[Federal Register Volume 67, Number 68 (Tuesday, April 9, 2002)]
[Proposed Rules]
[Pages 17020-17027]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-8359]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AE78
Small Business Size Standards; Testing Laboratories
AGENCY: Small Business Administration (SBA).
ACTION: Proposed rule.
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SUMMARY: The Small Business Administration (SBA) is proposing to
increase the size standard for the Testing Laboratories industry (North
American Industry Classification System (NAICS) code 541380) to $10
million in average annual receipts. The current size standard for this
industry is $6 million in average annual receipts. The proposed
revision is being made to better define the size of businesses in this
industry that SBA believes should be eligible for Federal small
business assistance programs.
DATES: Comments must be submitted on or before June 10, 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 email to [email protected]. Upon request, SBA will
make all public comments available.
FOR FURTHER INFORMATION CONTACT: Robert N. Ray, Office of Size
Standards, (202) 205-6618.
SUPPLEMENTARY INFORMATION: The Small Business Administration (SBA) has
received requests from Testing Laboratories to review its $6 million
size standard. These firms believe that a size standard increase is
warranted in light of the high level capacities and skills that Federal
agencies have recently required among their vendors that specialize in
environmental and radiochemical testing. They believe that the minimum
government requirements may have raised the costs of doing business in
this industry to the point that the pool of eligible small businesses
in this activity has seriously declined. If this trend continues, it is
argued, Federal agencies could be hampered in using government
preference programs for small business. Below is a discussion of SBA's
size standards methodology and the analysis leading to the proposal to
increase the Testing Laboratories size standard to $10 million.
(Effective February 22, 2002, the Testing Laboratories size
standard 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. This rule proposes a further increase to the
size standard based on an analysis of the characteristics of businesses
in the Testing Laboratories industry.)
Size Standards Methodology: Congress has 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:/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 characteristics
[[Page 17021]]
(Section 3(a)(3)). SBA has in place two ``base or anchor size
standards'' that apply to most 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 for 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. These can
include the impact of a revision on other agencies' programs. 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 firm within an industry to the
size of firm in the comparison group at which predetermined percentages
of receipts are generated by firms smaller than a particular size firm.
For example, for Testing Laboratories, 50% of total industry receipts
are generated by firms of $9.3 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% of total industry
receipts. Viewed in isolation, this significantly higher figure for
Testing Laboratories suggests that a higher size standard than the
nonmanufacturing anchor size standard may be warranted. Other size
distribution comparisons in the industry analysis include 40%, 60%, and
70%, as well as the 50% comparison discussed above.
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 an industry
have greater financial requirements than firms in other industries, SBA
is justified in considering a higher size standard. In lieu of direct
data on start-up costs, SBA is using a special measure to assess the
financial burden for entry-level firms. SBA is using nonpayroll costs
per establishment as a proxy measure for start-up costs associated with
capital investment requirements. 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
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 compared 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
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% for an industry under review, while its
[[Page 17022]]
comparison groups also average less than 40%.
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, an increase to the size standard (especially, if it is
already above the anchor size standard) may not be appropriate.
Evaluation of Industry Size Standard: The two tables below show the
characteristics for the Testing Laboratories industry and for the
comparison group. The primary comparison group is comprised of all
industries with a $6 million receipts-based size standard (referred to
as the nonmanufacturing anchor group). Since SBA's size standards
analysis is assessing whether the Testing Laboratories size standard
should be higher than the nonmanufacturing anchor size standard, this
is the most logical set of industries to group together for the
industry analysis. Data on a second comparison group is also shown.
This group consists of all industries in NAICS Sector 54, Professional,
Scientific, and Technical Services--the NAICS Sector of which Testing
Laboratories is a part. The data on this comparison group provide an
additional perspective on the size of firms in related industries and
their industry structure. SBA examined economic data on these
industries from a special tabulation of the 1997 Economic Census
prepared under contract by the U.S. Bureau of the Census. SBA also
examined Federal contract award data for fiscal years 1998-2000 from
the U.S. General Services Administration's Federal Procurement Data
Center.
