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Proposed Rule

Small Business Size Standards: Educational Services

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Start Preamble

AGENCY:

U.S. Small Business Administration.

ACTION:

Proposed rule.

SUMMARY:

The U.S. Small Business Administration (SBA) proposes to increase small business size standards for nine industries in North American Industry Classification System (NAICS) Sector 61, Educational Services. As part of its ongoing comprehensive size standards review, SBA has evaluated all size standards in NAICS Sector 61 to determine whether the existing size standards should be retained or revised. This proposed rule is one of a series of proposals that will examine size standards of industries grouped by NAICS Sector. SBA issued a White Paper entitled “Size Standards Methodology” and published a notice in the October 21, 2009 issue of the Federal Register that “Size Standards Methodology” is available on its Web site at http://www.sba.gov/​size for public review and comments. The “Size Standards Methodology” White Paper explains how SBA establishes, reviews and modifies its receipts based and employee based small business size standards. In this proposed rule, SBA has applied its methodology that pertains to establishing, reviewing and modifying a receipts based size standard.

DATES:

SBA must receive comments to this proposed rule on or before January 17, 2012.

ADDRESSES:

You may submit comments, identified by RIN 3245-AG29 by one of the following methods: (1) Federal eRulemaking Portal: http://www.regulations.gov;​ follow the instructions for submitting comments; or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, Ph.D., Chief, Size Standards Division, 409 Third Street SW., Mail Code 6530, Washington, DC 20416. SBA will not accept comments to this proposed rule submitted by email.

SBA will post all comments to this proposed rule on http://www.regulations.gov. If you wish to submit confidential business information (CBI) as defined in the User Notice at http://www.regulations.gov, you must submit such information to U.S. Small Business Administration, Khem R. Sharma, Ph.D., Chief, Size Standards Division, 409 Third Street SW., Mail Code 6530, Washington, DC 20416, or send an email to sizestandards@sba.gov. You should highlight the information that you consider to be CBI and explain why you believe SBA should hold this information as confidential. SBA will review your information and determine whether it will make the information public or not.

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Khem R. Sharma, Ph.D., Chief, Size Standards Division, (202) 205-6618 or sizestandards@sba.gov.

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

To determine eligibility for Federal small business assistance, SBA establishes small business size definitions (referred to as size standards) for private sector industries in the United States. SBA uses two primary measures of business size: average annual receipts and average number of employees. SBA uses financial assets, electric output, and refining capacity to measure the size for a few specialized industries. In addition, SBA's Small Business Investment Company (SBIC), Certified Development Company (504) and 7(a) Loan Programs use either the industry based size standards or net worth and net income based size standards to determine eligibility for those programs. At the beginning of SBA's comprehensive size standards review, there were 41 different size standards, covering 1,141 NAICS industries and 18 Start Printed Page 70668sub-industry activities (“exceptions” in SBA's table of size standards). Thirty-one of these size levels were based on average annual receipts, seven were based on average number of employees, and three were based on other measures. In addition, SBA has established 11 other size standards for its financial and procurement programs.

Over the years, SBA has received comments that its size standards have not kept up with changes in the economy, in particular the changes in the Federal contracting marketplace and industry structure. The last time SBA conducted a comprehensive review of size standards was during the late 1970s and early 1980s. Since then, most reviews of size standards have been limited to in-depth analyses of specific industries in response to requests from the public and Federal agencies. SBA also makes periodic inflation adjustments to its monetary based size standards. SBA's latest inflation adjustment to size standards was published in the Federal Register on July 18, 2008 (73 FR 41237).

Because of changes in the Federal marketplace and industry structure since the last overall review, SBA recognizes that current data may no longer support some of its existing size standards. Accordingly, in 2007, SBA began a comprehensive review of all size standards to determine if they are consistent with current data, and to adjust them when necessary. In addition, on September 27, 2010, the President of the United States signed the Small Business Jobs Act of 2010 (Jobs Act). The Jobs Act directs SBA to conduct a detailed review of all size standards and to make appropriate adjustments to reflect market conditions. Specifically, the Jobs Act requires SBA to conduct a detailed review of at least one-third of all size standards during every 18-month period from the date of its enactment. In addition, the Jobs Act requires that SBA conduct a review of all size standards not less frequently than once every 5 years thereafter. Reviewing existing small business size standards and making appropriate adjustments based on current data are also consistent with Executive Order 13563 on improving regulation and regulatory review.

Rather than review all size standards at one time, SBA has adopted a more manageable approach of reviewing a group of industries within an NAICS Sector. An NAICS Sector generally consists of 25 to 75 industries, except for the manufacturing sector, which has considerably more. Once SBA completes its review of size standards for industries in an NAICS Sector, it will issue a proposed rule to revise size standards for those industries for which currently available data and other relevant factors support doing so.

Below is a discussion of SBA's size standards methodology for establishing receipts based size standards, which SBA applied to this proposed rule, including analyses of industry structure, Federal procurement trends and other factors for industries reviewed in this proposed rule, the impact of the proposed revisions to size standards on Federal small business assistance, and the evaluation of whether a revised size standard would exclude dominant firms from being considered small.

Size Standards Methodology

SBA has developed a “Size Standards Methodology” for developing, reviewing and modifying size standards when necessary. SBA has published the document on its Web site at http://www.sba.gov/​size for public review and comments and included it, as a supporting document, in the electronic docket for this proposed rule at http://www.regulations.gov. SBA does not apply all features of its “Size Standards Methodology” to all industries because not all are appropriate. For example, since this proposed rule covers all industries with receipts based size standards in NAICS Sector 61, the methodology described here applies to establishing receipts based standards. However, the methodology is made available in its entirety for parties who have an interest in SBA's overall approach to establishing, evaluating and modifying small business size standards. SBA always explains its analysis in individual proposed and final rules relating to size standards for specific industries.

SBA welcomes comments from the public on a number of issues that it raises in its “Size Standards Methodology,” such as suggestions on alternative approaches to establishing and modifying size standards, whether there are alternative or additional factors that SBA should consider, whether SBA's approach to small business size standards makes sense in the current economic environment, whether SBA's use of anchor size standards is appropriate in the current economy, whether there are gaps in SBA's methodology because of the lack of comprehensive data, and whether there are other facts or issues that SBA should consider. Comments on SBA's methodology should be submitted via (1) The Federal eRulemaking Portal: http://www.regulations.gov;​ the docket number is SBA-2009-0008; follow the instructions for submitting comments; or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, Ph.D., Chief, Size Standards Division, 409 Third Street SW., Mail Code 6530, Washington, DC 20416. As with comments received to this and other proposed rules, SBA will post all comments on its methodology on http://www.regulations.gov. As of November 15, 2011, SBA has received seven comments to its “Size Standards Methodology.” The comments are available to the public at http://www.regulations.gov. SBA continues to welcome comments on its methodology from interested parties.

Congress granted SBA's Administrator discretion to establish detailed small business size standards. 15 U.S.C. 632(a)(2). Section 3(a)(3) of the Small Business Act (15 U.S.C. 632(a)(3)) requires that “* * * the [SBA] Administrator shall ensure that the size standard varies from industry to industry to the extent necessary to reflect the differing characteristics of the various industries and consider other factors deemed to be relevant by the Administrator.” Accordingly, the economic structure of an industry is the basis for developing and modifying small business size standards. SBA identifies the small business segment of an industry by examining data on the economic characteristics defining the industry structure itself (as described below). In addition to analyzing an industry's structure when it establishes small business size standards, SBA considers current economic conditions, together with its own mission, program objectives, and the Administration's current policies, suggestions from industry groups and Federal agencies, and public comments on the proposed rule. SBA also examines whether a size standard based on industry and other relevant data successfully excludes businesses that are dominant in the industry. This proposed rule affords the public an opportunity to review and comment on SBA's proposals to revise size standards in NAICS Sector 61, as well as on the data and methodology it uses to evaluate and revise a size standard.

