Government Contracts Monitor
SBA Increases Small Business Size Standards for 22 Industries in NAICS Sectors 48-49, “Transportation and Warehousing,” Effective March 26, 2012
March 21, 2012
The U.S. Small Business Administration (“SBA”) recently issued a new Final Rule, effective March 26, 2012, increasing the small business size standards for 22 industries in NAICS Sectors 48-49, “Transportation and Warehousing.” Small Business Size Standards: Transportation and Warehousing, 77 Fed. Reg. 10943 (Feb. 24, 2012). These increases will enable many formerly small companies to once again qualify and compete as small businesses for new procurement opportunities in these industries. These increases also will expand the pool of qualified small businesses with which large companies can contract under their small business subcontracting plans. It therefore will behoove all businesses, both large and small, involved with these industries, to familiarize themselves with these new size standards.
SBA’s size standards are set forth in 13 C.F.R. Part 121. Starting in 2007, SBA began a comprehensive review of its size standards. This effort has taken on increased impetus in view of the mandate in the Small Business Jobs Act of 2010, Pub. L. No. 111-240, signed September 27, 2010, directing SBA to conduct a detailed review of all size standards and to make appropriate adjustments to reflect market conditions. SBA is now required to conduct a detailed review of at least one-third of all size standards during every 18-month period, and to do a complete review of all size standards no less frequently than every five years.
As part of this ongoing process, SBA published a proposed rule for public comment last May, proposing to increase the size standards for 22 industries in NAICS Sectors 48-49 having revenue-based size standards. Small Business Size Standards: Transportation & Warehousing,76 Fed. Reg. 27935 (proposed May 13, 2011) (to be codified at 13 C.F.R. Part 121). SBA stated that its analyses supported lowering the existing size standards for 18 or 19 industries (depending upon methodology). However, SBA decided, as a matter of policy, not to lower any size standards, “as not in the best interests of small business under current economic conditions.” 76 Fed. Reg. at 27945. SBA further stated that its analyses supported no changes in certain industries, and that SBA lacked sufficient data as to certain industries. Id. Finally, SBA determined to hold 15 industries having employee-based size standards for future review when SBA reviews the Manufacturing Sector (NAICS Sectors 31-33) and other industries having employee-based size standards. 76 Fed. Reg. at 27944.
SBA received only three (3) comments addressing the proposed rule. 77 Fed. Reg. at 10944. These comments were limited to narrow issues, primarily relating to whether fuel surcharges and subcontracting (pass-through) costs should be included in revenue for size purposes. SBA rejected the suggestions that these amounts should be excluded, noting that (i) SBA’s inclusive definition of “receipts” in 13 C.F.R. § 121.104 provides a consistent approach to establishing eligibility for small business programs for all industries, (ii) such amounts “are part of the usual and customary costs of doing business,” (iii) the Census data used by SBA includes such costs, and (iv) if SBA were to exclude certain costs for one or a few industries, other industries could raise the same or similar questions, “creating a ‘slippery slope’ leading toward widespread inconsistency in how businesses calculate their receipts to determine if they qualify as small.” 77 Fed. Reg. at 10945. SBA noted that two of the three comments indicated that subcontracting costs accounted for more than 80% of the total value of work in their industries, and reminded the commenters that under SBA’s “limitation on subcontracting” provisions, a small business cannot qualify as small for a particular procurement if the small business proposes to subcontract more than 50% of the contract. Id.
Importantly, none of the comments addressed any of the industries as to which SBA had stated it lacked sufficient information. Similarly, with one exception involving NAICS 484230 (Specialized Freight (except Used Goods) Trucking, Long Distance), none of the comments suggested changes to any of the industries as to which SBA proposed no change. As to NAICS 484230, SBA noted that its initial analyses had supported reducing the $25.5 million size standard for that, as well as the other industries in Subsector 484, to $19.0 million; however, consistent with SBA’s above-discussed determination not to reduce any size standards, SBA had proposed to maintain the existing size standard. SBA analyzed updated 2008-10 Federal procurement data and industry data in response to this comment, and determined that such data did, in fact, support a higher $35.5 million size standard. However, SBA determined to retain the existing $25.5 million size standard since the other industries in Subsector 484 were determined to continue to warrant a lower size standard, and SBA wanted to continue having a common size standard for all industries in that Subsector, in the absence of any comments opposing a common standard.
Based upon its analyses and the limited public comments received, SBA determined to adopt the proposals in the Proposed Rule. SBA therefore is increasing the small business size standards for 22 industries in Sections 48-49. Specifically, the size standard for NAICS 481219 (Other Nonscheduled Air Transportation), 11 industries in Subsector 485 (Transit and Ground Passenger Transportation), NAICS 488210 (Support Activities for Rail Transportation) and 488510 (Freight Transportation Arrangements), are being increased from $7.0 to $14.0 million (“M”), while three industries in Subsector 488, dealing with air transportation support activities, are being increased from $7.0M to $35.5M. Finally, the size standard for NAICS 486210 (Pipe Transportation of Natural Gas) is being increased from $7.0M to $25.5M, and the size standard for four NAICS Codes relating to port and maritime operations (Codes 488310, 488320, 488330 & 488390) is being increased to $35.5M. to see SBA’s Table 1, summarizing the changed size standards in NAICS Sectors 48-49.
SBA has retained the current revenue-based size standards for the remaining 37 industries in NAICS Sectors 48-49. SBA will consider those industries in Sector 48-49 having employee-based size standards at a future time. Please note that SBA’s present review does notinclude the impact of inflation, and SBA will consider such separately, once its current ongoing review of all size standards is completed, so as to apply such equally across-the-board to all industries at the same time.
The new increased size standards are effective March 26, 2012, and will apply to all initial proposals submitted after that date.
Hopewell Darneille is the attorney responsible for the content of this post.