[Federal Register Volume 67, Number 139 (Friday, July 19, 2002)]
[Proposed Rules]
[Pages 47480-47488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18112]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AE89
Small Business Size Standards; Forest Fire Suppression and Fuels
Management Services
AGENCY: U. S. Small Business Administration (SBA).
ACTION: Proposed rule.
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SUMMARY: The Small Business Administration (SBA) proposes to establish
a $15 million size standard for the Forest Fire Suppression and Fuels
[[Page 47481]]
Management activities classified within the ``Support Activities for
Forestry'' industry (North American Industry Classification System
(NAICS) 115310). The current size standard is $6 million. This action
is warranted in light of increased emphasis by the Federal Government
on removing biomass fuel from the nation's forests, the dramatic
increase in funding for this effort, and the Government's growing
reliance upon the private sector to perform fuels management tasks and
to suppress forest fires.
DATES: Comments must be received on or before August 19, 2002.
ADDRESSES: Send comments to Gary M. Jackson, Assistant Administrator
for Size Standards, 409 3rd Street, SW., Mail Code 6530, Washington, DC
20416; or via E-mail to [email protected]. Upon request, SBA will
make all public comments available.
FOR FURTHER INFORMATION CONTACT: Diane Heal, Office of Size Standards,
(202) 205-6618.
SUPPLEMENTARY INFORMATION: SBA has received requests from firms in the
Forestry industry to either increase the $6 million size standard for
the Support Activities for Forestry industry, or create a separate size
standard under this industry for Forest Fire Suppression and Fuels
Management Services. [Effective February 22, 2002, the size standard
for NAICS 115310 increased from $5 million to $6 million as part of an
inflation adjustment to SBA's monetary size standards (see 67 FR 3041,
dated January 23, 2002)]. These firms believe that this action is
warranted in light of increased emphasis by the Federal Government on
removing biomass fuels from the nation's forests, the dramatic increase
in funding for this effort, and the Government's growing reliance upon
the private sector to perform fuels management tasks and to suppress
forest fires. Funding for these requirements increased from $500
million in fiscal year 1999 to $1.9 billion in fiscal year 2001. For
fiscal year 2002, the funding level is proposed to increase to $2.2
billion. To meet the various fire suppression and fuels management
requirements issued by the United States Forest Service (USFS) and
Bureau of Land Management (BLM), firms need to invest in new capital
equipment, such as fire engines, helicopters, brush cutters, and
yarders. In addition, the massive buildup of biomass fuels in the
forest and severe droughts in the Southeastern and Western sections of
the United States have resulted in devastating wildfires in these
areas. USFS and BLM now rely heavily on contractors for fighting these
fires. In fact, these agencies plan on expanding their use of private
sector contractors by increasing their contract requirements and by
moving toward a nationwide approach, especially in the area of fire
suppression. These agencies require contractors to provide specialized
long-term (five to seven years) certifiable training to fire-crew
chiefs and to crews, as well as to obtain USFS certification for fire-
fighting equipment. In addition, because the contractors have fire-
fighting crews and equipment meeting USFS certification standards, USFS
and BLM have begun to include ``prescribed burn'' services in their
fuels management requirements. These factors caused company revenues to
dramatically increase over the last three years to the point where many
businesses involved in these activities exceed or may soon exceed the
current $6 million size standard, causing the pool of eligible small
businesses in this activity to seriously decline. If this continues,
these firms argue, Federal agencies could be hampered in using
Government procurement preference programs for small business. One
organization representing this industry recommends a 500-employee size
standard. It claims that an employee-based size standard would allow
firms ``to better manage their resources and plan for capital
expansion.'' It also states that the Logging industry, a related
industry, currently has an employee-based size standard and the two
industries should have the same size standard. This organization also
recommends, as an alternative, a $27.5 million size standard. To
support this recommended size standard, it estimates the amount of
revenues generated by a firm that provides 20 fire crews (a crew
consists of 20 people) for 90 days for forest fire suppression
services. Revenues from that effort alone could amount to $10.8
million.
In recent years USFS and BLM have come to rely heavily on the
private sector in the forestry industry to suppress forest fires and
perform fuels management duties. As a result, the firms in the forest
industry choosing to go into this industry need to invest in capital
equipment and develop professional fire crews and fire chiefs
certifiable by USFS. Since firms in this emerging industry utilize
significantly more capital equipment and specially-trained personnel
than for other forestry activities, SBA is proposing a size standard
for Forest Fire Suppression and Fuels Management that is separate from
other forestry activities.
Because Forest Fire Suppression and Fuels Management activities
generated significant private sector activity only recently, the U. S.
Bureau of the Census has not published specific information on firms
engaged in these activities. Also, currently available Census Bureau
data on the Support Activities for Forestry industry do not capture the
significant increases in Forest Fire Suppression and Fuels Management
activities. For example, contract awards in these activities to firms
in the state of Oregon alone, increased from $29 million in fiscal year
1998 to $173 million in fiscal year 2000. Consequently, SBA cannot rely
on the Census Bureau data to assess the size standard for the Support
Activities for Forestry industry or for Forest Fire Suppression and
Fuels Management. SBA conducted an extensive review of the Support
Activities for Forestry industry and several other closely related
forestry industries and concluded that the Census Bureau data could not
support a change to the current $6 million size standard. Therefore,
SBA collected data from firms in the industry and from USFS and BLM to
assess the size standard for Forest Fire Suppression and Fuels
Management. The information consisted of Federal funding for Federal,
state, and local communities' initiatives, procurement statistics and
procurement forecasts, company revenues and employees, and capital
investments. If this rule is adopted, SBA will monitor U. S. Bureau of
the Census data, as well as Federal procurement and other industry data
to continue to assess the impact that this increased funding is having
on the structure of small businesses in these activities.