Industry Analysis

For the current comprehensive size standards review, SBA has established three “base” or “anchor” size standards: $7 million in average annual receipts for industries that have receipts based size standards, 500 employees for manufacturing and other industries that have employee based size standards (except for Wholesale Trade), and 100 employees for industries in the Wholesale Trade Sector. SBA established 500 employees as the anchor Start Printed Page 70669size standard for manufacturing industries at its inception in 1953. Shortly thereafter SBA established $1 million in average annual receipts as the anchor size standard for nonmanufacturing industries. SBA has periodically increased the receipts based anchor size standard for inflation, and it stands today at $7 million. Since 1986, the size standard for all industries in the Wholesale Trade Sector has been 100 employees for SBA financial assistance and for most other Federal programs. However, NAICS codes for Wholesale Trade Industries (NAICS Sector 42) and their 100 employee size standards do not apply to Federal procurement programs. Rather, for Federal procurement the size standard for all industries in Wholesale Trade and for all industries in Retail Trade (NAICS Sector 44-45) is 500 employees under SBA's nonmanufacturer rule (13 CFR 121.406(b)).

These long-standing anchor size standards have stood the test of time and gained legitimacy through practice and general public acceptance. An anchor size standard is neither a minimum nor a maximum. It is a common size standard for a large number of industries that have similar economic characteristics and serves as a reference point in evaluating size standards for individual industries. SBA uses the anchor in lieu of trying to establish precise small business size standards for each industry. Otherwise, theoretically, the number of size standards might be as high as the number of industries for which SBA establishes size standards (1,141). Furthermore, the data SBA analyzes are static, while the U.S. economy is not. Hence, absolute precision is impossible. Therefore, SBA presumes an anchor size standard is appropriate for a particular industry unless that industry displays economic characteristics that are considerably different from others with the same anchor size standard.

When evaluating a size standard, SBA compares the economic characteristics of the specific industry under review to the average characteristics of industries with one of the three anchor size standards (referred to as “anchor comparison group”). This allows SBA to assess the industry structure and to determine whether the industry is appreciably different from the other industries in the anchor comparison group. If the characteristics of a specific industry under review are similar to the average characteristics of the anchor comparison group, the anchor size standard is considered appropriate for that industry. SBA may consider adopting a size standard below the anchor when (1) All or most of the industry characteristics are significantly smaller than the average characteristics of the anchor comparison group or (2) other industry considerations strongly suggest that the anchor size standard would be an unreasonably high size standard for the industry.

If the specific industry's characteristics are significantly higher than those of the anchor comparison group, then a size standard higher than the anchor size standard may be appropriate. The larger the differences are between the characteristics of the industry under review and those in the anchor comparison group, the larger will be the difference between the appropriate industry size standard and the anchor size standard. To determine a size standard above the anchor size standard, SBA analyzes the characteristics of a second comparison group. For industries with receipts based size standards, including those in NAICS Sector 61 that are reviewed in this proposed rule, SBA has developed a second comparison group consisting of industries with the highest levels of receipts based size standards. To determine the level of a size standard above the anchor size standard, SBA analyzes the characteristics of this second comparison group. The size standards for this group of industries range from $23 million to $35.5 million in average annual receipts, with the weighted average size standard for the group being $29 million. SBA refers to this comparison group as the “higher level receipts based size standard group.”

The primary factors that SBA evaluates when analyzing the structural characteristics of an industry include average firm size, startup costs and entry barriers, industry competition, and distribution of firms by size. SBA also evaluates, as an additional primary factor, the impact that revising size standards might have on Federal contracting assistance to small businesses. These are, generally, the five most important factors SBA examines when establishing or revising a size standard for an industry. In addition, SBA considers and evaluates other information that it believes is relevant to a particular industry (such as technological changes, growth trends, SBA financial assistance and other program factors, etc.). The SBA also considers impacts of size standard revisions on eligibility for Federal small business assistance, current economic conditions, the Administration's policies, and suggestions from industry groups and Federal agencies. Public comments on a proposed rule also provide important additional information. SBA thoroughly reviews all public comments before making a final decision on its proposed size standards. Below are brief descriptions of each of the five primary factors that SBA has evaluated for each industry in NAICS Sector 61 being reviewed in this proposed rule. A more detailed description of this analysis is provided in SBA “Size Standards Methodology,” available at http://www.sba.gov/​size.

1. Average firm size. SBA computes two measures of average firm size: Simple average and weighted average. For industries with receipts based size standards, the simple average is the total receipts of the industry divided by the total number of firms in the industry. The weighted average firm size is the sum of weighted simple averages in different receipts size classes, where weights are the shares of total industry receipts for respective size classes. The simple average weighs all firms within an industry equally, regardless of their size. The weighted average overcomes that limitation by giving more weight to larger firms.

If the average firm size of an industry under review is significantly higher than the average firm size of industries in the anchor comparison industry group, this will generally support a size standard higher than the anchor size standard. Conversely, if the industry's average firm size is similar to or significantly lower than that of the anchor comparison industry group, it will be a basis to adopt the anchor size standard, or in rare cases, a standard lower than the anchor.

2. Startup costs and entry barriers. Startup costs reflect a firm's initial size in an industry. New entrants to an industry must have sufficient capital and other assets to start and maintain a viable business. If new firms entering a particular industry have greater capital requirements than firms in industries in the anchor comparison group, this can be a basis for establishing a size standard higher than the anchor standard. In lieu of data on actual startup costs, SBA uses average assets as a proxy to measure the capital requirements for new entrants to an industry.

To calculate average assets, SBA begins with the total sales to total assets ratio for an industry from the Risk Management Association's Annual Statement Studies. SBA then applies these ratios to the average receipts of firms in that industry. An industry with average assets that are significantly higher than those of the anchor comparison group is likely to have higher startup costs; this in turn will Start Printed Page 70670support a size standard higher than the anchor. Conversely, an industry with average assets that are similar to or significantly lower than those of the anchor comparison group is likely to have lower startup costs; this in turn will support adoption of the anchor size standard, or in rare cases, one lower than the anchor.

3. Industry competition. Industry competition is generally measured by the share of total industry receipts generated by the largest firms in an industry. SBA generally evaluates the share of industry receipts generated by the four largest firms in each industry. This is referred to as the “four-firm concentration ratio,” a commonly used economic measure of market competition. SBA compares the four-firm concentration ratio for an industry under review to the average four-firm concentration ratio for industries in the anchor comparison group. If a significant share of economic activity within the industry is concentrated among a few relatively large companies, all else being equal, SBA will establish a size standard higher than the anchor size standard. SBA does not consider the four-firm concentration ratio as an important factor in assessing a size standard if its value for an industry under review is less than 40 percent. For industries in which the four-firm concentration ratio is 40 percent or more, SBA examines the average size of the four largest firms in determining a size standard.

4. Distribution of firms by size. SBA examines the shares of industry total receipts accounted for by firms of different receipts and employment size classes in an industry. This is an additional factor SBA evaluates in assessing competition within an industry. If most of an industry's economic activity is attributable to smaller firms, this indicates that small businesses are competitive in that industry. This supports adopting the anchor size standard. If most of an industry's economic activity is attributable to larger firms, this indicates that small businesses are not competitive in that industry. This will support adopting a size standard above the anchor.