Industry Structure Consideration: Table 1 below examines the size
distribution of Testing Laboratories. For this factor, SBA is
evaluating the size of firm that accounts for predetermined percentages
of total industry receipts (40%, 50%, 60%, and 70%). The table shows
firms up to a specific size that, along with smaller firms, account for
a specific percentage of total industry receipts. For example, Testing
Laboratories of $4.6 million or less in receipts obtained 40% of total
industry receipts. Within the nonmanufacturing anchor group, firms of
$3.2 million or less in receipts obtained 40% of total industry
receipts in the average industry, while in NAICS sector 54, firms of
$2.3 million or less in receipts obtained 40% of total industry
receipts.
Table 1.--Size Distributions of Firms in the Testing Laboratories Industry, Nonmanufacturing Anchor Group, and
NAICS Sector 54
[Data in Thousands of Dollars]
----------------------------------------------------------------------------------------------------------------
Size of firm Size of firm Size of firm Size of firm
Category at 40% at 50% at 60% at 70%
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Testing Laboratories............................ $4,600 9,262 18,726 33,867
Nonmanufacturing Anchor Group................... 3,206 5,821 11,857 27,957
NAICS Sector 54................................. 2,262 4,683 9,668 31,904
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These data suggest that a size standard nearly double the $6
million size standard may be appropriate for the industry of Testing
Laboratories. At the given coverage levels the size of firm for the
Testing Laboratories industry is significantly larger than in the two
comparison groups. The size of firms for the Testing Laboratories
industry is more than 40% larger than in the Nonmanufacturing Anchor
comparison group, and about twice as large as the average industry in
NAICS Sector 54 for most of the distribution percentages.
Table 2 lists the other four evaluation factors for the Testing
Laboratories industry and the comparison groups. These include
comparisons of average firm size, the measurement of start-up costs as
measured by nonpayroll receipts per establishment, and the four-firm
concentration ratio.
Table 2.--Industry Characteristics of the Testing Laboratories Industry, Nonmanufacturing Anchor Group, and
NAICS Sector 54
----------------------------------------------------------------------------------------------------------------
Average firm size Non payroll Four firm
-------------------------------- receipts per concentration
Category Receipts establishment ratio (in
(millions $) Employees (million $) percent)
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Testing Laboratories............................ 1.56 19.9 0.68 12.1
Nonmanufacturing Anchor Group................... 0.95 10.6 0.56 14.4
NAICS Sector.................................... 54 0.77 7.7 0.45
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For Testing Laboratories, its average firm size in receipts is one
and one-half times larger than the average firm size in the
Nonmanufacturing Anchor comparison group, and twice that of the NAICS
Sector 54 industries. Moreover, its average firm size in employees is
two to three times the average sizes of these two comparison groups.
This factor is sufficiently higher than the comparison groups to
support a size standard appreciably above or double the $6 million size
standard. Its nonpayroll receipts per establishment ratio indicator, a
measure of capital
[[Page 17023]]
requirements to enter an industry, is also somewhat higher than the
anchor comparison group, and about one and one-half times the size of
the NAICS Sector 54 group of industries. This factor indicates that a
size standard slightly above the $6 million size standard may be
appropriate. Its four-firm concentration ratio, however, is relatively
low, indicating that the industry is not dominated by large businesses.
This is the only industry structure parameter not pointing to the need
for a higher size standard for Testing Laboratories.
SBA Program Considerations: SBA also reviews its size standards in
relationship to its programs. Since SBA is reviewing the Testing
Laboratories Industry's size standard because of concerns about the
application of the size standard to Federal procurement, this proposed
rule gives more consideration to the pattern of Federal contract awards
than to the level of financial assistance to small businesses to assess
whether its size standard should be revised. SBA provides a relatively
small amount of financial assistance to Testing Laboratories. In fiscal
year 2000, 66 loans totaling $21 million were guaranteed to Testing
Laboratories. Most of these loans were to labs with less than $1
million in receipts. It's unlikely that an increase to the size
standard will have much impact on the financial programs and,
consequently, this factor is not part of the assessment of the size
standard.
In the case of Federal procurement, the share of Federal contracts
awarded to small Testing Laboratories supports an increase to the
current size standard (see Table 3). Small Testing Laboratories
received only 8.4% of the dollar value of Federal contracts awarded
during fiscal years 1998 to 2000. While there are no NAICS procurement
data available for the receipt-based size standards group, or for the
54 group, SBA does have data for total small business awards in which
all industries are summed and combined. In fiscal years 1998-2000,
18.7% of the total value of all Federal prime contracts were awarded to
small firms, a figure more than twice the share of small firms in the
Testing Laboratories Industry. In addition, this share is
disproportionally small when compared with the amount of total industry
receipts generated by small Testing Laboratories. Although the Census
Bureau data indicate that small Testing Laboratories account for more
than 40% of industry receipts, they obtained only 8.4% of Federal
contracts during fiscal years 1998-2000. These figures suggest that the
Federal contract requirements are different from those of the private
marketplace, favoring, in general, larger firms with greater experience
and sophistication. These results strongly reinforce the industry
structure factors in arguing for a higher size standard for Testing
Laboratories.
