Federal Register / Vol. 89, No. 177 / Thursday, September 12, 2024 / Rules and Regulations 74109 

1See Report on the First Five-Year 

Comprehensive Review of Size Standards at https:// 

www.sba.gov/sites/sbagov/files/2023-09/ 

Report%20on%20the%20First%205- 

Year%20Comprehensive%20Size%20Standards

%20Review-508F.pdf. 

2See Report on the Second Five-Year 

Comprehensive Review of Size Standards at https:// 

www.sba.gov/sites/sbagov/files/2023-07/ 

SBA%27s%20Report%20on%20the%20

Second%205%20Year%20Review%20of%20

Size%20Standards_Final.pdf. 

Pension Benefit Guaranty Corporation 

(effective May 25, 2011). 

Veterans’ Employment and Training 

Service (effective June 26, 2020). 

Wage and Hour Division (effective 

December 29, 2016). 

Parent: Department of State 

Component 

Foreign Service Grievance Board. 

Parent: Department of Transportation 

Components 

Federal Aviation Administration. 

Federal Highway Administration. 

Federal Motor Carrier Safety 

Administration (effective January 30, 2003). 

Federal Railroad Administration. 

Federal Transit Administration. 

Maritime Administration. 

National Highway Traffic Safety 

Administration. 

Pipeline and Hazardous Materials Safety 

Administration (effective December 29, 

2016). 

Saint Lawrence Seaway Development 

Corporation. 

Parent: Department of the Treasury 

Components 

Alcohol and Tobacco Tax and Trade 

Bureau (effective November 23, 2004). 

Bureau of Engraving and Printing. 

Bureau of the Fiscal Service (effective 

December 4, 2014). 

Comptroller of the Currency. 

Financial Crimes Enforcement Network 

(FinCEN) (effective January 30, 2003). 

Internal Revenue Service. 

United States Mint (formerly listed as 

Bureau of the Mint). 

Footnotes—Appendix B to Part 2641 

[1]All designated components under the 

jurisdiction of a particular Assistant 

Secretary shall be considered a single 

component for purposes of determining the 

scope of 18 U.S.C. 207(c) as applied to senior 

employees serving on the immediate staff of 

that Assistant Secretary. 

[2]The Executive Office for United States 

Attorneys shall not be considered separate 

from any Office of the United States Attorney 

for a judicial district, but only from other 

designated components of the Department of 

Justice. 

[3]The Executive Office for United States 

Trustees shall not be considered separate 

from any Office of the United States Trustee 

for a region, but only from other designated 

components of the Department of Justice. 

[4]The Office on Violence Against Women 

shall not be considered separate from the 

Office of Justice Programs, but only from 

other designated components of the 

Department of Justice. 

[FR Doc. 2024–20699 Filed 9–11–24; 8:45 am] 

BILLING CODE 6345–03–P 

SMALL BUSINESS ADMINISTRATION 

13 CFR Part 121 

Small Business Size Standards: 

Revised Size Standards Methodology 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Notice of availability of white 

paper on revised size standards 

methodology. 

SUMMARY: The U.S. Small Business 

Administration (SBA or Agency) advises 

the public that it has revised its size 

standards methodology white paper, 

entitled ‘‘SBA’s Size Standards 

Methodology (June 2024)’’ (the Revised 

Methodology or Methodology), 

explaining how it establishes, reviews, 

or revises small business size standards. 

SBA will apply the Revised 

Methodology to the forthcoming third 

five-year review of size standards 

required by the Small Business Jobs Act 

of 2010. On December 11, 2023, SBA 

published a notification seeking 

comments on proposed revisions to its 

Methodology. This notification 

describes major changes to the 

Methodology and their impacts on size 

standards, followed by a discussion of 

the comments SBA received on the 

proposed revisions to the Methodology 

and Agency’s responses. 

DATES: September 12, 2024. 

ADDRESSES: The 2024 Revised 

Methodology is available on the SBA’s 

website at www.sba.gov/size. 

FOR FURTHER INFORMATION CONTACT: 

Khem R. Sharma, Chief, Office of Size 

Standards, (202) 205–7189, or 

sizestandards@sba.gov. 

SUPPLEMENTARY INFORMATION: 

A. Background 

To determine eligibility for Federal 

small business assistance programs, 

SBA establishes small business size 

definitions (commonly referred to as 

‘‘size standards’’) for private sector 

industries in the United States. Under 

the Small Business Act (the Act), 15 

U.S.C. 632(a) (Pub. L. 85–536, 67 Stat. 

232, as amended), the SBA’s 

Administrator (Administrator) has 

authority to establish size standards for 

Federal Government programs. SBA’s 

existing size standards use two primary 

measures of business size: average 

annual receipts and average number of 

employees. Financial assets and refining 

capacity are used as size measures for a 

few specialized industries. In addition, 

the SBA’s Small Business Investment 

Company (SBIC), 7(a), and Certified 

Development Company (CDC/504) 

Programs determine small business 

eligibility using either the industrybased size standards or tangible net 

worth and net income based alternative 

size standards. Presently, there are 102 

different size standards, covering 978 

industries and 14 subindustries, also 

known as ‘‘exceptions.’’ Of these, 505 

are based on average annual receipts, 

483 on number of employees (one of 

which also includes barrels per calendar 

day total refining capacity), and four on 

average assets. 

The Small Business Jobs Act 2010 

(Pub. L. 111–240, 124 Stat. 2504, Sept. 

27, 2010) requires SBA to review, every 

five years, all size standards and make 

necessary adjustments to reflect market 

conditions. SBA completed the first 

five-year review of size standards under 

the Jobs Act in early 2016 1 and 

completed the second five-year review 

of size standards in early 2023.2 SBA 

will begin the next (third) five-year 

review of size standards in the near 

future. 

The goal of SBA’s size standards 

review is to determine whether its 

existing size standards reflect the 

current industry structure and Federal 

market conditions and revise them if the 

latest available data suggests that 

revisions are warranted. The Act 

requires that the size standard varies 

from industry to industry to the extent 

necessary to reflect the differing 

characteristics of the various industries. 

SBA evaluates the structure of each 

industry in terms of four economic 

characteristics or factors, namely 

average firm size, average assets size as 

a proxy of startup costs and entry 

barriers, the four-firm concentration 

ratio as a measure of industry 

competition, and size distribution of 

firms using the Gini coefficient (13 CFR 

121.102(a)). Besides industry structure, 

SBA also examines the impact of an 

existing size standard as well as the 

potential impact of a revised size 

standard on small business participation 

in Federal contracting as an additional 

primary factor when establishing, 

reviewing, or modifying the size 

standards. SBA generally considers 

these five factors—average firm size, 

average assets size, four-firm 

concentration ratio, Gini coefficient, and 

small business participation in Federal 


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74110 Federal Register / Vol. 89, No. 177 / Thursday, September 12, 2024 / Rules and Regulations 

3Prior to finalizing the 2024 Methodology for 

establishing, reviewing, modifying size standards, 

SBA issued a notification in the December 11, 2023, 

issue of the Federal Register (88 FR 85852) to 

solicit comments from the public and notify 

stakeholders of the proposed changes to the 

Methodology. As discussed under the ‘‘Discussion 

of Comments’’ section of this notification, SBA 

considered all public comments in finalizing the 

2024 Methodology. 

4For a detailed justification for replacement of 

the ‘‘anchor’’ approach to size standards analysis 

with the ‘‘percentile’’ approach and a detailed 

description of the percentile approach, see the 

SBA’s 2019 Size Standards Methodology White 

Paper, available on SBA’s website at https://

www.sba.gov/sites/default/files/2023-12/ 

SBA%20Size%20Standards%20

Methodology%20April%2011%2C%202019- 

508.pdf. 

contracting—to be the most important 

factors in determining an industry’s size 

standard. The 2024 Revised Size 

Standards Methodology White Paper 

provides a detailed description of 

evaluation of these factors (including 

relevant data sources) and derivation of 

size standards based on the results. 

SBA also periodically adjusts all 

monetary based standards for inflation. 

In accordance with SBA’s regulations 

(13CFR 121.102(c)) and rulemaking (67 

FR 3041; January 23, 2002), an 

adjustment to size standards for 

inflation is made at least once every five 

years. In response to higher than normal 

rates of inflation, some past inflation 

adjustments have been made on more 

frequent intervals. For example, in 

response to ongoing higher than normal 

inflation, SBA issued an out-of-cycle 

inflation adjustment to monetary based 

size standards on November 17, 2022 

(87 FR 69118). The SBA’s Methodology 

also explains how it adjusts monetary 

based size standards for inflation. SBA 

also updates its size standards, every 

five years, to adopt the Office of 

Management and Budget’s (OMB) 

quinquennial North American Industry 

Classification System (NAICS) revisions 

to its table of small business size 

standards. Effective October 1, 2022, 

SBA adopted the OMB’s 2022 NAICS 

revisions (86 FR 72277; December 21, 

2021) for its table of small business size 

standards (87 FR 59240; September 29, 

2022). The Methodology also explains 

the SBA’s procedures for adopting 

updated NAICS definitions for the table 

of size standards. 

Section 3(a) of the Act provides the 

Administrator with authority to 

establish small business size standards 

for Federal Government programs. The 

Administrator has discretion to 

determine precisely how SBA should 

establish small business size standards. 

The Act and its legislative history 

highlight three important considerations 

for establishing size standards. First, as 

stated earlier, size standards should 

vary from industry to industry 

according to differences among 

industries. 15 U.S.C. 632(a)(3). Second, 

a firm that qualifies as small under the 

SBA’s size standard shall not be 

dominant in its field of operation. 15 

U.S.C. 632(a)(1). Third, pursuant to 15 

U.S.C. 631(a), the policies of the Agency 

should assist small businesses as a 

means of encouraging and strengthening 

their competitiveness in the economy. 

These three considerations continue to 

form the basis for the SBA’s 

methodology for establishing, 

reviewing, or revising small business 

size standards. 

The 2024 Revised Methodology, 

available on the SBA’s website at 

www.sba.gov/size, describes in detail 

how SBA establishes, evaluates, and 

adjusts its small business size standards 

pursuant to the Act and related 

legislative guidelines.3 Specifically, the 

document provides a brief review of the 

legal authority and early legislative and 

regulatory history of small business size 

standards, followed by a detailed 

description of the size standards 

analysis. Below, SBA provides a brief 

summary of the revisions to SBA’s 

Methodology, which are described in 

greater detail in the 2024 Revised 

Methodology. 

B. Revisions to SBA’s Size Standards 

Methodology 

SBA’s 2024 Revised Methodology 

describes various changes and revisions 

to the 2019 Methodology and provides 

a detailed history of changes to SBA’s 

Methodology for evaluating size 

standards over the years. In the past, 

including the first five-year review of 

size standards under the Jobs Act, to 

determine an overall size standard for 

each industry, SBA compared the 

characteristics of each industry with the 

average characteristics of a group of 

industries associated with an ‘‘anchor’’ 

size standard. For example, in the first 

five-year review of size standards, $7 

million (now $9 million due to the 

inflation adjustments in 2014, 2019, and 

2022) was considered the ‘‘anchor’’ for 

receipts-based size standards and 500 

employees was considered the ‘‘anchor’’ 

for employee-based size standards. If the 

characteristics of a specific industry 

under review were similar to the 

average characteristics of industries in 

the anchor group, SBA generally 

adopted the anchor size standard for 

that industry. If the specific industry’s 

characteristics were significantly higher 

or lower than those for the anchor 

group, SBA assigned a size standard that 

was higher or lower than the anchor. 

In response to public comments 

received during the first five-year 

review of size standards concerning 

SBA’s size standards methodology, 

section 3(a)(7) of the Act (which limits 

the SBA’s ability to create common size 

standards by grouping related industries 

below the four-digit NAICS level), and 

its own review of the Methodology, in 

the 2019 Methodology, SBA replaced 

the ‘‘anchor’’ approach with the 

‘‘percentile’’ approach, as the basis of 

evaluating industry factors (i.e., average 

firm size, average assets, the four-firm 

concentration ratio, and the Gini 

coefficient) and deriving a size standard 

for each industry factor for each 

industry.4 Under the ‘‘percentile’’ 

approach, for each factor, an industry is 

ranked and compared with the 20th 

percentile and 80th percentile values of 

that factor among the industries sharing 

the same measure of size standards (i.e., 

receipts or employees). Combining that 

result with the 20th percentile and 80th 

percentile values of size standards 

among the industries with the same 

measure of size standards, SBA 

computes a size standard supported by 

each industry factor for each industry, 

then computes a weighted average of the 

resulting supported size standards to 

obtain an overall size standard for each 

industry. 

