SBA Final Rule Updates Employee-Based Size Standards, but not for Nonmanufacturer Rule

This month, SBA issued a final rule updating its size standards for multiple NAICS codes in the manufacturing industries and industries with employee-based size standards in other sectors (except wholesale trade and retail trade). As the final rule explains in great detail, SBA increased some of the NAICS code’s size standards and retained others. Additionally, SBA decided to retain an employee based size standard for the nonmanufacturer rule. Let’s take a closer look.

Under this final rule, SBA is officially changing the size standards for multiple NAICS codes under the following industries and sectors:

  • Mining, Quarrying, and Oil and Gas Extraction (Sector 21);
  • Utilities (Sector22);
  • 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, Waste Management and Remediation Services (Sector 56).

Specifically, SBA is increasing 144 of the employee-based size standards in those sectors, and it is retaining 268 of them. As one example, SBA is increasing the size standard for 562910, under the exception for Environmental Remediation Services, from 750 employees to 1,000 employees. To see the full list of these NAICS codes and SBA’s updates, take a look at the tables in the final rule itself.

SBA’s final rule explains that, in its April 2022 proposed rule on these size standard changes, it discussed the impact of the COVID-19 pandemic on small businesses. As SBA states:

Recognizing the wide-ranging economic impacts of the pandemic, SBA decided not to lower any size standards for which the analysis suggested lowering them. Instead, SBA proposed to maintain all size
standards for industries in which the analytical results supported a decrease or no change to size standards and adopt all size standards for which the analytical results supported an increase to size standards, except for nine industries where SBA’s evaluation of dominance in field of operation indicated that size standards should be maintained at the current levels to exclude dominant firms and one industry for which SBA proposed to adopt a smaller increase to the size standard also to exclude dominant firms.

As is required, SBA’s final rule also addresses the public’s comments on these changes and a regulatory impact analysis, which covers SBA’s need for the rule change, potential alternatives, and anticipated benefits.

Finally, SBA confirmed its plan from the April 2022 proposed rule to keep the current 500-employee size standard for procurements of supplies under the nonmanufacturer rule. In the proposed rule, SBA did explore the possibility of adopting a receipt-based size standard for the nonmanufacturer rule. But in the end, and after addressing public comments both supporting and opposing SBA retaining the employee size standard, SBA decided to stick with the 500-employee size standard. SBA explained:

In the proposed rule, as an alternative, SBA calculated a receipts-based size standard of $27 million for nonmanufacturers. However, although SBA evaluated a receipt-based size standard for nonmanufacturers, SBA believes that adopting a receipts-based size standard, instead of an employee-based size standard, would be inappropriate for several reasons. Specifically, the Small Business Act provides that the size of manufacturing firms be based on the number of employees and that the size of services firms be based on average annual receipts. Adopting a receipts based size standard under the nonmanufacturer rule, which currently applies only to Government acquisitions for supplies, would cause many manufacturing concerns supplying products to the Government as nonmanufacturers under the nonmanufacturer rule to be evaluated under a receipts-based size standard, which would be contrary to the requirements of the Small Business Act.

Additionally, SBA cited data from the 2017 Economic Census, explaining that it found:

[U]nder the calculated $27 million receipts-based size standard, more than 35,000 firms would lose their small business status they currently enjoy under the 500-employee nonmanufacturer size standard.

As a result, SBA ultimately decided to maintain an employee-based size standard for nonmanufacturers.

Again, for further information on the proposed rule, the public comments, and SBA’s full analyses of these changes, check out the final rule linked above.

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