable or fewer subscribers owned Entities. by cable companies with 400,000 or fewer subscribers. Nuclear Regulatory Commission, $5 million in average annual 10 CFR 2.810 Regulatory Flexibility Analyses. gross revenues for concerns providing services and 500 employees for manufacturing concerns. Department of the Treasury, Office of $1 million in average annual 12 CFR 25.22(b)(3) the Comptroller of the Currency, gross revenues. Community Reinvestment Act. Department of the Treasury, Office of $1 million in average annual 12 CFR 563e.22(b)(3)(iii) Thrift Supervision, Community gross revenues. Reinvestment Act. Board of Governors of the Federal $1 million in average annual 12 CFR 228.22(b)(3)(ii) Reserve System, Community gross revenues. Reinvestment Act. [[Page 57991]] Federal Deposit Insurance $1 million in average annual 12 CFR 345.22(b)(3)(ii) Corporation, Community Reinvestment gross revenues. Act. Department of Agriculture, Commodity SBA size standards........... 7 CFR 1485.11(oo) Credit Corporation, Market Promotion Program. ---------------------------------------------------------------------------------------------------------------- Note for Airport Concessionaire Size Standards Following is a list of the maximum average annual gross receipts in the preceding 3 years (in millions of dollars): ------------------------------------------------------------------------ Concession Amount ------------------------------------------------------------------------ Food and beverage............................................. 30.00 Book stores................................................... 30.00 Auto rental................................................... 40.00 Banks......................................................... \1\100.0 0 Hotels and motels............................................. 30.00 Insurance machines and counters............................... 30.00 Gift, novelty, and souvenir shop.............................. 30.00 Newsstands.................................................... 30.00 Shoe shine stands............................................. 30.00 Barber shops.................................................. 30.00 Automobile parking............................................ 30.00 Jewelry stores................................................ 30.00 Liquor stores................................................. 30.00 Travel agencies............................................... 30.00 Drug stores................................................... 30.00 Pastries and baked goods...................................... 30.00 Luggage cart rental........................................... 30.00 Coin-operated T.V.'s.......................................... 30.00 Game rooms.................................................... 30.00 Luggage and leather goods stores.............................. 30.00 Candy, nut, and confectionery stores.......................... 30.00 Toy stores.................................................... 30.00 Beauty shops.................................................. 30.00 Vending machines.............................................. 30.00 Coin-operated lockers......................................... 30.00 Florists...................................................... 30.00 Advertising................................................... 30.00 Taxicab....................................................... 30.00 Limousines.................................................... 30.00 Duty free shops............................................... 30.00 Pay telephones................................................ \2\ 1,50 0 Gambling machines............................................. 30.00 Other concessions not shown above............................. 30.00 ------------------------------------------------------------------------ \1\ As measured by total assets. \2\ Number of employees. SBA will briefly describe and respond to the comments received in response to its initial proposed rule regarding alternate size standards of other agencies. Several of the commenters, although supportive of the proposed rule, identified the following issues that they felt warranted further clarification or modification to the proposed procedures. These issues are identified below along with the SBA's response. Definition and Calculation of Average Annual Receipts and Number of Employees: The commenters raised two questions concerning annual average receipts and number of employees--how are these terms defined and how are they calculated? As specified in revised Sec. 121.901, the SBA utilizes its rules, standards and procedures when making size determinations for other agencies. For clarification on the definition and calculation of size standard measures, Sec. 121.902(b)(1)(ii)(D) of this part has been added to incorporate, by reference, the SBA's criteria for defining and calculating gross receipts and number of employees. The SBA's policy of applying the criteria specified in this regulation to another agency's size standard does not preclude a department or agency from requesting a change to the definition of procedures regarding its size standard. Such request would be part of the SBA's review of the proposed size standard. Size Standard Measures: Two commenters suggested that these regulations should permit the use of size standard measures other than gross receipts and number of employees, such as net worth, and permit the use of number of employees for non-manufacturing industries. For non-SBA size standards, the law clearly requires that the size standard for manufacturing concerns be established based on number of employees, and for concerns providing services that the size standards be established based on gross receipts. SBA believes that the statutory changes pursuant to Sec. 301 of Public Law 103-403 permit an agency to request establishment of a size standard for all other types of concerns (e.g., agriculture, construction, retail trade) based on gross receipts, number of employees or another quantitative measure of size suitable for the purpose and industry under consideration, and this final rule allows a department or agency to make such a request. Application of Size Standards to Programs: The comments reviewed reflected confusion about the application of non-SBA size standards to Federal government programs. Several commenters indicated that they were unsure if non-SBA size standards were only to be used within a specific department or agency, even though a program may be implemented across several agencies or departments. Second, some commenters appeared to be under the misunderstanding that individual agencies would be able to establish their own size standards for use in SBA programs within their agency. These regulations allow departments and agencies to prescribe unique size standards only for programs under their responsibility. For example, this means that size standards established by the Department of Transportation for a program under its control are applicable to all departments or agencies that must also implement such a program. Similarly, the SBA size standards are applicable to all programs under the SBA area of cognizance, regardless of where implemented. This means that the SBA size standards must be used by all departments and agencies for the Small Business Set-Aside and MED Programs. In another case, a statute may require the use of SBA's size standards or refer to small business as defined under the Small Business Act. An example is the Department of Defense's Small Disadvantaged Business Program. In those cases, the SBA size standards clearly must be used. However, if use of SBA's size standards has not been statutorily required, a Federal department or agency is free to either use the SBA's size standards or endeavor to obtain the approval of SBA to establish a different size standard. Size Determinations and Appeals to Non-SBA Size Standards: A commenter raised the question of how size determinations and appeals would be made for non-SBA size standards in cases involving a dispute over the size status