In the 2024 Revised Methodology, 

SBA is maintaining the ‘‘percentile’’ 

approach as a basis of evaluating 

industry factors and deriving size 

standards for each industry factor for 

each industry; however, based on its 

review of the current methodology, SBA 

is adopting two major changes to its size 

standards methodology. 

The first major change is to replace 

the current approach used to account for 

the Federal contracting factor with the 

disparity ratio approach. Under the 

2019 Methodology, SBA defined the 

Federal contracting factor for each 

industry averaging $20 million or more 

in Federal contracts annually as the 

difference between the small business 

share of total contract obligations and 

the small business share of industry’ 

receipts. If the small business share of 

an industry total receipts exceeds the 

small business share of total contract 

obligations by ten percentage points or 

more, all else being the same, SBA 

would increase that industry’s current 

size standard by a certain amount 

depending on the amount of that 

difference. If that difference is less than 

ten percentage points, SBA considers 

that the current size standard is 

sufficient with respect to the Federal 

contracting factor. 

Under the disparity ratio approach, 

SBA computes a disparity ratio as a 


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Federal Register / Vol. 89, No. 177 / Thursday, September 12, 2024 / Rules and Regulations 74111 

5See Small Business Size Standards: Agriculture, 

Forestry, Fishing and Hunting; Mining, Quarrying, 

and Oil and Gas Extraction; Utilities; Construction 

(85 FR 62239; October 2, 2020), Small Business Size 

Standards: Transportation and Warehousing; 

Information; Finance and Insurance; Real Estate and 

Rental and Leasing (85 FR 62372; October 2, 2020), 

Small Business Size Standards: Professional, 

Scientific and Technical Services; Management of 

Companies and Enterprises; Administrative and 

Support and Waste Management and Remediation 

Services (85 FR 72584; November 13, 2020), Small 

Business Size Standards: Education Services; 

Health Care and Social Assistance; Arts, 

Entertainment and Recreation; Accommodation and 

Food Services; Other Services (85 FR 76390; 

November 27, 2020), and Small Business Size 

Standards: Wholesale Trade and Retail Trade (86 

FR 28012; May 25, 2021), Small Business Size 

Standards: Manufacturing and Industries With 

Employee-Based Size Standards in Other Sectors 

Except Wholesale Trade and Retail Trade (87 FR 

24752; April 26, 2022). Comments available at 

www.regulations.gov. 

6Prior to finalizing the 2019 Methodology for 

revising size standards under the second five-year 

review, SBA issued a notification in the April 27, 

2018, issue of the Federal Register (83 FR 18468) 

to solicit comments from the public and notify 

stakeholders of the proposed changes to the 2019 

Methodology. SBA considered all public comments 

in finalizing the 2019 Methodology. For a summary 

of comments and SBA’s responses, refer to the 

SBA’s April 11, 2019, Federal Register notification 

(84 FR 14587). 

7NAICS 112112 (Cattle Feedlots) and NAICS 

112310 (Chicken Egg Production) currently have a 

size standard of $22 million and $19 million, 

respectively, and will be subjected to the $8 million 

minimum and $47 million maximum size standards 

Continued 

ratio (instead of the difference) between 

the small business share of contract 

obligations (utilization ratio) and the 

small business share of industry receipts 

(availability ratio). SBA also computes a 

second disparity ratio as a ratio between 

small business share of the number of 

contracts (utilization ratio) and the 

share of small firms in the total 

population of firms that are willing, 

ready, and able to bid on and perform 

Federal contracts (availability ratio). 

If an industry’s disparity ratio is less 

than 0.8, SBA would assume that small 

businesses are either materially 

underrepresented (i.e., the disparity 

ratio is 0.5 or greater and less than 0.8) 

or substantially underrepresented (i.e., 

the disparity ratio is less than 0.5) in the 

Federal market under that industry’s 

current size standard and would 

generally propose to increase the 

current size standard. If an industry’s 

disparity ratio is 0.8 or higher, small 

businesses are considered 

overrepresented (i.e., the disparity ratio 

is 0.8 or higher and less than 1.2) or 

substantially overrepresented (i.e., the 

disparity ratio is 1.2 or higher) in the 

Federal market in that industry under 

the current size standard, and the size 

standard is maintained at the current 

level. 

The second proposed major change is 

to replace the 20th percentile and 80th 

percentile values of industry factors for 

evaluating size standards at subindustry 

levels (‘‘exceptions’’) currently 

calculated based on the Economic 

Census data with those calculated using 

the Federal Procurement Data System— 

Next Generation (FPDS–NG) and the 

System for Award Management (SAM) 

data. 

SBA is adopting these changes in 

order to refine and improve its analysis 

of Federal contracting data used in the 

evaluation of industry size standards. 

These changes are also in response to 

public comments received during the 

second five-year review of size 

standards that pertained to Federal 

contracting trends generally. Although 

SBA did not specifically seek comments 

to the 2019 Methodology as part of the 

series of proposed rules issued to review 

size standards under the second five 

year review,5 SBA notes that a number 

of commenters to SBA’s proposed rules 

expressed positions both for and against 

SBA’s proposed size standards based on 

Federal contracting trends, data, or 

analysis.6 Thus, given the demonstrated 

relevance of Federal contracting trends 

to small businesses, SBA believes that it 

is important to continually review and 

adjust its methodology for evaluating 

Federal contracting data to ensure its 

analysis accurately captures the varying 

impact of Federal contracting trends by 

industry. 

To determine how the above changes 

in the Methodology would affect size 

standards across various industries and 

sectors, SBA derived the new size 

standards for all industries averaging 

$20 million or more in Federal contract 

dollars annually (excluding Sectors 42 

and 44–45) using the 2019 Methodology 

and the disparity ratio approach of 

defining the Federal contracting factor 

under the 2024 Methodology. Overall, 

the calculated size standards were quite 

similar between the two approaches 

when compared to the existing size 

standards, with size standards 

increasing for some industries and 

decreasing for others under both 

approaches. 

SBA believes that using FPDS–NG 

and SAM data to obtain the 20th 

percentile and 80th percentile values of 

industry factors for evaluating size 

standards for the exceptions, instead of 

using the percentiles from the Economic 

Census, will promote consistency in its 

analysis of the exceptions by ensuring 

that the percentile values and factor 

values for each exception are in 

comparable terms. Specifically, SBA has 

found that for most industries, the 

average firm size of businesses 

participating in Federal contracting is 

generally larger than the average firm 

size of businesses represented in the 

Economic Census. There are also 

inconsistencies in data reporting 

between SAM/FPDS–NG data and the 

Economic Census, which SBA will 

address by adopting the revised 

approach. Thus, SBA believes that using 

FPDS–NG and SAM to obtain the 

percentile values of industry factors for 

the exceptions will better reflect the 

varying economic characteristics of the 

underlying industries. The full results of 

SBA’s impact analysis as well as a 

detailed description of the major 

changes to SBA’s evaluation of size 

standards are included in the 2024 

Revised Methodology. 

In the 2024 Revised Methodology, 

SBA is also updating the minimum and 

maximum size standard levels based on 

current minimum and maximum size 

standard levels. The minimum size 

standard generally reflects the size a 

small business should be to have 

adequate capabilities and resources to 

be able to compete for and perform 

Federal contracts. On the other hand, 

the maximum size standard represents 

the level above which businesses, if 

qualified as small, would cause 

significant competitive disadvantage to 

smaller small businesses when 

accessing Federal assistance. SBA will 

not generally propose or adopt a size 

standard that is either below the 

minimum or above the maximum level, 

even though the calculations might 

yield values below the minimum or 

above the maximum level. 

With respect to receipts-based size 

standards, SBA is adopting $8 million 

and $47 million, respectively, as the 

minimum and maximum size standard 

levels (except for most agricultural 

industries in Subsectors 111 and 112). 

These levels reflect the current 

minimum and the current maximum of 

receipts-based size standards. As in the 

2019 Methodology, the latest industry 

data from the 2017 Census of 

Agriculture suggests that $8 million 

minimum and $47 million maximum 

size standard levels would be too high 

for agricultural industries in Subsector 

111 and Subsector 112. Accordingly, 

SBA is adopting $2.25 million and $5.5 

million, respectively, as the minimum 

and maximum size standard levels for 

agricultural industries in Subsectors 111 

and 112 (excluding NAICS 112112 and 

NAICS 112310). These levels represent 

the current minimum and current 

maximum levels of size standards in 

Subsectors 111 and 112 (excluding 

NAICS 112112 and NAICS 112310).7


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proposed for other industries with receipts-based 

size standards. 

8Current employee-based size standards for the 

wholesale and retail trade industries range from 100 

employees to 250 employees. However, as in the 

2019 Methodology, SBA is proposing a lower 50- 

employee level as the minimum employee-based 

size standard to account for differences among 

industries more accurately. 

Regarding employee-based size 

standards for manufacturing and other 

industries that have employee-based 

size standards (excluding Wholesale 

and Retail Trade), SBA’s 250-employee 

minimum and 1,500-employee 

maximum are the current minimum and 

maximum employee based size 

standards among those industries. For 

employee-based size standards for 

Wholesale Trade and Retail Trade 

industries, the minimum and maximum 

size standards levels are 50 employees 

and 250 employees, respectively.8

SBA is also updating the percentile 

values, derived from the latest 2017 

Economic Census and other industry 

data, used to evaluate the structure of 

each industry in terms of the four 

economic characteristics or factors, 

namely average firm size, average assets 

size, the four-firm concentration ratio, 

and the Gini coefficient. As explained in 

the 2024 Revised Methodology, SBA 

ranks industries by size standard types 

in terms of the four industry factors and 

in terms of the existing size standards, 

then computes the 20th percentile and 

80th percentile values for both. SBA 

then evaluates each industry by 

comparing its value for each industry 

factor to the 20th percentile and 80th 

percentile values for the corresponding 

factor for industries under a particular 

type of size standard. The updated 20th 

percentile and 80th percentile values for 

the four factors for receipts-based and 

employee-based size standards are 

found in Table 5 and Table 6 of the 2024 

Revised Methodology, respectively; the 

updated 20th percentile and 80th 

percentile values of size standards are 

found in Table 7. 

C. Discussion of Comments 

On December 11, 2023, SBA 

published a notification in the Federal 

Register seeking comments on the above 

changes to its size standards 

methodology and a number of policy 

issues or questions it faces regarding the 

size standards methodology (88 FR 

85852). Pursuant to section 1344 of the 

Jobs Act, on June 23 and 25, 2023, SBA 

also held two public forums on size 

standards to update the public on the 

status of the quinquennial reviews of 

size standards under the Jobs Act and 

seek public feedback on proposed 

revisions to the size standards 

methodology. 

SBA received a total of 21 comments 

(including one received during the 

public forums on size standards), of 

which 19 were significant. Of these 19 

comments, two represented SBA’s 

administrative records of two public 

forums designed to update the public on 

the status of quinquennial reviews of 

size standards under the Jobs Act and 

seek feedback on SBA’s Revised 

Methodology, which will be used to 

review and adjust size standards under 

the forthcoming third five-year review 

of size standards. Public comments are 

summarized below and are available on 

the Federal Government e-rulemaking 

portal at www.regulations.gov. 

1. General Support/Comment 

SBA received four comments that 

expressed full support for its Revised 

Methodology. One commenter found the 

Revised Methodology to be a reasonable 

and consistent approach to establish, 

review, and modify size standards. The 

commenter appreciated the SBA efforts 

to incorporate the recent amendments to 

the Small Business Act and to address 

the public comments to the 2019 

Methodology. Specifically, the 

commenter commended the SBA for 

making certain analytical 

improvements, such as adopting a 

percentile approach, assigning a 

separate size standard for each NAICS 

industry, lowering the threshold for the 

Federal contracting factor, and applying 

the 4-firm concentration ratio to all 

industries. The commenter believed that 

these changes would better reflect the 

current market conditions and ensure 

that the size standards are in accordance 

with the legislative guidelines. Overall, 

the commenter supported the Revised 

Methodology, and urged SBA to finalize 

and publish it as soon as possible. The 

commenter stated that the Revised 

Methodology will provide a fair and 

consistent definition of a small business 

and will enable SBA to fulfill its 

mission of assisting and promoting the 

small business community. 

