[Federal Register Volume 75, Number 193 (Wednesday, October 6, 2010)]
[Rules and Regulations]
[Pages 61604-61609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-24857]
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN: 3245-AF71
Small Business Size Standards; Accommodation and Food Services
Industries
AGENCY: Small Business Administration (SBA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The United States Small Business Administration (SBA) is
increasing small business size standards for five industries in North
American Industry Classification System (NAICS) Sector 72,
Accommodation and Food Services--namely NAICS 721110, Hotels and
Motels, from $7.0 million to $30 million; NAICS 721120, Casino Hotels,
from $7.0 million to $30 million; NAICS 722211, Limited Service
Restaurants, from $7.0 million to $10 million; NAICS 722212,
Cafeterias, from $7.0 million to $25.5 million; and NAICS 722310, Food
Service Contractors, from $20.5 million to $35.5 million. As part of
its ongoing initiative to review all size standards, SBA has evaluated
every industry in Sector 72 to determine whether the existing size
standards should be retained or revised.
DATES: This rule is effective November 5, 2010.
FOR FURTHER INFORMATION CONTACT: Carl Jordan, Program Analyst, Office
of Size Standards, (202) 205-6618 or [email protected].
SUPPLEMENTARY INFORMATION:
Introduction
To determine eligibility for Federal small business assistance
programs, SBA establishes small business size definitions (referred to
as size standards) for private sector industries in the United States.
SBA's existing size standards use two primary measures of business
size--annual receipts and number of employees. Financial assets,
electric output and refining capacity are used as size measures for a
few specialized industries. In addition, SBA's Small Business
Investment Company (SBIC) and the Certified Development Company (CDC)
Programs determine small business eligibility using either the industry
based size standards or net worth and net income based size standards.
Currently, SBA's size standards consist of 45 different size levels,
covering 1,141 NAICS industries and 17 sub-industry activities. Of
these size levels, 32 are based on average annual receipts, eight
[[Page 61605]]
are based on number of employees, and five are based on other measures.
In addition, SBA has established 11 other size standards for its
financial and procurement programs.
Over the years, SBA has received comments that its size standards
have not kept up with changes in the economy and, in particular, that
they do not reflect changes in the Federal contracting marketplace. The
last overall review of size standards occurred during the late 1970s
and early 1980s. Since then, most reviews of size standards have been
limited to in-depth analyses of specific industries in response to
requests from the public and Federal agencies. SBA also makes periodic
inflation adjustments to its monetary based size standards. The latest
inflation adjustment to size standards was published in the Federal
Register on July 18, 2008 (73 FR 41237).
SBA recognizes that changes in industry structure and Federal
marketplace over time have rendered existing size standards for some
industries no longer supportable by current data. Accordingly, SBA has
begun a comprehensive review of its size standards to determine whether
existing size standards have supportable bases relative to the current
data and, where necessary, to make revisions to existing size
standards. Rather than review all size standards at one time, SBA has
taken a more manageable approach to reviewing a group of related
industries within an NAICS Sector. SBA expects to complete its review
of all NAICS Sectors in two years.
As part of its ongoing effort to review all small business size
standards, SBA evaluated every industry in NAICS Sector 72,
Accommodation and Food Services, to determine whether the existing size
standards should be retained or revised, and published a proposed rule
for public comment in the October 21, 2009 issue of the Federal
Register (74 FR 53913) to increase the size standards for five
industries in that Sector. The proposed rule was one of a series of
proposals that will examine industries grouped by an NAICS Sector. SBA
also published concurrently in the same October 21, 2009 issue of the
Federal Register proposed rules to increase small business size
standards for 47 industries in NAICS Sector 44-45, Retail Trade (74 FR
53924) and for 18 industries in NAICS Sector 81, Other Services (74 FR
53941). Similarly, SBA is publishing final rules on NAICS Sector 44-45
and NAICS Sector 81 elsewhere in this issue of the Federal Register.
In addition, SBA established its ``Size Standards Methodology'' for
reviewing small business size standards and modifying them, where
necessary. SBA published in the October 21, 2009 issue of the Federal
Register (74 FR 53940) a notice of its availability, for public
comments, on its Web site at http://www.sba.gov/contractingopportunities/officials/size/index.html. In addition, SBA
has placed a copy of its ``Size Standards Methodology'' in the
electronic docket of the proposed rule and is available there as well.