of a business concern. When requested, the SBA will provide size determinations for other Federal government agencies, even in cases where size standards are established by statute or the SBA has approved size standards different from its own size standards (See proposed Sec. 121.1001(b)(6)). The SBA also provides a discretionary appeal process from such size determinations that would be available to other Federal agencies. The procedures regarding size appeals are contained in part 134 (See proposed Sec. 121.1102). Documentation for SBA Review of Non-SBA Size Standards: A commenter requested clarification on what [[Page 57992]] documentation must accompany its requests for approval of non-SBA size standards, particularly regarding submission of copies of comments received on the proposed rule. In order for the SBA to properly evaluate requests to issue proposed rules, an agency proposing a size standard shall provide the SBA with (1) the reasons for proposing a size standard different from the SBA's size standard, and (2) industry related data or other data supporting its proposed size standard. In order to properly evaluate each request for non-SBA size standards and approve the issuance of a final rule, the SBA shall also be provided with copies of all comments that relate to the establishment of the size standard, not just copies of all comments received on the proposed rule. The SBA has modified a provision of the proposed rule to specify that only comments related to the size standard need to be provided to the SBA as part of its review of an agency final rule. Another commenter recommended modifying the requirement to provide the SBA with a copy of the final rule prior to approval by the SBA's Administrator. To expedite the SBA's review of the size standard at this stage of the rulemaking process, the commenter recommended that agencies be allowed to submit the intended size standard with an accompanying justification. The SBA agrees, and has modified this provision of the proposed rule. When possible, the requesting agency should submit a draft final rule and preamble. However, correspondence containing a justification for the intended size standard is acceptable, provided the agency furnishes the SBA a copy of the final rule and its preamble before submitting it for publication in the Federal Register. Clarify ``Other Factors'' Considered by the SBA Administrator: Several commenters requested clarification on the information the SBA believes it should review when complying with the requirement to ``consider other factors the Administrator deems to be relevant.'' When establishing or approving size standards, the SBA Administrator is required to ensure that size standards vary by industry to the extent necessary to reflect industry differences and to consider other relevant factors. The SBA generally evaluates the structural characteristics of an industry to determine the appropriate differences between industry size standards. These characteristics include, but are not limited to: average firm size, industry competition, the extent of industry dominance by large firms, the distribution of sales and employees by firm size, and start-up costs. Other relevant factors generally pertain to all other types of information that could influence the decision on the size standard. Although this may vary for each request, several important factors would include the goals and objectives of the program, the impact of the size standard on small businesses, conventional industry business practices, and the administration and application of size standard requirements. Timeliness of SBA Decisions on Approval Process: Several commenters were concerned about the timeliness of the SBA approval process and what impact it might have on rulemaking. The SBA shares this concern and will make every effort to ensure that the regulatory process is not delayed. However, the SBA believes specifying a time frame for these reviews is impractical. Each request will likely have different implications. That makes estimating within this rule a definite completion date for a review inappropriate. The SBA will, as a matter of policy, respond to requests for non-SBA size standards within 30 days. Where the SBA cannot respond within 30 days, the agency will advise the requester as soon as possible. SBA Reviews and Legislation Providing Authority to Establish Size Standard: One comment questioned the need for an agency to request the SBA's approval for a non-SBA size standard if the enabling legislation for a particular program specifically authorized the agency to establish a size standard without specifying a size standard. The SBA believes that if the enabling legislation does not designate the size standard, the department or agency would be required to follow the approval procedures specified in the Small Business Act and these regulations. Only in instances in which legislation specifically establishes a size standard would an agency or department be exempted from these procedures. Section 121.1504 would be redesignated as Sec. 121.903, and reworded in plain English. Section 121.1601 would be redesignated as Sec. 121.1001 and reworded for clarity. The section would be revised to reflect the new names of offices under SBA's reorganization. References to the Agency's regional offices would be changed to the offices of SBA Government Contracting Area Director or SBA District Director, as appropriate. Reference to any inactive assistance program would be deleted. In addition, proposed Sec. 121.1001(b)(1)(iv) would be amended by expanding the first sentence to clarify existing policy. The regulations currently state that a large business may initiate a size protest as an interested party if only one offer was received. This change would clarify that this does not include a concern that is found to be other than small for a particular procurement protesting the size of the only remaining offeror. Proposed Sec. 121.1001(b)(5) (present Sec. 121.1601(a)(5)) would be amended to clarify that SBA will make size determinations when a procurement is unrestricted, and that the Office of Hearings and Appeals (OHA) will issue decisions on size appeals and Standard Industrial Classification (SIC) code appeals on unrestricted procurements. This change is necessary because OHA has issued decisions in the past that the SBA regional offices have no jurisdiction to make size determinations when a procurement is unrestricted, and that OHA has no jurisdiction over size appeals or SIC Code appeals when a procurement is unrestricted. SBA disagrees with OHA's interpretation of the existing regulations, and therefore proposes to clarify the regulations. OHA has said that small business status is beneficial only for small business set-aside contracts. This is not true. Small business status is beneficial in unrestricted procurements as well for the following reasons, among others: 1. Small Businesses receive the contract award in the case of a tie bid with a large business. 2. Small businesses are eligible to apply for a Certificate of Competency when a contracting officer makes a determination of non- responsibility. 3. Small businesses are exempt from the Cost Accounting Standards. 4. Small businesses may receive accelerated progress payments. 