Another commenter, a servicedisabled veteran-owned small business 

(SDVOSB), extended its full support for 

the SBA’s proposed revisions to the 

Methodology. The commenter believed 

that proposed revisions are a significant 

step toward creating a more equitable, 

competitive, and dynamic small 

business landscape. SBA received two 

comments that also supported SBA’s 

proposed revisions to the Methodology 

but did not provide any reasons for their 

support. 

A women-owned small business 

advocacy group submitted a comment to 

the SBA Revised Methodology. The 

commenter neither opposed nor 

supported the proposed revisions to the 

Methodology. Similarly, an industry 

association circulated the Revised 

Methodology to its 400-plus members 

and solicited their feedback. The 

members’ input neither supported nor 

opposed the overall Methodology but 

agreed with the SBA position on a 

number of policy issues and questions 

regarding the Methodology. 

SBA Response 

In absence of significant adverse 

comments against the Revised 

Methodology generally, SBA is adopting 

it as published for comments even 

though a couple of comments, as 

discussed below, objected using the 

FPDS–NG and SAM data to compute the 

20th percentile and 80th percentile 

values of industry factors to evaluate the 

size standards at the subindustry levels, 

usually known as ‘‘exceptions.’’ One 

comment, also discussed below, 

opposed using the maximum size 

standards caps in calculating new size 

standards for each industry factor as 

well as in calculating the overall size 

standard for the industry. SBA did not 

receive any comment that objected to 

the adoption of the disparity ratio 

approach to account for small business 

participation in the Federal market. 

2. Comments on Specific Issues/ 

Questions Pertaining to the 

Methodology 

SBA sought feedback on a number of 

specific policy issues and questions it 

faces regarding the Methodology for 

establishing, reviewing, and modifying 

size standards. A number of 

commenters specifically addressed 

these issues, as discussed below. 

Should SBA establish size standards 

that are higher than industry’s entrylevel business size? 

Three commenters addressed this 

issue. A commenter concurred with the 

SBA’s position that size standards must 

be established above the entry-level size 

to ensure small businesses have the 

necessary resources and capabilities to 

be able to perform and meet Federal 

Government contracting requirements. 

Another commenter supported the 

SBA’s approach to establishing size 

standards that reflect the current 

realities of industry-specific dynamics, 

including setting standards above entrylevel business sizes. This approach 

ensures that businesses with a footprint 

slightly above the ‘‘entry level’’ can still 

access vital resources and opportunities, 

fostering growth and innovation within 

their respective fields, the commenter 

added. SBA received another comment 


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from an industry association saying that 

SBA should continue using the size 

standards that are higher than the 

industry’s entry-level business size. The 

commenter agreed with the SBA’s 

position that establishing size standards 

at the industry entry-level firm size 

would cause small businesses to 

outgrow their eligibility very quickly, 

thereby lacking sufficient experience to 

succeed outside the small business 

market. More importantly, such size 

standards would likely lead to the 

undesirable outcome of fewer 

companies competing for Federal 

contracts, the commenter noted. 

SBA Response 

In the absence of adverse comments 

against establishing the size standard 

above the entry-level business size, SBA 

adopts its approach of setting size 

standards higher than the entry-level 

business size to enable small businesses 

to compete against others of their size 

and considerably larger businesses for 

Federal contracts set-aside for small 

businesses. It is important that small 

businesses can apply for and be eligible 

for the various SBA’s contracting and 

business development programs that 

have additional requirements, such as a 

minimum number of years in business 

to qualify for its 8(a) Business 

Development Program. This precludes 

setting size standards at too low a level 

or at the entry-level size. Additionally, 

establishing size standards at the 

industry entry-level firm size would 

cause small businesses to outgrow their 

eligibility very quickly, thereby lacking 

sufficient cushion or experience to 

succeed outside of the small business 

market. Finally, size standards must be 

above the entry-level size to ensure that 

small businesses have necessary 

resources and capabilities to be able to 

bid on and perform Federal contracts. 

Should there be a ceiling beyond 

which a business concern cannot be 

considered as small? In other words, 

should there be a maximum size 

standard? 

SBA received three comments 

addressing this issue, with two 

supporting and one opposing the SBA’s 

position. One commenter supported the 

introduction of a maximum size 

standard because it is beneficial for 

maintaining the integrity of small 

business programs. The commenter 

asserted that establishing a maximum 

size standard cap ensures that Federal 

small business programs remain 

accessible to businesses that genuinely 

need them while preventing larger 

entities from overshadowing the 

competitive landscape for true small 

businesses, including SDVOSBs. A 

maximum size standard would serve as 

a safeguard, ensuring that the small 

business benefit is preserved for those it 

is intended to support, the commenter 

added. 

SBA received a comment from an 

industry association supporting the 

SBA’s policy to continue maintaining 

the minimum and maximum levels for 

both receipts- and employee-based size 

standards. The commenter agreed with 

the SBA’s position that, without the 

maximum caps as defined by the 

Revised Methodology, the calculated 

size standards would be extremely large 

for some industries, allowing very 

successful businesses with hundreds of 

millions in receipts or tens of thousands 

of employees to qualify as small for 

Federal assistance intended for small 

businesses. 

SBA received a comment disagreeing 

with SBA’s proposed maximum caps of 

$47 million for revenue-based size 

standards and 1,500 employees for 

employee-based size standards. The 

commenter explained that size 

standards would better reflect the 

economic characteristics of industries if 

there were no caps on size standards 

and instead SBA permitted its industryspecific analysis of the data to 

determine the appropriate size standard 

for the industry. If SBA feels caps are 

necessary, the commenter urged SBA to 

provide a sound economic analysis to 

justify the application of caps. The caps 

result in lower size standards than 

would otherwise be calculated, and the 

Methodology no longer aspires to find a 

true economically appropriate size 

standard, the commenter argued. The 

commenter asserted that arbitrary caps 

are inconsistent with the requirement 

that size standards vary from industry to 

industry according to differences among 

industries and SBA’s polices of 

encouraging and strengthening 

competition in the economy. Because of 

the introduction of caps, SBA runs the 

risk of being perceived to favor the 

smallest small businesses at the expense 

of the larger small businesses, the 

commenter noted. The commenter 

urged SBA to let the data drive the 

results instead of policies. 

SBA Response 

SBA agrees with the industry 

association that, without the maximum 

caps, the calculated size standards 

would be extremely high, allowing, in 

some cases, extremely large companies 

with billions of dollars in revenues and 

tens of thousands of employees to 

qualify as small business. Capping 

calculated size standards at certain 

minimum and maximum levels is 

crucial for fulfilling the SBA’s mission 

to serve and protect the interests of 

American small businesses and 

ensuring that Federal small business 

assistance goes to small businesses most 

in need of such assistance. For this 

reason, in the Revised Methodology, 

SBA retains its policy of capping the 

calculated receipts-based size standards 

at $47 million and calculated employeebased size standards at 1,500 

employees. SBA has maintained its 

employee-based maximum size standard 

cap at the 1,500 employees despite the 

increased automation and resultant 

labor productivity growth. However, the 

receipts-based size standards have 

gradually increased over time due to 

inflationary adjustments, and the 

highest receipts-based size standard 

stands at $47 million today. 

Should SBA consider adjusting 

employee-based size standards for labor 

productivity growth or increased 

automation? 

Four comments addressed this issue. 

SBA received a comment justifying the 

lack of SBA’s adjustment to employeebased size standards for labor 

productivity growth and technical 

changes because it is difficult to 

measure and compare the productivity 

and technology levels across industries 

and over time. 

Another comment argued that, 

without seeing a specific proposal, it is 

difficult to comment on whether SBA 

should consider adjusting employeebased size standards for labor 

productivity growth or increased 

automation. However, the commenter 

recommended proceeding cautiously, as 

small businesses might not have the 

necessary capital to take advantage of 

automation and robotics. 

Another commenter argued that the 

rapid pace of technological 

advancement and its impact on labor 

productivity and automation 

necessitates adjustments to employeebased size standards and suggested that 

SBA incorporate considerations for 

labor productivity growth and 

automation into its Methodology. This 

adjustment would ensure that size 

standards remain relevant and that 

businesses utilizing technology to 

enhance productivity or automate 

processes are not unfairly classified as 

small due to efficiency gains, the 

commenter added. 

SBA received a comment supporting 

the SBA’s current approach of not 

adjusting employee-based size standards 

for labor productivity growth. By 

updating size standards every five years, 

those factors are already captured in 

SBA’s analysis of the industry structure, 

the commenter added. The commenter 

argued that any separate adjustments 


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would simply double count the impact 

of the productivity changes that are 

already reflected in the industry data. 

SBA Response 

Of the four comments addressing this 

issue, three supported the SBA’s current 

approach of not adjusting employeebased size standards for increased 

automation and labor productivity 

growth, even though the Agency adjusts 

monetary-based size standards for 

inflation. Just as firms in industries with 

monetary-based size standards may lose 

small business eligibility due to 

inflation, firms in industries with 

employee-based standards may gain 

eligibility due to improvement in labor 

productivity and technical change. 

There are three reasons for SBA for not 

adjusting employee-based size standards 

for productivity growth and technical 

change. First, there does not exist robust 

labor productivity growth data by 6- 

digit NAICS industry. Second, SBA 

agrees with one of the commenters 

supporting no labor productivity 

adjustment of employee-based size 

standards that the impact of changes in 

labor productivity are already reflected 

in the quinquennial Economic Census 

data that SBA uses to evaluate industry 

structure. Third, just as an adjustment to 

monetary-based size standards for 

inflation leads to increases in size 

standards, thereby allowing businesses 

to gain or maintain their small business 

status, an adjustment to employee-based 

size standards for labor productivity 

growth would lead to decreases in size 

standards, thereby causing currently 

small businesses to lose their small 

business status and eligibility for 

Federal small business assistance, 

which may run counter to the SBA’s 

policy of not lowering size standards 

under distressed economic 

environment. For these reasons, in the 

Revised Methodology, SBA maintains 

its policy of not adjusting employeebased size standards for labor 

productivity growth. 

Should SBA consider lowering its size 

standards generally? 

Four comments addressed this issue. 

One commenter opposed lowering size 

standards arguing that many businesses 

have made investments based upon 

their ability to access small business setaside markets and lowering size 

standards would unfairly penalize them. 

Citing the ongoing decline in the 

number of small businesses 

participating in the Federal 

marketplace, one commenter opposed 

lowering size standards. The commenter 

argued that lowering size standards will 

not only exacerbate this situation but 

also harms small businesses and 

deprives agencies of increased 

competition and the experienced small 

business vendor base. Instead of 

lowering size standards, the commenter 

added, SBA should look into raising 

size standards, thereby allowing more 

small businesses to remain in the 

Federal market longer. The commenter 

asserted that raising size standards 

would both expand the small business 

industrial base for Federal agencies and 

extend the runway for these firms as 

they grow and have a chance to 

successfully graduate from their status 

as small businesses. The commenter 

maintained that, by lowering size 

standards, SBA will decrease the pool of 

eligible offerors under the Rule of Two, 

and thus lowering size standards would 

lead to fewer small business set-asides 

overall due to the reduced applicability 

of the Rule of Two. 

An industry association 

recommended that SBA should not 

lower size standards. The association 

did not believe that lowering size 

standards would support the 

Administration’s and SBA’s goals to 

reverse a downward trajectory of fewer 

small businesses receiving Federal 

prime contracts. The association 

maintained that lowering size standards 

generally may further squeeze 

successful small businesses, limit 

returns on the Government’s 

investments in small business growth 

and deprive agencies of increased 

competition. To support its argument, 

the commenter cited the Government 

Accountability Office (GAO) finding 

that only 22% of graduating businesses 

remain mid-size and only three percent 

of graduating businesses break through 

mid-size status to large. The commenter 

maintained that contracting trends also 

do not support lowering size standards 

as individual set-aside contracts have 

increased in value such that small 

businesses may be catapulted beyond 

their size standards, often in a single 

contract or task order. These small 

businesses face a tough situation: unable 

to remain qualified as ‘‘small,’’ they 

must survive in ‘‘full and open’’ 

competitions with larger companies. 