In evaluating an industry's size standard, SBA examines the
industry's characteristics (such as average firm size, startup costs,
industry competition and distribution of firms by size), Federal
government contracting trends, impact on SBA financial assistance
programs, and dominance in field of operations. SBA analyzed the
characteristics of each industry in NAICS Sector 72 mostly using a
special tabulation obtained from the U. S. Bureau of the Census from
its 2002 Economic Census (the latest available). SBA also evaluated
Federal contracting trends using the data from the Federal Procurement
Data System--Next Generation (FPDS--NG) for fiscal years 2006-2008.
To evaluate the impact of changes to size standards on its loan
programs, SBA analyzed internal data on its guaranteed loan programs
for fiscal years 2006-2008.
SBA's ``Size Standards Methodology'' provides a detailed
description of analyses of various industry and program factors and
data sources and derivation of size standards using the results. In the
proposed rule itself, SBA detailed how it applied its ``Size Standards
Methodology'' to review, and to modify where necessary, the existing
standards for the Sector and Industries under analysis.
SBA sought comments from the public on a number of issues about its
``Size Standards Methodology,'' such as whether there are alternative
methodologies that SBA should consider; whether there are alternative
or additional factors or data sources that SBA should evaluate; whether
SBA's approach to establishing small business size standards makes
sense in the current economic environment; whether SBA's definitions of
anchor size standards are appropriate in the current economy; whether
there are gaps in SBA's methodology because of the lack of
comprehensive data; and whether there are other facts or issues that
SBA should consider in its methodology.
SBA did not receive any comments on ``Size Standards Methodology.''
SBA continues to welcome comments from interested parties.
In the proposed rule, based on its analyses of current industry and
other relevant data, SBA proposed to increase five of the 15 size
standards in NAICS Sector 72. SBA's analyses supported retaining the
existing size standards for three industries. As noted in the proposed
rule, SBA's analyses would support reducing size standards for the
seven of the remaining industries in the Sector. However, as the
proposed rule pointed out, SBA believes that lowering size standards
and thereby reducing the number of firms eligible to participate in
Federal small business assistance programs would run counter to what
the Agency is doing to help small businesses. Therefore, SBA proposed
to retain the existing size standards for those seven industries.
Summary of Comments
The proposed rule sought comments from the public on SBA's proposal
to increase size standards for five Industries in NAICS Sector 72. SBA
received six comments; four strongly supported the proposed increases
in size standards and two did not. The four supporting comments stated
that the proposed increases will help more small hotels participate in
Federal procurement opportunities reserved for small businesses. It
will also help the Federal government meet its hotel and conference
accommodation needs. The commenters stated that there are too few
conference hotels under the current size standards with little
competition for federal business.
Another commenter suggested that there should be only one maximum
revenue based and one maximum employee based size standard, regardless
of NAICS industry. While this would simplify size standards even more
than what SBA had proposed, the Small Business Act states that ``the
[SBA] Administrator shall ensure that the size standard varies from
industry to industry to the extent necessary to reflect the differing
characteristics of the various industries and consider other factors
deemed to be relevant by the Administrator.'' (15 U.S.C. 632(a)(3)) The
relevant data show significant differences among industries within each
NAICS Sector, including Sector 72, and SBA believes that varying the
size standard by industry not only complies with the Act, but it also
serves the best interests of small businesses in that Sector.
Therefore, SBA does not presently plan to reduce the number of receipts
based size standard levels below eight.
Another commenter stated that an increase from $7 million to $30
million was ``too drastic,'' but provided no
[[Page 61606]]
specifics to support this opinion. SBA agrees that such an increase
might appear so, but based on its analysis of the industries in Sector
72, fully explained in the proposed rule (q.v.), SBA believes that the
increases are appropriate.
SBA did not receive any comments on whether it should lower size
standards for the seven industries in NAICS Sector 72 for which SBA's
analyses supported reducing the existing size standards. SBA also did
not receive any comments on three industries for which SBA's analyses
supported retaining the existing size standards. Therefore, SBA is
retaining the existing size standards for 10 of the 15 Industries in
NAICS Sector 72.
All comments to the proposed rule are available for public review
at http://www.regulations.gov.
Conclusion
Based on its analyses of relevant industry and program data and
public comments it received on the proposed rule, SBA has decided to
increase five small business size standards in NAICS Sector 72, as
shown in the following table.