5. Small businesses are exempt from submitting subcontracting plans. In the January 1, 1990, revision to 13 CFR Part 121, SBA attempted to clarify this issue by providing the example of the tie bids and the Certificate of Competency eligibility. It was not SBA's intention to limit size determinations and size appeals to just those two examples when a procurement is unrestricted. However, after publication of the revised regulations, OHA ruled that it would not make a decision on a size determination appeal unless there were tie bids or the contracting officer made a determination of non-responsibility. There are many benefits to being a small business in unrestricted procurements. It is SBA's policy to make size determinations when a [[Page 57993]] protest is received on any unrestricted procurement, regardless of whether there is an apparent benefit at the time the protest is received. Additionally, SBA is attempting to clarify that OHA has jurisdiction to issue decisions concerning SIC appeals on unrestricted procurements. Currently, a concern has no recourse when a contracting officer issues an unrestricted solicitation with an incorrect SIC Code. The revised Sec. 121.1001 would be further amended to use the term ``headquarters'' in lieu of the term ``principal office'' in referring to a concern's primary headquarters. SBA believes the term ``headquarters'' more accurately describes the location where a firm's business or corporate records are maintained and business decisions are made. Section 121.1602 would be redesignated as Sec. 121.1002, rewritten for clarity, and amended to provide for changes in offices responsible for making formal size determinations as a result of the Agency's reorganization. The Government Contracting Area Director would assume the responsibilities formerly held by SBA regional administrators for making size determinations. The term ``headquarters'' would be used instead of ``principal offices'' when describing the primary location of a concern's executive office. Section 121.1603 would be broken out into proposed Secs. 121.1003 through 121.1006 for ease of use and clarity. Individual sections would be created relating to where a protest should be filed, what time limits apply to size protests, how a protest must be filed with the contracting officer, and referral of a size protest to the appropriate SBA Government Contracting Area Office. Proposed Sec. 121.1004 would clarify that although a protest filed by a contracting officer is timely whether filed before or after award, such a protest will be dismissed by SBA as premature if filed before the selection of the apparent successful offeror. This change would prohibit a contracting officer from protesting the size of several concerns at once (e.g., all firms found to be in the competitive range) and would authorize a protest only after the apparent successful offeror has been selected. Section 121.1604(a) and (b) would be redesignated as Sec. 121.1007(b) and (c), reworded for clarity, and the examples deleted. A portion of present Sec. 121.1601(a)(1)(iv) would be added to proposed Sec. 121.1007 as subsection (a) for the purpose of clarifying that a protest not pertaining to a particular procurement or sale would not be acted upon by SBA. Subsection (c) which pertains to appeals of dismissals would be eliminated as unnecessary in this section addressing size determinations. Section 121.1605 would be redesignated as Sec. 121.1008 and would be reworded for clarity and user ease. In addition, the revised Sec. 121.1008(a) would be amended to allow any overnight mail delivery service that provides proof of receipt to be used in the size determination process. This change is necessary in order that size determinations may be made in a timely manner. Section 121.1606 would be redesignated as Sec. 121.1009. Its provisions would be reworded for clarity. The revision would permit use of any overnight mail delivery service that provides proof of receipt to be used in the size determination process. The change would assist SBA in making size determinations in a timely manner. Paragraph (g)(3) would be further amended to provide that a concern which had self certified as small on a pending procurement or assistance application would have to provide notice of any adverse size determination to officials responsible for the pending procurement or assistance request. Subsection (h) would be added to permit the SBA office that performed a formal size determination to reopen that determination in the limited instance where the size determination contains clear administrative error or a clear mistake of fact, provided that no appeal has been taken to OHA and that no contract has been awarded. This provision would permit SBA to correct the error or mistake without requiring the filing of an appeal at OHA. Section 121.1607 would be redesignated as Sec. 121.1010. The proposed provision would be reworded for ease of use and clarity. Section 121.1701 would be amended and the substance of subsections (a) and (b) redesignated as Sec. 121.1101 and Sec. 121.1103, respectively. Proposed Sec. 121.1101 would materially alter the right of a party adversely affected by a size determination to appeal the adverse determination to OHA and further provide that OHA has the unfettered discretion to select and review formal size determinations. There would no longer be a right to appeal a size determination. SBA believes that this amended procedure will simplify and speed the final consideration of size status issues. Unless a petition for review is accepted by OHA, the size determinations made by Government Contracting offices and disaster area offices would be final Agency decisions and would end the size determination process. Under the revised procedures, the procurement process generally would not be delayed because of size determination appeals to OHA. OHA could elect to consider any size determination appeal request. Section 121.1702 has been eliminated. Part of proposed Sec. 121.1101 simply references procedures for discretionary OHA reviews as contained in part 134. Section 121.1703(a) would be incorporated into Sec. 121.1101. Sections 121.1703 (b) and (c) would be incorporated into Secs. 121.1103, and 121.1703(d) would be eliminated. Section 121.1704 would be incorporated into Sec. 121.1103. The revised section would address procedures for appealing SIC code designations. The revision would provide that appeal procedures would be those outlined in FAR 19-303. Sections 121.1705 through 121.1722 would be eliminated and their substance transferred to part 134. Sections 121.2001 through 121.2005 would be redesignated as Secs. 121.1201 through 121.1206. The sections would be revised to reflect better clarity and organizational content. The substance of these provisions would remain substantially unaffected. Minor editorial changes would be made, for example, to eliminate outdated information such as procurement funding levels for prior years. The content of the current Sec. 121.2004 would be rearranged in a more logical sequence. Where organizational titles have changed, the revisions would adopt the new titles. Sections 121.2101 through 121.2104 would be redesignated as Secs. 121.1301-121.1304, respectively, Sec. 121.2105 would be incorporated into proposed Sec. 121.1304, and Sec. 121.2106 would be redesignated as Sec. 121.1305. Minor editorial changes pertaining to class waivers would be made for ease of reading and use. In addition, SBA is proposing to incorporate in these sections procedural rules pertaining to individual waivers of the Nonmanufacturer Rule for specific solicitations. On November 15, 1988, the enactment of Public Law 100-656 incorporated into the Small Business Act the previously existing SBA requirement that recipients of small business set-asides or SBA 8(a) subcontracts for manufactured products that are not the actual manufacturers (nonmanufacturers) be themselves small business regular dealers. This legislation specifies that regular dealers may provide only the product of domestic small business manufacturers or processors on small business set-asides and 8(a) procurements. This requirement is commonly known as the [[Page 57994]] Nonmanufacturer Rule. Section 303(h) of Public Law 100-656 authorized the Administrator of the SBA to grant a waiver of the Nonmanufacturer Rule for a product or class of products for which there are no small business manufacturers or processors in the Federal market. The requirement that a small business supplier provide a product manufactured or processed by a small business concern in the U.S. under a contract set-aside for small business or under an SBA 8(a) subcontract is found in SBA regulations at Secs. 121.406(b). On June 15, 1989, Public Law 101-37 renumbered the elements in the Nonmanufacturer Rule and added the requirement that a small