Small Business Size Standards; General Building Contractors, Heavy Construction, Dredging and Surface Cleanup Activities, Special Trade Contractors, Garbage and Refuse Collection, and Refuse Systems

[Federal Register Volume 64, Number 142 (Monday, July 26, 1999)]
[Proposed Rules]
[Pages 40311-40314]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18955]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121


Small Business Size Standards; General Building Contractors, 
Heavy Construction, Dredging and Surface Cleanup Activities, Special 
Trade Contractors, Garbage and Refuse Collection, and Refuse Systems

AGENCY: Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The Small Business Administration (SBA) proposes a size 
standard of $25.0 million in average annual receipts for all industries 
in General Building Contractors (Standard Industrial Classification 
(SIC) Major Group 15) and for all industries except Dredging and 
Surface Cleanup Activities in Heavy Construction Other Than Building 
Construction (SIC Major Group 16); $20.0 million for Dredging and 
Surface Cleanup Activities (part of SIC 1629, Heavy Construction, Not 
Elsewhere Classified (NEC)); $10.5 million for all Special Trade 
Contractors industries (SIC Major Group 17); and $9.0 million for 
Garbage and Refuse Collection, Without Disposal (part of SIC 4212, 
Local Trucking Without Storage), and Refuse Systems (SIC 4953). The 
proposed revisions are being made to adjust these industries' size 
standards for the effects of inflation since the time they were 
established in the mid-1980s.

DATES: Comments must be submitted on or before September 24, 1999.

ADDRESSES: Send comments to Gary M. Jackson, Assistant Administrator 
for Size Standards, 409 3rd Street, SW, Mail Code 6880, Washington DC 
20416.

FOR FURTHER INFORMATION CONTACT: Robert N. Ray, Office of Size 
Standards, (202) 205-6618.

SUPPLEMENTARY INFORMATION: SBA proposes revisions to its size standards 
in two industry groups--Construction and Refuse Systems and Related 
Services. For Construction, SBA proposes an increase to the size 
standards for all industries in General Building Contractors and Heavy 
Construction (except Dredging and Surface Cleanup Activities), Major 
Groups 15 and 16, respectively, from $17 million in average annual 
receipts to $25 million; for Dredging and Surface Cleanup Activities (a 
component of SIC 1629, Heavy Construction, NEC), from $13.5 million to 
$20 million; and for all industries in Special Trade Contractors, Major 
Group 17, from $7 million to $10.5 million. For the two industries 
comprising Refuse Systems and Related Services, SBA proposes an 
increase to the size standard from $6 million to $9 million for Garbage 
and Refuse Collection, part of SIC 4212 (Local Trucking Without 
Storage) and for Refuse Systems, SIC 4953.
    These proposed revisions adjust the current size standards for 
inflation that has occurred since 1984, when all but one of these size 
standards became effective. The size standard for Dredging and Surface 
Cleanup Activities became effective on December 9, 1985 (50 FR 46418, 
November 8, 1985), based on a special study of the industrial structure 
of the Dredging industry. That study essentially verified that the 
inflation adjustment of 40% which applied to all other Construction 
industries in 1984 was also appropriate for Dredging. Thus, SBA 
believes it is appropriate to apply the 1994 inflation adjustment to 
the Dredging industry without any adjustment for the later date when 
the Dredging size standard actually took effect.
    From September 30, 1988 until September 30, 1996, SBA was 
prohibited by statute from changing the size standards for the 
Construction and Refuse Systems and Related Services industries. These 
industries are subject to the special procurement procedures of the 
Small Business Competitiveness Demonstration Program (Program) (Title 
VII of Pub. L. 100-656, 102 Stat. 3853, 3889). This Program specifies 
special procedures on the use of small business set-aside contracting 
for the procurement of services within four designated industry groups. 
The designated groups are: Construction (SIC codes 1521-1542, SIC codes 
1611-1629 and SIC codes 1711-1799); Engineering Services (SIC code 
8711), Architectural Services (SIC code 8712), and Surveying and 
Mapping Services (SIC codes 8713 and part of SIC code 7389); Refuse 
Systems and Related Services (SIC code 4953 and part of SIC code 4212); 
and Non-nuclear Ship Repair (part of SIC code 3731, Ship Building and 
Repairing).
    Between 1988 and 1996, the Program included a provision that 
prohibited any change to the size standards for any industry in the 
designated industry groups that were in effect as of September 30, 
1988. However, the Small Business Act of 1996 included an amendment to 
the Program that repealed this prohibition (Omnibus Consolidated 
Appropriations Act, 1997, Division D, Title I, section 108 of Pub. L. 
104-208, 110 Stat. 3009-733.) In the accompanying legislative history, 
Congress indicated that SBA should take appropriate action to adjust 
the size standards for the designated industry groups, although no 
specific guidance was provided on how these size standards should be 
adjusted by SBA.
    SBA's preliminary assessment of the industries covered by the 
Program indicated that the size standards for the Engineering Services, 
Architectural Services, and Surveying and Mapping Services industries, 
among the lowest of SBA's size standards, were more in need of 
adjustment than the other size standards. Further review of those 
industries led to a proposed rule to increase their size standards 
published