Concentration is a measure of inequality of distribution. To determine the degree of inequality of distribution in an industry, SBA computes the Gini coefficient, using the Lorenz curve. The Lorenz curve presents the cumulative percentages of units (firms) along the horizontal axis and the cumulative percentages of receipts (or other measures of size) along the vertical axis. (For further detail, please refer to SBA's “Size Standards Methodology” on SBA's Web site at http://www.sba.gov/​size.) Gini coefficient values vary from zero to one. If receipts are distributed equally among all the firms in an industry, the value of the Gini coefficient will equal zero. If an industry's total receipts are attributed to a single firm, the Gini coefficient will equal one.

SBA compares the Gini coefficient value for an industry under review with that for industries in the anchor comparison group. If an industry shows a higher Gini coefficient value than industries in the anchor comparison industry group this may, all else being equal, warrant a higher size standard than the anchor. Conversely, if an industry's Gini coefficient is similar to or lower than that for the anchor group, the anchor standard, or in some cases a standard lower than the anchor, may be adopted.

5. Impact on Federal contracting and SBA loan programs. SBA examines the impact a size standard change may have on Federal small business assistance. This most often focuses on the share of Federal contracting dollars awarded to small businesses in the industry in question. In general, if the small business share of Federal contracting in an industry with significant Federal contracting is appreciably less than the small business share of the industry's total receipts, there is justification for considering a size standard higher than the existing size standard. The disparity between the small business Federal market share and the industry-wide small business share may have a variety of causes, such as extensive administrative and compliance requirements associated with Federal contracts, different skill set requirements for Federal contracts as compared to typical commercial contracting work, and the size of Federal contracts. These, as well as other factors, are likely to influence the type of firms within an industry that compete for Federal contracts. By comparing the Federal contracting small business share with the industry-wide small business share, SBA includes in its size standards analysis the latest Federal contracting trends. This analysis may indicate a size standard larger than the current standard.

SBA considers Federal procurement trends in the size standards analysis only if (1) The small business share of Federal contracting dollars is at least 10 percent lower than the small business share of total industry receipts and (2) total Federal contracting averages $100 million or more during the latest three fiscal years. These thresholds reflect a significant level of contracting where a revision to a size standard may have an impact on expanding small business opportunities.

Besides the impact on small business Federal contracting, SBA also evaluates the impact of a proposed size standard on SBA's loan programs. For this, SBA examines the volume of SBA guaranteed loans within an industry and the size of firms obtaining those loans. This allows SBA to assess whether the existing or the proposed size standard for a particular industry may restrict the level of financial assistance to small firms. If the analysis shows that the current size standards have impeded financial assistance to small businesses, higher size standards are supportable. However, if under current size standards small businesses have been receiving significant amounts of financial assistance through SBA's loan programs, or if the financial assistance has been provided mainly to businesses that are much smaller than the existing size standard, this factor is not considered for determining the size standard.

Sources of Industry and Program Data

SBA's primary source of industry data for most industries covered by this proposed rule was a special tabulation of the data from 2007 Economic Census (see http://www.census.gov/​econ/​census07/​) prepared by the U.S. Bureau of the Census (Census Bureau) for SBA. The three industries, namely NAICS 611110, NAICS 611210, and NAICS 611310, are not covered by the Economic Census. The data for these industries were based on the 2007 County Business Patterns (see http://www.census.gov/​econ/​cbp/​). The special tabulation provides SBA with data on the number of firms, number of establishments, number of employees, annual payroll, and annual receipts of companies by NAICS Sector (2-digit level), Subsector (3-digit level), Industry Group (4-digit level), Industry (6-digit level). These data are arrayed by various classes of firms' size based on the overall number of employees and receipts of the entire enterprise (all establishments and affiliated firms) from all industries. The special tabulation enables SBA to evaluate average firm size, the four-firm concentration ratio, and distribution of firms by receipts and employment size.

In some cases, where data were not available due to disclosure prohibitions, SBA either estimated missing values using available relevant data or examined data at a higher level of industry aggregation, such as at the NAICS 2-digit (Sector), 3-digit Start Printed Page 70671(Subsector), or 4-digit (Industry Group) level. In some instances, SBA analysis was based only on those factors for which data were available or estimates of missing values were possible.

The data from the Census Bureau's tabulation are limited to the 6-digit NAICS industry level and hence do not provide economic characteristics at the sub-industry level. Thus, when establishing, reviewing, or modifying size standards at the sub-industry level (that is, one of the “exceptions” in SBA's table of size standards), SBA evaluates the data from the U.S. General Service Administration's (GSA) Federal Procurement Data System—Next Generation (FPDS-NG) and Central Contractor Registration (CCR) databases following a two-step procedure. First, using FPDS-NG, SBA identifies product service codes (PSCs) that correspond to specific sub-industry activities or “exceptions” and then identifies firms that are active in Federal contracting involving those PSCs. Then, SBA obtains those firms' revenue and employment data from the CCR database. SBA uses that data to evaluate the actual size of businesses that FPDS-NG identifies for those procurements. In this proposed rule, SBA applied this approach to determine industry and Federal contracting factors for “Job Corps Centers,” which is an exception under NAICS 611519, Other Technical and Trade Schools.

To calculate average assets, SBA used total sales to total assets ratios from the Risk Management Association's Annual Statement Studies from years 2007 to 2009.

To evaluate Federal contracting trends, SBA examined data on Federal contract awards for fiscal years 2007 to 2009. The data are available from the GSA's FPDS-NG database.

To assess the impact on financial assistance to small businesses, SBA examined data on its own guaranteed loan programs for fiscal years 2008 to 2010.

Data sources and estimation procedures that SBA uses in its size standards analysis are documented in detail in the SBA's “Size Standards Methodology” White Paper, which is available at http://www.sba.gov/​size.

Dominance in Field of Operation

Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a small business concern as one that is (1) Independently owned and operated, (2) not dominant in its field of operation, and (3) within a specific small business size definition or size standard established by the SBA Administrator. SBA considers as part of its evaluation whether a business concern at a proposed size standard would be dominant in its field of operation. For this, SBA generally examines the industry's market share of firms at the proposed standard. Market share and other factors may indicate whether a firm can exercise a major controlling influence on a national basis in an industry where a significant number of business concerns are engaged. If a contemplated size standard includes a dominant firm, SBA will consider a lower size standard to exclude the dominant firm from being defined as small.

Selection of Size Standards

To simplify size standards, for the ongoing comprehensive review of receipts based size standards, SBA has proposed to select size standards from a limited number of levels. For many years, SBA has been concerned about the complexity of determining small business status caused by a large number of varying receipts based size standards (see 69 FR 13130 (March 4, 2004) and 57 FR 62515 (December 31, 1992)). At the beginning of the current comprehensive size standards review, there were 31 different levels of receipts based size standards. They ranged from $0.75 million to $35.5 million, and many of them applied to one or only a few industries. SBA believes that size standards with such a large number of small variations among them are both unnecessary and difficult to justify analytically. To simplify managing and using size standards, SBA proposes that there be fewer size standard levels. This will produce more common size standards for businesses operating in related industries. This will also result in greater consistency among the size standards for industries that have similar economic characteristics.

