The SBA’s regulations state it will examine monetary-based size standards (e.g., receipts, net income, assets) at least once every five years and determine if adjustments are needed to those standards at such time. 13 C.F.R. § 121.102. But what about employee-based size standards? In fact, the same rule applies for reviewing and adjusting those standards as a result of the Small Business Jobs Act of 2010. On April 26, 2022, the SBA published its proposed rule to change the size standards for a number of employee-based size standards for manufacturing and other industries. Let’s look at these changes.
For the proposed rule, SBA reviewed the sectors of Mining, Quarrying, and Oil and Gas Extraction (Sector 21); Utilities (Sector 22); Manufacturing (Sector 31-33); Transportation and Warehousing (Sector 48-49); Information (Section 51); Finance and Insurance (Sector 52); Professional, Scientific and Technical Services (Sector 54); and Administrative and Support, and Waste Management and Remediation Services (Sector 56). While SBA adjusts monetary-based size standards on the basis of inflation, it obviously cannot use inflation to determine a proper employee-based size standard. As such, the SBA examines five primary factors. Four of these factors concern industry structure: average firm size, degree of competition within an industry, start-up costs and entry barriers, and distribution of firms by size. The fifth looks at small business competitiveness with federal contracts. “SBA…examines, for each industry averaging $20 million or more in average annual Federal contract dollars, the small business share in Federal contract dollars relative to the small business share in total industry’s receipts.” SBA will consider other secondary factors such as impact of size standard changes on small businesses.
Let’s look at the actual proposed changes. Now, we can’t go through each change in detail, as there have been 150 adjustments to the standards. The rundown begins on page 92 of the proposed rule document if you are curious about any that we do not mention. We’re going to look at some of the more notable changes.
Mining, Quarrying, and Oil and Gas Extraction
There are a couple notable increases in the size standards here, both applying to two of the more common mining industries. Both Iron Ore Mining and Copper, Nickel, Lead, and Zinc Mining ‘s size standards would increase from 750 employees to 1,400 employees, a near doubling.
The biggest jump proposed is in Wind Electric Power Generation. Here, the SBA wants to take the size standard from a mere 250 employees all the way to 1,150 employees, over four times the current size standard. Nuclear Electric Power Generation is proposed to increase from 750 to 1,150, and Solar Electric Power Generation from 250 to 500. No doubt these major increases reflect the shift to renewable sources of energy.
In general, SBA proposed generally moderate size standard changes for manufacturing industries. Here’s a sampling of some of them:
Soybean and Other Oilseed Processing: 1,000 to 1,250
Coffee and Tea Manufacturing: 750 to 1,000
Petrochemical Manufacturing: 1,000 to 1,300
Phosphatic Fertilizer Manufacturing: 750 to 1,350
Printing Ink Manufacturing: 500 to 750
Mining Machinery and Equipment Manufacturing: 500 to 900
Power-Driven Hand Tool Manufacturing: 500 to 950
Primary Battery Manufacturing: 1,000 to 1,300
Guided Missile and Space Vehicle Manufacturing: 1,250 to 1,300
Note, these changes do not affect the nonmanufacturer rule size standard, which is set at 500 employees and has not been changed in this rulemaking. While SBA considered increasing the nonmanufacturer rule standard to 550 employees based on its factors, SBA opted to keep it at 500 due to the longstanding familiarity of contractors with that standard.
Transportation and Warehousing
Only a few changes were made to these industries. Most notably, Deep Sea Freight Transportation’s size standard would increase from 500 to 1,050, and Inland Water Freight Transportation would increase from 750 to 1,050.
The industry would see a couple changes. All Other Publishers would increase from 500 to 550 employees, Music Publishers from 750 to 900 employees, and, most interestingly, Record Production and Distribution from 250 to 900 employees. We imagine this last one has to do with the digitization of music, which has likely made it harder to run such companies.
Financial and Insurance
No changes were proposed.
Professional, Scientific and Technical Services
One change is proposed: The size standard for Guided Missiles and Space Vehicles, Their Propulsion Units and Propulsion Parts (under Exception 3 of NAICS code 541715) would increase from 1,250 to 1,300 employees.
Administrative and Support, and Waste Management and Remediation Services
One change is proposed: The size standard for Environmental Remediation Services (under Exception of NAICS code 562910) would increase from 750 to 1,000 employees.
It is important to remember that this is just a proposed rule at the moment this blog was posted. Until it is issued as a final rule, none of the above changes are in effect. But, it’s worth keeping an eye on as many of these changes will no doubt take place. In another post, we’ll discuss just how the SBA calculates these standards.
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