A commenter representing the 

elevator industry believed that with 

increased inflation and raw materials 

costs, especially in construction-related 

industries with significant material 

outlays, broad-based lowering of size 

standards would be short-sighted and 

should not be enacted. 

SBA Response 

All four comments addressing this 

issue opposed lowering size standards, 

generally. SBA receives periodic 

comments from the public that its size 

standards are too high in certain 

industries or for certain types of Federal 

contracting opportunities. The 

comments generally concern the 

competitive edge that large small 

businesses have over the ‘‘truly small 

businesses’’ (a phrase heard frequently 

from commentators). On the other hand, 

SBA also receives comments from larger 

small businesses that their size 

standards are too small to qualify for 

Federal contracting opportunities and 

other Federal small business assistance. 

This has always been a challenging 

issue, one that SBA has had to deal with 

over the years. SBA’s size standards 

appear too large to the smallest of small 

businesses while larger small businesses 

often request even higher size standards. 

SBA examines four industry factors 

(average firm size, average assets size as 

a proxy of startup costs and entry 

barriers, 4-firm concentration ratio, and 

Gini coefficient) and small business 

participation in Federal contracting to 

determine if the existing industry size 

standards need to be adjusted. SBA 

considers analytical results, impacts of 

new size standards on small businesses, 

public feedback on proposed size 

standards, and the prevailing market 

conditions to decide on whether the size 

standard should be raised, lowered, or 

retained at the current level. SBA may 

lower calculated size standards if they 

are found to have enabled a dominant 

firm to qualify as small. 

Should SBA lower size standards 

regardless of prevailing economic 

conditions when the analytical results 

support lowering them, or should it 

consider the prevailing economic 

environment when deciding on whether 

to revise size standards? 

Three comments addressed this issue. 

One commenter supported the SBA’s 

policy of not lowering size standards 

during periods of fluctuating economic 

conditions. The commenter argued that 

businesses do better when there is 

certainty in the rules, thereby allowing 

them to plan for the future. 

An industry association 

recommended that if SBA were to 

consider lowering size standards, such 

action should not be tied to the 

prevailing economic conditions. Rather, 

any such reduction should be based on 

an assessment of fluctuations in 

contracting that cannot be attributed to 

a single factor or economic period. It 

noted that the prevailing economic 

conditions are only one factor to 

consider and only represent a snapshot 

in time, instead of market 

understanding over time. 

SBA received a comment applauding 

SBA’s effort to review size standards on 

a five-year basis and to raise standards 


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to counter the effects of inflation, 

thereby expanding opportunities for 

more small businesses to support 

Federal clients. Despite these efforts, 

however, the GAO and others have cited 

a decline in the number of small 

businesses supporting the Federal 

marketplace, the commenter noted. 

They also noted a significant drop in 

businesses out of the Federal market 

once they cross the ‘‘valley of death’’ 

into ‘‘other than small’’ business status, 

where businesses struggle to secure 

contract opportunities. Lowering size 

standards will only further exacerbate 

this situation, depriving agencies of 

both increased competition and skilled 

and experienced workforce. Instead, 

SBA should look into raising size 

standards to allow more small 

businesses to remain in the Federal 

marketplace longer, the commenter 

noted. The commenter stated that this 

would both expand the small business 

base for Federal agencies and improve 

the runway for these firms as they grow 

and ultimately graduate. 

SBA Response 

Prior SBA policy has been to consider 

the prevailing economic environment 

when deciding on whether to revise size 

standards. In response to the distressed 

economic environment in the aftermath 

of the 2007–2009 Great Recession, in the 

first five-year review of size standards 

under the Jobs Act, SBA adopted a 

policy of not lowering size standards 

even though the data supported 

lowering them for some industries. 

Similarly, in response to the COVID–19 

pandemic and its impacts on small 

businesses and the overall economy, 

during the second five-year review of 

size standards under the Jobs Act, SBA 

adopted a similar policy of not lowering 

any size standards even though the 

analytical results supported lowering 

them. SBA will continue to consider the 

prevailing economic conditions and 

their impacts on small businesses in 

revising size standards as a secondary 

factor in its analysis. 

Should SBA adopt the disparity ratio 

approach to evaluating small business 

participation in the Federal market, 

which will replace the Federal 

contracting factor the Agency used in 

the past? Should SBA adopt the results 

from the power analyses of the disparity 

ratios? 

Four comments addressed this issue, 

all supporting the SBA’s new disparity 

approach to account for Federal 

contracting trends. One commenter 

supported the new disparity ratio 

approach to evaluating small business 

participation in the Federal market, 

arguing that this new approach would 

better capture the entire spectrum of 

small business participation in Federal 

contracting. Another commenter also 

expressed strong support for the SBA’s 

proposed adoption of the disparity ratio 

approach to account for small business 

participation in the Federal market. The 

commenter added that the proposed 

approach promises a more equitable and 

accurate reflection of small business 

participation in the Federal market, 

thereby making size standards that are 

more aligned with actual market 

participation and potential and 

enhancing ability of small businesses to 

secure Federal contracts. Another 

commenter also supported SBA’s new 

disparity ratio approach to measure 

small businesses’ share of Federal 

contracting in relation to the broader 

industry. 

An industry association 

recommended that SBA use the 

disparity ratio approach where it might 

lead to increased participation from 

under-represented industries. The 

association members believed the 

disparity ratio approach might, in some 

industries where small businesses are 

not well represented as prime 

contractors, help draw more contractors 

into the Federal space by increasing size 

standards. The industry association’s 

view is that power analyses should not 

be used because they do not consider 

the actual performance of small 

businesses. 

SBA Response 

Absent significant adverse comments, 

SBA is adopting the disparity ratio 

approach to measure the Federal 

contracting factor as proposed. In the 

previous Methodology, SBA only 

considered the small business share of 

Federal contract dollars relative to the 

small business share of total industry 

receipts. Under the disparity ratio 

approach, SBA is also considering the 

number of Federal contracts awarded to 

small businesses relative to their 

proportion in the population of firms 

that are ready, willing, and able to bid 

on and perform Federal contracts. Thus, 

the disparity ratio provides a more 

accurate representation of small 

business participation in the Federal 

market. Since only a very few industries 

were impacted by the power analyses, 

SBA has decided to not use the results 

from the power analyses, consistent 

with the industry association’s 

recommendation. 

Should SBA continue using the 

Economic Census data to obtain the 

20th percentile and 80th percentile 

values of industry factors for evaluating 

size standards for exceptions, or should 

it start using FPDS–NG and SAM data? 

Three comments addressed this issue, 

with one supporting the SBA’s proposal 

and two opposing it. One commenter 

supported the use of FPDS–NG and 

SAM data for industry analysis for 

exception size standards. It makes sense 

that SBA should use the same consistent 

source of data throughout the analysis 

where possible, the commenter added. 

Another commenter disagreed with 

the SBA’s proposal to use FPDS–NG and 

SAM data to obtain the 20th percentile 

and 80th percentile values of industry 

factors for evaluating size standards for 

the NAICS exceptions. The commenter 

contended that the use of FPDS–NG and 

SAM data would limit the SBA’s 

analysis to the subset of companies 

engaged in Federal contracting only. 

Many small businesses rely on these 

size standards for purposes other than 

Federal contracting, the commenter 

added. The commenter recommended 

continuing to use the Economic Census 

data to obtain the 20th percentile and 

80th percentile values of industry 

factors for evaluating size standard 

exceptions. 

Based on the input from its members, 

an industry association also 

recommended that SBA continue using 

Economic Census data because it 

captures firms not currently working in 

the Federal space and is therefore 

consistent with the intent of the 

Methodology. The association explained 

that if SBA were to rely on FPDS–NG 

and SAM data, the results would 

incorporate only a subset of firms 

working in a given industry that hold 

Federal contracts. Using Economic 

Census data paints a more accurate 

picture of firms operating in the various 

industries, in and out of Government, 

the commenter added. 

SBA Response 

The data from the Census Bureau’s 

Economic Census tabulation are limited 

to the six-digit NAICS industry level 

and therefore do not provide 

information on economic characteristics 

of firms at the subindustry level. Thus, 

SBA uses the FPDS–NG and SAM data 

to derive the industry factors for 

exceptions. To be consistent, SBA is 

proposing to adopt the FPDS–NG and 

SAM data to obtain the 20th percentile 

and 80th percentile values of industry 

factors for evaluating size standards for 

the NAICS exceptions, instead of using 

the percentiles from the Economic 

Census. SBA believes that using the 

FPDS–NG and SAM data to obtain the 

20th percentile and 80th percentile 

values of industry factors for evaluating 

size standards for the exceptions, 

instead of using the percentiles from the 

Economic Census, will promote 


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consistency in its analysis of the 

exceptions by ensuring that the 

percentile values and factor values for 

each exception are in comparable terms. 

Specifically, SBA has found that for 

most industries, the average firm size of 

businesses participating in Federal 

contracting is generally much larger 

than the average firm size of businesses 

represented in the Economic Census. 

There are also inconsistencies in 

reporting between the SAM/FPDS–NG 

data and the Economic Census, which 

SBA will address by adopting the 

revised approach. Thus, SBA believes 

that using the FPDS–NG and SAM data 

to obtain the percentile values of 

industry factors for the exceptions will 

better reflect the varying economic 

characteristics of the underlying 

industries. The full results of SBA’s 

impact analysis as well as a detailed 

description of the major changes to 

SBA’s evaluation of size standards are 

included in the 2024 Revised 

Methodology. 

Should size standards vary from 

program to program? 

SBA received two comments 

addressing this issue, with both 

expressing support for the SBA’s 

position of not varying the size 

standards from program to program. 

One commenter opposed size standards 

to vary from program to program 

because many small businesses 

participate in more than one SBA’s 

program. The commenter argued that 

changing size standards from program to 

program would create substantial 

confusion. 

An industry association 

recommended that, absent a clear 

benefit, size standards should not vary 

from program to program. The 

association believed that size standards 

need to be clearly understood by the 

acquisition community so that set-aside 

decisions and subcontracting goals can 

be realistically established. Adding 

additional sets of standards by program 

in addition to varying them from 

industry to industry would add multiple 

layers of complexity for small firms that 

may not have the resources to develop 

additional staff expertise in tracking the 

applicability of size standards for each 

program, especially for those involved 

in multiple programs, the commenter 

added. 

SBA Response 

Consistent with the above comments, 

for all industries except for Wholesale 

Trade and Retail Trade industries, 

where businesses for SBA’s financial 

and other Federal non-procurement 

programs qualify under the industryspecific size standards and those for 

Federal procurement qualify under the 

500-employee nonmanufacturer size 

standard, SBA retains its policy of 

maintaining the uniform size standard 

for both procurement and nonprocurement programs. SBA had, in the 

1980s, established different size 

standards for different programs. The 

result had been that some firms were 

small for some programs and large for 

others. Such size standards were very 

confusing to users and caused 

unnecessary and unwanted complexity 

in their application. The statutory 

guidance encourages an industry-byindustry analysis and not a program-byprogram analysis when developing 

small business size definitions. While 

the characteristics and needs of a 

particular SBA’s program may 

necessitate the deviation from the 

uniform size standards, the Agency will 

continue its general policy of favoring 

one set of size standards for all 

programs. For example, SBA has 

established 14 special size standards for 

specific activities (commonly referred to 

as ‘‘exceptions’’) within certain 

industries for Federal procurement 

purposes. Additionally, for the SBA’s 

SBIC, 7(a), and CDC/504 Programs, 

businesses can qualify either based on 

industry specific size standards for their 

primary industries or based on a 

tangible net worth and net income based 

alternative size standard. 

Should size standards apply 

nationally or should they vary 

geographically? 

Five comments addressed this issue, 

all opposing size standards varying 

geographically. One commenter asserted 

that size standards should apply 

nationally, not geographically, but did 

not provide reasons for its position. 

Another commenter also opposed 

geographically differing size standards. 

The commenter argued that the notion 

of geographically differing size 

standards is not reflective of the reality 

of the modern-day global economy, in 

which vendors and suppliers operate 

remotely and across multiple states and 

national boundaries. The commenter 

urged SBA to maintain uniform industry 

size standards across geographic 

regions. 