SBA proposes, therefore, to apply one of eight receipts based size standards to each industry in NAICS Sector 61. All size standards in NAICS Sector 61 are based on annual receipts. The eight “fixed” receipts based size standard levels are $5 million, $7 million, $10 million, $14 million, $19 million, $25.5 million, $30 million, and $35.5 million. To establish these eight receipts based size standard levels SBA considered the current minimum, the current maximum, and the most commonly used current receipts based size standards. Currently, the most commonly used receipts based size standards cluster around the following: $2.5 million to $4.5 million, $7 million, $9 million to $10 million, $12.5 million to $14 million, $25 million to $25.5 million, and $33.5 million to $35.5 million. SBA selected $7 million as one of eight fixed levels of receipts based size standards because it is an anchor standard for receipts based standards. The lowest or minimum receipts based size level will be $5 million. Other than the standards for agriculture and those based on commissions (such as real estate brokers and travel agents), $5 million will include those industries that at the start of the comprehensive size standards review had the lowest receipts based standards, which ranged from $2 million to $4.5 million. Among the higher level size clusters, SBA has set four fixed levels, namely: $10 million, $14 million, $25.5 million, and $35.5 million. Because there are large intervals between some of the fixed levels, SBA also established two intermediate levels, namely $19 million between $14 million and $25.5 million, and $30 million between $25.5 million and $35.5 million. These two intermediate levels reflect roughly the same proportional differences as between the other two successive levels.

Evaluation of Industry Structure

SBA evaluated the structure of each of the 17 industries and one sub-industry in NAICS Sector 61, Educational Services, to assess the appropriateness of the current size standards. As described above, SBA compared data on the economic characteristics of each industry in NAICS Sector 61 to the average characteristics of industries in two comparison groups. The first comparison group consists of all industries with $7 million size standards and is referred to as the “receipts based anchor comparison group.” Because the goal of SBA's size standards review is to assess whether a specific industry's size standard should be the same as or different from the anchor size standard, this is the most logical group of industries to analyze. In addition, this group includes a sufficient number of firms to provide a meaningful assessment and comparison of industry characteristics.

If the characteristics of an industry under review are similar to the average characteristics of industries in the anchor comparison group, the anchor size standard is generally considered appropriate for that industry. If an industry's structure is significantly different from industries in the anchor group, a size standard lower or higher than the anchor size standard might be selected. The level of the new size standard is based on the difference between the characteristics of the anchor comparison group and a second industry comparison group. As described above, the second comparison Start Printed Page 70672group for receipts based standards consists of industries with the highest receipts based size standards, ranging from $23 million to $35.5 million. The average size standard for this group is $29 million. SBA refers to this group of industries as the “higher level receipts based size standard comparison group.” SBA determines differences in industry structure between an industry under review and the industries in the two comparison groups by comparing data on each of the industry factors, including average firm size, average assets size, the four-firm concentration ratio, and the Gini coefficient of distribution of firms by size. Table 1 shows two measures of the average firm size (simple and weighted), average assets size, the four-firm concentration ratio, average receipts of the four largest firms, and the Gini coefficient for both anchor level and higher level comparison groups for receipts based size standards.

Table 1—Average Characteristics of Receipts Based Comparison Groups

Receipts based comparison groupAverage firm size ($ million)Average assets size ($ million)Four-firm concentration ratio (%)*Average receipts of four largest firms ($ million)*Gini coefficient
Simple averageWeighted average
Anchor Level1.3219.630.8416.6196.40.693
Higher Level5.07116.843.2032.11,376.00.830
* To be used for industries with a four-firm concentration ratio of 40% or greater.

Derivation of Size Standards Based on Industry Factors

For each industry factor in Table 1, SBA derives a separate size standard based on the differences between the values for an industry under review and the values for the two comparison groups. If the industry value for a particular factor is near the corresponding factor for the anchor comparison group, SBA will consider the $7 million anchor size standard appropriate for that factor.

An industry factor significantly above or below the anchor comparison group will generally warrant a size standard for that industry above or below the $7 million anchor. The level of the new size standard in these cases is based on the proportional difference between the industry value and the values for the two comparison groups.

For example, if an industry's simple average receipts are $3.3 million, that would support a $19 million size standard. The $3.3 million level is 52.8 percent between the average firm size of $1.32 million for the anchor comparison group and $5.07 million for the higher level comparison group (($3.30 million−$1.32 million) ÷ ($5.07 million−$1.32 million) = 0.528 or 52.8%). This proportional difference is applied to the difference between the $7 million anchor size standard and average size standard of $29 million for the higher level size standard group and then added to $7 million to estimate a size standard of $18.62 million ([{$29.0 million−$7.0 million} * 0.528] + $7.0 million = $18.62 million). The final step is to round the estimated $18.62 million size standard to the nearest fixed size standard, which in this example is $19 million. SBA applies the above calculation to derive a size standard for each industry factor. Detailed formulas involved in these calculations are presented in SBA's “Size Standards Methodology,” which is available on its Web site at http://www.sba.gov/​size. (However, it should be noted that the figures in the “Size Standards Methodology” White Paper are based on 2002 Economic Census data and are different from those presented in this proposed rule. That is because when SBA prepared its “Size Standards Methodology,” the 2007 Economic Census data were not yet available). Table 2 (below) shows ranges of values for each industry factor and the levels of size standards supported by those values.

Table 2—Values of Industry Factors and Supported Size Standards

If simple average receipts size is ($ million)Or if weighted average receipts size is ($ million)Or if average assets size is ($ million)Or if average receipts of largest four firms is ($ million)Or if Gini coefficient isThen size standard is ($ million)
< 1.15< 15.22< 0.73< 142.8< 0.6865.0
1.15 to 1.5715.22 to 26.260.73 to 1.00142.8 to 276.90.686 to 0.7027.0
1.58 to 2.1726.27 to 41.731.01 to 1.37277.0 to 464.50.703 to 0.72410.0
2.18 to 2.9441.74 to 61.611.38 to 1.86464.6 to 705.80.725 to 0.75214.0
2.95 to 3.9261.62 to 87.021.87 to 2.48705.9 to 1,014.10.753 to 0.78819.0
3.93 to 4.8687.03 to 111.322.49 to 3.071,014.2 to 1,309.00.789 to 0.82225.5
4.87 to 5.71111.33 to 133.413.08 to 3.611,309.1 to 1,577.10.823 to 0.85330.0
> 5.71> 133.41> 3.61> 1,577.1> 0.85335.5

Derivation of Size Standard Based on Federal Contracting Factor

Besides industry structure, SBA also evaluates Federal contracting data to assess how successful small businesses are in getting Federal contracts under existing size standards. For the current comprehensive size standards review, for industries where the small business share of total Federal contracting dollars is between 10 and 30 percent lower than their shares in total industry receipts, SBA has designated a size standard at one level higher than their current size standard. For industries where the small business share of total Federal contracting dollars is more than 30 percent lower than their shares in total industry receipts, SBA has designated a size standard at two levels higher than the current size standard.

Because of the complex relationships among a number of variables affecting small business participation in the Start Printed Page 70673Federal marketplace, SBA has chosen not to designate a size standard for the Federal contracting factor alone that is more than two levels above the current size standard. SBA believes that a larger adjustment to size standards based on Federal contracting activity should be based on a more detailed analysis of the impact of any subsequent revision to the current size standard. In limited situations, however, SBA may conduct a more extensive examination of Federal contracting experience. This may enable SBA to support a different size standard than indicated by this general rule and take into consideration significant and unique aspects of small business competitiveness in the Federal contract market. SBA welcomes comments on its methodology for incorporating the Federal contracting factor in the size standard analysis and suggestions for alternative methods and other relevant information on small business experience in the Federal contract market.

Of the 17 industries reviewed in this proposed rule, seven industries averaged $100 million or more annually in Federal contracting during fiscal years 2007 to 2009. Also, a review of Federal contracts awarded to the sub-industry Job Corps Centers during fiscal year 2009 indicates that the sub-industry received more than $100 million in Federal contracts as well. The Federal contracting factor was significant (i.e., the difference between the small business share of total industry receipts and the small business share of Federal contracting dollars was 10 percentage points or more) in three of those seven industries and a separate size standard was derived for that factor for each of them.