business concern must meet the numerical size standard for the Standard Industrial Classification code assigned to the contract solicitation on which the offer is being made. Further, on November 15, 1990, Public Law 101-574 modified the wording of the waiver provision. The new wording allowed the Administrator of the SBA to waive the requirement for any product or class of products for which there is no small business manufacturer or processor ``available to participate in the Federal procurement market.'' The law also added a provision which allows the Administrator to waive the requirements of the Nonmanufacturer Rule after receiving a determination by the contracting officer stating that no small business manufacturer or processor can reasonably be expected to offer a product meeting the specification, including period of performance, required of an offeror on a solicitation. On September 21, 1993, SBA published in the Federal Register proposed procedural rules for individual waivers of the Nonmanufacturer Rule. SBA received two sets of comments in response to the proposed rule. Due to the passage of time since the proposed rule was originally published, SBA is not issuing final regulations pertaining to individual waivers but is again proposing revised regulations taking into account the comments received. The first commenter was the United States Department of the Interior, Geological Survey (DOI). Its first comment was a request to include in the regulations a definition of ``nonmanufacturing.'' Since this term is not used in the proposed regulations, a definition is unnecessary. DOI's second comment was a request to clarify the language of the regulation by shortening word and sentence lengths. SBA reviewed the regulation and, where possible, reduced the length of the sentences and the size of the words. The second commenter was a small business wholesaler who submitted four comments. The first comment was that SBA should review and grant class waivers for individual items. The statute authorizing waivers does permit class waivers for products for which there are no small business manufacturers available to participate in the Federal procurement market and current SBA regulations already address this. Consequently, no action on the comment is necessary. The small business wholesaler's second comment was that a SBA Business Opportunity Specialist should be allowed to request waivers for individual procurements. Waivers for individual procurements are routinely granted for both small business set-asides and SBA 8(a) subcontracts. SBA believes that the best procedure to maintain administrative consistency is to allow only the procuring agencies' contracting officers to request individual waivers for both set-asides and 8(a) awards. We believe that the procuring agency contracting officer ultimately responsible for contract award is the most qualified individual to determine whether small business products are available and/or meet the specifications of a particular solicitation. The small business wholesaler's third comment was that SBA state procurement center representatives should be allowed to request individual waivers of the Nonmanufacturer Rule. Public Law 101-574, Section 210, is explicit in its language allowing only contracting officers to request individual waivers. Therefore, SBA has no authority to allow anyone other than contracting officers to request individual waivers of the Nonmanufacturer Rule. The fourth comment by the small business wholesaler was that SBA 8(a) subcontractors should be allowed to request individual waivers of the Nonmanufacturer Rule. As with the commenter's third comment, Public Law 101-574, Section 210, is explicit in its language allowing only contracting officers to request individual waivers. Compliance With Executive Orders 12612, 12778, and 12866, the Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork Reduction Act (44 U.S.C. Ch. 35) SBA certifies that this proposed rule would not be considered a significant rule within the meaning of Executive Order 12866 and would not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. This rule is would clarify SBA's procedural and definitional size rules, but would not change the size standard for any particular industry. As such, size eligibility for the various SBA programs should not be affected by this proposal. The rule would have no effect on the amount or dollar value of any Federal contract requirements or of any financial assistance provided through SBA. Therefore, it is not likely to have an annual economic effect of $100 million or more, result in a major increase in costs or prices, or have a significant adverse effect on competition or the United States economy. For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA certifies that this proposed rule, if adopted in final form, would contain no new reporting or recordkeeping requirements. For purposes of Executive Order 12612, SBA certifies that this rule would not have any federalism implications warranting the preparation of a Federalism Assessment. For purposes of Executive Order 12778, SBA certifies that this rule is drafted, to the extent practicable, in accordance with the standards set forth in Section 2 of that Order. List of Subjects in 13 CFR Part 121 Government procurement, Government property, Grant programs-- business, Individuals with disabilities, Loan programs--business, Reporting and recordkeeping requirements, Small businesses. Accordingly, pursuant to the authority set forth in sections 3(a) and 5(b)(6) of the Small Business Act, 15 U.S.C. 632(a) and 634(b)(6), SBA hereby proposes to revise part 121 of Title 13, Code of Federal Regulations (CFR), to read as follows: PART 121--SMALL BUSINESS SIZE REGULATIONS Subpart A--Size Eligibility Provisions and Standards Provisions of General Applicability Sec. 121.101 What are SBA size standards? 121.102 How does SBA establish size standards? 121.103 What is affiliation? 121.104 How does SBA calculate annual receipts? 121.105 How does SBA define ``business concern or concern''? 121.106 How does SBA calculate number of employees? 121.107 How does SBA determine a concern's ``primary industry''? [[Page 57995]] 121.108 What are the penalties for misrepresentation of size status? Size Standards Used To Define Small Business Concerns 6121.201 What size standards has SBA identified by Standard Industrial Classification codes? Size Eligibility Requirements for SBA Financial Assistance 6121.301 What size standards are applicable to financial assistance programs? 6121.302 When does SBA determine the size status of an applicant? 6121.303 What size procedures are used by SBA before it makes a formal size determination? 6121.304 What are the size requirements for refinancing an existing SBA loan? 6121.305 What size eligibility requirements exist for obtaining business loans relating to particular procurements? Size Eligibility Requirements for Government Procurement 6121.401 What procurement programs are subject to size determinations? 6121.402 What size standards are applicable to procurement assistance programs? 6121.403 Are SBA size determinations and SIC code designations binding on parties? 6121.404 When does SBA determine the size status of a business concern? 6121.405 May a business concern self-certify its small business size status? 6121.406 How does a small business concern qualify to provide manufactured products under small business set-aside or MED procurements? 6121.407 What are the size procedures for multiple item procurements? 6121.408 What are the size procedures for SBA's Certificate of Competency Program? 6121.409 What size standard applies in an unrestricted procurement for Certificate of Competency purposes? 6121.410 What are the size standards for SBA's Section 8(d) Subcontracting Program? 6121.411 What are the size procedures for SBA's Section 8(d) Subcontracting Program? 6121.412 What are the size procedures for partial small business set- asides? Size Eligibility Requirements for Sales or Lease Of Government Property 6121.501 What programs for sales or leases of Government property are subject to size determinations? 