An industry association 

recommended that size standards 

should apply nationally, rather than 

geographically. The association agreed 

with the SBA’s position that application 

of Economic Census data to determine 

size standards geographically would be 

at a minimum cumbersome and time 

consuming, resulting in a complex set of 

size standards that would likely be 

unusable. The association maintained 

that adding in a geographic variable 

would complicate the application of 

size standards for the reasons provided. 

For example, if applied at place of 

delivery or at multiple locations of 

delivery, how would the size standards 

differentiate between sizes of companies 

performing on that task order or 

between subcontractors and contractors? 

Application of size standards 

geographically would create more 

confusion than opportunity, the 

commenter added. 

A commenter representing the 

elevator industry believed that trying to 

segment size standards geographically 

would lead to a host of unintended 

consequences that would render the size 

standards impossible to effectively 

implement. The commenter asked how 

the size standards would be applied 

when a contractor is headquartered in 

one geographic region (such as a state) 

and performs contracts in others. 

Another commenter agreed with the 

SBA’s position that varying size 

standards geographically would lead to 

undue complexity and the resulting 

confusion would render geographically 

based size standards unusable. 

SBA Response 

The statute defines a small business 

concern as the one which is 

independently owned and operated and 

which is not dominant in its field of 

operation (15 U.S.C. 632 (a)(1)). The 

statute does not exclude from the 

definition those small businesses that 

might dominate their fields of 

operations within a specific geographic 

area. Whether a firm is ‘‘not dominant 

in its field of operation’’ is made at the 

national level. 

The statute requires SBA to ensure 

that the size standard varies from 

industry to industry to the extent 

necessary to reflect the differing 

characteristics of the various industries 

(15 U.S.C. 632(a)(3)). However, the 

statute does not require SBA to vary the 

size standard from geography to 

geography to account for geographical 

differences in industrial characteristics. 

If SBA were to establish size 

standards that would vary 

geographically, SBA would need to 

identify a proper unit of geography. 

Should it be the region, state, county, or 

other basis? Whatever basis SBA were to 

choose, SBA likely would need to vary 

each of the 1,000-plus industry-based 

size standards by geography. This could 

result in tens or even hundreds of 

thousands of size standards using 

geography-industry pairs. The public 

would then face the immense burden of 

reviewing, commenting on, and 

complying with those size standards. 


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Another challenge with 

geographically varying size standards 

would be determining the applicable 

size standard when the vendor’s 

location is different from the location of 

contract performance. Which size 

standard would be applicable in 

determining the small business status of 

the vendor? Should it be the size 

standard that applies to the area where 

the vendor is located, or should it be the 

size standard applicable to the location 

of contract performance? If vendor 

location, firms with multiple locations 

would either be subject to multiple size 

standards or a complex series to 

regulations to determine which location 

sets the size standard. If location of 

contract performance, firms would 

compete on an uneven basis because 

they would be subject to different size 

standards. 

Geographically varying size standards 

may inappropriately influence 

entrepreneurs’ decisions on selecting 

business location. If size standards 

varied geographically, entrepreneurs 

would tend to be encouraged to move 

from places with lower size standards to 

places with higher size standards to 

receive the benefits of higher size 

standards. This may lead to potential 

disparities in entrepreneurship and 

business development among 

geographic regions. This might 

inadvertently suppress economic 

development in already-distressed 

regions as firms seek optimal locations 

based on regulatory compliance rather 

than economic forces. 

SBA determines the size standards 

based on special tabulations of business 

data from the Economic Census, which 

is compiled and reported nationally. 

The same level of details of Economic 

Census data is not available for smaller 

geographical units. SBA is required to 

set size standards that would exclude 

firms that are ‘‘dominant in their field 

of operation,’’ and that criteria is set 

nationally. As a result, in large part, the 

size standards are higher than they 

would be if the Agency were to look at 

smaller geographic areas because very 

few firms that are dominant locally are 

dominant nationally. Data limitations 

preclude an extensive analysis of 

businesses within specific industries on 

a geographical basis. 

For the above reasons and 

commenter’s views discussed above, 

SBA will continue to establish and 

apply the size standards at the national 

level, without considerations to 

geographical differences in industry 

characteristics. 

Are there alternative approaches that 

SBA should consider for determining 

small business size standards? 

Two comments addressed this issue. 

One commenter suggested that SBA 

should reconsider establishing a 

common size standard for closelyrelated NAICS codes, such as those 

under NAICS 5415, Computer Systems 

Design and Related Services. The 

commenter argued that, until the most 

recent revision, all 6-digit industries 

under NAICS 5415 had the same size 

standard because those NAICS codes are 

used interchangeably by agencies, 

resulting in confusion. 

An elevator company suggested that 

SBA should consider irrefutable, 

publicly available data provided by 

industry participants and industry 

expertise in the context of determining 

the size standard for the elevator 

industry. With respect to the elevator 

industry, the commenter argued that 

elevator maintenance, repair and 

modernization companies are vastly 

different from elevator inspection 

companies, and it would be 

inappropriate to lump them into one 

category simply because they both relate 

to the elevator industry. The commenter 

argued that companies involved in 

maintenance, repair and modernization 

of elevators are dramatically different 

from those companies involved in 

inspection of elevators. Compared to the 

latter, the commenter noted, the former 

have significant barriers to entry and 

very high concentration of large 

companies that dominate the market. 

Elevator inspection companies, on the 

other hand, have very low barriers to 

entry, do not require licensed 

mechanics, and have dramatically lower 

revenue per employee, and higher 

competition within the industry, the 

commenter added. The commenter 

contended that equipment needed to 

perform elevator inspection contracts is 

less costly than that required to perform 

maintenance contracts. 

SBA Response 

The National Defense Authorization 

Act of Fiscal Year 2013 (NDAA 2013) 

(Pub. L. 112–239, section 1661, Jan. 2, 

2013) amended the Small Business Act 

to prohibit SBA from limiting the 

number of size standards and to require 

SBA to assign specific size standards for 

each NAICS industry. This limits the 

SBA’s ability to group NAICS industries 

to establish a common size standard. 

Additionally, according to section 

3(a)(7) of the Small Business Act, SBA 

may establish or approve a single size 

standard for a grouping of 4-digit NAICS 

codes only the Agency makes publicly 

available, not later than the date on 

which such size standard is established 

or approved, a justification 

demonstrating that such size standard is 

appropriate for each individual industry 

classification included in the grouping. 

However, the results from the second 5- 

year review of the size standards under 

the Jobs Act (85 FR 72484; November 

13, 2020) did not support the same size 

standard for all industries in NAICS 

5415. For example, calculated size 

standards for those industries varied 

from $20.5 million for NAICS 541511, 

Custom Computer Programming 

Services, to $32.5 million for NAICS 

541513, Computer Facilities 

Management Services. 

With respect to the comment 

regarding the size standard for the 

elevator industry, SBA encourages the 

commenter to submit this information 

as comment to the proposed rule 

reviewing the monetary-based size 

standards the Agency will issue as part 

of the forthcoming third 5-year review 

of size standards under the Jobs Act. As 

indicated elsewhere in this document, 

any concerns regarding the size 

standard(s) for a specific industry or 

group of industries are beyond the scope 

of the Methodology. 

How have SBA’s latest size standards 

revisions impacted competition in 

general and within a specific industry? 

One company operating in the 

elevator industry noted that the elevator 

maintenance-related industry, usually 

classified under NAICS 238290, Other 

Building Equipment Contractors, has a 

revenue-based size standard of $22 

million, whereas elevator manufacturing 

industry, NAICS 333921, Elevator and 

Moving Stairway Manufacturing, has a 

size standard of 1,000 employees. The 

commenter argued that the $22 million 

revenue size standard is a significant 

barrier to growth of elevator 

maintenance companies. The SBA 

current size standards have 

unintentional consequences for the 

elevator industry in terms of limiting 

competition, the commenter noted. The 

commenter argued that the current size 

standards for elevator related work have 

allowed multi-national, multi-billion 

elevator companies to dominate the 

Federal market. Elevator maintenance 

contracts are performed by highly 

trained and compensated personnel 

using expensive and sophisticated 

equipment, which leads to higher 

contract prices, causing elevator 

maintenance companies to perform 

fewer contracts before they exceed the 

revenue-based size standard, the 

commenter added. Thus, the commenter 

recommended that SBA should consider 

using an employee-based size standard 

of 1,000 employees for the elevator 

maintenance industry as revenue is not 

the best indicator of business size. 


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SBA Response 

With respect to the comment 

regarding the size standard for the 

elevator industry, SBA encourages the 

commenter to submit this information 

as comment to the proposed rule 

reviewing the monetary-based size 

standards the Agency will issue as part 

of the forthcoming third 5-year review 

of size standards. As indicated 

elsewhere in this document, any 

concerns regarding the size standard(s) 

for a specific industry or group of 

industries are beyond the scope of the 

Methodology. Moreover, for industries 

with significant subcontracting, such as 

construction-related industries, SBA 

uses receipts, not employees, as a 

measure of business size for size 

standards purposes. 

Are there alternative or additional 

factors or data sources that SBA should 

consider when establishing, reviewing, 

or revising size standards? 

One commenter supported the 

omission from the Revised Methodology 

of the effects of industry dynamics, such 

as entry and exit of firms, mergers and 

acquisitions, and changes in market 

structure, on the size standards because 

it is impractical and unnecessary to 

account for these factors in the 

Methodology. The commenter 

maintained that SBA reviews and 

adjusts the size standards periodically, 

at least once every five years, to reflect 

the changes in the industry 

characteristics and market conditions. 

Therefore, the size standards are not 

static or fixed, but dynamic and flexible, 

and they can accommodate the 

variations and fluctuations in the 

industry dynamics over time, the 

commenter noted. 

Another commenter maintained that 

one factor that SBA should consider 

when establishing, reviewing, or 

revising its size standards is the impact 

of a reduction in size standards on the 

viability of small businesses. The 

commenter proposed making a reduced 

size standard become effective 180 days 

after publication of the final rule in the 

Federal Register. 

A comment from the elevator industry 

believed SBA should consider nonbiased, irrefutable, and publicly 

available information provided to it by 

industry participants to supplement 

SBA determination of the size standard 

within a given industry. The commenter 

maintained that, while the Economic 

Census data provides a directionally 

accurate snapshot of certain industries, 

it is not a 100% accurate representation 

of the underlying facts related to 

companies’ sizes within that industry. 

Additionally, certain industries are not 

clearly represented within the NAICS 

manual at all, namely, the elevator 

industry, the commenter noted. The 

commenter recommended that SBA 

should create a new NAICS code for the 

elevator industry and establish a size 

standard of 1,000 employees, the same 

size standard that applies to the elevator 

manufacturing industry. 

SBA Response 

The commenter’s statement that the 

Methodology omits the factors such as 

entry and exit of firms and mergers and 

acquisitions is not quite correct. As a 

proxy of startup costs and entry barriers, 

SBA evaluates the average assets size as 

one of the four industry factors when 

establishing, reviewing, and modifying 

size standards. Similarly, mergers and 

acquisitions may lead to affiliation, 

thereby affecting the calculation of 

business size for size standards 

purposes. As part of the regulatory 

impact analysis of the proposed and 

final rules, SBA is required to include 

a statement describing the impact of size 

standards changes (including decreases) 

on small businesses in terms of access 

to small business assistance. Similarly, 

as part of its decision on whether to 

revise a size standard, SBA examines, as 

a secondary factor, impacts of size 

standards changes on small business 

access to and eligibility for Federal 

assistance. In most cases, SBA allows 

the final rules to become effective 30 

days from their publication in the 

Federal Register. Thus, assuming that 

the size standards revisions include 

both increases and decreases, it would 

be impractical to make a higher size 

standard effective 30 days from the date 

of publication of the final rule in the 

Federal Register and delay the effective 

date for a lower size standard to 180 

days. Delaying the effective date for 

higher size standards to 180 days would 

prevent some larger small businesses 

from realizing the benefits of size 

standards increases. SBA always 

encourages industry participants to 

provide, as part of their comment to the 

proposed rules, the alternative industry 

data or facts pertaining to a specific 

industry’s size standard. SBA will 

consider such data or facts very 

thoroughly and may even adjust the 

proposed size standard as a result. 