Table 3.--Small Business Prime Contract Awards, Fiscal Years 1998-2000
[Data in thousands of dollars]
----------------------------------------------------------------------------------------------------------------
Category FY 1998 FY 1999 FY 2000 Sum of three years
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Total Awards.................... $182,255.7 $183,579.4 $203,533.9 $569,369.0
Small Business Awards........... $33,746.7 $34,482.9 $38,260.3 $106,490.0
Percent to Small Business....... 18.5% 18.8% 18.8% 18.7%
Testing Laboratories Awards..... $861.6 $628.0 $84.7 $1,574.3
Small Testing Laboratories $44.1 $45.3 $42.1 $131.7
Awards.
Percent to Small Testing 5.1% 7.2% 49.7% 8.4%
Laboratories.
----------------------------------------------------------------------------------------------------------------
Note: Data for FY 2000 for Testing Laboratories are not representative of most years due to deobligations of
$135 million from procurements initiated in previous years.
Overview: Based on the analysis of each evaluation factor, SBA is
proposing a $10 million size standard. Four of the five evaluation
factors clearly support a size standard ranging from slightly above to
double the $6 million nonmanufacturing anchor size standard. The low
amount of participation of small businesses in Federal government
procurement, however, is of special concern and suggests, as the
requestors had pointed out, that Federal contract requirements may
indeed influence the size of Testing Laboratories that possesses the
equipment and qualifications to perform on Federal analytical testing
contracts. After considering all factors, SBA believes that a $10
million size standard is a reasonable size standard for the Testing
Laboratories industry and will help small businesses in this industry
to compete for Federal contracts without including businesses that are
so large that they could harm the ability of much smaller-sized small
businesses to compete successfully for Federal contracts.
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 major controlling influence on a national basis
in which significant numbers of business concerns are engaged.
SBA has determined that no firm at or below the proposed size
standard for the Testing Laboratories industry would be of a sufficient
size to dominate its field of operation. The largest firm at the
proposed size standard level generates less than 0.16% of total
industry receipts. This level of market share effectively precludes any
ability for a firm at or below the proposed size standard to exert a
controlling effect on this industry. Alternative Size Standards: SBA
considered as an alternative size standard to the proposed $10 million,
a more modest increase to $7.5 million, and a larger increase to $12.5
million. SBA, however, decided not to propose the more moderate
increase of $7.5 million because it believes that the very low share of
Federal procurements to small Testing Laboratories indicates the need
for a higher size standard to include those Testing Laboratories that
can meet and perform on many Federal analytical testing contracts. SBA
also decided not to propose a larger increase to $12.5 million based on
the fact that two of the five factors reviewed indicated a size
standard at, or only slightly above, the
[[Page 17024]]
$6 million nonmanufacturing anchor size standard. SBA believes that the
evaluation factors should be virtually unanimous for an increase of
this magnitude. While the industry factors pointed to a higher size
standard for this industry, they were not strong enough to support a
size standard of $12.5 million--more than twice the present size
standard. However, the factors did point to a size standard of $10
million. The three factors pointing to a $10 million size standard--the
size distribution of firms, average firm size, and the Federal
procurement share of small firms--are the factors that SBA believes are
most important when analyzing a size standard. (The non-payroll
receipts per establishment is only a proxy measure of capitalization,
and the four firm concentration measure, generally, is so low outside
of the manufacturing and utility industries that it usually has little
effect on the analysis.) Thus, with three out of five factors pointing
to a higher size standard, and the fact that these factors are more
important than the other factors, SBA believes that a size standard of
$10 million is warranted.
SBA welcomes public comments on its proposed size standard for the
Testing Laboratories industry. Comments supporting an alternative to
the proposal, including the option of retaining the size standard at $6
million discussed above, should explain why the alternative would be
preferable to the proposed size standard.