6121.502 What size standards are applicable to programs for sales or leases of Government property? 6121.503 Are SBA size determinations binding on parties? 6121.504 When does SBA determine the size status of a business concern? 6121.505 What is the effect of a self-certification? 6121.506 What definitions are important for sales or leases of Government-owned timber? 6121.507 What are the size standards and other requirements for the purchase of Government-owned timber (other than Special Salvage timber)? 6121.508 What are the size standards and other requirements for the purchase of Government-owned Special Salvage Timber? 6121.509 What is the size standard for leasing of Government land for coal mining? 6121.510 What is the size standard for leasing of Government land for uranium mining? 6121.511 What is the size standard for buying Government-owned petroleum? 6121.512 What is the size standard for stockpile purchases? Size Eligibility Requirements for the Minority Enterprise Development (MED) Program 6121.601 What is a small business for purposes of admission to SBA's Minority Enterprise Development (MED) Program? 6121.602 At what point in time must a MED applicant be small? 6121.603 How does SBA determine whether a Participant is small for a particular MED subcontract? 6121.604 Are MED Participants considered small for purposes of other SBA assistance? Size Eligibility Requirements for the Small Business Innovation Research (SBIR) Program 6121.701 What SBIR programs are subject to size determinations? 6121.702 What size standards are applicable to SBIR programs? 6121.703 Are formal size determinations binding on parties? 6121.704 When does SBA determine the size status of a business concern? 6121.705 Must a business concern self-certify its size status? Size Eligibility Requirements for Paying Reduced Patent Fees 6121.801 May patent fees be reduced if a concern is small? 6121.802 What size standards are applicable to reduced patent fees program? 121.803 Are formal size determinations binding on parties? 121.804 When does SBA determine the size status of a business concern? 121.805 May a business concern self-certify its size status? Size Eligibility Requirements for Compliance With Programs of Other Agencies 121.901 Can other Government agencies obtain SBA size determinations? 121.902 What size standards are applicable to programs of other agencies? 121.903 When does SBA determine the size status of a business concern? Procedures for Size Protests and Requests for Formal Size Determinations 121.1001 Who may initiate a size protest or a request for formal size determination? 121.1002 Who makes a formal size determination? 121.1003 Where should a size protest be filed? 121.1004 What time limits apply to size protests? 121.1005 How must a protest be filed with the contracting officer? 121.1006 When will a size protest be referred to an SBA Government Contracting Area Office? 121.1007 Must a protest of size status relate to a particular procurement and be specific? 121.1008 What happens after SBA receives a protest or a request for a formal size determination? 121.1009 What are the procedures for making the size determination? 121.1010 How does a concern become recertified as a small business? Appeals of Size Determinations and SIC Code Designations 121.1101 Are formal size determinations subject to appeal? 121.1102 Are SIC code designations subject to appeal? 121.1103 What are the procedures for appealing a SIC code designation? 121.1104 What are the time limits for appeals? Subpart B--Other Eligibility Provisions Eligibility of Organizations for the Handicapped for Small Business Set-asides 121.1201 May handicapped organizations be awarded Federal procurements set aside for small business? 121.1202 What is an organization for the handicapped? 121.1203 Who are handicapped individuals? 121.1204 What are the eligibility requirements for organizations for the handicapped to receive awards of contracts set aside for small business? 121.1205 What are the procedures for filing protests of the status of handicapped organizations? 121.1206 How does SBA handle appeals of economic impact? Waivers of the Nonmanufacturer Rule for Classes of Products 121.1301 What is the Nonmanufacturer Rule? 121.1302 When will a waiver of the Nonmanufacturer Rule be granted for a class of products? 121.1303 When will a waiver of the Nonmanufacturer Rule be granted for an individual contract? [[Page 57996]] 121.1304 What are the procedures for requesting and granting waivers? 121.1305 How is a list of previously granted class waivers obtained? Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a) and 644(c); and Pub. L. 102-486, 106 Stat. 2776, 3133. Provisions of General Applicability Sec. 121.101 What are SBA size standards? SBA's size standards define whether a business entity is small and, thus, eligible for Government programs and preferences reserved for ``small business'' concerns. Size standards have been established for types of economic activity, or industry, generally under the Standard Industrial Classification (SIC) System. The SIC System is described in the ``Standard Industrial Classification Manual'' published by the Office of Management and Budget, Executive Office of the President, and sold by the U.S. Government Printing Office, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. The SIC System assigns four-digit SIC codes to all economic activity within ten major divisions. Section 121.201 describes the size standards now established. A full table matching a size standard with each four-digit SIC code is also published annually by SBA in the Federal Register. Sec. 121.102 How does SBA establish size standards? (a) SBA considers economic characteristics comprising the structure of an industry, including degree of competition, average firm size, start-up costs and entry barriers, and distribution of firms by size. It also considers technological changes, competition from other industries, growth trends, historical activity within an industry, unique factors occurring in the industry which may distinguish small firms from other firms, and the objectives of its programs and the impact on those programs of different size standard levels. (b) As part of its review of a size standard, SBA will investigate if any concern at or below a particular standard would be dominant in the industry. SBA will take into consideration market share of a concern and other appropriate factors which may allow a concern to exercise a major controlling influence on a national basis in which a number of business concerns are engaged. Size standards seek to ensure that a concern that meets a specific size standard is not dominant in its field of operation. (c) Please address any requests to change existing size standards or establish new ones for emerging industries to the Assistant Administrator for Size Standards, Small Business Administration, 409 3rd Street, S.W., Washington, D.C. 20416. Sec. 121.103 What is affiliation? (a) General Principles of Affiliation. (1) Concerns are affiliates of each other when one concern controls or has the power to control the other, or a third party or parties controls or has the power to control both. (2) SBA considers factors such as ownership, management, and contractual relationships, in determining whether affiliation exists. (3) Individuals or firms that have identical or substantially identical business or economic interests, such as family members, persons with common investments, or firms that are economically dependent through contractual or other relationships, may be treated as one party with such interests aggregated. (4) SBA counts the receipts or employees of the concern whose size is at issue and those of all its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit, in determining the concern's size. (b) Exclusion from affiliation coverage. (1) Business concerns owned in whole or substantial part by investment companies licensed, or development companies qualifying, under