[[Page 40312]]

on February 3, 1998 (63 FR 5480) and a final rule adopting new size 
standards published on May 14, 1999 (64 FR 26275). At this time, SBA is 
proposing only an inflation adjustment to the remaining industries 
covered by the Program which have a receipts-based size standard. A 
decision will be made at a later time on whether to propose a change to 
the 1,000-employee size standard for Non-nuclear Ship Repair.
    The inflation adjustment proposed for the Construction and Refuse 
Systems and Related Services industries' size standards is identical to 
the percentage SBA made to most of its receipts-based size standards in 
1994 (see 59 FR 16513, April 7, 1994) to account for the effects of 
inflation that had occurred since 1984, the year of SBA's previous 
inflationary adjustment (49 FR 5024, February 9, 1984). SBA is choosing 
to adjust these size standards to the levels that would have occurred 
in 1994, if they could have been adjusted at that time, so that all 
receipts-based size standards will be adjusted for inflation to the 
same point in time. All of SBA's receipts-based size standards will 
have been adjusted to the same time period if this rule becomes final 
(except for the agricultural production size standards which are 
statutorily set). SBA recognizes that inflation has occurred since 
1994, but not to a sufficient amount to warrant further adjustment at 
this time to these or other receipts-based size standards. SBA will 
make a consistent inflation adjustment to all receipts-based size 
standards when data suggest the need for such an inflation adjustment.

Inflation Adjustment Methodology

    On April 7, 1994, SBA adjusted most of its receipt-based size 
standards to account for the effects of inflation that had occurred 
since SBA's previous inflationary adjustment in 1984 (59 FR 16513, 
April 7, 1994). In that rule, SBA applied an inflation adjustment of 
48.2% to each receipts-based size standard and then rounded that level 
to the nearest half million dollar increment. This rounding method 
produces increases to most industry size standards that are slightly 
above or below the calculated inflation rate of 48.2%.
    In determining the rate of inflation, SBA used the U.S. Department 
of Commerce's Gross Domestic Product (GDP) Implicit Price Deflator. The 
1994 adjustment calculated inflation from the third quarter of 1982 
(the ending period for the previous inflation adjustment in 1984) to 
the fourth quarter of 1993 (the latest data available at the time of 
the 1994 final rule). SBA proposes to make the same adjustments to the 
industries addressed in this notice of proposed rulemaking.

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. Meets detailed definitions or standards established by the 
Administrator of SBA.
    In lieu of a separate small business eligibility criterion, SBA 
includes as part of its evaluation of a size standard whether a concern 
at or below a recommended size standard would be considered dominant in 
its field of operation. This assessment generally takes into 
consideration the market share of firms at a recommended size standard, 
or other factors that may reveal if 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 at the recommended size standards of $25.0 
million for General Building Contractors and Heavy Construction, $20 
million for Dredging and Surface Cleanup Activities, $10.5 million for 
Special Trade Contractors and $9.0 million for Garbage and Refuse 
Collection and for Refuse Systems, no firm at or below those levels 
would be of a sufficient size to be dominant in its field of operation. 
Firms at the proposed size standards generate less than one percent of 
total industry sales for each industry reviewed in this proposed rule. 
This low level of market share for the largest firm covered by SBA's 
proposed size standards effectively precludes any ability by a firm to 
exert a controlling effect on the industry in which it operates.