New Size Standards Based on Industry and Federal Contracting Factors

Table 3 shows the results of analyses of industry and Federal contracting factors for each industry covered by this proposed rule. Many of the NAICS industries in columns 2, 3, 4, 6, 7, and 8 show two numbers. The upper number is the value for the industry or Federal contracting factor shown on the top of the column, and the lower number is the size standard supported by that factor. For the four-firm concentration ratio, SBA estimates a size standard if its value is 40 percent or more. If the four-firm concentration ratio for an industry is less than 40 percent, there is no size standard estimated for that factor. If the four-firm concentration ratio is more than 40 percent, SBA indicates in column 6 the average size of the industry's top four firms together with a size standard based on that average. Column 9 shows a calculated new size standard for each industry. This is the average of the size standards supported by each factor and rounded to the nearest fixed size level. Analytical details involved in the averaging procedure are described in SBA “Size Standard Methodology.” For comparison with the new standards, the current size standards are in column 10 of Table 3.

Table 3—Size Standards Supported by Each Factor for Each Industry

[Millions of dollars]

(1) NAICS code/ NAICS industry title(2) Simple average firm size ($ million)(3) Weighted average firm size ($ million)(4) Average assets size ($ million)(5) Four-firm ratio (%)(6) Four-firm average size ($ million)(7) Gini coefficient(8) Federal contract factor (%)(9) Calculated size standard ($ million)(10) Current size standard ($ million)
611110—Elementary and Secondary Schools$3.3$14.71.7$259.30.668$10.0$7.0
19.05.0$5.0
611210—Junior Colleges14.962.025.4443.40.73519.07.0
35.519.0$14.0
611310—Colleges, Universities and Professional Schools67.5324.39.63,959.40.7790.825.57.0
35.535.5$19.0
611410—Business and Secretarial Schools1.36.219.820.20.6687.07.0
7.05.0$5.0
611420—Computer Training1.211.317.0104.50.74123.310.07.0
7.05.0$14.0
611430—Professional and Management Development Training1.312.80.99.9178.20.739−17.710.07.0
7.05.07.0$14.0$10.0
611511—Cosmetology and Barber Schools0.86.411.735.00.5465.07.0
5.05.0$5.0
611512—Flight Training2.656.952.0282.00.836−17.319.025.5
14.014.010.0$30.0$30.0
611513—Apprenticeship Training1.05.710.231.90.6125.07.0
5.05.0$5.0
611519—Other Technical and Trade Schools1.819.41.217.8267.40.778−13.814.07.0
10.07.010.0$19.0$10.0
Except—Job Corps Centers585.81,907.394.02,891.20.69020.030.035.5
35.535.535.5$7.0
611610—Fine Arts Schools0.31.70.13.226.30.3255.07.0
5.05.05.0$5.0
611620—Sports and Recreation Instruction0.31.54.036.80.3275.07.0
5.05.0$5.0
611630—Language Schools0.752.831.166.70.70410.07.0
5.014.0$10.0
611691—Exam Preparation and Tutoring0.643.929.5259.10.6427.07.0
5.014.0$5.0
611692—Automobile Driving Schools0.32.28.613.80.3705.07.0
Start Printed Page 70674
5.05.0$5.0
611699—All Other Miscellaneous Schools and Instruction1.021.50.727.1242.40.7583.210.07.0
5.07.07.0$19.0
611710—Educational Support Services1.539.21.221.2467.10.811−5.114.07.0
7.010.010.0$25.5

Special Considerations

Job Corps Centers

The current size standard for Federal contracts for Job Corps Centers (“exception” to NAICS code 611519) is $35.5 million in average annual receipts. For Federal procurement programs, this size standard applies to Federal contracts that meet specific criteria. The criteria that constitute a Jobs Corps Center contract or company are detailed in Footnote 16 to SBA's table of size standards (13 CFR 121.201): “For classifying a Federal Procurement, the purpose of the solicitation must be for the management and operation of a U.S. Department of Labor Job Corps Centers. The activities involved include admissions activities, life skills training, educational activities, comprehensive career preparation activities, career development activities, career transition activities, as well as the management and support functions and services needed to operate and maintain the facility. For SBA assistance as a small business concern, other than for Federal Government procurements, a concern must be primarily engaged in providing the services to operate and maintain Federal Job Corps Centers.”

To determine if the current $35.5 million size standard is appropriate, SBA evaluated average firm size, market concentration, and size distribution of firms involved in the Job Corps Centers sub-industry using the data from FPDS-NG and CCR and the procedure described under the section of this rule entitled “Sources of Industry and Program Data.” Based on the data for fiscal year 2009, Federal contracts averaged more than $100 million annually, but the small business share of Federal contracting dollars was larger than the small business share of total receipts. Therefore, the Federal contracting factor was not important for the evaluation of this sub-industry. The results, as shown in Table 3, support decreasing the current size standard to $30 million. However, for reasons discussed below, SBA has proposed to retain the $35.5 million size standard.

Evaluation of SBA Loan Data

Before deciding on an industry's size standard, SBA also considers the impact of new or revised standards on SBA's loan programs. Accordingly, SBA examined its 7(a) and 504 Loan Program data for fiscal years 2008 to 2010 to assess whether the existing or proposed size standards need further adjustments to ensure credit opportunities for small businesses through those programs. For the industries reviewed, the data show that it is mostly businesses much smaller than the current size standards that utilize SBA's 7(a) and 504 loans. Therefore, no size standard in NAICS Sector 61, Educational Services, needs an adjustment based on this factor.

Proposed Changes to Size Standards

Table 4 (below) summarizes the results of SBA analyses of industry and federal procurement factors from Table 3. The results support increases in size standards for nine industries, decreases for six industries and one sub-industry (exception to NAICS 611519, Job Corps Centers), and no changes for two industries.

However, lowering small business size standards is not in the best interests of small businesses under the current economic environment. The U.S. economy was in recession from December 2007 to June 2009, the longest and deepest of any recessions since World War II. The economy lost more than eight million non-farm jobs during 2008-2009. In response, Congress passed and the President signed the American Recovery and Reinvestment Act of 2009 (Recovery Act) to promote economic recovery and to preserve and create jobs. Although the recession officially ended in June 2009, the unemployment rate was 9.4 percent or higher from May 2009 to December 2010. It somewhat moderated to 8.8 percent in March 2011, but it has been 9 percent or higher for the May-July quarter. The unemployment rate is forecast to remain at around 9 percent through the end of 2011. More recently, Congress passed and the President signed the Small Business Jobs Act of 2010 (Jobs Act) to promote small business job creation. The Jobs Act puts more capital into the hands of entrepreneurs and small business owners; includes recommendations from the President's Task Force on Federal Contracting Opportunities for Small Business that strengthens small businesses' ability to compete for contracts and creates a better playing field for small businesses; building on the President's National Export Initiative, promotes small business exporting; expands training and counseling for small businesses; and provides $12 billion in tax relief to help small businesses invest in their firms and create jobs.