the Small Business Investment Act of 1958, as amended, or by Investment Companies registered under the Investment Company Act of 1940, as amended, are not considered affiliates of such investment companies or development companies. (2) Business concerns owned and controlled by Indian Tribes, Alaska Regional or Village Corporations organized pursuant to the Alaska Native Claims Settlement Act (43 U.S.C. 1601), Native Hawaiian Organizations, or Community Development Corporations authorized by 42 U.S.C. 9805 are not considered affiliates of such entities, or with other concerns owned by these entities solely because of their common ownership. (3) Business concerns which are part of a SBA approved pool of concerns for a joint program of research and development as authorized by the Small Business Act are not affiliates of one another because of the pool. (4) Business concerns which lease employees from concerns primarily engaged in leasing employees to other businesses are not affiliated with the leasing company solely on the basis of a leasing agreement. (5) For financial, management, or technical assistance under the Small Business Investment Company program, an applicant concern will not be affiliated with the following investors, provided the investors do not control the concern other than to the extent that would be permitted under Sec. 107.865 of this chapter: (i) Venture capital operating companies as defined in the U.S. Department of Labor Regulations found at 29 CFR 2510.3-101(d); (ii) Employee benefit or pension plans established and maintained by the Federal government or by any state, their political subdivisions, or any agency or instrumentality thereof for the benefit of employees; (iii) Employee benefit or pension plans within the meaning of the Employee Retirement Income Security Act of 1974; or (iv) Charitable trusts, foundations, endowments, or similar organizations exempt from Federal income taxation under Section 501(c) of the Internal Revenue Code of 1986. (6) A protege firm is not an affiliate of a mentor firm solely because the protege firm receives assistance from the mentor firm under Federal Mentor-Protege programs. (c) Affiliation based on stock ownership. (1) A person is an affiliate of a concern if the person owns or controls, or has the power to control 50 percent or more of its voting stock, or a block of stock which affords control because it is large compared to other outstanding blocks of stock. (2) If two or more persons each owns, controls or has the power to control less than 50 percent of the voting stock of a concern, with minority holdings that are equal or approximately equal in size, but the aggregate of these minority holdings is large as compared with any other stock holding, each such person is presumed to be an affiliate of the concern. (d) Affiliation arising under stock options, convertible debentures, and agreements to merge. Since stock options, convertible debentures, and agreements to merge (including agreements in principle) affect the power to control a concern, SBA treats them as though the rights granted have been exercised (except that an affiliate cannot use them to appear to terminate control over another concern before it actually does so). SBA gives present effect to an agreement to merge or sell stock whether such agreement is unconditional, conditional, or finalized but unexecuted. Agreements to open or continue negotiations towards the possibility of a merger or a sale of stock at some later date are not considered [[Page 57997]] ``agreements in principle'' and, thus, are not given present effect. (e) Affiliation based on common management. Affiliation arises where one or more officers, directors or general partners controls the board of directors and/or the management of another concern. (f) Affiliation based on joint venture arrangements. (1) Parties to a joint venture are affiliates if any one of them seeks SBA financial assistance for use in connection with the joint venture. (2) Concerns bidding on a particular procurement or property sale as joint venturers are affiliated with each other with regard to performance of that contract. (3) A contractor and subcontractor are treated as joint venturers if the ostensible subcontractor will perform primary and vital requirements of a contract or if the prime contractor is unusually reliant upon the ostensible subcontractor. All requirements of the contract are considered in reviewing such relationship, including contract management, technical responsibilities, and the percentage of subcontracted work. (4) For size purposes, a concern must include in its revenues its proportionate share of joint venture receipts. (g) Affiliation based on franchise and license agreements. The restraints imposed on a franchisee or licensee by its franchise or license agreement relating to standardized quality, advertising, accounting format and other similar provisions, generally will not be considered in determining whether the franchisor or licensor is affiliated with the franchisee or licensee provided the latter has the right to profit from its efforts and bears the risk of loss commensurate with ownership. Affiliation may arise, however, through other means, such as common ownership, common management or excessive restrictions upon the sale of the franchise interest. Sec. 121.104 How does SBA calculate annual receipts? (a) Definitions. In determining annual receipts of a concern: (1) Receipts is defined as gross or total income, plus cost of goods sold, as reported on a concern's Federal Income Tax return. However, the term receipts excludes net capital gains or losses, taxes collected for and remitted to a taxing authority if included in gross or total income, proceeds from the transactions between a concern and its domestic or foreign affiliates (if also excluded from gross or total income on a consolidated return filed with the IRS), and amounts collected for another by a travel agent, real estate agent, advertising agent, or conference management service provider. (2) Completed fiscal year means a taxable year including any short period. Taxable year and short period have the meaning attributed to them by the IRS. (3) Unless otherwise defined in this section, all terms shall have the meaning attributed to them by the IRS. (b) Period of measurement. (1) Annual receipts of a concern which has been in business for 3 or more completed fiscal years means the receipts of the concern over its last 3 completed fiscal years divided by three. (2) Annual receipts of a concern which has been in business for less than 3 complete fiscal years means the receipts for the period the concern has been in business divided by the number of weeks in business, multiplied by 52. (3) Annual receipts of a concern which has been in business 3 or more complete fiscal years but has a short year as one of those years means the receipts for the short year and the two full fiscal years divided by the number of weeks in the short year and the two full fiscal years, multiplied by 52. (c) Use of information other than the Federal tax return. Where other information gives SBA reason to regard Federal Income Tax returns as false, SBA may base its size determination on such other information. (d) Annual receipts of affiliates. (1) If a concern has acquired an affiliate or been acquired as an affiliate during the applicable averaging period or before small business self-certification, the annual receipts in determining size status include the receipts of both firms. Furthermore, this aggregation applies for the entire applicable period used in computing size rather than only for the period after the affiliation arose. Receipts are determined for the concern and its affiliates in accordance with paragraph (b) of this section even though this may result in different periods being used to calculate annual receipts. (2) The annual receipts of a former affiliate are not included as annual receipts if affiliation ceased before the date used for determining size. This exclusion of annual receipts of a former affiliate