Does SBA’s current approach to 

establishing or modifying small business 

size standards make sense in the current 

economic environment? 

Four comments addressed this issue. 

One commenter agreed that the SBA’s 

current approach to establishing or 

modifying small business size standards 

makes sense in the current economic 

environment and supported the SBA’s 

policy of not lowering size standards 

during periods of fluctuating economic 

conditions. 

Another commenter, a woman-owned 

small business (WOSB), operating under 

NAICS 236220, Commercial and 

Industrial Building Construction, 

expressed appreciation for revisions to 

size standards in response to the 

fluctuations in economic conditions due 

to the COVID–19 pandemic and 

believed that the Revised Methodology 

will provide further refinements to the 

considerations of industry factors and 

Federal market conditions. 

An industry association asserted that 

the current approach is the most 

practical approach at this time. 

Establishing a different approach to 

small business size standards would be 

a complex challenge that should be 

undertaken with clear objectives and 

with sufficient time to conduct analyses 

and assess the potential results of 

alternative approaches, the commenter 

added. 

A comment from the elevator 

company felt that the SBA’s current 

approach does a very good job of 

accounting for inflation and other 

macroeconomic environment affecting 

small businesses. The periodic size 

standard increases to account for 

inflation have been handled 

expeditiously and been beneficial to all 

small businesses, the commenter added. 

However, the commenter felt the SBA 

should consider irrefutable publicly 

available information from industry 

participants relating to any given 

industry. SBA should consider such 

information to better support its effort to 

establish a correct size standard for an 

industry in question. 

SBA Response 

SBA agrees with the commenters that 

the Revised Methodology makes sense 

in the current economic environment. 

SBA will continue to consider the 

prevailing economic environment when 

deciding on whether the size standards 

should be revised or retained at the 

current levels. SBA is committed to 

complete the quinquennial reviews of 

size standards under the Jobs Act in a 

timely manner to ensure that size 

standards reflect current market 

conditions. Similarly, SBA is also 

committed to periodically assess the 

impacts of inflation on monetary-based 

size standards and make necessary 

adjustments. 

3. Other Issues 

Provide detailed data and calculated 

size standards. 

SBA received three comments 

demanding that SBA provide the 


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underlying data involved in the 

calculations for the Methodology and 

calculated size standards under the 

Revised Methodology. One commenter 

asked SBA to provide a detailed table 

showing size standards under the 

current Methodology and those under 

the Revised Methodology to be better 

able to provide comments to proposed 

changes to the Methodology. 

Another commenter asked if it is 

possible for SBA to provide access to 

the data used in the calculations in the 

white paper. Without this data it is 

impossible to make an assessment if the 

Methodology determines fair and 

reasonable size standards, the 

commenter argued. The problem with 

the Methodology is that it appears to use 

data that is not available to the public, 

the commenter added. Without access to 

this data, it is difficult to compare the 

results of the Methodology, and perhaps 

have the ability to look for and point out 

problems or areas for improvement in 

the Methodology. 

Another commenter requested that 

SBA provide a detailed analysis of how 

proposed changes, especially the 

adoption of the disparity ratio approach 

and the utilization of the FPDS–NG and 

SAM data, will affect small businesses 

across various industries, especially an 

assessment of potential impacts on 

small business participation in Federal 

contracting. 

SBA Response 

SBA has provided a summary of 

calculated industry size standards under 

the 2019 Methodology and the 2024 

Revised Methodology in Table 15 under 

the Impacts of Changes Methodology 

Section of the Revised Methodology. Of 

392 industries averaging $20 million or 

more in Federal contracting annually 

during fiscal years 2020–2022, based on 

the latest data available to SBA when 

the Revised Methodology was prepared, 

159 or 40.5% of industries would see an 

increase to size standards under the 

2019 Methodology, as compared to 169 

or 43.1% of industries that would see an 

increase to size standards under the 

2024 Revised Methodology. Similarly, 

169 or 43.1% of industries under the 

2019 Methodology and 167 or 42.6% of 

industries under the 2024 Revised 

Methodology would see a decrease to 

size standards. Sixty-four or 16.3% of 

industries under the 2019 Methodology 

and 56 or 14.3% of industries under the 

2024 Revised Methodology would see 

no change to size standards. Thus, 

comparing the results from the 2019 

Methodology and the 2024 

Methodology, slightly more industries 

would see an increase to size standards 

under the 2024 Methodology and 

slightly more industries would see no 

change to size standards under the 2019 

Methodology. Thus, overall, the changes 

to size standards as the result of the 

changes in the Methodology would have 

a very minimal impact on number of 

businesses that qualify as small. 

Excluding Sectors 42 and 44–45, 

97.77% of businesses would qualify as 

small under the calculated size 

standards under both Methodologies. 

That figure is 97.78% under the current 

size standards. 

Inconsistency between general size 

standards and exceptions. 

One commenter, referring to the size 

standards for the general NAICS 237990, 

Other Heavy and Civil Engineering 

Construction, and the Dredging 

subindustry (or ‘‘exception’’) under that 

industry, stated that there exists 

inconsistency between size standards 

for general NAICS industries and size 

standards at the subindustry levels or 

‘‘exceptions,’’ especially when the size 

standard for a general NAICS industry is 

lower than the size standard for a 

subindustry or exception within that 

industry. The commenter contended 

that this could create confusion or 

unfairness for businesses that operate in 

both the NAICS industry and the 

subindustry or exception, or that 

compete with businesses that do, by 

allowing them to qualify as small under 

the exception but not small under the 

general NAICS industry. It may also 

affect the accuracy and consistency of 

the data and statistics that SBA and 

other agencies collect and report on the 

small business sector, the commenter 

argued. The commenter suggested that 

SBA provide a clear rationale and a 

consistent rule for handling the cases of 

inconsistency between the size 

standards for general NAICS industries 

and their corresponding subindustry or 

exception size standards. 

SBA Response 

The Small Business Act requires that 

size standards vary from industry to 

industry to reflect differing 

characteristics among the various 

industries. Thus, it is not uncommon for 

a firm operating in multiple industries 

to be small in some industries and other 

than small in others. That also applies 

to size standards for the general NAICS 

industry size standards and the size 

standards at the subindustry levels or 

exceptions. Except for the Dredging 

exception that has a lower size standard 

than that for the general NAICS 237990, 

usually size standards at the 

subindustry levels (‘‘exceptions’’) are 

larger than those for the general 

industries. Thus, it is not unusual for 

companies operating both under general 

NAICS industry and subindustry levels 

to be small under the exception size 

standards and other than small under 

the general NAICS size standards. It is 

logical for a firm to be other than small 

under the Dredging exception and to be 

small under the general NAICS 237990 

because the characteristics of firms of 

that specific sublevel may be different 

from the characteristics of the firms that 

constitute the general level, of which 

there may be a much greater number. 

The subindustry categories are used 

solely for Federal procurement purposes 

and are not used by the Government to 

collect industry statistics. 

Analytical Equations 

One commenter stated that while the 

equations that SBA uses to calculate 

size standards, such as simple average, 

weighted average, linear transformation, 

and linear interpolation are simple and 

easy to implement, they may not 

capture the complexity and diversity of 

the industries and the market 

conditions. 

1. Weighted average: The commenter 

argued that by assigning higher weights 

to larger firms, a weighted average may 

provide a more accurate and 

representative measure of the industry 

characteristics than a simple average, 

which treats all data equally, but it may 

also introduce some problems, such as 

data availability and reliability, and it 

may make the calculation and 

communication of the size standards 

more complex and less transparent. 

Without providing any facts and 

analysis, the commenter argued that the 

weighted averaged may not be 

consistent with the legislative intent 

and the SBA’s statutory mandate to 

consider the industry characteristics of 

all businesses in an industry. 

SBA Response 

SBA does not face any problem of 

data availability and reliability in 

calculating the weighted average firm 

size. The Economic Census special 

tabulation that SBA receives from the 

U.S. Census Bureau to examine industry 

structure contains the results for 

weighted average, along with other 

measures (such as simple average firm 

size, 4-firm concentration ratio, Gini 

coefficient, etc.), calculated based on 

actual firm-specific data. SBA used the 

weighted average firm size as one of the 

factors to evaluate industry structure in 

both the first and second five-year 

reviews of size standards under the Jobs 

Act but did not receive any adverse 

comments or complaints from the 

public or industry participants citing its 

complexity or lack of transparency. 

Therefore, SBA will continue using the 


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weighted average firm size as one of the 

factors to evaluate industry structure. 

2. Linear transformation: The 

commenter suggested replacing a linear 

transformation of industry 

characteristics with a logarithmic 

transformation to reduce the skewness 

and outliers in the data and to improve 

the normality and homoscedasticity of 

the distribution. However, a logarithmic 

transformation may also complicate the 

calculation and communication of the 

size standards, and it may not be 

simpler and more transparent than a 

linear transformation, the commenter 

argued. Furthermore, the commenter 

added that a logarithmic transformation 

may affect the clarity and transparency 

of the size standards, as it may make the 

size standards less intuitive and more 

difficult to understand and verify by 

businesses and Federal agencies that use 

them. Therefore, the commenter 

recommended weighing the benefits and 

drawbacks of using a logarithmic 

transformation and compare it with the 

current method of using a linear 

transformation, which is simpler, 

transparent, consistent, and stable. 

SBA Response 

As maintained elsewhere, the special 

tabulation of the quinquennial 

Economic Census that SBA receives 

from the U.S. Census Bureau contains 

various measures of industry 

characteristics (e.g., simple average firm 

size, weighted average firm size, fourfirm ratio, and Gini coefficient, etc.) that 

SBA evaluates in analyzing size 

standards. The Census Bureau 

calculates these measures from the 

original, raw firm-specific data without 

any transformation of such data. SBA 

does no transformation of the results 

provided by the Census Bureau. Thus, 

the potential problems with linear 

transformation that the commenter 

identified are nonissues. Moreover, as 

noted by the commenter, the 

logarithmic transformation has several 

drawbacks, including that it is complex, 

less transparent, difficult to understand, 

and unstable. 

3. Linear interpolation: The 

commenter suggested using a nonlinear 

interpolation, such as a spline or a 

polynomial, instead of a lineal 

interpolation to capture the potentially 

nonlinear relationships between 

industry characteristics and size 

standards. The commenter argued that 

an industry with a high degree of 

competition or innovation may have a 

more complex or dynamic relationship 

between the industry characteristics and 

the size standards, which may not be 

adequately captured by a linear 

interpolation. However, the commenter 

noted that using a spline or a 

polynomial interpolation may introduce 

more uncertainty and variability in the 

results, and it may not be more stable 

and consistent than a linear 

interpolation. Additionally, a spline or 

a polynomial interpolation may impair 

the simplicity and clarity of the size 

standards, as it may make the 

calculation and communication of the 

size standards more sophisticated and 

less straightforward, the commenter 

noted. 

SBA Response 

The commenter recommended using a 

spline or nonlinear interpolation, 

instead of linear interpolation, to 

capture the potentially nonlinear 

relationships between industry factors 

and size standards. However, it 

contended that using a spline or a 

polynomial interpolation may introduce 

more uncertainty, complexity, 

inconsistency, variability, and 

instability in the results. We have found 

a linear interpolation to produce 

reasonable results that are more 

intuitive, more straightforward, and 

easier to explain to the stakeholders. 

Moreover, generally there is a positive 

correlation between industry factors and 

size standards. 

Use of gross domestic product (GDP) 

price index. 

One commenter supported the use of 

the GDP price index as the measure of 

inflation because it captures the overall 

changes in the prices of goods and 

services produced in the economy, 

which affect the costs and revenues of 

businesses in all industries. The 

commenter added that alternative 

measures of inflation, such as the 

Consumer Price Index (CPI) or the 

Producer Price Index (PPI), may not be 

suitable because they focus on specific 

segments of the economy, such as 

consumers or producers, and may not 

reflect the diversity and complexity of 

the business activities and transactions. 

SBA Response 

As part of the 2014 inflation 

adjustment (79 FR 33647; June 12, 

2014), SBA reviewed various measures 

of inflation published by the Federal 

Government, including the GDP price 

index, the CPI, the PPI, the personal 

consumption expenditures (PCE) price 

index, and the unit labor cost for their 

appropriateness to use for adjusting 

monetary-based size standard for 

inflation. Based on that review, SBA 

determined that, being the most 

comprehensive measure of price 

movements for the overall economy, the 

GDP price index is the most appropriate 

measure of inflation for purposes of 

adjusting size standards for inflation. 