Reducing the size standard for Job Corps Centers (the exception to NAICS 511619) would result in significant jobs losses in that industry, and it would adversely affect those unemployed and underemployed people that Job Corps Centers serve. This is another reason why SBA is not lowering the size standard for this industry.Start Printed Page 70675

Table 4—Summary of Size Standards Analysis

NAICS codeNAICS industry titleCalculated size standard ($ million)Current size standard ($ million)
611110Elementary and Secondary Schools$10.0$7.0
611210Junior Colleges19.07.0
611310Colleges, Universities and Professional Schools25.57.0
611410Business and Secretarial Schools7.07.0
611420Computer Training10.07.0
611430Professional and Management Development Training10.07.0
611511Cosmetology and Barber Schools5.07.0
611512Flight Training19.025.5
611513Apprenticeship Training5.07.0
611519Other Technical and Trade Schools14.07.0
ExceptJob Corps Centers30.035.5
611610Fine Arts Schools5.07.0
611620Sports and Recreation Instruction5.07.0
611630Language Schools10.07.0
611691Exam Preparation and Tutoring7.07.0
611692Automobile Driving Schools5.07.0
611699All Other Miscellaneous Schools and Instruction10.07.0
611710Educational Support Services14.07.0

Further, lowering size standards would decrease the number of firms that could participate in Federal financial and procurement assistance for small businesses. Size standards based solely on analytical results without any other considerations would cut off currently eligible small firms from those programs. That would run counter to what SBA and the Federal government are doing to help small businesses. Reducing size eligibility for Federal assistance, especially under current economic conditions, would not preserve or create more jobs; rather, it would have the opposite effect. Therefore, in this proposed rule, SBA does not propose to reduce size standards for any industries. For six industries and one sub-industry for which analyses might support lowering size standards, SBA proposes to retain the current size standards. SBA nevertheless invites comments and suggestions on whether it should lower size standards as suggested by analyses of industry and program data or retain the current standards for those industries in view of current economic conditions.

As discussed above, SBA has decided that lowering small business size standards would be inconsistent with what the Federal government is doing to stimulate the economy and encourage job growth through the Recovery Act and Jobs Act. Therefore, for those industries for which its analyses suggested decreasing their size standards, SBA proposes to retain the current size standards. Thus, of the 17 industries and one sub-industry in NAICS Sector 61 that SBA reviewed in this proposed rule, the Agency proposes to increase size standards for nine industries and retain the current standards for eight industries and one sub-industry. Industries for which SBA has proposed to increase their size standards and proposed standards are in Table 5 (below).

In addition, not lowering size standards in NAICS Sector 61 is consistent with SBA's prior actions for NAICS Sector 44-45 (Retail Trade), NAICS Sector 72 (Accommodation and Food Services), and NAICS Sector 81 (Other Services), which the Agency proposed (74 FR 53924, 74 FR 53913, and 74 FR 53941, October 21, 2009) and adopted in its final rules (75 FR 61597, 75 FR 61604, and 75 FR 61591, October 6, 2010). It is also consistent with the Agency' recently proposed rules for NAICS Sector 54, Professional, Technical, and Scientific Services (76 FR 14323, March 16, 2011), NAICS Sector 48-49, Transportation and Warehousing (76 FR 27935, May 13, 2011), NAICS Sector 51, Information (See 76 FR 63216, October 12, 2011), and NAICS Sector 56, Administrative and Support, Waste Management and Remediation Services (See 76 FR 63510, October 12, 2011). In each of those final and proposed rules, SBA opted not to reduce small business size standards for the same reasons it has provided above in this proposed rule.

Table 5—Summary of Proposed Size Standard Revisions

NAICS codeNAICS industry titleProposed size standard ($ million)Current size standard ($ million)
611110Elementary and Secondary Schools$10.0$7.0
611210Junior Colleges19.07.0
611310Colleges, Universities and Professional Schools25.57.0
611420Computer Training10.07.0
611430Professional and Management Development Training10.07.0
611519Other Technical and Trade Schools14.07.0
611630Language Schools10.07.0
611699All Other Miscellaneous Schools and Instruction10.07.0
611710Educational Support Services14.07.0
Start Printed Page 70676

Evaluation of Dominance in Field of Operation

SBA has determined that for the industries in NAICS Sector 61, Educational Services, for which it has proposed to increase size standards, no firm at or below the proposed size standard will be large enough to dominate its field of operation. At the proposed size standards, if adopted, small business shares of total industry receipts among those industries vary from less than 0.1 percent to 1.7 percent, with an average of 0.5 percent. These levels of market share effectively preclude a firm at or below the proposed size standards from exerting control on its industry.

Request for Comments

SBA invites public comments on this proposed rule, especially on the following issues.

1. To simplify size standards, SBA proposes eight fixed levels for receipts based size standards: $5 million, $7 million, $10 million, $14 million, $19 million, $25.5 million, $30 million, and $35.5 million. SBA invites comments on whether simplification of size standards in this way is necessary and if these proposed fixed size levels are appropriate. SBA welcomes suggestions on alternative approaches to simplifying small business size standards.

2. SBA seeks feedback on whether the proposed levels of size standards are appropriate given the economic characteristics of each industry. SBA also seeks feedback and suggestions on alternative standards, if they would be more appropriate, including whether an employee based standard for certain industries is a more suitable measure of size and what that employee level should be.

3. SBA's proposed size standards are based on its evaluation of five primary factors: Average firm size, average assets size (as a proxy of startup costs and entry barriers), four-firm concentration ratio, distribution of firms by size and the level and small business share of Federal contracting dollars. SBA welcomes comments on these factors and/or suggestions on other factors that it should consider for assessing industry characteristics when evaluating or revising size standards. SBA also seeks information on relevant data sources, if available.

4. SBA gives equal weight to each of the five primary factors in all industries. SBA seeks feedback on whether it should continue giving equal weight to each factor or whether it should give more weight to one or more factors for certain industries. Recommendations to weigh some factors more than others should include suggestions on specific weights for each factor for those industries along with supporting information.

5. For some industries, based on its analysis of industry and program data, SBA proposes to increase the existing size standards by a large amount (such as NAICS 611210, NAICS 611310, NAICS 611519, and NAICS 611710) while for others the proposed increases are modest. SBA seeks feedback on whether it should, as a policy, limit the increase to a size standard and/or whether it should, as a policy, establish minimum or maximum values for its size standards. SBA seeks suggestions on appropriate levels of changes to size standards and on their minimum or maximum levels.

6. In this proposed rule, SBA applied its size standard methodology to review the size standard for Job Corps Centers, which is an exception to NAICS 611519, using data on employment and receipts from CCR. SBA welcomes any comments on this source of data and suggestions on alternative data sources.

7. To simplify size standards, SBA has established or proposed common size standards for closely related industries in other NAICS Sectors. Within NAICS Sector 61, all industries, with the exceptions of Job Corps Centers (exception to NAICS 611519, Other Technical and Trade Schools) and NAICS 611512, Flight Training, currently have a common $7.0 million size standard. Based on SBA's analysis of the industry data, too much variation exists among the industries in Sector 61 to retain the current common size standard or propose a different common size standard for most industries. Therefore, SBA has proposed size standards based on an analysis of each specific industry. SBA welcomes comments on whether it should adopt common size standards for all or a particular group of industries, and if so, how are those industries related in a way that requires a common size standard.

8. For analytical simplicity and efficiency, in this proposed rule, SBA has refined its size standard methodology to obtain a single value as a proposed size standard instead of a range of values as it used in its past size regulations. SBA welcomes any comments on this procedure and suggestions on alternative methods.

Public comments on the above issues are very valuable to SBA for validating its size standard methodology and proposed revisions to size standards in this proposed rule. This will help SBA to move forward with its review of size standards for other NAICS Sectors. Commenters addressing size standards for a specific industry or a group of industries should include relevant data and/or other information supporting their comments. If comments relate to using size standards for Federal procurement programs, SBA suggests that commenters provide information on the size of contracts, the size of businesses that can undertake the contracts, start-up costs, equipment and other asset requirements, the amount of subcontracting, other direct and indirect costs associated with the contracts, the use of mandatory sources of supply for products and services and the degree to which contractors can mark up those costs.

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

Executive Order 12866

The Office of Management and Budget (OMB) has determined that this proposed rule is a “significant” regulatory action for purposes of Executive Order 12866. Accordingly, the next section contains SBA's Regulatory Impact Analysis. This is not a “major rule,” however, under the Congressional Review Act (5 U.S.C. 800).