Since Forest Fire Suppression and Fuels Management is a segment of
the Support Activities for Forestry industry, SBA is adding a footnote
to the table of size standards defining the activities covered. It
explains that firms in this industry provide services to fight forest
fires and that these firms usually have fire-fighting crews and
equipment. It also includes firms that provide services to clear land
of hazardous materials that fuel forest fires and that the treatments
used include prescribed fire, mechanical removal, establishing fuel
breaks, thinning, pruning, and piling. SBA invites comment on this
definition so that it is inclusive of all activities currently
performed in these areas.
Size Standards Methodology: Congress granted SBA discretion to
establish detailed size standards. SBA's Standard Operating Procedure
(SOP) 90 01 3, ``Size Determination Program'' (available on SBA's web
site at http:/
[[Page 47482]]
www.sba.gov/library/soproom.html) sets out four categories for
establishing and evaluating size standards: (1) The structure of the
industry and its various economic characteristics, (2) SBA program
objectives and the impact of different size standards on these
programs, (3) whether a size standard successfully excludes those
businesses which are dominant in the industry, and (4) other factors if
applicable. Other factors, including the impact on other agencies'
programs, may come to the attention of SBA during the public comment
period or from SBA's own research on the industry. No formula or
weighting has been adopted so that the factors may be evaluated in the
context of a specific industry. Below is a discussion of SBA's analysis
of the economic characteristics of an industry, the impact of a size
standard on SBA programs, and the evaluation of whether a firm at or
below a size standard could be considered dominant in the industry
under review.
Industry Analysis: The Small Business Act, 15 U.S.C. 632 (a)(3),
requires that size standards vary by industry to the extent necessary
to reflect differing industry characteristic. SBA has in place two
``base'' or ``anchor'' size standards that apply to most industries--
500 employees for manufacturing industries and $6 million for
nonmanufacturing industries. SBA established 500 employees as the
anchor size standard for the manufacturing industries at SBA's
inception in 1953 and shortly thereafter established a $1 million size
standard for the nonmanufacturing industries. The receipts-based anchor
size standard for the nonmanufacturing industries was periodically
adjusted for inflation so that, currently, the anchor size standard for
the nonmanufacturing industries is $6 million. Anchor size standards
are presumed to be appropriate for an industry unless its
characteristics indicate that larger firms have a much greater
significance within that industry than the ``typical industry.''
When evaluating a size standard, the characteristics of the
specific industry under review are compared to the characteristics of a
group of industries, referred to as a comparison group. A comparison
group is a large number of industries grouped together to represent the
typical industry. It can be comprised of all industries, all
manufacturing industries, all industries with receipt-based size
standards, or some other logical grouping. If the characteristics of a
specific industry are similar to the average characteristics of the
comparison group, then the anchor size standard is considered
appropriate for the industry. If the specific industry's
characteristics are significantly different from the characteristics of
the comparison group, a size standard higher or, in rare cases, lower
than the anchor size standard may be considered appropriate. The larger
the differences between the specific industry's characteristics and the
comparison group, the larger the difference between the appropriate
industry size standard and the anchor size standard. Only when all or
most of the industry characteristics are significantly smaller than the
average characteristics of the comparison group, or other industry
considerations strongly suggest the anchor size standard would be an
unreasonably high size standard for the industry under review, will SBA
adopt a size standard below the anchor size standard.
In 13 CFR 121.102 (a) and (b), evaluation factors are listed which
are the primary factors describing the structural characteristics of an
industry'average firm size, distribution of firms by size, start-up
costs, and industry competition. The analysis also examines the
possible impact of a size standard revision on SBA's programs as an
evaluation factor. SBA generally considers these five factors to be the
most important evaluation factors in establishing or revising a size
standard for an industry. However, it will also consider and evaluate
other information that it believes relevant to the decision on a size
standard as the situation warrants for a particular industry. Public
comments submitted on proposed size standards are also an important
source of additional information that SBA closely reviews before making
a final decision on a size standard. Below is a brief description of
each of the five evaluation factors.
1. Average firm size is simply total industry receipts (or number
of employees) divided by the number of firms in the industry. If the
average firm size of an industry is significantly higher than the
average firm size of a comparison industry group, this fact would be
viewed as supporting 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 comparison industry group, it
would be a basis to adopt the anchor size standard or, in rare cases a
lower size standard.
