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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: March 28, 2003

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

SOURCE: Federal Register, March 28, 2003, Vol. 68, No. 60, page 15047

AGENCIES: Small Business Administration (SBA)

ACTION: Final Rule

SYNOPSIS: SBA is amending 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 is increasing the capacity component of the size standard from 75,000 barrels per day (bpd) to 125,000 barrels per calendar day (bpcd).

EDITOR'S NOTE: For more on the proposed change to the size standard, see the February 12, 2002, FEDERAL CONTRACTS DISPATCH "Small Business Administration; Small Business Size Standard for Petroleum Refineries."

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?

A complete listing of current size standards is available at SBA's Size Standards website at http://www.sba.gov/size/sizetable2002.html, or by calling 202-205-6618 and requesting a copy of the table of size standards.

EFFECTIVE DATE: April 28, 2003.

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, or e-mail: sizestandards@sba.gov.

SUPPLEMENTAL INFORMATION: The small business size standard for North American Industry Classification System (NAICS) 324110, Petroleum Refineries, is 1,500 employees. However, for purposes of federal procurement, there was an additional size standard component that a firm had to meet to qualify as a small business. Footnote 4 to the Table of Small Business Size Standards (13 CFR 121.201) stated:

"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."

Because the petroleum refining industry is dominated by large refiners, and the small refiners' share of the U.S. total refining capacity has steadily declined by almost 50% during the past 25 years, the SBA published a proposed rule on February 12, 2002, to increase the 75,000 bpd component of the size standard to 155,000 bpcd for purposes of federal procurement (SBA did not propose to modify the 1,500 employee size standard). This proposed size standard would restore 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.

As part of the proposed change, SBA attempted 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 believed the term "barrels per day" raised questions about whether "barrels per calendar day" or "barrels per stream day" was meant, so SBA proposed to accept and use "barrels per calendar day" as the U. S. Department of Energy, Energy Information Administration (EIA) most recently defined it in the glossary to Petroleum Supply Annual 2000, Volume 1: "the maximum number of barrels of input that can be processed during a 24-hour period after making allowances for [certain] limitations..."

Finally, SBA proposed 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, to distinguish it from refiners' "Downstream Charge Capacity."

The proposed footnote 4 to the NAICS 324110 size standard of 1,500 employees was 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 received comments on the proposed rule from 15 respondents: one industry association, six small refiners, six-other-than small refiners, one federal agency, and a United States senator. The comments reflected no prevailing opinion about the level of the capacity component; in fact, there was no prevailing opinion on whether the SBA should increase the capacity component at all. Nevertheless, SBA has decided to adopt the bpcd as the measure of capacity, and to further clarify the measure by adding "total Operable Atmospheric Crude Oil Distribution" to the definition.

Regarding the capacity component: four opposed any increase; three proposed an increase to 125,000 bpcd; four supported the proposed increase to 155,000 bpcd; one proposed an increase to about 160,000 bpcd; one proposed eliminating the capacity component from the definition (leaving 1,500 employees as the size standard); one proposed deleting the employee component of the size standard, retaining the 75,000 bpd capacity per refinery, and increasing the limit to 155,000 bpd for the entire company; and one proposed 1,500 employees and/or no refinery larger than 100,000 bpd.

After evaluating all the comments, SBA has decided to adopt 125,000 bpcd as the capacity component because, even though 125,000 bpcd does not create any additional small refiners, it is a significant increase and allows current small refiners to realize economies of scale through an expansion of their operations or a merger with other small refiners. Therefore, the SBA adopts footnote 4 as proposed except that "125,000" is substituted for "155,000."

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

Copyright 2003 by Panoptic Enterprises. All Rights Reserved.

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