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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: June 16, 2000

FROM: Barry McVay, CPCM

SUBJECT: Small Business Administration (SBA); Small Business Size Standards for Construction and Refuse Industries

SOURCE: Federal Register, June 16, 2000, Vol. 65, No. 117, page 37689

AGENCIES: Small Business Administration (SBA)

ACTION: Final Rule

SYNOPSIS: The SBA is increasing the small business size standards for Standard Industrial Classification (SIC) Major Group 15, General Building Contractors, to $27.5 million; SIC Major Group 16, Heavy Construction Other Than Building Construction, to $27.5 million (except part of SIC 1629, Dredging and Surface Cleanup Activities, to $17 million); SIC Major Group 17, Construction -- Special Trade Contractors to $11.5 million; part of SIC 4212, Garbage and Refuse Collection, Without Disposal, to $10.0 million; and SIC 4953, Refuse Systems, to $10.0 million.

EDITOR'S NOTE: The SBA's regulations are in Title 13 of the Code of Federal Regulations. The SBA small business size regulations are in Chapter 1, Small Business Administration; Part 121, Small Business Size Regulations; Subpart A, Size Eligibility Provisions and Standards; Section 121.201, What size standards has SBA identified by Standards Industrial Classification codes?

For more on the recent increase in the small business size standards for help supply services industries, see the June 6, 2000, FEDERAL CONTRACTS DISPATCH "Small Business Administration (SBA); Small Business Size Standards for Help Supply Services."

For more on recent changes to the Federal Acquisition Regulation (FAR) to make it consistent with the May 25, 1999, joint final policy directive on the Small Business Competitiveness Demonstration Program issued by the Office of Federal Procurement Policy (OFPP) and the SBA, see the March 27, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 97-16, Small Business Competitiveness Demonstration Program and Progress Payments and Related Financing Policies."

EFFECTIVE DATE: July 17, 2000.

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

SUPPLEMENTAL INFORMATION: The Small Business Competitiveness Demonstration Program Act of 1988 (Public Law 100-656) established the Small Business Competitiveness Demonstration Program to "assess the ability of small businesses to compete successfully in certain industry categories without competition being restricted by the use of small business set-asides." Ten federal agencies are participants in the program, and the following "designated industry groups" are covered by the program: construction under SIC Major Groups 15, 16, and 17; refuse systems and related services; architectural and engineering services; and nonnuclear ship repair. These industries are subject to the procedures of Federal Acquisition Regulation (FAR) Subpart 19.10, Small Business Competitiveness Demonstration Program.

From the date the program went into effect (October 1, 1988), until September 30, 1996, the SBA was prohibited by Public Law 100-656 from changing the small business size standards for these industries. However, the Small Business Programs Improvement Act of 1996 repealed the prohibition placed on SBA from revising these industries' small business size standards. In the act's legislative history, Congress indicated that the SBA should take appropriate action to adjust the small business size standards for the designated industry groups.

On May 14, 1999, SBA published new small business size standards for architectural and engineering services.

On July 26, 1999, SBA proposed adjusting the small business size standards for the construction and refuse industries to offset the inflation that occurred between 1984 (the last time the size standards for industries under Public Law 100-656 were adjusted, except the size standard for the dredging industry first became effective on December 9, 1985) and 1994, when SBA adjusted all its receipt-based size standards (except those covered by the Small Business Competitiveness Demonstration Program) by 48.2%, then rounded to the nearest $500,000, to account for the effects of inflation that had occurred between 1984 and 1994. April 7, 1994, was the last time SBA adjusted most of its receipts-based size standards.

SBA proposed increasing the size standards for the construction and refuse industries by 48.2%, then rounding:

In the proposed rule, SBA explained its reasons for selecting 1994 as the cut-off date for adjusting the size standards for the construction and refuse industries: "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."