2. The distribution of firms by size examines the proportion of
industry receipts, employment or other economic activity accounted for
by firms of different sizes in an industry. If the preponderance of an
industry's economic activity is by smaller firms, this tends to support
adopting the anchor size standard. The opposite is the case for an
industry in which the distribution of firms indicates that economic
activity is concentrated among the largest firms in an industry. In
this rule, SBA is comparing the size of firms within an industry to the
size of firms in the comparison group at which predetermined
percentages of receipts are generated by firms smaller than a
particular size firm. For example, assume for the industry under review
that 50 percent of total industry receipts are generated by firms of
$7.5 million in receipts and less This contrasts with the comparison
group (composed of industries with the nonmanufacturing anchor size
standard of $6 million) in which firms of $5.8 million or less in
receipts generated 50 percent of total industry receipts. Viewed in
isolation, this higher figure of the industry under review suggests
that a size standard higher than the nonmanufacturing anchor size
standard may be warranted. Other size distribution comparisons in the
industry analysis include 40 percent, 60 percent, and 70 percent, as
well as the 50 percent comparison discussed above. Usually, SBA uses
information based on the most recent economic census conducted by the
Department of Commerce's Bureau of the Census. In this particular case,
the change in Federal policy, the massive infusion of Federal monies,
and the increased reliance upon the private sector for these services
occurred since 1997, the date of the last economic census. This
information, along with information specific to Forest Fire Suppression
and Fuels Management segment under NAICS Code 115310 is not reflected
in the latest census data. Therefore, SBA gathered the pertinent data
from the various firms in this industry, which it will use along with
the Census data.
3. Start-up costs affect a firm's initial size because entrants
into an industry must have sufficient capital to start and maintain a
viable business. To the extent that firms entering into one industry
have greater financial requirements than firms do in other industries,
SBA is justified in considering a higher size standard. In lieu of
direct data on start-up costs, SBA uses a proxy measure to assess the
financial burden for entry-level firms. SBA uses nonpayroll costs per
establishment as a proxy measure for start-up costs. This is derived by
first calculating the percent of receipts in an industry that are
either retained or expended on costs other than payroll costs. (The
figure comprising the
[[Page 47483]]
numerator of this percentage is mostly composed of capitalization
costs, overhead costs, materials costs, and the costs of goods sold or
inventoried.) This percentage is then applied to average establishment
receipts to arrive at nonpayroll costs per establishment (an
establishment is a business entity operating at a single location). An
industry with a significantly higher level of nonpayroll costs per
establishment than that of the comparison group is likely to have
higher start-up costs that would tend to support a size standard higher
than the anchor size standard. Conversely, if the industry showed a
significantly lower nonpayroll costs per establishment when compared to
the comparison group, the anchor size standard would be considered the
appropriate size standard.
4. Industry competition is assessed by measuring the proportion or
share of industry receipts obtained by firms that are among the largest
firms in an industry. In this proposed rule, SBA compares the
proportion of industry receipts generated by the four largest firms in
the industry'generally referred to as the ``four-firm concentration
ratio''with the average four-firm concentration ratio for industries in
the comparison groups. If a significant proportion of economic activity
within the industry is concentrated among a few relatively large
producers, SBA tends to set a size standard relatively higher than the
anchor size standard to assist firms in a broader size range to compete
with firms that are larger and more dominant in the industry. In
general, however, SBA does not consider this to be an important factor
in assessing a size standard if the four-firm concentration ratio falls
below 40 percent for an industry under review, while its comparison
groups also average less than 40 percent.
5. Competition for Federal procurements and SBA Financial
Assistance. SBA also evaluates the possible impact of a size standard
on its programs to determine whether small businesses defined under the
existing size standard are receiving a reasonable level of assistance.
This assessment most often focuses on the proportion or share of
Federal contract dollars awarded to small businesses in the industry in
question. In general, the lower the share of Federal contract dollars
awarded to small businesses in an industry which receives significant
Federal procurement revenues, the greater is the justification for a
size standard higher than the existing one.
As another factor to evaluate the impact of a proposed size
standard on SBA programs, the volume of guaranteed loans within an
industry and the size of firms obtaining those loans is assessed to
determine whether the current size standard may restrict the level of
financial assistance to firms in that industry. If small businesses
receive ample assistance through these programs, or if the financial
assistance is provided mainly to small businesses much lower than the
size standard, a change to the size standard (especially, if it is
already above the anchor size standard) may not be appropriate.
Evaluation of Size Standard for the Forest Fire Suppression and
Fuels Management and Sub-Industry: The U.S. Bureau of the Census has
not published specific data on firms engaged in Forest Fire Suppression
and Fuels Management since these activities have historically been a
small segment of the Support Activities for Forestry industry.
Consequently, the analysis of data collected on businesses engaged in
Forest Fire Suppression and Fuels Management cannot be fully evaluated
in terms of the methodology described above.
To assess a size standard for Forest Fire Suppression and Fuels
Management, SBA collected data from firms in the northwestern part of
the United States. Changes in contracting for these forestry services
are impacting the entire industry, especially in the northwestern part
of the country. Because the Government owns a vast proportion of the
lands in the northwest, and because of the increased emphasis on Forest
Fire Suppression and Fuels Management on Federal lands, the problem of
small businesses rapidly outgrowing the size standard arose in these
states. This issue is not limited to the Northwest, as the Federal
Government has begun expanding it emphasis on contracting for these
services to the remainder of the country. USFS and BLM expect similar
situations to develop nationwide where small businesses may rapidly
outgrow the current size standard.
The issue of increased contracting began in the northwestern part
of the country. Although these firms represent a limited segment of the
industry, the Federal Government currently expends a large proportion
its forestry contract dollars in this part of the country. In fiscal
year 2000, 41 percent of award dollars for Support Activities for
Forestry were awarded to firms in the state of Oregon. SBA believes
that the firms in the northwest represent the types of firms that will
engage in Fuels Management and Fire Suppression throughout the country
as USFS and BLM expand their contracting for these activities to other
parts of the country.