Historically, SBA has used the GDP 

price index for adjusting size standards 

for inflation. 

Inclusion of the 4-firm ratio. 

One commenter stated that the 

application of the 4-firm concentration 

ratio to all industries is reasonable 

because it is a simple and widely used 

indicator of market structure and 

competition. It measures the share of the 

total industry revenue that is earned by 

the four largest firms in the industry, 

and it ranges from 0 to 100, where 

higher values indicate higher 

concentration and lower values indicate 

lower concentration. The 4-firm 

concentration ratio is also consistent 

with the SBA’s statutory mandate to 

consider the degree of competition 

among businesses in an industry when 

setting the size standards. 

SBA Response 

Using the 4-firm concentration ratio 

SBA compares the degree of 

concentration within an industry to the 

degree of concentration of the other 

industries with the same measure of size 

standards. The 4-firm concentration 

ratio is widely used as a measure of 

industry concentration. Prior to the 

2019 Methodology, SBA used the 4-firm 

concentration ratio only for the 

industries where its value was 40% or 

higher. Starting from the 2019 

Methodology, SBA started using the 4- 

firm concentration ratio for all 

industries regardless of its magnitude. If 

a significantly higher share of economic 

activity within an industry is 

concentrated among the four largest 

firms compared to most other 

industries, all else being equal, SBA 

would set a size standard that is 

relatively higher than for most other 

industries. Conversely, if the market 

share of the four largest firms in an 

industry is appreciably lower than the 

similar share for most other industries, 

the industry will be assigned a size 

standard that is lower than those for 

most other industries. 

Decreases to size standards. 

Citing the information provided on 

page 56 of the Revised Methodology that 

under the disparity ratio approach, 167 

or 42.6% of industries averaging $20 

million or more in Federal contracting 

would see a decrease on size standards, 

one commenter asked SBA to clarify 

whether it intends to decrease size 

standards for some industries based on 

proposed changes in the Methodology. 

SBA Response 

The question of whether SBA would 

increase, decrease, or retain the size 

standards is beyond the scope of the 


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Methodology. The Methodology merely 

provides the framework for reviewing 

and calculating new size standards, but 

it does not drive SBA’s determination 

on whether to revise or retain size 

standards. That determination will be 

made through rulemakings with the 

considerations of the results from the 

latest available industry and Federal 

procurement data, comments to the 

proposed changes in size standards, 

impacts of proposed size standards 

changes on small business access to 

Federal small business assistance, the 

prevailing economic conditions and 

their impacts on small businesses, and 

Administration’s and SBA’s policies 

and programs. 

Impact of the revised methodology. 

One commenter asked if SBA has 

calculated the impacts of its proposed 

changes in the Revised Methodology on 

the size standards for each of NAICS 6- 

digit level industries? If so, what is the 

projected impact on NAICS 541330, 

Exception 1, Military and Aerospace 

Equipment and Military Weapons, the 

commenter asked. 

SBA Response 

As discussed elsewhere in this 

document, SBA provided in Table 13 of 

the Revised Methodology a summary of 

impacts of proposed revisions to the 

Methodology on the size standards for 

6-digit NAICS industries averaging $20 

million or more in Federal contracting. 

SBA did not provide that information 

for the specific NAICS industries or 

subindustries because that would 

change when SBA updates the industry 

and Federal procurement data. The 

information on the changes in the size 

standard for a specific NAICS industry 

or subindustry would be provided in the 

proposed rules that Agency will publish 

in the near future as part of the third 5- 

year review of size standards under the 

Jobs Act. 

Calculation of receipts under 

subcontracting. 

One commenter noted that to perform 

complex Government contracts 

successfully, small business prime 

contractors must frequently subcontract 

significant portions of work to large 

businesses or other small businesses. 

The commenter argued that under the 

employee-based size standards, the 

number of subcontractor employees 

working on a contract is not counted as 

part of the small business prime 

contractor’s employee total. However, 

under receipts-based size standards, the 

subcontractor’s share of contract 

receipts is included in the small 

business prime contractor’s total annual 

receipts despite the facts that these 

receipts, other than administrative costs, 

are not part of the prime contractor’s 

annual revenue, the commenter added. 

Has the SBA considered making the two 

standards consistent with each other by 

excluding subcontractor annual receipts 

from a small business prime contractor’s 

annual receipts total, the commenter 

asked. 

SBA Response 

According to 13 CFR 121.104, receipts 

for size standards purposes means all 

revenue in whatever form received or 

accrued from whatever source, 

including from the sales of products or 

services, interest, dividends, rents, 

royalties, fees, or commissions, reduced 

by returns and allowances. Regarding 

the comment that SBA should modify 

its definition of receipts to allow for the 

exclusion of amounts paid to third-party 

subcontractors (usually referred to as 

‘‘pass-throughs’’), SBA disagrees. SBA 

does not allow for the exclusion of 

‘‘pass-throughs’’ because they are part of 

the usual and customary costs of doing 

business. Accordingly, SBA considers 

‘‘pass-throughs,’’ and other similar 

factors, as secondary factors when it 

establishes small business size 

standards. Specifically, the Economic 

Census data that SBA uses in its size 

standards analysis includes all revenues 

received by companies, including the 

values of their subcontracts. If the 

‘‘pass-throughs’’ were allowed to be 

excluded from the calculation of 

receipts, SBA would also have to revise 

its methodology to establish a lower size 

standard to reflect the size of the 

industry without them. Thus, SBA does 

not believe it is reasonable to exclude 

these costs from the calculation of 

receipts. 

Calculation of receipts for joint 

ventures. 

A commenter stated that to 

successfully bid on and perform 

complex Government contracts small 

businesses must occasionally enter into 

joint venture agreements with other 

small businesses in the same industry. 

The current regulations and proposed 

modifications do not adequately address 

how the division of contract receipts 

among joint ventures should be used to 

calculate an individual company’s 

annual receipts for purposes of small 

business size standards calculations, the 

commenter argued. The commenter 

noted that the current regulations also 

do not adequately address how receipts 

allocated to subcontractors should be 

apportioned in calculating the annual 

receipts of the small business joint 

ventures. Has the SBA considered 

amending its size standards 

methodology and regulations to address 

allocation of annual receipts, the 

commenter asked. 

SBA Response 

For size standards calculations, a 

concern must include in its receipts its 

proportionate share of joint venture 

receipts. Proportionate receipts do not 

include proceeds from transactions 

between the concern and its joint 

ventures (e.g., subcontracts from a joint 

venture entity to joint venture partners) 

already accounted for in the concern’s 

tax return. In determining the number of 

employees, a concern must include in 

its total number of employees its 

proportionate share of individuals 

employed by the joint venture. For the 

calculation of receipts, the appropriate 

proportionate share is the same 

percentage of receipts or employees as 

the joint venture partner’s percentage 

share of the work performed by the joint 

venture. For a populated joint venture 

(where work is performed by the joint 

venture entity itself and not by the 

individual joint venture partners) the 

appropriate share is the same percentage 

as the joint venture partner’s percentage 

ownership share in the joint venture. 

For the calculation of employees, the 

appropriate share is the same percentage 

of employees as the joint venture 

partner’s percentage ownership share in 

the joint venture, after first subtracting 

any joint venture employee already 

accounted for in one of the partner’s 

employee counts. See 13 CFR 

121.103(h)(3). 

4. General and Industry Specific Size 

Standards 

General size standards. 

Without providing any facts or 

analysis, a comment from an advocacy 

organization for WOSBs argued that 

SBA’s current industry size standards 

do not incentivize small business 

growth. The commenter maintained that 

under the current size standards, small 

businesses face risk of losing their small 

business status if their revenue exceeds 

a certain threshold due to a single high 

revenue generating contract. The 

commenter cited a testimony from a 

WOSB to the February 6, 2023, House 

Small Business Committee Hearing on 

size standards, arguing that her business 

has been teetering on the edge of its 

small business size standard, which 

puts her in a difficult position as she 

plans the future of her business. She 

testified to the Committee that if she lost 

her small business size status, she 

would have to lay off at least 30% of her 

staff of 95 people, the commenter 

added. The commenter contended that 

businesses that lose their small business 

status may lose opportunities to win 


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contracts, given that midsized 

businesses are set up to compete against 

much larger companies with more 

resources. Small business owners do not 

have many options if they are at risk of 

losing their status, the comment noted. 

The commenter stated that they are 

forced to reduce or cap their revenue, 

sell off part of their business, or team up 

with another small firm to keep their 

status. In case of teaming up with 

another firm, small businesses only 

retain 49% of contracts they earned, the 

commenter argued. 

SBA Response 

While SBA recognizes challenges the 

larger small businesses close to 

exceeding size standards and mid-size 

firms that have already exceeded the 

size standards face in competing in the 

Federal market, deliberations of such 

issues are beyond the scope of the 

Revised Methodology. SBA notes that 

there will always be some businesses in 

the brink of exceeding the size 

standards regardless how high the size 

standards are. To address the concerns 

that midsized businesses face in the 

Federal market, SBA recently 

implemented the Congressional 

enactments to increase the averaging 

period for calculating annual receipts 

from 3 years to 5 years (Pub. L. 116–283) 

and averaging period for calculating the 

number of employees from 12 months to 

24 months (Pub. L. 115–324). As 

advised elsewhere in this document, the 

commenters are advised to submit any 

concerns regarding the size standards 

for specific size standards when SBA 

issues for comment the proposed rule 

covering their industries. 

Industry-specific size standards. 

NAICS 236220, Commercial and 

Institutional Building Construction. 

Citing the lingering economic impacts 

from the COVID–19 pandemic and high 

post-pandemic inflation, a commenter 

proposed increasing the size standard 

for NAICS 236220, from the current $45 

million in average receipts to $50 

million. The commenter did not provide 

any industry analysis and facts 

supporting its proposal. 

SBA Response 

The latest industry and Federal 

contracting data that SBA used to 

prepare the proposed rule to review the 

size standards for industries in the 

construction sector (NAICS 23) under 

the Jobs Act supported a size standard 

of $25.5 million size standard for NAICS 

236220 (85 FR 62239; October 2, 2020). 

Because of the SBA’s policy of not 

lowering any size standard in light of 

the impacts of the COVID–19 pandemic 

on small businesses and the overall 

economy, in the final rule (87 FR 18607; 

March 31, 2022), SBA adopted the 

existing $39.5 million existing size 

standard, which was later increased to 

$45 million as part of inflationary 

adjustment in 2022 (87 FR 69118; 

November 17, 2022). As advised 

elsewhere in this document, the 

commenters are advised to submit any 

concerns regarding the size standards 

for specific industries when SBA issues 

for comment the proposed rule covering 

their industries. 

NAICS 541330, Engineering Services. 

Citing reasons such as the use of the 

qualifications-based selection process 

under the Brooks Act, which is said to 

be dominated by the largest firms, the 

high degree of concentration of the 

Federal market share among the top 10 

largest companies, and the Federal 

Government’s increasing reliance on 

limited competition contract vehicles 

(such as IDIQs and GWACs) to procure 

engineering services, the commenter 

recommended increasing the size 

standards for NAICS 541330 to $39.5 

million in average annual revenue. The 

commenter attached its comment it 

submitted to the proposed rule 

published as part of the second 5-year 

review of size standards under the Jobs 

Act and its March 27, 2021, letter to the 

SBA’s Administrator urging the Agency 

to establish a $39.5 million size 

standard for NAICS 541330. 

SBA Response 

As part of the second 5-year review of 

size standards under the Jobs Act, based 

on the latest available industry and 

Federal procurement data, SBA had 

proposed increasing the size standard 

for NAICS 541330 from $16.5 million to 

$22.5 million as part of the second 5- 

year review of size standards (85 FR 

72584; November 13, 2020). Based on 

the considerations of public comments 

and industry data, SBA adopted $22.5 

million in the final rule (87 FR 18665; 

March 31, 2022), which SBA increased 

to $25.5 million as part of adjustment of 

monetary based size standards for 

inflation in 2022 (87 FR 69118; 

November 17, 2022). The concerns 

regarding the size standards for specific 

industries are beyond the scope of the 

Revised Methodology. The Methodology 

merely provides an analytical 

framework for reviewing existing and 

calculating new size standards. SBA’s 

actual decisions to change or modify 

size standards are implemented through 

rulemakings. SBA encourages the 

commenters to submit their concerns 

regarding the size standards for specific 

industries, including any relevant data 

and analysis, by commenting on the 

forthcoming proposed rules reviewing 

size standards for those industries. 