Regulatory Impact Analysis

1. Is there a need for the regulatory action?

SBA believes that the proposed size standards for a number of industries in NAICS Sector 61, Educational Services, will better reflect the economic characteristics of small businesses and the Federal government marketplace. SBA's mission is to aid and assist small businesses through a variety of financial, procurement, business development and advocacy programs. To assist the intended beneficiaries of these programs, SBA must establish distinct definitions of which businesses are deemed small businesses. The Small Business Act (15 U.S.C. 632(a)) delegates to SBA's Administrator the responsibility for establishing small business definitions. The Act also requires that small business definitions vary to reflect industry differences. The recently enacted Small Business Jobs Act also requires SBA to review all size standards and make necessary adjustments to reflect market conditions. The SUPPLEMENTARY INFORMATION section of this proposed rule explains SBA's methodology for Start Printed Page 70677analyzing a size standard for a particular industry.

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

The most significant benefit to businesses obtaining small business status because of this rule is gaining eligibility for Federal small business assistance programs. These include SBA's financial assistance programs, economic injury disaster loans, and Federal procurement programs intended for small businesses. Federal procurement provides targeted opportunities for small businesses under SBA's business development programs, such as 8(a), Small Disadvantaged Businesses (SDB), small businesses located in Historically Underutilized Business Zones (HUBZones), women-owned small businesses (WOSBs), and service-disabled veteran-owned small business concerns (SDVO SBCs). Federal agencies may also use SBA size standards for a variety of other regulatory and program purposes. These programs assist small businesses to become more knowledgeable, stable, and competitive. In nine industries for which SBA has proposed increasing size standards, SBA estimates that about 1,500 additional firms will obtain small business status and become eligible for these programs. That represents 2.1 percent of the total number of firms that are classified as small under the current standards in all industries within NAICS Sector 61. If adopted as proposed, this will increase the small business share of total industry receipts in those industries from about 18 percent under the current size standards to nearly 23 percent.

Three groups will benefit from these proposed size standards if they are adopted in final form as proposed, namely: (1) Some businesses that are above the current size standards may gain small business status under the higher size standards, thereby being able to participate in Federal small business assistance programs; (2) growing small businesses that are close to exceeding the current size standards will be able to retain their small business status under the higher size standards, thereby being able to continue their participation in the programs; and (3) Federal agencies that need larger pools of small businesses from which to draw for their small business procurement programs will have access to them.

During fiscal years 2007 to 2009, 88 percent of Federal contracting dollars spent in industries reviewed in this proposed rule were accounted for by the nine industries for which SBA has proposed to increase size standards. SBA estimates that additional firms gaining small business status in those industries under the proposed size standards could potentially obtain Federal contracts totaling up to $20 million to $25 million per year under SBA's small business, 8(a), HUBZone, WOSB, and SDVO SBC programs and other unrestricted procurements. The added competition for many of these procurements could also result in lower prices to the Government for procurements reserved for small businesses, although SBA cannot quantify this benefit.

Under SBA's 7(a) Business Loan and 504 Programs, based on the 2008 to 2010 data, SBA estimates that around 16 to 20 additional loans totaling about $3 million to $4 million in Federal loan guarantees could be made to these newly defined small businesses under the proposed standards. Increasing the size standards will likely result in an increase in small business guaranteed loans to businesses in these industries, but it would be impractical to try to estimate exactly the extent of their number and the total amount loaned. Under the Jobs Act, SBA can now guarantee substantially larger loans than in the past. In addition, the Jobs Act established an alternative size standard ($15 million in tangible net worth and $5 million in net income after income taxes) for business concerns that do not meet the size standards for their industry. Therefore, SBA finds it similarly difficult to quantify the impact of these proposed standards on its 7(a) and 504 Loan Programs.

Newly defined small businesses will also benefit from SBA's Economic Injury Disaster Loan (EIDL) Program. However, since the benefit under this program is contingent on the occurrence and severity of a disaster, SBA cannot make a meaningful estimate of benefits for future disasters.

To the extent that 1,500 newly defined additional small firms could become active in Federal procurement programs, the proposed changes, if adopted, may entail some additional administrative costs to the Federal Government associated with additional bidders for Federal small business procurement opportunities. In addition, there could be more firms seeking SBA guaranteed loans, more firms eligible for enrollment in the CCR's Dynamic Small Business Search database and more firms seeking certification as 8(a) or HUBZone firms or those qualifying for small business, WOSB, SDVO SBC, and SDB status. Among those newly defined small businesses seeking SBA assistance, there could be some additional costs associated with compliance and verification of small business status and protests of small business status. These added costs will be minimal because mechanisms are already in place to handle these administrative requirements.

The costs to the Federal Government may be higher on some Federal contracts. With a greater number of businesses defined as small, Federal agencies may choose to set aside more contracts for competition among small businesses rather than using full and open competition. The movement from unrestricted to small business set-aside contracting might result in competition among fewer total bidders, although there will be more small businesses eligible to submit offers. In addition, higher costs may result if more full and open contracts are awarded to HUBZone businesses that receive price evaluation preferences. The additional costs associated with fewer bidders, however, are expected to be minor since, as a matter of law, procurements may be set aside for small businesses or reserved for the 8(a), HUBZone, WOSB, or SDVO SBC programs only if awards are expected to be made at fair and reasonable prices.

The proposed size standards, if adopted, may have distributional effects among large and small businesses. Although SBA cannot estimate the actual outcome of the gains and losses among small and large businesses with certainty, it can identify several probable impacts. There may be a transfer of some Federal contracts to small businesses from large businesses. Large businesses may have fewer Federal contract opportunities as Federal agencies decide to set aside more Federal contracts for small businesses. In addition, some Federal contracts may be awarded to HUBZone firms instead of large businesses since these firms may be eligible for a price evaluation preference for contracts when they compete on a full and open basis. Similarly, currently defined small businesses may obtain fewer Federal contracts due to the increased competition from more businesses defined as small. This transfer may be offset by a greater number of Federal procurements set aside for all small businesses. The number of newly defined and expanding small businesses that are willing and able to sell to the Federal Government will limit the potential transfer of contracts away from large and currently defined small businesses. SBA cannot estimate the potential distributional impacts of these transfers with any degree of precision because FPDS-NG data only identify the Start Printed Page 70678size of businesses receiving Federal contracts as “small businesses” or “other than small businesses” without providing the exact size of the businesses.

The proposed revisions to the existing size standards for NAICS Sector 61, Educational Services, are consistent with SBA's statutory mandate to assist small business. This regulatory action promotes the Administration's objectives. One of SBA's goals in support of the Administration's objectives is to help individual small businesses succeed through fair and equitable access to capital and credit, Government contracts, and management and technical assistance. Reviewing and modifying size standards, when appropriate, ensures that intended beneficiaries have access to the small business programs designed to assist them.

Executive Order 13563

A description of the need for this regulatory action and benefits and costs associated with this action, including possible distributional impacts that relate to Executive Order 13563, are included above in the Regulatory Impact Analysis under Executive Order 12866.

In an effort to engage interested parties in this action, SBA has presented its methodology (discussed above under SUPPLEMENTARY INFORMATION) to various industry associations and trade groups. SBA also met with various industry groups to get their feedback on its methodology and other size standards issues. In addition, SBA presented its size standards methodology to businesses in 13 cities in the U.S. and sought their input as part of the Jobs Act Tours. The presentation included information on the status of the comprehensive size standards review and on how interested parties can provide SBA with input and feedback regarding the size standards review.