SBA obtained size data on 15 firms. The average firm performing
Forest Fire Suppression and Fuels Management have yearly revenues of $6
million and 164 employees. These levels are significantly greater than
the $950,000 average revenue size and 11 employee average size of the
nonmanufacturing anchor group. These data, although limited, indicate
that firms engaged in these activities tend to be greater in size than
the typical nonmanufacturing industry and a size standard well above $6
million is supportable.
In addition, SBA found that start up costs for Forest Fire
Suppression and Fuels Management firms are much higher than those in
the nonmanufacturing anchor group. These firms must invest in a variety
of equipment, purchase specialized tools and safety gear, and provide
specialized training to forest firefighters. The capital equipment
includes yarders, earth moving equipment, custom fire trucks,
helicopters, and communication equipment and mobile units. Fire hoses,
fire-retardant clothing for their crews, and other fire-fighting
equipment usually last no more than 18 months and often must be
replaced two or three times a year, depending on the intensity of the
fire season. Furthermore, each year at the start of the fire season and
again at the time of a forest fire these firms must meet USFS
certification requirement for their equipment and fire crews. Because
of the dangers and risks associated with fighting forest fires and
performing prescribed burns, these firms also incur higher insurance
costs than firms in the nonmanufacturing anchor group. These equipment
costs, training costs, and certification requirements influence the
size of firms that engage in Fire Suppression and Fuels Management
activities and support a size standard much higher than $6 million.
Federal procurement trends also support an increase to the current
size standard and the creation of a specific size standard for Forest
Fire Suppression and Fuels Management. Most Federal procurement actions
reported in the Support Activities for Forestry industry are for Forest
Fire Suppression and Fuels Management. Award dollars to small
businesses in these industries have decreased 20 percent from fiscal
year 1998 to fiscal year 2000. In addition, awards to small businesses
in the Forest Fire Suppression and Fuels Management industry have
decreased from 89 percent in fiscal year 1998 to approximately 50
percent in fiscal year
[[Page 47484]]
2000. As mentioned above, Federal funding in this area has drastically
increased from $500 million in fiscal year 1999 to $1.9 billion in
fiscal year 2001. For fiscal year 2002, funding is expected to top $2.2
billion. The rapid drop in small business awards has alarmed Federal
agencies.
BLM and the USFS are extremely concerned that the increased Federal
emphasis on forest management with its massive monetary infusion into
their agencies, plus their growing reliance on private industry, caused
many small businesses to outgrow the current size standard of $6
million. These two Federal agencies do not have the personnel to meet
the increasing requirements placed upon them. They have begun to rely
on the private sector and have increased the amount of contracting for
all forestry activities, mostly for Fire Suppression and Fuels
Management. Historically, the contractors that performed on these
contracts have been small businesses. As these small business
contractors take on significant amounts of new work over a relatively
short period of time, several contractors exceeded the $6 million size
standard and more will likely exceed the size standard over the next
two years.
In addition, these Federal agencies, along with several firms,
expressed concern over the fact that the Forest Fire Suppression and
Fuels Management industry is relatively small (200 to 300 firms),
unique, and most of this industry's revenues are derived from Federal
contracts. Firms in the northwestern part of the United States point
out that the Federal Government owns most of the land in the western
part of the country, and that USFS and BLM manage this land. For most
of these firms, their industry's economic viability relies heavily upon
the actions of the Federal Government.
These circumstances strongly reinforce the industry structure
factors in arguing for a separate size standard for Forest Fire
Suppression and Fuels Management for a higher size standard higher than
$6 million.
The considerations described above support a higher size standard
for Fuels Management and Fire Suppression but do not provide sufficient
information to indicate what range of size standards would be
appropriate for these activities. Therefore, SBA decided to select a
size standard for Forest Fire Suppression and Fuels Management that is
similar to the size standard for industries that perform similar
activities with equipment used in Forest Fires Suppression and Fuels
Management.
SBA recognizes that firms performing Forest Fire Suppression and
Fuels Management activities have higher capital costs because of the
equipment and personnel training investments. In many ways, they are
similar to firms in the construction industry, i.e., firms in NAICS
Subsector 234, Heavy Construction, having a $28.5 million size
standard, and firms under NAICS 235930, Excavation Contractors, having
a $12 million size standard. Firms in these industries have large
investments in capital equipment like firms in Forest Fire Suppression
and Fuels Management. SBA believes that adopting a $12 million size
standard similar to that of Excavation Contractors is too low because
of the additional mandated training investments for fire crews and fire
crew chiefs. However, the $28.5 million size standard is extremely high
for Forest Fire Suppression and Fuels Management, as it would make
nearly all firms in this industry small. Given the uncertainty of
industry data provided and the fact that firms performing Forest Fire
Suppression and Fuels Management have rapidly increasing revenues that
exceed or will soon exceed $12 million, SBA is proposing a $15 million
size standard. This size standard is about one-half the Heavy
Construction size standard, but sufficiently above the Excavation
Contractor's size standard to account for additional training and
certification costs to businesses engaged in Forest Fire Suppression
and Fuels Management.
SBA recognizes how this industry is developing. The structure of
this industry is Federally dependent and the increased Government
contracting for these services has caused rapid growth in these firms.