applies during the entire period used in computing size, rather than only for the period after which the affiliation ceased. Sec. 121.105 How does SBA define ``business concern or concern''? (a) 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, and which operates primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor. (b) A business concern may be in the legal form of an individual proprietorship, partnership, limited liability company, corporation, joint venture, association, trust or cooperative, except that where the form is a joint venture there can be no more than 49 percent participation by foreign business entities in the joint venture. (c) A firm will not be treated as a separate business concern if a substantial portion of its assets and/or liabilities are the same as those of a predecessor entity. In such a case, the annual receipts and employees of the predecessor will be taken into account in determining size. Sec. 121.106 How does SBA calculate number of employees? (a) Employees counted in determining size include all individuals employed on a full-time, part-time, temporary, or other basis. SBA will consider the totality of the circumstances, including factors relevant for tax purposes, in determining whether individuals are employees of the concern in question. (b) Where the size standard is number of employees, the method for determining a concern's size includes the following principles: (1) The average number of employees of the concern is used (including the employees of its domestic and foreign affiliates) based upon numbers of employees for each of the pay periods for the preceding completed 12 calendar months. (2) Part-time and temporary employees are counted the same as full- time employees. (3) If a concern has not been in business for 12 months, the average number of employees is used for each of the pay periods during which it has been in business. (4) The treatment of employees of former affiliates or recently acquired affiliates is the same as for size determinations using annual receipts in Sec. 121.104(d). Sec. 121.107 How does SBA determine a concern's ``primary industry''? In determining the primary industry in which a concern or a concern combined with its affiliates is engaged, SBA considers the distribution of receipts, employees and costs of doing business among the different industries in which business operations occurred for the most recently completed fiscal [[Page 57998]] year. SBA may also consider other factors, such as the distribution of patents, contract awards, and assets. Sec. 121.108 What are the penalties for misrepresentation of size status? In addition to other laws which may be applicable, section 16(d) of the Small Business Act, 15 U.S.C. 645(d), provides severe criminal penalties for knowingly misrepresenting the small business size status of a concern in connection with procurement programs. Section 16(a) of the Act also provides, in part, for criminal penalties for knowingly making false statements or misrepresentations to SBA for the purpose of influencing in any way the actions of the Agency. Size Standards Used to Define Small Business Concerns Sec. 121.201 What size standards has SBA identified by Standard Industrial Classification codes? The size standards described in this section apply to all SBA programs unless otherwise specified. The number of employees or annual receipts indicates the maximum allowed for a concern and its affiliates to be considered small. The following is a listing of size standards for industries under the SIC System. Size standards are listed by Division and apply to all industries in that Division except those specifically listed with separate size standards. Size Standards by SIC Industry ------------------------------------------------------------------------ Size standards in SIC code and description number of employees or millions of dollars ------------------------------------------------------------------------ DIVISION A--AGRICULTURE ------------------------------------------------------------------------ MAJOR GROUP 01--AGRICULTURAL PRODUCTION-CROPS.. 0.5 MAJOR GROUPS 02--LIVESTOCK AND ANIMAL 0.5 SPECIALTIES. EXCEPT: 0211 Beef Cattle Feedlots (Custom)........ 1.5 0252 Chicken Eggs......................... 9.0 MAJOR GROUP 07--AGRICULTURAL SERVICES.......... 5.0 MAJOR GROUP 08--FORESTRY....................... 5.0 MAJOR GROUP 09--FISHING, HUNTING, AND TRAPPING. 3.0 DIVISION B--MINING ------------------------------------------------------------------------ MAJOR GROUP 10--METAL MINING................... 500 MAJOR GROUP 12--COAL MINING.................... 500 MAJOR GROUP 13--OIL AND GAS EXTRACTION AND 500 MAJOR GROUP 14--MINING AND QUARRYING OF NONMETALLIC MINERALS, EXCEPT FUELS. EXCEPT: 1081 Metal Mining Services................ 5.0 1241 Coal Mining Services................. 5.0 1382 Oil and Gas Field Exploration 5.0 Services. 1389 Oil and Gas Field Services, N.E.C.... 5.0 DIVISION C--CONSTRUCTION ------------------------------------------------------------------------ MAJOR GROUP 15--GENERAL BUILDING CONTRACTORS... 17.0 MAJOR GROUP 16--HEAVY CONSTRUCTION, NON 17.0 BUILDING. EXCEPT: 1629 (Part) Dredging and Surface Cleanup 13.5 \1\ Activities. MAJOR GROUP 17--CONSTRUCTION--SPECIAL TRADE 7.0 CONTRACTORS. DIVISION D--MANUFACTURING \2\.................. 500 EXCEPT: 2032 Canned Specialties................... 1,000 2033 Canned Fruits, Vegetables, Preserves, 500 \3\ Jams and Jellies. 2043 Cereal Breakfast Foods............... 1,000 2046 Wet Corn Milling..................... 750 2052 Cookies and Crackers................. 750 2062 Cane Sugar Refining.................. 750 2063 Beet Sugar........................... 750 2076 Vegetable Oil Mills, Except Corn, 1,000 Cottonseed, and Soybean. 2079 Shortening, Table Oils, Margarine, 750 and Other Edible Fats and Oils, N.E.C. 2085 Distilled and Blended Liquors........ 750 2111 Cigarettes........................... 1,000 2211 Broadwoven Fabric Mills, Cotton...... 1,000 2261 Finishers of Broadwoven Fabrics of 1,000 Cotton. 2295 Coated Fabrics, Not Rubberized....... 1,000 2296 Tire Cord and Fabrics................ 1,000 2611 Pulp Mills........................... 750 2621 Paper Mills.......................... 750 2631 Paperboard Mills..................... 750 2656 Sanitary Food Containers, Except 750 Folding. 2657 Folding Paperboard Boxes, Including 750 Sanitary. [[Page 57999]] 2812 Alkalies and Chlorine................ 1,000 2813 Industrial Gases..................... 1,000 2816 Inorganic Pigments................... 1,000 2819 Industrial Inorganic Chemicals, N.E.C 1,000 2821 Plastics Materials, Synthetic Resins, 750 and Nonvulcanizable Elastomers. 2822 Synthetic Rubber (Vulcanizable 1,000 Elastomers). 2823 Cellulosic Manmade Fibers............ 1,000 2824 Manmade Organic Fibers, Except 1,000 Cellulosic. 2833 Medicinal Chemicals and Botanical 750 Products. 2834 Pharmaceutical Preparations.......... 750 2841 Soap and Other Detergents, Except 750 Specialty Cleaners. 2865 Cyclic Organic Crudes and 750 Intermediates, and Organic Dyes and Pigments. 2869 Industrial Organic Chemicals, N.E.C.. 1,000 2873 Nitrogenous Fertilizers.............. 1,000 2892 Explosives........................... 750 2911 Petroleum Refining................... 1,500 \4\ 2952 Asphalt Felts and Coatings........... 750 3011 Tires and Inner Tubes................ 1,000 \5\ 3021 Rubber and Plastics Footwear......... 1,000 3211 Flat Glass........................... 1,000 3221 Glass Containers..................... 750 3229 Pressed and Blown Glass and 750 Glassware, N.E.C. 3241 Cement, Hydraulic.................... 750 3261 Vitreous China Plumbing Fixtures and 750 China and Earthenware Fittings and Bathroom Accessories. 3275 Gypsum Products...................... 1,000 3292 Asbestos Products.................... 750 3296 Mineral Wool......................... 750 3297 Nonclay Refractories................. 750 3312 Steel Works, Blast Furnaces 1,000 (Including Coke Ovens), and Rolling Mills. 3313 Electrometallurgical Products, Except 750 Steel. 3315 Steel Wiredrawing and Steel Nails and 1,000 Spikes. 