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 this
proposed rule constitutes a ``significant'' regulatory action under
Executive Order 12866. SBA's regulatory analysis is set forth below.
Regulatory Impact Analysis
A. General Considerations
1. 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. SBA believes that an
adjustment in the size standard of the Testing Laboratories industry is
needed to better reflect the industrial structure of this industry.
2. Alternatives
There are no viable alternatives to establishing size standards to
define a small business for Federal small business programs. The
purpose of this rule is to better define the size of firms eligible for
SBA assistance.
3 What is the baseline?
The baseline in this rule is the coverage of businesses whose size
is at or below SBA's size standard of $6 million for this industry. A
special tabulation of the 1997 Economic Census prepared for SBA reports
that 3,762 firms active in this industry are defined as small out of
4,126 firms in the industry. These account for 91.2% of total firms in
the industry. These firms generate $2.66 billion of the $6.44 billion
produced in the industry. SBA estimates that 98.4% of all businesses in
the U.S. are currently defined as small under the existing size
standards and they account for 28.6% of industry sales.
B. Benefit Estimates
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, 120 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, small businesses located in Historically
Underutilized Business Zones (HUBZone), women-owned small businesses,
and veteran-owned and service disabled veteran-owned small businesses,
as well as those 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 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. First, businesses that benefit by
gaining small business status from the proposed size standards and use
small business assistance programs. Second, 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.
Third, Federal agencies that award contracts under procurement programs
that require small business status.
Newly defined small businesses would benefit from the SBA's
financial programs, in particular its 7(a) Guaranteed Loan Program and
Certified Development Company (504) Program. SBA estimates that
approximately $2.1 million in new Federal loan guarantees could be made
to these newly defined small businesses. This represents 9.8% of the
$21 million in loans that were guaranteed by the SBA under these two
financial programs to firms in the Testing Laboratories industry in FY
2000. 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 will likely result in only a small increase in small
business guaranteed loans to businesses in this industry, and the $2.1
million estimated figure may overstate the actual impact.
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.
SBA estimates that approximately $51 million per year of additional
Federal prime contracts may be awarded to businesses becoming newly
designated small businesses in the Testing Laboratories industry. This
represents 9.8% of the $525 million that the Federal government awarded
in the average year in this industry during fiscal years 1998-2000.
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. Nonsmall businesses with
[[Page 17025]]
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.
C. Costs Estimates
To the extent that up to 120 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 administrative costs since administrative
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. The additional costs associated with fewer bidders,
however, 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.
D. Other Considerations Including Distributional Effects, Equity
Considerations and Uncertainty
The proposed size standard may have distributional effects among
large and small businesses. Although the actual outcome of the gains
and loses 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.
SBA has determined that this proposed rule, if adopted, may have a
significant economic impact on a substantial number of small entities
within the meaning of the Regulatory Flexibility Act (RFA), 5 U.S.C.
601 et seq. Immediately below is an initial regulatory flexibility
analysis (IRFA) of this proposed rule 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
keeping, and other compliance requirements of the rule, and (4) what
are the relevant Federal rules which may duplicate, overlap or conflict
with the proposed rule.
(1) What Is the Need for and Objective of the Rule?
SBA believes that this revision to the size standard for Testing
Laboratories more appropriately defines the size of businesses in this
industry that should be eligible for Federal small business assistance
programs. A review of the latest available data supports a change to
the current size standard.
(2) What Is SBA's Description and Estimate of the Number of Small
Entities to Which the Rule Will Apply?
SBA estimates that 120 additional businesses out of 4,126
businesses in the industry would be considered small as a result of
this rule, if adopted. The number of small businesses would increase
from 3,762 firms to 3,882. These businesses would be eligible to seek
available SBA assistance provided that they meet other program
requirements. Businesses becoming newly eligible for SBA assistance as
a result of this rule, if finalized, cumulatively generate $635 million
in this industry. The amount of receipts by small firms would increase
from $2.7 billion to $3.3 billion out of a total of $6.4 billion in
receipts. The small business coverage in this industry would increase
by 9.8% of total receipts. This figure of 9.8% is used to estimate the
potential economic impacts of this rule as they relate to Federal
programs that are discussed below.
Description of Potential Benefits of the Rule: The most significant
benefit to businesses obtaining small business status as a result of
this rule is their eligibility for Federal small business assistance
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).