Therefore, SBA considers that at the proposed $15.0 million size
standard firms will be able to grow to an appropriate level without
losing their small business status, but not to a level where a few
firms would be able to control a significant portion of Federal
contracts at the expense of other small businesses.
Dominant in Field of Operation: Section 3(a) of the Small Business
Act defines a small concern as one that is (1) independently owned and
operated, (2) not dominant in its field of operation and (3) within
detailed definitions or size standards established by the SBA
Administrator. SBA considers as part of its evaluation of a size
standard whether a business concern at or below a proposed size
standard would be considered dominant in its field of operation. This
assessment generally considers the market share of firms at the
proposed or final size standard or other factors that may show whether
a firm can exercise a controlling influence on a national basis in
which significant numbers of business concerns are engaged.
The SBA has determined that no firm below the proposed size
standard in the Forest Fire Suppression and Fuels Management Activities
would be of a sufficient size to dominate its field of operation. For
Forest Fire Suppression and Fuels Management Services, a firm with a
$15 million size standard would generate approximately 2 percent of
receipts based on fiscal year 2000 funding levels. These levels of
market share effectively preclude any ability for a firm at or below
the proposed size standards to exert a controlling effect on these
industries.
Alternative Size Standards: SBA considered several alternative size
standards. One of the Fuels Management industry groups recommends a
$27.5 million size standard for Forest Fire Suppression and Fuels
Management. The $27.5 million size standard equates to the previous
size standard for the General Construction and Heavy Construction
subsectors. [Effective February 22, 2002, the $27.5 size standard
increased to $28.5 million as part of an inflation adjustment to SBA's
monetary size standards (see 67 FR 3041, dated January 23, 2002)].
Firms in these subsectors usually have major capital equipment
investments, similar to those in the Fire Suppression and Fuels
Management industry. Firms involved in the General and Heavy
Construction subsectors are primarily responsible for an entire
construction project. These construction projects tend to be large in
dollar value and, because of the nature of construction industry, lend
themselves to a substantial amount of subcontracting. The regulation at
13 CFR 125.6, as implemented under the Federal Acquisition Regulations,
52-219-14, Limitation in Subcontracting Clause, qualifying small firms
are permitted to subcontract out up to 85 percent of the cost of the
contract. Unlike these types of construction firms, companies involved
in Fire Suppression and Fuels Management must perform greater than 50
percent of the contract costs with its own employees. These types of
contracts do not lend themselves to much subcontracting and normally
have a lower dollar award threshold than general construction awards.
In addition, by adopting a $27.5 million size standard, SBA would be
making all but approximately 20 firms in the entire Support Activities
for Forestry industry small. Therefore, SBA decided that a $27.5
million size
[[Page 47485]]
standard was too high for Fire Suppression and Fuels Management.
Like firms in Fire Suppression and Fuels Management, Excavation
Contractors, which have an $12 million size standard, are engaged in
clearing land and making substantial investments in capital equipment.
However, firms involved in Fire Suppression and Fuels Management also
have the added costs of intensive training and certification for crew
chiefs and crews, and certification costs for their equipment at the
time of contract award and at the time of each fire. Because of these
training and certification costs, SBA decided that a $12 million size
standard was too low.
The Fuels Management group also recommends the 500-employee Logging
industry size standard for Forest Fire Suppression and Fuels
Management. SBA did not accept this recommendation for two reasons.
First, businesses engaged in Forest Fire and Fuels Management are not
primarily logging firms. A search of logging firms registered in SBA's
PRO-Net data base lists only 25 businesses out of 126 that are involved
in Forest Fire Suppression or Fuels Management Services. Of these 25,
none had more than 100 employees. Second, almost all firms engaged in
Forest Fires Suppression and Fuels Management employ much fewer than
500 employees. SBA's PRO-Net data base lists only 7 businesses that has
more than 100 employees engaged in Forest Fire Suppression and Fuels
Management Services. SBA is concerned that a 500-employee size standard
may have the effect of allowing a few firms to grow into well-
established mid-sized firms at the expense of much smaller firms.
SBA welcomes public comments on its proposed size standard for the
Forest Fire Suppression and Fuels Management industry. SBA is concerned
with how the proposed size standards may negatively impact those
qualified under the current size standards. Comments supporting an
alternative to the proposal, including the option of retaining the size
standards at $6 million, $27.5 million or 500-employees size standards
discussed above, should explain why the alternative would be preferable
to the proposed size standard, and how the alternative impacts current
small businesses.
Compliance With Executive Orders 12866, 12988, and 13132, the
Paperwork Reduction Act (44 U.S.C. Ch. 35) and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
The Office of Management and Budget (OMB) has determined that the
proposed rule is a ``significant'' regulatory action for purposes of
Executive Order 12866. Size standards determine which businesses are
eligible for Federal small business programs. For the purpose of the
Paperwork Reduction Act, 44 U.S.C. Ch.35, SBA has determined that this
rule would not impose new reporting or record keeping requirements,
other than those required of SBA. For purposes of Executive Order
13132, SBA has determined that this rule does not have any federalism
implications warranting the preparation of a Federalism Assessment. For
purposes of Executive Order 12988, SBA has determined that this rule is
drafted, to the extent practicable, in accordance with the standards
set forth in that order. Our Regulatory Impact Analysis follows.
Regulatory Impact Analysis
i. Is There a Need for the Regulatory Action?