Alternative Size Standards

    SBA considered adjusting the Construction and Refuse Systems and 
Related Services size standards by the amount of inflation that has 
been reported by the latest available GDP deflator (first quarter of 
1999). The GDP deflator records an inflation rate of 60.6% from the 
third quarter of 1982 through the first quarter of 1999. As discussed 
earlier, if this adjustment were applied to the Construction and Refuse 
Systems and Related Services size standards it would result in 
receipts-based size standards being adjusted at different time periods.
    SBA is closely monitoring the amount of inflation that has occurred 
since the 1994 adjustment and will propose an inflation adjustment to 
all receipts-based size standards when it has determined that a 
significant amount of inflation has occurred to warrant such an 
adjustment. Thus far, inflation has only increased 9.6% since the 1994 
adjustment--an amount too small to warrant an inflation adjustment at 
this time. Furthermore, industry data from the U.S. Bureau of the 
Census' 1997 Economic Census will be available next year upon which to 
reassess these industries' size standards.
    SBA welcomes public comments on the proposed size standards for the 
Construction and Refuse Systems and Related Services industries. 
Comments on alternative size standards should explain the reasons why 
they are preferable to the proposed size standards.

Compliance With Executive Orders 12612, 12988, and 12866, the 
Regulatory Flexibility Act, 5 U.S.C. 601 et seq., and the Paperwork 
Reduction Act, 44 U.S.C. 3501 et seq.

    SBA certifies that this rule, if adopted, would be a significant 
regulatory action within the meaning of Executive Order 12866 since it 
is expected to have an annual economic impact of over $100 million. For 
purposes of the Regulatory Flexibility Act, this rule would have a 
significant impact on a substantial number of small businesses if 
adopted. Immediately below, SBA has set forth an initial regulatory 
flexibility analysis and economic impact analysis of this proposed 
rule.

1. Description of Entities to Which the Rule Applies

    SBA estimates that 2,279 additional firms would be considered small 
as a result of this rule, if adopted. These firms would be eligible to 
seek available SBA assistance provided they meet other program 
requirements. Many of these firms (if in existence at the time) 
probably had small business status in 1984 when the size standards for 
these industries were established, but have since lost eligibility 
because of inflationary increases.
    Of the additional firms gaining eligibility, 621 operate in General 
Building Contractors, 375 operate in Heavy Construction, 1,153 operate 
in the Special Trade Construction industries, while 130 operate in 
Refuse Systems and Related Services.
    Firms becoming eligible for SBA assistance as a result of this rule 
cumulatively generate $28.9 billion in annual sales, while total sales 
in these industries are $564 billion. Of the $28.9 billion in annual 
sales for newly eligible firms, $11.7 billion are in the General

[[Page 40313]]

Building Contractors industry, $7.2 billion are in Heavy Construction, 
$9.1 billion are in the Special Trades and $0.9 billion are in Refuse 
Systems and Related Services.
    SBA estimates that out of the approximately $7.85 billion in total 
initial Federal contracts per year, an additional $400 million worth of 
contracts could be awarded to firms designated as small firms in the 
four industry groups affected by this rule. Of these contracts, $378 
million could be awarded to the newly defined firms and $22 million to 
current small firms. These contracts could be obtained through awards 
under the small business set-aside Program, the 8(a) Program, the Small 
Disadvantaged Business (SDB) Program, the HUBZone Empowerment 
Contracting Program, or on an unrestricted basis.
    Also, these newly defined small businesses would be eligible for 
SBA's financial assistance programs and could potentially receive an 
estimated $21.2 million in loans under the 7(a) Guaranteed Loan Program 
and $3.9 million in loans under the Certified Development Company (504) 
Program.

2. Description of Potential Benefits of the Rule

    This rule will result in an increase in the number of firms 
eligible for small business set-aside contracts, the 8(a) Program, the 
HUBZone Program, and SDB and HUBZone price preferences. For Federal 
contracts set aside for small business or competed under the 8(a) and 
HUBZone Programs, this rule will lead to an increase in competition for 
these contracts and thus lower overall costs to the government.
    When an SDB or HUBZone firm competes for an unrestricted contract, 
the Federal government generally allows them a price preference of up 
to 10%. This rule may increase the number of firms competing for these 
contracts in two ways. First, the number of SDB and HUBZone firms will 
increase. Second, with more small firms competing on unrestricted 
contracts, the government may decide to set aside more contracts for 
competition among all small businesses where they had previously 
awarded price preferences. Any increase in competition that results in 
a more efficient or competitive firm winning a contract will result in 
a benefit.