3316 Cold-Rolled Steel Sheet, Strip, and 1,000 Bars. 3317 Steel Pipe and Tubes................. 1,000 3331 Primary Smelting and Refining of 1,000 Copper. 3334 Primary Production of Aluminum....... 1,000 3339 Primary Smelting and Refining of 750 Nonferrous Metals, Except Copper and Aluminum. 3351 Rolling, Drawing, and Extruding of 750 Copper. 3353 Aluminum Sheet, Plate, and Foil...... 750 3354 Aluminum Extruded Products........... 750 3355 Aluminum Rolling and Drawing, N.E.C.. 750 3356 Rolling, Drawing, and Extruding of 750 Nonferrous Metals, Except Copper and Aluminum. 3357 Drawing and Insulating of Nonferrous 1,000 Wire. 3398 Metal Heat Treating.................. 750 3399 Primary Metal Products, N.E.C........ 750 3411 Metal Cans........................... 1,000 3431 Enameled Iron and Metal Sanitary Ware 750 3482 Small Arms Ammunition................ 1,000 3483 Ammunition, Except for Small Arms.... 1,500 3484 Small Arms........................... 1,000 3511 Steam, Gas, and Hydraulic Turbines, 1,000 and Turbine Generator Set Units. 3519 Internal Combustion Engines, N.E.C... 1,000 3531 Construction Machinery and Equipment. 750 3537 Industrial Trucks, Tractors, 750 Trailers, and Stackers. 3562 Ball and Roller Bearings............. 750 3571 Electronic Computers................. 1,000 3572 Computer Storage Devices............. 1,000 3575 Computer Terminals................... 1,000 3577 Computer Peripheral Equipment, N.E.C. 1,000 3578 Calculating and Accounting Machines, 1,000 Except Electronic Computers. 3585 Air-Conditioning and Warm Air Heating 750 Equipment and Commercial and Industrial Refrigeration Equipment. 3612 Power, Distribution, and Speciality 750 Transformers. 3613 Switchgear and Switchboard Apparatus. 750 3621 Motors and Generators................ 1,000 3624 Carbon and Graphite Products......... 750 3625 Relays and Industrial Controls....... 750 3631 Household Cooking Equipment.......... 750 3632 Household Refrigerators and Home and 1,000 Farm Freezers. 3633 Household Laundry Equipment.......... 1,000 [[Page 58000]] 3634 Electric Housewares and Fans......... 750 3635 Household Vacuum Cleaners............ 750 3641 Electric Lamp Bulbs and Tubes........ 1,000 3651 Household Audio and Video Equipment.. 750 3652 Phonograph Records and Prerecorded 750 Audio Tapes and Disks. 3661 Telephone and Telegraph Apparatus.... 1,000 3663 Radio and Television Broadcasting and 750 Communications Equipment. 3669 Communications Equipment, N.E.C...... 750 3671 Electron Tubes....................... 750 3692 Primary Batteries, Dry and Wet....... 1,000 3694 Electrical Equipment for Internal 750 Combustion Engines. 3695 Magnetic and Optical Recording Media. 1,000 3699 Electrical Machinery, Equipment, and 750 Supplies, N.E.C. 3711 Motor Vehicles and Passenger Car 1,000 Bodies. 3714 Motor Vehicle Parts and Accessories.. 750 3716 Motor Homes.......................... 1,000 3721 Aircraft............................. 1,500 3724 Aircraft Engines and Engine Parts.... 1,000 3728 Aircraft Parts and Auxiliary 1,000 \9\ Equipment, N.E.C. 3731 Shipbuilding and Repair of Nuclear 1,000 Propelled Ships. Shipbuilding of Nonnuclear Propelled 1,000 Ships and Nonpropelled Ships. Ship Repair (Including Overhauls and 1,000 Conversions) Performed on Nonnuclear Propelled and Nonpropelled Ships East of the 108 Meridian. Ships Repair (Including Overhauls and 1,000 Conversion) Performed on Nonnuclear Propelled and Nonpropelled Ships West of the 108 Meridian. 3743 Railroad Equipment................... 1,000 3761 Guided Missiles and Space Vehicles... 1,000 3764 Guided Missile and Space Vehicle 1,000 Propulsion Units and Propulsion Units Parts. 3769 Guided Missiles and Space Vehicle 1,000 Parts and Auxiliary Equipment, N.E.C. 3795 Tanks and Tank Components............ 1,000 3812 Search, Detection, Navigation, 750 Guidance, Aeronautical, and Nautical Systems and Instruments. 3996 Linoleum, Asphalted-Felt-Base, and 750 Other Hard Surface Floor Coverings, N.E.C. ================================================ DIVISION E--TRANSPORTATION, COMMUNICATIONS ELECTRIC, GAS, AND SANITARY SERVICES ------------------------------------------------------------------------ MAJOR GROUP 40--RAILROAD TRANSPORTATION........ 1500 EXCEPT: 4013 Railroad Switching and Terminal 500 Establishments. MAJOR GROUP 41--LOCAL AND SUBURBAN TRANSIT AND 5.0 INTERURBAN HIGHWAY AND PASSENGER TRANSPORTATION. MAJOR GROUP 42--MOTOR FREIGHT TRANSPORTATION 18.5 AND WAREHOUSING. EXCEPT: 4212 (Part) Garbage and Refuse Collection, 6.0 Without Disposal. 4231 Terminal and Joint Terminal 5.0 Maintenance Facilities for Motor Freight Transportation. MAJOR GROUP 44--WATER TRANSPORTATION........... 500 EXCEPT: 4491 Marine Cargo Handling................ 18.5 4492 Towing and Tugboat Services.......... 5.0 4493 Marinas.............................. 5.0 4499 Water Transportation Services, N.E.C. 5.0 Offshore Marine Water Transportation 20.5 Services. MAJOR GROUP 45--TRANSPORTATION BY AIR.......... 1500 EXCEPT: 4522 Air Transportation, Nonscheduled..... 1500 Offshore Marine Air Transportation 20.5 Services. 4581 Airports, Flying Fields, and Airport 5.0 Terminal Services. MAJOR GROUP 46--PIPELINES, EXCEPT NATURAL GAS.. 1500 EXCEPT: 4619 Pipelines, N.E.C..................... 25.0 MAJOR GROUP 47--TRANSPORTATION SERVICES........ 5.0 EXCEPT: 4724 Travel Agencies...................... 1.0 \6\ 4731 Arrangement of Transportation of 18.5 Freight and Cargo. 4783 Packing and Crating.................. 18.5 MAJOR GROUP 48--COMMUNICATIONS: 4812 Radiotelephone Communications........ 1,500 4813 Telephone Communications, Except 1,500 Radiotelephone. [[Page 58001]] 4822 Telegraph and Other Message 5.0 Communications. 4832 Radio Broadcasting Stations.......... 5.0 4833 Television Broadcasting Stations..... 10.5 4841 Cable and Other Pay Television 11.0 Services. 4899 Communications Services, N.E.C....... 11.0 MAJOR GROUP 49--ELECTRIC, GAS, AND SANITARY 5.0 SERVICES. EXCEPT: 4911 Electric Services.................... 4 million megawatt hrs. 4924 Natural Gas Distribution............. 500 4953 Refuse Systems....................... 6.0 4961 Steam and Air-Conditioning Supply.... 9.0 DIVISION F--WHOLESALE TRADE.................... 100 (Not Applicable to Government procurement of supplies. The nonmanufacturer size standard of 500 employees shall be used for purposes of Government procurement of supplies.) DIVISION G--RETAIL TRADE....................... 5.0 (Not Applicable to Government procurement of supplies. The nonmanufacturer size standard of 500 employees shall be used for purposes of Government procurement of supplies.) 5271 Mobile Home Dealers.................. 9.5 5311 Department Stores.................... 20.0 5331 Variety Stores....................... 8.0 5411 Grocery Stores....................... 20.0 5511 Motor Vehicle Dealers (New and Used). 21.0 5521 Motor Vehicle Dealers (Used Only).... 17.0 5541 Gasoline Service Stations............ 6.5 5599 Automobile Dealers, N.E.C............ 5.0 Aircraft Dealers, Retail............. 7.5 5611 Men's and Boy's Clothing and 6.5 Accessory Stores. 5621 Women's Clothing Stores.............. 6.5 5651 Family Clothing Stores............... 6.5 5661 Shoe Stores.......................... 6.5 5722 Household Appliance Stores........... 6.5 5731 Radio, Television, and Consumer 6.5 Electronics Stores. 5734 Computer and Computer Software Stores 6.5 5812 Food Service, Institutional.......... 15.0 5961 Catalog and Mail-Order Houses........ 18.5 5983 Fuel Oil Dealers..................... 9.0 DIVISION H--FINANCE, INSURANCE, AND REAL ESTATE 5.0 EXCEPT: 6021-6082 National and Commercial Banks, 100 Million in Savings, Institutions and Credit Unions. assets\7\ 6331 Fire, Marine, and Casualty Insurance. 1,500 6515 (Part) Leasing of Building Space to 15.0\8\ Federal Government by Owners. 6531 Real Estate Agents and Managers...... 1.5 \6\ DIVISION I--SERVICES........................... 5.0 EXCEPT: 7211 Power Laundries, Family and 10.5 Commercial. 7213 L [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A95-28449. Public record. Not legal advice.