SBA is chartered to aid and assist small businesses through a
variety of financial, procurement, business development, and advocacy
programs. To effectively assist 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 the SBA Administrator the responsibility for establishing
small business definitions. It also requires that small business
definitions vary to reflect industry differences. The preamble of this
rule explains the approach SBA follows when analyzing a size standard
for a particular industry. Based on that analysis, SBA believes that a
size standard for Forest Fire Suppression and Fuels Management is
needed to better define small businesses engaged in these activities.
ii. What Are the Potential Benefits and Costs of This Regulatory
Action?
The most significant benefit to businesses obtaining small business
status as a result of this rule is eligibility for Federal small
business assistance programs. Under this rule, approximately 50 to 60
additional firms will obtain small business status and become eligible
for these programs. These include SBA's financial assistance programs
and Federal procurement preference programs for small businesses, 8(a)
firms, small disadvantaged businesses, and small businesses located in
Historically Underutilized Business Zones (HUBZone), as well as those
for contracts awarded through full and open competition after
application of the HUBZone or small disadvantaged business price
evaluation preference or adjustment. Other Federal agencies use SBA
size standards for a variety of regulatory and program purposes. SBA
does not have information on each of these uses sufficient to evaluate
the impact of size standards changes. However, in cases where SBA size
standards are not appropriate, an agency may establish its own size
standards with the approval of the SBA Administrator (see 13 CFR
121.801). Through the assistance of these programs, small businesses
may benefit by becoming more knowledgeable, stable, and competitive
businesses.
The benefits of a size standard increase to a more appropriate
level would accrue to three groups: (1) Businesses that benefit by
gaining small business status from the proposed size standards and use
small business assistance programs, (2) growing small businesses that
may exceed the current size standards in the near future and who will
retain small business status from the proposed size standards, and (3)
Federal agencies that award contracts under procurement programs that
require small business status.
Newly defined small businesses would benefit from SBA's financial
programs, in particular its 7(a) Guaranteed Loan Program. Under this
program SBA estimates that $100,000 in new Federal loan guarantees
could be made to the newly defined small businesses. Because of the
size of the loan guarantees, most loans are made to small businesses
well below the size standard. Thus, increasing the size standard to
include 50 to 60 additional businesses will likely result in only one
or two small business guaranteed loans to businesses in this industry.
The newly defined small businesses would also benefit from SBA's
economic injury disaster loan program. Since this program is contingent
upon the occurrence and severity of a disaster, no meaningful estimate
of benefits can be projected.
Awards to small businesses for Forest Fire Suppression and Fuels
Management have decreased 27 percent over the last three fiscal years.
Small business award dollars to firms in the Forestry Services
Activities, most of which were for Forest Fire Suppression and Fuels
Management, amounted to
[[Page 47486]]
$185 million. If this rule becomes final, small business status would
be restored to several firms that have lost small business status
because of the rapid growth in federal funding and contracting in this
industry. SBA estimates that firms gaining small business status could
potentially obtain Federal contracts worth $50 million per year ($185
million x 27 percent) under the small business set-aside program, the
8(a) and HUBZone Programs, or unrestricted contracts.
Federal agencies may benefit from the higher size standards if the
newly defined and expanding small businesses compete for more set-aside
procurements. The larger base of small businesses would likely increase
competition and lower the prices on set-aside procurements. A large
base of small businesses may create an incentive for Federal agencies
to set aside more procurements, thus creating greater opportunities for
all small businesses. Other than small businesses with small business
subcontracting goals may also benefit from a larger pool of small
businesses by enabling them to better achieve their subcontracting
goals at lower prices. No estimate of cost savings from these
contracting decisions can be made since data are not available to
directly measure price or competitive trends on Federal contracts.
To the extent that approximately 50 to 60 additional firms could
become active in Government programs, this may entail some additional
administrative costs to the Federal Government associated with
additional bidders for Federal small business procurement programs,
additional firms seeking SBA guaranteed lending programs, and
additional firms eligible for enrollment in SBA's PRO-Net data base
program. Among businesses in this group seeking SBA assistance, there
will be some additional costs associated with compliance and
verification of small business status and protests of small business
status. These costs are likely to generate minimal incremental costs
since mechanisms are currently in place to handle these administrative
requirements.
The costs to the Federal Government may be higher on some Federal
contracts as a result of this rule. With greater numbers 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 set-aside is
likely to result in competition among fewer bidders for a contract.
Also, higher costs may result if additional full and open contracts are
awarded to HUBZone and SDB businesses as a result of a price evaluation
preference. However, the additional costs associated with fewer bidders
are likely to be minor since, as a matter of policy, procurements may
be set aside for small businesses or under the 8(a), and HUBZone
Programs only if awards are expected to be made at fair and reasonable
prices.
The proposed size standard may have distributional effects among
large and small businesses. Although the actual outcome of the gains
and losses among small and large businesses cannot be estimated with
certainty, several trends are likely to emerge. First, 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 procurements for small
businesses. Also, some Federal contracts may be awarded to HUBZone or
small disadvantaged businesses instead of large businesses since those
two categories of small businesses are eligible for price evaluation
preferences for contracts competed on a full and open basis. Similarly,
currently defined small businesses may obtain fewer Federal contacts
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 potential transfer of contracts
away from large and currently defined small businesses would be limited
by the number of newly defined and expanding small businesses that were
willing and able to sell to the Federal Government. The potential
distributional impacts of these transfers cannot be estimated with any
degree of precision since the data on the size of business receiving a
Federal contract are limited to identifying small or other-than-small
businesses.