3. Description of Potential Costs of the Rule

    In areas where the rule acts to decrease competition for contacts, 
it may lead to an increase in costs. This may occur in areas where 
small businesses are currently not present or are not bidding on 
Federal contracts. If, after issuance of this rule, small businesses 
bid on these contracts and require the government to provide a price 
preference or this rule causes a decision to set aside a contract under 
one of the procurement preference programs, it may increase costs to 
the Federal government on some contracts. These additional costs will 
be relatively 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.

4. Transfers

    The primary effect of the rule will be transfers among the four 
parties involved--Federal government, large firms, firms gaining small 
business status under this rule, and firms that are currently small 
firms. SBA estimates that, of the $400 million in Federal contracts 
expected to be awarded to the small firms, approximately 11.3%, or 
$45.2 million, may be reallocated from large firms to current small 
firms and the newly defined small firms.
    The remaining $354.8 million of contacts will not change hands, 
rather, the firms holding the contracts will be reclassified as small 
under the rule. In addition, of $3.9 billion of initial contracts 
awarded to small firms, SBA estimates that $43.8 million could be 
transferred from current small firms to larger, more efficient or 
competitive, newly defined small firms.

5. Description of Reasons Why This Action Is Being Taken and Objectives 
of Rule

    SBA has provided in the supplementary information a statement of 
the reasons why these new size standards should be established and a 
statement of the reasons for and the objectives of this rule.
    For the purpose of the Paperwork Reduction Act, 44 U.S.C. 3501 et 
seq., SBA certifies that this rule would not impose new reporting or 
record keeping requirements. For purposes of Executive Order 12612, 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

    Government procurement, Government property, Grant programs-
business, Loan programs-business, Small business.

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

PART 121--SMALL BUSINESS SIZE REGULATIONS

    1. The authority citation for part 121 continues to read as 
follows:

    Authority: Pub. L. 105-135 sec. 601 et. seq., 111 Stat. 2592; 15 
U.S.C. 632(a), 634(b)(6), 637(a), and 644(c); and Pub. L. 102-486, 
106 Stat. 2776, 3133.


Sec. 121.201  [Amended]

    2. In Sec. 121.201, the table ``SIZE STANDARDS BY SIC INDUSTRY,'' 
is amended as follows:
    a. Revise DIVISION C--CONSTRUCTION:
    b. Under DIVISION E--TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS, 
AND SANITARY SERVICES, MAJOR GROUP 42-MOTOR FREIGHT TRANSPORTATION AND 
WAREHOUSING, revise the entry 4212 (Part):
    c. Under DIVISION E--TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS, 
AND SANITARY SERVICES, MAJOR GROUP 49-ELECTRIC, GAS, AND SANITARY 
SERVICES, revise the entry 4953 to read as follows:

                     Size Standards by SIC Industry
------------------------------------------------------------------------
                                             Size standards in number of
         SIC code and description             employees or millions of
                                                       dollars
------------------------------------------------------------------------
 
*                  *                  *                  *
                  *                  *                  *
                        DIVISION C--CONSTRUCTION
------------------------------------------------------------------------
MAJOR GROUP 15-GENERAL BUILDING             $25.0
 CONTRACTORS.

[[Page 40314]]

 
MAJOR GROUP 16-HEAVY CONSTRUCTION, NON      $25.0
 BUILDING.
EXCEPT:
    1629 (Part) Dredging and Surface        $20.01 \1\
     Cleanup Activities.
MAJOR GROUP 17--CONSTRUCTION-SPECIAL TRADE  $10.5
 CONTRACTORS.
 
*                  *                  *                  *
                  *                  *                  *
------------------------------------------------------------------------
 DIVISION E--TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS, AND SANITARY
                                SERVICES
------------------------------------------------------------------------
 
*                  *                  *                  *
                  *                  *                  *
    4212 (Part) Garbage and Refuse          9.0
     Collection, Without Disposal.
 
*                  *                  *                  *
                  *                  *                  *
    4953 Refuse Systems...................  9.0
------------------------------------------------------------------------
\1\ SIC code 1629-Dredging: To be considered small for purposes of
  Government procurement, a firm must perform at least 40 percent of the
  volume dredged with its own equipment or equipment owned by another
  small dredging concern.

    Dated: May 28, 1999.
Aida Alvarez,
Administrator.
[FR Doc. 99-18955 Filed 7-23-99; 8:45 am]
BILLING CODE 8025-01-P