FedGovContracts.com

Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: February 12, 2002

SUBJECT: Small Business Administration; Small Business Size Standard for Petroleum Refineries

SOURCE: Federal Register, February 12, 2002, Vol. 67, No. 29, page 6437

AGENCIES: Small Business Administration (SBA)

ACTION: Proposed Rule

SYNOPSIS: SBA is proposing to modify the small business size standard for petroleum refiners to better define the size of business that should be eligible as small refiners for federal procurement programs. SBA proposes to increase the capacity component of the size standard from 75,000 barrels per day (bpd) to 155,000 barrels per calendar day (bpcd).

EDITOR'S NOTE: The SBA's regulations are in Title 13 of the Code of Federal Regulations (CFR). 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 North American Industry Classification System codes?

DATES: Comments on the proposed size standard must be received on or before March 14, 2002.

ADDRESSES: Send comments to Gary M. Jackson, Assistant Administrator for Size Standards, U.S. Small Business Administration, 409 Third Street, SW, Mail Code 6530, Washington, DC 20416; or by e-mail to sizestandards@sba.gov.

FOR FURTHER INFORMATION CONTACT: Carl Jordan, Office of Size Standards, 202-205-6618.

SUPPLEMENTAL INFORMATION:

The current small business size standard for North American Industry Classification System (NAICS) 324110, Petroleum Refineries, is 1,500 employees. The 1,500 employee size standard applies to all federal government programs that provide benefits to concerns that qualify as a small business concern. SBA does not propose to modify the 1,500 employee size standard.

However, for purposes of federal procurement, there is an additional size standard component that a firm must meet to qualify as a small business. Footnote 4 to the Table of Small Business Size Standards (13 CFR 121.201) states:

"NAICS code 324110 -- For purposes of government procurement, the firm may not have more than 1,500 employees nor more than 75,000 barrels per day capacity of petroleum-based inputs, including crude oil or bona fide feedstocks. Capacity includes owned or leased facilities as well as facilities under a processing agreement or an arrangement such as an exchange agreement or a throughput. The total product to be delivered under the contract must be at least 90 percent refined by the successful bidder from either crude oil or bona fide feedstocks."

SBA received a request from a small petroleum refiner to delete the bpd part of the size standard for NAICS 324110 for two reasons:

  1. The refining industry is dominated by large refiners. Over the past ten years, larger refiners have merged with and acquired other concerns, both large and small, and formed large joint ventures. The requestor complained that under the current 75,000 bpd size standard, many smaller refiners cannot grow, merge with or acquire other refiners without losing their small business status.

  2. The small refiners' share of the U.S. total refining capacity has steadily declined during the past 25 years. The requestor states that small refiners' share of the total U.S. capacity has declined from 7.8% in 1975, to 7.1% in 1984, to 6.7% in 1990, and to 4.1% in 1999. This is a decline of almost 50%.

Based on these concerns, SBA believes it should re-evaluate the capacity component of the petroleum refineries size standard as the small petroleum refiner requested. SBA is proposing to increase the 75,000 bpd component of the size standard to 155,000 bpcd for purposes of federal procurement. SBA is proposing this increase because refineries with 155,000 bpcd or less in petroleum capacity account for 7.6% of total U.S. petroleum refining. This size standard restores the share of small refiners to approximate the same level as in 1992, when the small business size standard was increased to 75,000 bpd. At this level, a small refiner could operate a refinery equal to the size of the average refinery of the 30 large refiners in the industry on January 1, 2001, and this should enable small refiners to expand to achieve operational efficiencies needed to accommodate increasing environmental requirements.

Any refiner at or below 155,000 bpcd and with less than 1,500 employees will qualify as a small refiner. Refiners that have more than 1,500 employees or have capacities over 155,000 bpcd generally have significant operations outside of petroleum refining.

In addition, SBA proposes to clarify the capacity measure for determining small business size status by replacing the term "barrels per day" with the term "barrels per calendar day." SBA believes the term "barrels per day" can raise questions about whether "barrels per calendar day" or "barrels per stream day" is meant. SBA proposes to accept and use "barrels per calendar day" as the U.S. Department of Energy, Energy Information Administration (EIA) has most recently defined it in the glossary to Petroleum Supply Annual 2000, Volume 1, which is "the maximum number of barrels of input that can be processed during a 24-hour period after making allowances for [certain] limitations..."

Finally, SBA proposes to further clarify the capacity measure by adding to footnote 4 the phrase "total Operable Atmospheric Crude Oil Distillation Capacity" as EIA uses the term in Petroleum Supply Annual 2000, Volume 1.

Therefore, SBA proposes to revise footnote 4 to the NAICS 324110 size standard of 1,500 employees to read as follows:

"NAICS code 324110 -- For purposes of federal government procurement, the petroleum refiner must be a concern that has no more than 1,500 employees nor more than 155,000 barrels per calendar day total Operable Atmospheric Crude Oil Distillation capacity. Capacity includes owned or leased facilities as well as facilities under a processing agreement or an arrangement such as an exchange agreement or a throughput. The total product to be delivered under the contract must be at least 90 percent refined by the successful bidder from either crude oil or bona fide feedstocks."

SBA estimates that this change will result in two newly designated small businesses -- those with fewer than 1,500 employees and capacities between the old 75,000 bpd standard and the proposed 155,000 bpcd standard.

SBA is requesting comments on the following issues:

  1. Whether SBA should eliminate the capacity component, as requested, and the reasons why having no capacity limit as a component of the standard would be better for small refiners than retaining one.

  2. Whether 155,000 bpcd is sufficient capacity for refiners to grow, merge, consolidate or otherwise share resources for federal procurement, without losing their small business eligibility.

  3. Whether SBA should adopt a capacity that is higher or lower than 155,000 bpcd. Commenters who recommend an alternative bpcd limit should also provide reasons why they believe their recommended capacity would be a more appropriate size for this industry for purposes of federal procurement.

  4. Whether SBA's estimate of the number of additional refiners that may gain eligibility as small refiners, as well as SBA's estimate of their capacity, accurately reflects the possible result of this proposed change.

  5. Whether an increase to 155,000 bpcd would have any adverse affects on currently defined small refiners.

  6. Whether SBA's proposal to adopt "barrels per calendar day" to replace "barrels per day" is acceptable.

  7. Whether SBA's proposal to adopt as a uniform measurable capacity a refiner's total Operable Atmospheric Crude Oil Distillation as used by EIA is acceptable.

  8. Whether SBA should establish the 155,000 bpcd and 1,500 employees size standards to all federal programs using a small business definition for a small petroleum refiner instead of just to federal procurement. If SBA receives favorable comments on this, SBA will consider issuing a separate proposed rule on the issue.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2002 by Panoptic Enterprises. All Rights Reserved.

Return to the Dispatches Library.

Return to the Main Page.