Additionally, SBA sent letters to the Directors of the Offices of Small and Disadvantaged Business Utilization (OSDBU) at several Federal agencies with considerable procurement responsibilities requesting their feedback on how the agencies use SBA size standards and whether current standards meet their programmatic needs (both procurement and non-procurement). SBA gave appropriate consideration to all input, suggestions, recommendations, and relevant information obtained from industry groups, individual businesses, and Federal agencies in preparing this proposed rule.

The review of NAICS Sector 61, Educational Services, is consistent with Executive Order 13563, Section 6, calling for retrospective analyses of existing rules. SBA's last comprehensive review of size standards was during the late 1970s and early 1980s. Since then, except for periodic adjustments for monetary based size standards, most reviews were limited to a few specific industries in response to requests from the public and Federal agencies. SBA recognizes that changes in industry structure and the Federal marketplace over time have rendered existing size standards for some industries no longer supportable by current data. Accordingly, SBA has begun a comprehensive review of its size standards to ensure that existing size standards have supportable bases and to revise them when necessary. In addition, on September 27, 2010, the President of the United States signed the Small Business Jobs Act of 2010 (Jobs Act). The Jobs Act directs SBA to conduct a detailed review of all size standards and to make appropriate adjustments to reflect market conditions. Specifically, the Jobs Act requires SBA to conduct a detailed review of at least one-third of all size standards during every 18-month period from the date of its enactment and do a complete review of all size standards not less frequently than once every 5 years thereafter.

Executive Order 12988

This action meets applicable standards set forth in Sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice reforms, to minimize litigation, eliminate ambiguity, and reduce burden. The action does not have retroactive or preemptive effect.

Executive Order 13132

For the purposes of Executive Order 13132, SBA has determined that this proposed rule will not have substantial, direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, SBA has determined that this proposed rule has no federalism implications warranting preparation of a federalism assessment.

Paperwork Reduction Act

For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA has determined that this rule will not impose new reporting or record keeping requirements.

Initial Regulatory Flexibility Analysis

Under the Regulatory Flexibility Act (RFA), this rule, if finalized, may have a significant impact on a substantial number of small entities in NAICS Sector 61, Educational Services. As described above, this rule may affect small entities seeking Federal contracts, loans under SBA's 7(a), 504 Guaranteed Loan and Economic Injury Disaster Loan Programs, and assistance under other Federal small business programs.

Immediately below, SBA sets forth an initial regulatory flexibility analysis (IRFA) of this proposed rule addressing the following questions: (1) What are the need for and objective of the rule? (2) What are SBA's description and estimate of the number of small entities to which the rule will apply? (3) What are the projected reporting, record keeping and other compliance requirements of the rule? (4) What are the relevant Federal rules that may duplicate, overlap or conflict with the rule? and (5) What alternatives will allow the Agency to accomplish its regulatory objectives while minimizing the impact on small entities?

1. What are the need for and objective of the rule?

Most of the size standards in NAICS Sector 61, Educational Services, have not been reviewed since the early 1980s. Technology, productivity growth, international competition, mergers and acquisitions, and updated industry definitions may have changed the structure of many industries in the Sector. Such changes can be sufficient to support a revision to size standards for some industries. Based on the analysis of the latest data available, SBA believes that the proposed size standards in this rule more appropriately reflect the size of businesses in those industries that need Federal assistance. The newly enacted Small Business Jobs Act also requires SBA to review all size standards and make necessary adjustments to reflect market conditions.

2. What is SBA's description and estimate of the number of small entities to which the rule will apply?

If the proposed rule is adopted in its present form, SBA estimates that about 1,500 additional firms will become small because of increases in size standards in nine industries. That represents about 2.1 percent of total firms that are small under current size standards in all industries within NAICS Sector 61. This will result in an increase in the small business share of total industry receipts for this Sector Start Printed Page 70679from about 18 percent under the current size standard to nearly 23 percent under the proposed standards. The proposed standards, if adopted, will enable more small businesses to retain their small business status for a longer period. Many have lost their eligibility and find it difficult to compete at such low levels with companies that are significantly larger than they are. SBA believes the competitive impact will be positive for existing small businesses and for those that exceed the size standards but are on the very low end of those that are not small. They might otherwise be called or referred to as mid-sized businesses, although SBA only defines what is small; other entities are other than small.

3. What are the projected reporting, recordkeeping and other compliance requirements of the rule and an estimate of the classes of small entities, which will be subject to the requirements?

Proposed size standards changes do not impose any additional reporting or recordkeeping requirements on small entities. However, qualifying for Federal procurement and a number of other programs requires that entities register in the CCR database and certify at least annually that they are small in the Online Representations and Certifications Application (ORCA). Therefore, businesses opting to participate in those programs must comply with CCR and ORCA requirements. There are no costs associated with either CCR registration or ORCA certification. Changing size standards alters eligibility for SBA programs that assist small businesses, but does not impose a regulatory burden as they neither regulate nor control business behavior.

4. What are the relevant Federal rules, which may duplicate, overlap or conflict with the rule?

Under § 3(a)(2)(C) of the Small Business Act, 15 U.S.C. 632(a)(2)(c), Federal agencies must use SBA's size standards to define a small business, unless specifically authorized by statute to do otherwise. In 1995, SBA published in the Federal Register a list of statutory and regulatory size standards that identified the application of SBA's size standards as well as other size standards used by Federal agencies (60 FR 57988 (November 24, 1995)). SBA is not aware of any Federal rule that would duplicate or conflict with establishing size standards.

However, the Small Business Act and SBA's regulations allow Federal agencies to develop different size standards if they believe that SBA's size standards are not appropriate for their programs, with the approval of SBA's Administrator (13 CFR 121.903). Additionally, the Regulatory Flexibility Act authorizes an Agency to establish an alternative small business definition after consultation with the Office of Advocacy of the U.S. Small Business Administration (5 U.S.C. 601(3)).

5. What alternatives will allow the Agency to accomplish its regulatory objectives while minimizing the impact on small entities?

By law, SBA is required to develop numerical size standards for establishing eligibility for Federal small business assistance programs. Other than varying size standards by industry and changing the size measures, no practical alternative exists to the systems of numerical size standards.

Start List of Subjects

List of Subjects in 13 CFR Part 121

End List of Subjects

For the reasons set forth in the preamble, SBA proposes to amend 13 CFR part 121 as follows:

Start Part

PART 121—SMALL BUSINESS SIZE REGULATIONS

1. Revise the authority citation for part 121 to read as follows:

Start Authority

Authority: 15 U.S.C. 632, 634(b)(6), 662, and 694a(9).

End Authority

2. In § 121.201, in the table, revise the entries for “611110,” “611210,” “611310,” “611420,” “611430,” “611519,” “611630,” “611699,” and “611710,” to read as follows:

What size standards has SBA identified by North American Industry Classification System codes?
* * * * *
NAICS codesNAICS U.S. industry titleSize standards in millions of dollarsSize standards in number of employees
*         *         *         *         *         *         *         
611110Elementary and Secondary Schools$10.0
611210Junior Colleges19.0
611310Colleges, Universities and Professional Schools25.5
*         *         *         *         *         *         *         
611420Computer Training10.0
611430Professional and Management Development Training10.0
*         *         *         *         *         *         *         
611519Other Technical and Trade Schools14.0
*         *         *         *         *         *         *         
611630Language Schools10.0
*         *         *         *         *         *         *         
611699All Other Miscellaneous Schools and Instruction10.0
611710Educational Support Services14.0
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*         *         *         *         *         *         *         
Start Signature

Dated: September 9, 2011.

Karen G. Mills,

Administrator.

End Signature End Part End Supplemental Information

[FR Doc. 2011-29445 Filed 11-14-11; 8:45 am]

BILLING CODE 8025-01-P