The revision to current size standard Forest Fire Suppression and
Fuels Management is consistent with SBA's statutory mandate to assist
small businesses. This regulatory action promotes the Administration's
objectives. One of SBA's goals in support of the Administration's
objectives is to help individual small businesses succeed through fair
and equitable access to capital and credit, Government contracts, and
management and technical assistance. Reviewing and modifying size
standards when appropriate ensures that intended beneficiaries have
access to small business programs designed to assist them. Size
standards do not interfere with State, local, and tribal governments in
the exercise of their government functions. In a few cases, State and
local governments have voluntarily adopted SBA's size standards for
their programs to eliminate the need to establish an administrative
mechanism for developing their own size standards.
Initial Regulatory Flexibility Analysis
Under the Regulatory Flexibility Act (RFA), this rule may have a
significant impact on a substantial number of small entities engaged in
Forest Fire Suppression and Fuels Management Services. As described in
the above Regulatory Impact Analysis, this rule may impact small
entities in two ways. First, small businesses engaged in Forest Fire
Suppression and Fuels Management competing for Federal Government
procurements reserved for small business, and small disadvantaged
businesses and HUBZone businesses eligible for price preferences, may
face greater competition from newly eligible small businesses. Second,
additional Federal procurements for Forest Fire Suppression and Fuels
Management services may be set aside for small business as the pool of
eligible small businesses expands. As discussed in the preamble, SBA
estimates that firms gaining small business status could potentially
obtain Federal contracts worth $50 million.
The proposed size standard may affect small businesses
participating in programs of other agencies that use SBA size
standards. As a practical matter, SBA cannot estimate the impact of a
size standard change on each and every Federal program that uses its
size standards. For this particular proposed rule, SBA did consult with
USFS and BLM regarding a possible increase to the Forest Fire
Suppression and Fuels Management size standard. In cases where an SBA's
size standard is not appropriate, the Small Business Act and SBA's
regulations allow Federal agencies to develop different size standards
with the approval of the SBA Administrator (13 CFR 121.902). For
purposes of a regulatory flexibility analysis, agencies must consult
with SBA's Office of Advocacy when developing different size standards
for their programs (13 CFR 121.902(b)(4)).
Immediately below, SBA sets forth an initial regulatory flexibility
analysis (IRFA) of this proposed rule on the Forest Fire Suppression
and Fuels Management Services industry addressing the following
questions: (1) What is the need for and objective of the rule, (2) what
is SBA's description and estimate of the number of small entities to
which the rule will apply, (3) what is the projected reporting, record
[[Page 47487]]
keeping, and other compliance requirements of the rule, (4) what are
the relevant Federal rules which may duplicate, overlap or conflict
with the proposed rule, and (5) what alternatives will allow the Agency
to accomplish its regulatory objectives while minimizing the impact on
small entities?
(1) What Is the Need for and Objective of the Rule?
A separate size standard for the Forest Fire Suppression and Fuels
Management industry more appropriately defines the size of businesses
in this industry activity that SBA believes should be eligible for
Federal small business assistance programs. The significant increase in
Federal funding and the Federal Government's increased use of
contractors to perform these services have caused small businesses to
grow beyond the current size standard. Other small businesses are
likely to outgrow the current size standard within the next two years.
A review of the latest available industry data and information on
recent trends in the Forestry industry provided by businesses and
associations in the Forestry industries, USFS, and BLM indicate that
these growing businesses are relatively small and should continue to be
eligible for small business programs. SBA welcomes additional data and
information on the Forest Fire Suppression and Fuels Management
Services industry that may be useful in assessing the size standard and
the impact of the proposed size standard on small businesses.
(2) What Is SBA's Description and Estimate of the Number of Small
Entities to Which the Rule Will Apply?
SBA estimates that 200 to 300 businesses are engaged in Forest Fire
Suppression and Fuels Management activities. These businesses come from
the Forestry and Logging Subsector, and Support Activities for Forestry
(NAICS codes 113110, 113210, 113310, and 115310). As this is an
emerging industry, SBA developed its estimate from discussions with,
and information provided by the USFS, BLM, and industry groups. From
these discussions, SBA estimates approximately 50% of these firms are
small businesses, many of which may be currently at or just below the
$6.0 million threshold. If this rule were adopted, 50 to 60 additional
businesses would be considered small as a result of this rule. Although
this may not represent a substantial number of small businesses, SBA is
preparing an IRFA to ensure that the impact on small businesses of
higher size standards are known and being considered. These businesses
would be eligible to seek available SBA assistance provided that they
meet other program requirements.
Based on the relative size of these firms and SBA's knowledge of
contracting in these areas, SBA estimates that small business coverage
could increase by 12 percent of total revenues in this activity. These
revenue estimates were calculated from the size distributions of the
parent industries in which Forest Fire Suppression and Fuels Management
service firms are presently classified.
In lieu of survey data on Forest Fire Suppression and Fuels
Management businesses, SBA welcomes additional data and comments on the
impact of the proposed size standard on small businesses in this sub-
industry.
(3) What Are the Projected Reporting, Recordkeeping, and Other
Compliance Requirements of the Rule and an Estimate of the Classes
of Small Entities That Will Be Subject to the Requirements?