SBA received 46 comments on the proposed rule. The comments were nearly unanimous in supporting the size standard increases and inflation adjustments, but about one-third of the comments suggested adjusting for inflation through 1999. Also, SBA says that it "is committed to more frequent inflation adjustments than has occurred in the past, and five years would seem to be sufficient time to wait for an inflationary adjustment. Considering these factors together, we conclude that these size standards should be adjusted for inflation to 1999." SBA calculates that an additional 10.5% inflation has occurred between 1994 and 1999, so it is increasing the proposed size standards (except for dredging, see below) to the following:

SBA received 22 comments regarding the proposed $20 million size standard for the dredging industry. One-third of the comments supporting the $20 million size standard, one-third proposed an increase between the current $13.5 million and $20 million, and one-third opposed any increase to the current $13.5 million size standard. SBA has decided to increase the size standard to $17.0 million (instead of $20.0 million) for the following reasons:

In addition, SBA states that the $17.0 million size standard will "permit a number of businesses presently in the $9 million to $13.5 million range to grow without losing eligibility for SBA preference programs based on size."

Therefore, the table "Size Standards by SIC Industry" in Section 121.201 is revised accordingly.

As a result of this rule, SBA estimates that 2,548 additional businesses will be considered small (many of the "new" small businesses that were in existence in 1984 undoubtedly were considered small business then, but have since lost eligibility because of the inflationary increases). These businesses will be eligible for SBA guidance and assistance, such as loans under the 7(a) Guaranteed Loan Program and the Certified Development Company (504) Program if they meet these programs' requirements. Other benefits of small business status is that they will be eligible to receive awards in the construction and refuse industries under small business set-asides from agencies not covered by the Small Business Competitiveness Demonstration Program, and subcontracts awarded to them by large businesses will be counted toward the large business' small business subcontracting goal (see FAR Subpart 19.7, The Small Business Subcontracting Program).

In addition, these "new" small businesses may be eligible for the following assistance programs: the 8(a) Program (see FAR Subpart 19.8, Contracting with the Small Business Administration (The 8(a) Program)); a 10% evaluation preference as a small disadvantaged business (SDB) (see FAR Subpart 19.11, Price Evaluation Adjustment for Small Disadvantaged Business Concerns); preference as an SDB in subcontract awards (see FAR Subpart 19.12, Small Disadvantaged Business Participation Program); and the HUBZone Program (see FAR Subpart 19.13, Historically Underutilized Business Zone (HUBZone) Empowerment Contracting Program).

SBA estimates 654 of these "new" small businesses operate in general construction, 394 operate in heavy construction, 1,363 operate in the special trades industries, and 137 operate in refuse.

SBA estimates that an additional $471 million worth of contracts could be awarded to businesses designated as small businesses in the industries affected by this rule (this assumes the new small businesses will receive 6% of the $7.85 billion in total initial federal contracts per year.) Of these contracts, $445 million may be awarded to "new" small businesses and $26 million to currently defined small businesses.

EDITOR'S NOTE: On May 15, 2000, the SBA announced that it is replacing its SIC-based small business size standards with size standards based on the North American Industry Classification System (NAICS) effective October 1, 2000 (see the May 15, 2000, FEDERAL CONTRACTS DISPATCH "Small Business Administration (SBA); North American Industry Classification System (NAICS) Small Business Size Standards"). Since this final rule adjusts the SIC small business size standards, SBA will have to amend its NAICS-based small business size standards for the construction and refuse industries to reflect this final rule.

The Bureau of the Census maintains an NAICS web site at http://www.census.gov/epcd/www/naics.html. Available on the web site are tables cross-referencing SIC codes to the comparable NAICS codes (http://www.census.gov/epcd/naics/naicstb2.txt) and NAICS codes to the comparable SIC codes (http://www.census.gov/epcd/naics/naicstb1.txt).

Also, by making this change, SBA is applying different inflation factors to different industries. In the introduction to the final rule, SBA says, "we generally prefer to have all receipts-based size standards adjusted to the same base year. This achieves comparability among industry size standards. Since this rule is inflating a number of size standards to 1999, we anticipate that we will propose in the near future a broad-based inflation adjustment to our receipts-based size standards."

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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