Summary of Revised Small Business Size Standards for NAICS Sector 72
------------------------------------------------------------------------
Current size Revised size
NAICS standard ($ standard ($
million) million)
------------------------------------------------------------------------
721110--Hotels (except Casino Hotels) & $7.0 $30.0
Motels.................................
721120--Casino Hotels................... 7.0 30.0
722211--Limited Service Restaurants..... 7.0 10.0
722212--Cafeterias...................... 7.0 25.5
722310--Food Service Contractors........ 20.5 35.5
------------------------------------------------------------------------
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) Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
rule is a ``significant'' regulatory action for purposes of Executive
Order 12866. Accordingly, the next section contains SBA's Regulatory
Impact Analysis. This is not a major rule, however, under the
Congressional Review Act, 5 U.S.C. 800.
Regulatory Impact Analysis
1. Is there a need for the regulatory action?
SBA believes that adjustments to certain size standards in Sector
72, Accommodation and Food Services, are needed to better reflect the
economic characteristics of small businesses in those industries. SBA
provides aid and assistance to small businesses through a variety of
financial, procurement, business development and advocacy programs. To
assist effectively the intended beneficiaries of these programs, SBA
must establish distinct definitions of which businesses are deemed
small businesses. The Small Business Act (15 U.S.C. 632(a)) delegates
to SBA's Administrator the responsibility for establishing small
business definitions. The Act also requires that small business
definitions vary to reflect industry differences. The supplementary
information section of this rule explains SBA's methodology for
analyzing a size standard for a particular industry.
2. What are the potential benefits and costs of this regulatory action?
The most significant benefit to businesses obtaining small business
status as a result of this rule is eligibility for Federal small
business assistance programs, including SBA's financial assistance
programs, economic injury disaster loans, and Federal procurement
preference programs for small businesses. Federal procurement
regulations provide opportunities for small businesses under SBA's
business development programs, such as 8(a), Small Disadvantaged
Businesses (SDB), small businesses located in Historically
Underutilized Business Zones (HUBZone), women owned small businesses
and service disabled veteran owned small businesses (SDVOSB). Other
Federal agencies also may use SBA size standards for a variety of
regulatory and program purposes. Through the assistance of these
programs, small businesses become more knowledgeable, stable and
competitive businesses. In five industries under Sector 72 for which
SBA had proposed to increase size standards, about 2,050 additional
firms are estimated to obtain small business status and become eligible
for these programs.
In the seven industries for which SBA's analyses indicated a lower
size standard as appropriate, there are about 450 firms that might have
lost their small business status, had SBA proposed lowering them. That
number is less than 0.6 percent of the total number of firms in those
industries defined as small under the current standards. Thus, the net
impact for the Sector as whole is about 2,050 additional firms gaining
and none losing small business status under this rule. This will
increase the small business share of total industry receipts for the
Sector from about 46 percent under the current size standards to nearly
50 percent under the revised standards.
The benefits of increasing certain size standards to a more
appropriate level would accrue to three groups: (1) Businesses that
benefit by gaining small business status from the higher size standard
that also use small business assistance programs; (2) growing small
businesses that may exceed the current size standards in the near
future and that will retain their small business status from the higher
size standards; and (3) Federal agencies that award contracts under
procurement programs that require small business status.
Nearly 90 percent of Federal contracting dollars spent in Sector 72
during fiscal years 2006-2008 was accounted for by two of five
industries for which size standards have been increased in this rule.
SBA estimates that additional firms gaining small business status in
those two industries under the new size standards could potentially
obtain Federal contracts totaling up to $75 million per year under the
small business set-aside program, the 8(a), HUBZone, and SDVOSB
Programs, or unrestricted procurements. This represents about 5.5
percent of the $1.13 billion in average Federal contract dollars
awarded in the Accommodation and Food Services Sector during fiscal
years 2006-2008. The added competition for many of these procurements
will also likely result in a lower price to the Government for
procurements reserved
[[Page 61607]]
for small businesses, but SBA is not able to quantify this benefit.