SBA estimates that firms gaining small business status could
potentially obtain additional Federal contracts worth $51 million per
year under the small business set-aside program, the 8(a) and HUBZone
programs or unrestricted contracts. This represents 9.8% of the $525
million that the Federal government awarded per year in this industry
during fiscal years 1998-2000. The added competition for many of these
procurements also would likely result in a lower price to the
government for procurements set aside for small businesses, but SBA is
not able to quantify this benefit.
Under SBA's 7(a) Guaranteed Loan Program and Certified Development
Company (504) Program, SBA estimates that an additional $2.1 million in
new Federal loan guarantees could be made to these newly defined small
businesses. This represents 9.8% of the $21 million in loans that were
guaranteed y SBA under these two financial programs for firms in the
Testing Laboratories Industry in FY 2000. Because of the size of the
loan guarantees, most loans are made to businesses well below the size
standard. Thus, increasing the size standard will likely result in only
a small increase in small business guaranteed loans to businesses in
this industry, and the $2.1 million estimated figure may overstate the
actual impact.
[[Page 17026]]
We view the additional amount of contract activity as the potential
amount of transfer from non-small to newly designated small firms. This
does not represent the creation of new contracting activity by the
Federal government, merely a reallocation or transfer to different
sized firms.
Description of Potential Costs of the Rule: The changes in size
standards as they affect Federal procurement are not expected to add
any significant costs to the government. As a matter of policy,
procurements may be set aside for small business or under the 8(a) and
HUBZone Programs only if awards are expected to be made at reasonable
prices. Similarly, the rule should not result in any added costs
associated with the 7(a) and 504 loan programs. The amount of lending
authority SBA can make or guarantee is established by appropriation.
The competitive effects of size standard revisions differ from
those normally associated with other regulations which typically burden
smaller firms to a greater degree than larger firms in areas such as
prices, costs, profits, growth, innovation and mergers. A change to a
size standard is not anticipated to have any appreciable effect on any
of these factors, although small businesses, 8(a) firms, or small
disadvantaged businesses much smaller than the size standard for their
industry may be less successful in competing for some Federal
procurement opportunities due to the presence of larger, newly defined
small businesses. On the other hand, with more larger small businesses
competing for small business set-aside and 8(a) procurements, Federal
agencies are likely to increase the overall number of contracting
opportunities available under these programs, and this could result in
greater opportunities for businesses much smaller than the size
standard.
Under this rule, there will be 120 additional firms that are
considered small and eligible for SBA preference programs. To the
extent that these firms are active in Government programs, this will
entail some additional administrative costs to the Federal government
associated with additional bidders for SBA's procurement programs,
additional firms seeking SBA guaranteed lending programs, and
additional firms eligible for enrollment in SBA's Pro Net program.
Among firms in this group seeking SBA assistance, there will be some
additional costs associated with compliance and verification. These
costs are likely to be small.
(3) What Is the Projected Reporting, Record Keeping, and Other
Compliance Requirements of the Rule and an Estimate of the Classes of
Small Entities Which 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.
SBA cannot estimate the impact of a size standard change on each
and every Federal program that uses its size standards. 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.
For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA certifies 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 certifies that this rule does not have any
federalism implications warranting the preparation of a Federalism
Assessment. For purposes of Executive Order 12988, SBA certifies that
this rule is drafted, to the extent practicable, in accordance with the
standards set forth in that order.
List of Subjects in 13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Loan programs--business,
Small businesses.
Accordingly, part 121 of 13 CFR is proposed to be amended as
follows:
PART 121--[AMENDED]
1. The authority citation for 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, in the table ``Small Business Size Standards by
NAICS Industry'', under the heading Subsector 541--Professional,
Scientific and Technical Services, revise the entry for 541380 to 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
Description number of
NAICS codes (N.E.C.=Not Elsewhere employees or
Classified) millions of
dollars
------------------------------------------------------------------------
* * * * * *
*
Sector 54--Professional, Scientific and Technical Services
Subsector 541--Professional, Scientific and Technical Services
------------------------------------------------------------------------
* * * * * *
*
541380........................ Testing Laboratories. $10.0
[[Page 17027]]
* * * *
* * *
------------------------------------------------------------------------
* * * * *
Dated: January 8, 2002.
Hector V. Barreto,
Administrator.
[FR Doc. 02-8359 Filed 4-8-02; 8:45 am]
BILLING CODE 8025-01-P