A new size standard does not impose any additional reporting,
record keeping or compliance requirements on small entities. Increasing
size standards expands access to SBA programs that assist small
businesses, but does not impose a regulatory burden as they neither
regulate nor control business behavior.
(4) What Are the Relevant Federal Rules Which May Duplicate,
Overlap or Conflict With the Proposed Rule?
This proposed rule overlaps other Federal rules that use SBA's size
standards to define a small business. Under section 632(a)(2)(C) of the
Small Business Act, unless specifically authorized by statute, Federal
agencies must use SBA's size standards to define a small business. 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 57988-57991, dated November 24, 1995). SBA is not aware of any
Federal rule that would duplicate or conflict with establishing size
standards.
(5) What Alternatives Will Allow the Agency To Accomplish Its
Regulatory Objectives While Minimizing the Impact on Small
Entities?
As discussed in the preamble, SBA considered several alternative
size standards and their implications on small businesses. First, SBA
considered retaining a single size standard for the Support Activities
for the Forestry industry. In researching firms engaged in Forest Fire
Suppression and Fuels Management Services, SBA concluded that no single
size standard could adequately define small business in the whole
industry. The size standard would be either too low for Forest Fire
Suppression and Fuels Management Services or too high for other
industry activities, such as forestry consulting, timber valuation, and
timber pest control. Establishing two size standards for this industry
would enable SBA to determine the most appropriate size standard for
disparate segments of the industry.
SBA considered maintaining the $6 million size standard for Forest
Fire Suppression and Fuels Management, however as discussed in the
preamble, circumstances strongly reinforce the industry structure
factors in arguing for a size standard higher than $6 million.
For the Forest Fire Suppression and Fuels Management sub-industry,
SBA assessed the higher size standards of $27.5 million and 500
employees, as requested by several organizations. Both size standards
were viewed as too high for these activities and the types of firms
performing Forest Fire Suppression and Fuels Management services.
Almost all firms currently providing these services to USFS and BLM are
significantly smaller than $27.5 million and 500 employees. Adopting
size standards at either of these levels may result in Federal
contracting being concentrated among a few firms, and therefore,
diminish opportunities for currently defined small businesses.
SBA also considered establishing a $12 million size standard for
this sub-industry, and believed that adopting this size standard,
similar to that of Excavation Contractors, is too low because of the
additional mandated training investments for fire crews and fire crew
chiefs. SBA found that firms performing Forest Fire Suppression and
Fuels Management services have rapidly increasing revenues due to these
requirements that in many cases will soon force them to exceed the $12
million size standard.
By establishing the size standard at $15 million, SBA will minimize
the impact on the small businesses in this emerging industry. Increased
Federal funding and requirements have caused many firms to outgrow the
$6 million size standard, thus reducing small business competition for
these services. On the other hand, if SBA established the size standard
at $28.5 million or 500 employees, almost all firms in this sub-
industry would be considered small businesses.
[[Page 47488]]
SBA welcomes comments on other alternatives that minimize the
impact of this rule on small businesses and achieve the objectives of
this rule. Those comments should describe the alternative and explain
why it is preferable to the proposed rule.
List of Subjects in 13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business. Loan programs--business,
Small businesses.
For the reasons set forth in the preamble, SBA proposes to amend
part 121 of title 13 of the Code of Federal Regulations as follows:
PART 121--[AMENDED]
1. The authority citation of part 121 continues to read as follows:
Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a), 644(c) and
662(5) and Sec. 304, Pub. L. 103-403, 108 Stat. 4175, 4188.
2. In Sec. 121.201, amend the table ``Small Business Size Standards
by NAICS Industry'' as follows:
a. In the middle column, revise the heading ``Description
(N.E.C.=Not Elsewhere Classified)'' to read ``NAICS industry
descriptions'';
b. Under the heading ``Subsector 115--Support Activities for
Agriculture and Forestry,'' revise the entry for 115310; and
c. Add footnote 16 to the end of the table.
The revisions and additions read as follows:
Sec. 121.201 What size standards has SBA identified by North American
Industry Classification System codes?
* * * * *
Small Business Size Standards by NAICS Industry
----------------------------------------------------------------------------------------------------------------
Size standards in
number of
NAICS codes NAICS industry descriptions employees or
million of
dollars
----------------------------------------------------------------------------------------------------------------
* * * * * *
*
Subsector 115--Support Activities for Agriculture and Forestry
* * * * * *
*
115310.................................. Support Activities for Forestry.................... $6.0
EXCEPT.................................. Forest Fire Suppression and Fuels Management \16\.. 15.0
* * * * * *
*
----------------------------------------------------------------------------------------------------------------
Footnotes
* * * *
\16\ NAICS code 115310 (support Activities for Forestry)--Forest Fire Suppression and Fuels Management, a
component of Support Activities for Forestry, includes establishments which provide services to fight forest
fires. These firms usually have fire-fighting crews and equipment. This component also includes Fuels
Management firms that provide services to clear land of hazardous materials that would fuel forest fires. The
treatments used by these firms may include prescribed fire, mechanical removal, establishing fuel breaks,
thinning, pruning, and piling.
Dated: April 29, 2002.
Hector V. Barreto,
Administrator.
[FR Doc. 02-18112 Filed 7-18-02; 8:45 am]
BILLING CODE 8025-01-P