Under SBA's 7(a) Guaranteed Loan Program and 504 Certified
Development Company (CDC) Program, SBA estimates only a few additional
loans totaling $1 million to $2 million in Federal loan guarantees
could be made to these newly defined small businesses. Because of the
size of the loan guarantees, however, most loans are made to small
businesses well below the size standard. Moreover, under the Recovery
Act, effective February 17, 2009, SBA temporarily raised guarantees on
its SBA's 7(a) loan program and also temporarily eliminated fees for
borrowers on SBA 7(a) loans and for both borrowers and lenders on 504
CDC loans, through calendar year 2009, or until the funds are
exhausted. The fee elimination is retroactive to February 17, 2009, the
day the Recovery Act was signed. In addition, since SBA has applied its
CDC alternative size standard to its 7(a) Business Loan Program, more
capital is available to small businesses. Thus, increasing the size
standards will likely result in an increase in guaranteed loans to
businesses in these industries, but it would be impractical to try to
estimate the extent of their number and the total amount loaned.
The newly defined small businesses will also benefit from SBA's
Economic Injury Disaster Loan (EIDL) Program. Since this program is
contingent on the occurrence and severity disasters, no meaningful
estimate of benefits can be projected for future disasters.
To the extent that 2,050 additional firms could become active in
Federal procurement programs, this may entail some additional
administrative costs to the Federal Government associated with
additional bidders for Federal small business procurement
opportunities, additional firms seeking SBA guaranteed lending
programs, additional firms eligible for enrollment in the Central
Contractor Registration's Dynamic Small Business Search database and
additional firms seeking certification as 8(a) or HUBZone firms or
qualifying for SDB status. Among businesses in this group seeking SBA
assistance, there could be some additional costs associated with
compliance and verification of small business status and protests of
small business status. These additional costs are likely to be minimal
because mechanisms are already in place to handle these additional
administrative requirements.
The costs to the Federal Government may be higher on some Federal
contracts. With a greater number of businesses defined as small,
Federal agencies may choose to set aside more contracts for competition
among small businesses rather than using full and open competition. The
movement from unrestricted to set-aside contracting is likely to result
in competition among fewer bidders. In addition, higher costs may
result from additional full and open contracts awarded to HUBZone and
SDB businesses because of price evaluation preferences. The additional
costs associated with fewer bidders, however, are likely to be minor
since, as a matter of law, procurements may be set aside for small
businesses or reserved for the 8(a), SDB or HUBZone Programs only if
awards are expected to be made at fair and reasonable prices.
The increased size standards 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 likely impacts can be identified. There will likely
be a transfer of some Federal contracts to small businesses from large
businesses. Large businesses may have fewer Federal contract
opportunities as Federal agencies decide to set aside more Federal
contracts for small businesses. Also, some Federal contracts may be
awarded to HUBZone or SDB concerns instead of large businesses since
those two categories of small businesses may be eligible for an
evaluation adjustment for contracts competed on a full and open basis.
Similarly, currently defined small businesses may obtain fewer Federal
contracts due to the increased competition from more businesses defined
as small. This transfer may be offset by a greater number of Federal
procurements set aside for all small businesses. The number of newly
defined and expanding small businesses that are willing and able to
sell to the Federal Government will limit the potential transfer of
contracts away from large and currently defined small businesses. The
potential distributional impacts of these transfers may not be
estimated with any degree of precision because the data on the size of
business receiving a Federal contract are limited to identifying small
or other than small businesses, without regard to the exact size of the
business.
The revisions to the existing size standards for Accommodation and
Food Services industries is consistent with SBA's statutory mandate to
assist small business. This regulatory action promotes the
Administration's objectives. One of SBA's goals in support of the
Administration's objectives is to help individual small businesses
succeed through fair and equitable access to capital and credit,
Government contracts, and management and technical assistance.
Reviewing and modifying size standards, when appropriate, ensures that
intended beneficiaries have access to small business programs designed
to assist them.
Executive Order 12988
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.
Executive Order 13132
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.
Paperwork Reduction Act
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
recordkeeping requirements, other than those required of SBA.
Final Regulatory Flexibility Analysis
Under the Regulatory Flexibility Act (RFA), this rule may have a
significant impact on a substantial number of small entities in Sector
72, Accommodation and Food Services. As described above, this rule may
affect small entities seeking Federal contracts, SBA 7(a) and 504
Guaranteed Loan Programs, SBA Economic Injury Disaster Loans, and other
Federal small business programs.
Immediately below, SBA sets forth a final regulatory flexibility
analysis 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 are the projected reporting, record keeping,
and other compliance requirements of the rule? (4) what are the
relevant Federal rules which may duplicate, overlap or conflict with
the rule? and (5) what alternatives will allow the Agency to accomplish
its regulatory objectives while minimizing the impact on small
entities?
(1) What is the need for and objective of the rule?
Most of SBA's size standards for Accommodation and Food Services
industries have not been reviewed since the early 1980s. Technology,
productivity growth, international competition, mergers and
acquisitions,
[[Page 61608]]
and updated industry definitions may have changed the structure of many
industries. Such changes can be sufficient to support a revision to
size standards for some industries. Based on an analysis of the latest
data available to the Agency, SBA believes that the revised standards
in this proposed rule more appropriately reflect the size of businesses
in those industries that need Federal assistance.
(2) What is SBA's description and estimate of the number of small
entities to which the rule will apply?
SBA estimates that approximately 2,050 additional firms will become
small because of increases in size standard in five industries. That
represents 1.1 percent of total firms in those industries. This will
result in an increase in the small business share of total industry
receipts for this Sector from about 46 percent under the current size
standard to nearly 50 percent under the revised standards.
(3) What are the projected reporting, recordkeeping, and other
compliance requirements of the rule and an estimate of the classes of
small entities which will be subject to the requirements?
A new size standard does not impose any additional reporting or
recordkeeping requirements on small entities. However, qualifying for
Federal procurement and a number of other programs requires that
entities register in the Central Contractor Registration (CCR) database
and certify at least annually that they are small in the Online
Representations and Certifications Application (ORCA). Therefore,
businesses opting to participate in those programs must comply with CCR
and ORCA requirements. There are no costs associated with either CCR
registration or ORCA certification. Revising size standards alters the
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 rule?
This rule overlaps with other Federal rules that use SBA's size
standards to define a small business. Under Sec. 3(a)(2)(C) of the
Small Business Act, 15 USC 632(a)(2)(C), Federal agencies must use
SBA's size standards to define a small business, unless specifically
authorized by statute. In 1995, SBA published in the Federal Register a
list of statutory and regulatory size standards that identified the
application of SBA's size standards as well as other size standards
used by Federal agencies (60 FR 57988, November 24, 1995). SBA is not
aware of any Federal rule that would duplicate or conflict with
establishing size standards.
However, the Small Business Act and SBA's regulations allow Federal
agencies to develop different size standards if they believe that SBA's
size standards are not appropriate for their programs, with the
approval of SBA's Administrator (13 CFR 121.903). The Regulatory
Flexibility Act authorizes an Agency to establish an alternative small
business definition, after consultation with the Office of Advocacy of
the U.S. Small Business Administration (5 U.S.C. 601(3)). Thus, there
may be instances where this rule conflicts with other rules.
(5) What alternatives will allow the Agency to accomplish its
regulatory objectives while minimizing the impact on small entities?
SBA is required to develop numerical size standards for identifying
businesses eligible for Federal small business programs. Other than
varying the size standards, no alternative exists to the systems of
numerical size standards.
List of Subjects in 13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Individuals with
disabilities, Loan programs--business, Reporting and recordkeeping
requirements, Small businesses.
0
For reasons set forth in the preamble, SBA amends 13 CFR part 121 as
follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
1. The authority citation for part 121 continues to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 637(a), 644,
657(a), 657(f), and 662(5); and Pub. L. 105-135, Sec. 401, et seq.,
111 Stat, 2592.
Subpart A--Size Eligibility Provisions and Standards
0
2. In Sec. 121.201, in the table, revise the entries for ``721110'',
``721120'', ``722211'',``722212'', and ``722310'' 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 Size standards
NAICS codes NAICS U.S. industry title in millions of in number of
dollars employees
----------------------------------------------------------------------------------------------------------------
* * * * * * *
721110................................... Hotels (except Casino Hotels) and $30.0 ..............
Motels.
721120................................... Casino Hotels........................ 30.0 ..............
* * * * * * *
722211................................... Limited-Service Restaurants.......... 10.0 ..............
722212................................... Cafeterias, Grill Buffets, and 25.5 ..............
Buffets.
* * * * * * *
722310................................... Food Service Contractors............. 35.5 ..............
* * * * * * *
----------------------------------------------------------------------------------------------------------------
[[Page 61609]]
Dated: September 10, 2010.
Marie C. Johns,
Deputy Administrator.
[FR Doc. 2010-24857 Filed 10-5-10; 8:45 am]
BILLING CODE 8025-01-P