NAICS 336611, Ship Building and 

Repairing. 

SBA received a comment from a small 

business concern operating under 

NAICS 336611 that currently has a size 

standard for 1,300 employees. The 

commenter stated that the ship building 

and repairing market is dominated by 

very large companies with tens of 

thousands of employees that receive 

funds from the Federal Government, 

enabling them to improve their facilities 

and equipment and to make ship 

building more efficient. Large 

businesses leverage these same 

efficiencies when competing against 

small businesses, creating an unfair 

competitive advantage, the commenter 

contended. The commenter asserted that 

with the size standard of 1,300 

employees, the industry is currently 

very competitive. Large businesses 

constantly lobby the Federal 

Government to increase their market 

share at the expense of the market share 

of small businesses that lack resources 

and constituent base for lobbying, the 

commenter added. A business with 

1,300 employees would have revenue in 

the range of $300 million, which is 

certainly not a small business in the 

ship repair industry, the commenter 

argued. The commenter, based on above 

factors, urged that SBA should not 

increase the size standard for NAICS 

336611 beyond 1,300 employees, as 

doing so would enable large businesses 

to compete against small businesses as 

small businesses. 

SBA Response 

The latest industry and Federal 

procurement data that was available for 

SBA to review the size standard for 

Manufacturing industries as part of the 

second 5-year review of size standards 

under the Jobs Act supported a size 

standard of 1,300 employees for NAICS 

336611, an increase from 1,250 

employees (87 FR 24752; April 26, 

2022). Accordingly, in the final rule, 

SBA adopted 1,300 employees as the 

size standard for NAICS 336611 (88 FR 

9970; February 15, 2023). As stated 

elsewhere, the concerns regarding the 

size standards for specific industries are 

beyond the scope of the Revised 

Methodology. The Methodology merely 

provides an analytical framework for 

reviewing existing and calculating new 

size standards. SBA’s actual decisions to 

change or modify size standards are 

implemented through rulemakings. SBA 

encourages the commenters to submit 

their concerns regarding the size 

standards for specific industries, 

including any relevant data and 


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analysis, by commenting on the 

forthcoming proposed rules reviewing 

size standards for their industries. 

Environmental remediation services 

(ERS) exception to NAICS 562910, 

Remediation Services. 

A commenter stated that the ERS 

exception, first established in 1994 (59 

FR 47236; September 15, 1994), is 

fundamentally different from most other 

exceptions. The commenter contended 

that all exceptions—except the ERS 

exception and the exceptions to 

Research and Development (R&D) 

NAICS codes—are derived from subsets 

of the primary NAICS industry from 

which the subindustry or exception 

originates. While the size standards for 

exceptions to R&D NAICS codes are 

derived by aligning the corresponding 

manufacturing size standards, the ERS 

exception, unlike all other exceptions, is 

not derived from the subset of the 

primary NAICS 562910, the commenter 

added. The commenter argued that such 

uniqueness of the ERS exception comes 

from the original formulation of the ERS 

industry, as reflected in Footnote 14 of 

the SBA’s table of size standards which 

recognizes that no single industry 

dominates the scope of the ERS work. 

The commenter contended that the ERS 

exception is a superindustry instead of 

a subindustry. Some firms competing in 

ERS may designate the base NAICS 

562910 as their primary industry, but 

others may not, the commenter noted. 

The commenter expressed concerns 

about the SBA’s approach to creating 

the ERS industry by trimming the 

largest ERS awardees whose primary 

activity is unrelated to ERS. The 

commenter expressed the opinion that 

excluding such firms is arbitrary and 

nonsensical within the meaning of 

Footnote 14. The commenter proposed 

to identity a primary industry for each 

ERS awardee and to exclude those 

which do not align with industries that 

SBA used to formulate the ERS industry 

originally. If this proposed solution is 

not acceptable to SBA and if SBA still 

decides to remove large companies form 

the dataset in future rulemakings, the 

commenter recommended that SBA 

provide a list of the specific firms 

removed from the dataset. This 

approach would provide greater 

transparency and would allow industry 

participants to comment on whether the 

removed companies were or were not 

significant players in the ERS market, 

the commenter argued. The commenter 

further argued that removing large 

companies, unknown to the public, 

from SBA’s dataset, without providing 

opportunity for industry feedback on 

the propriety of specific exclusions, 

introduces opacity and arbitrariness that 

ultimately undermines the credibility of 

SBA’s Methodology. The industry 

cannot provide meaningful comment as 

to whether an excluded firm is an ERS 

competitor if the SBA is not transparent 

and does not identify the excluded 

firms, the commenter argued. 

The commenter argued that large 

competitors in the ERS industry have a 

serious advantage over smaller 

businesses in terms of winning and 

executing work, even where only a 

small portion of their total revenue 

comes from ERS work. Large firms enjoy 

economies of scale that would give them 

a tremendous competitive advantage 

over a small business making roughly 

similar revenue. The commenter 

explained that many ERS awards are 

qualifications based, meaning that the 

company must demonstrate it has a 

superior performance history and 

workforce when considering the 

qualifications sought in the request for 

proposal. A large company with a more 

diverse performance history can 

leverage the relevant qualifications to 

win work. 

The commenter maintained that to the 

extent competitions are instead based 

on price criteria, a large business 

performing a comparatively small 

amount of ERS work also has a 

disproportionate advantage over smaller 

companies. The commenter argued that 

a large company with a comparatively 

small ERS portfolio can spread the same 

ERS workload across a much larger 

workforce, using a more favorable labor 

mix, achieving greater labor utilization, 

and driving down indirect costs. These 

advantages have a direct impact on 

pricing, the commenter noted. 

Moreover, the large business can take 

advantage of greater corporate resources 

to hire, train, and deploy labor, further 

disadvantaging small businesses who 

must consider the total headcount 

impact of hiring to perform management 

and overhead tasks, the commenter 

added. 

Excluding the largest businesses from 

the sample will have a deleterious effect 

on the viability of small businesses in 

the ERS industry, the commenter stated. 

The commented noted that SBA’s size 

standards provide small businesses a 

protected marketplace in which to grow 

and prepare for future open 

competition. However, setting size 

standards at an artificially low threshold 

prematurely thrusts successful ERS 

small businesses into the same 

marketplace occupied by their largest 

competitors. This will cause graduating 

ERS small businesses to suffer unequal 

and inferior protection when compared 

to other graduating small businesses. 

This outcome would appear to be 

inconsistent with the statutory goal of 

the SBA to grow small businesses into 

the American marketplace. 

SBA Response 

SBA does not agree with the 

commenter that SBA has kept the size 

standard for the ERS exception 

artificially low. Between 2016 and 2023, 

the ERS size standard has doubled to 

1,000 employees. Despite the majority of 

comments opposing any increase to the 

ERS size standard, in 2016, SBA 

increased it from 500 employees to 750 

employees, as part of the first 5-year 

review of size standards under the Jobs 

Act (81 FR 4436; January 26, 2016). 

Again, despite the majority of comments 

opposing any increase to the ERS size 

standard, in 2023, SBA increased the 

ERS size standard from 750 employees 

to 1,000 employees, as part of the 

second 5-year review of size standards 

(88 FR 9970; February 15, 2023). 

Without trimming the largest 

companies for which the ERS contract 

awards account for a minimal share of 

their total revenues, SBA is concerned 

that the data might result in a very high 

size standard that might hurt smaller 

ERS companies that need Federal 

assistance the most. Just as graduating 

midsized companies have a hard time 

competing on unrestricted Federal 

contracts with large companies with 

vast resources and an extensive 

performance history, smaller small ERS 

firms also face a competitive 

disadvantage in competing with larger, 

more experienced small businesses for 

set-aside Federal contracts. 

As stated elsewhere, the industry data 

in the quinquennial Economic Census 

tabulations that SBA receives from the 

Census Bureau are limited to the 6-digit 

NAICS industry. Thus, the industry data 

in the special tabulation does not allow 

for the evaluation of the size standards 

at the subindustry levels or exceptions. 

Accordingly, SBA utilizes the FPDS–NG 

and SAM data to calculate industry 

factors at the subindustry levels. The 

results from the FPDS–NG/SAM data 

are then compared with industry 

benchmarks (such as 20th percentile 

and 80th percentile values of industry 

factors) from the Economic Census 

tabulation to compute the new size 

standards for the exceptions. In the 

Economic Census tabulation, the 

industry data are tallied by a primary 

NAICS industry. Thus, to make the 

FPDS–NG/SAM results consistent with 

the results from the Economic Census, 

SBA trims the firms, from both ends of 

the distribution, for which a specific 

exception under review is not their 

primary industry. Going forward, in the 

Revised Methodology, SBA will base the 


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9NAICS Update Process Fact Sheet on the NAICS 

website at https://www.census.gov/naics/reference_

files_tools/NAICS_Update_Process_Fact_Sheet.pdf 

provides tentative schedules for considerations of 

changes to NAICS for 2027. 

20th percentile and 80th percentile 

values of industry factors for the 

exceptions also on the FPDS–NG and 

SAM data, thereby largely reducing the 

need of trimming firms for which a 

particular exception in question is not 

their primary industry. If the trimming 

is still warranted, SBA will try to be 

transparent regarding the firms being 

trimmed while protecting their privacy. 

Recognizing that, by definition, the 

ERS exception includes activities from 

multiple industries, a new footnote 

(Footnote 54) has been added to the 

Revised Methodology, stating that to 

evaluate the ERS size standard SBA will 

identify identify firms receiving 

contracts in the various NAICS 

industries under the PSCs that 

correspond to the ERS exception. 

Elevator size standard. 

A commenter argued that there is no 

NAICS code that specifically applies to 

the elevator industry. In absence of a 

separate NAICS code for the elevator 

industry, the commenter provided a list 

of NAICS codes that Federal contracting 

officers use to classify elevator 

maintenance, repair, and modernization 

contracts: 

• NAICS 811310—Commercial and 

Industrial Machinery & Equipment 

(size standard of $12 million) 

• NAICS 238290—Other Building 

Equipment Contractors ($22 million) 

• NAICS 236220—Commercial and 

Institutional Building Construction 

($45 million) 

• NAICS 561210—Facility Support 

Services ($47 million) 

• NAICS 333921—Elevator and Moving 

Stairway Manufacturing (1,000 

employees) 

For an elevator modernization/ 

construction contract, the commenter 

contended that contracting officers 

typically use either NAICS 238290 or 

NAICS 236220. Under this scenario, an 

elevator company can be awarded a 

modernization project as a small 

business under NAICS 236220 but 

would be unable to bid, as a small 

business, on the maintenance contract 

under NAICS 238290 because they are 

considered too ‘‘large’’ under that 

NAICS industry. The commenter argued 

that the fact that all elevator companies 

perform both modernization and 

maintenance tasks, but are deemed 

small enough to perform one, but too 

large to perform the other, is an 

oversight that should be corrected. 

The commenter maintained that every 

elevator company in the country 

performs elevator maintenance, repair, 

modernization, and construction, and 

recommended that SBA lump all these 

activities together and create a unique 

NAICS code for the elevator industry 

and establish an employee-based size 

standard of 1,000 employees. With an 

elevator-specific NAICS code, there 

would be no guesswork by contracting 

officers in choosing an appropriate 

NAICS code for elevator maintenance, 

repair, modernization and construction 

work, the commenter noted. Due to the 

lack of a single NAICS code 

representing the elevator industry, the 

commenter noted that elevator-related 

contracts (maintenance and 

modernization) are generally awarded to 

general contractors, who subsequently 

subcontract that work out to multinational, multi-billion, foreign-owned 

conglomerates operating in the elevator 

industry. As much as 70–80% of 

contract value is performed by those 

conglomerates, the commenter argued. 

The commenter proposed that SBA 

consider, in addition to the Economic 

Census data, publicly available 

alternative industry data and industry 

expertise in determining the size 

standard for the elevator industry. Based 

on the industry data the commenter has 

access to, the commenter provided 

estimates of various industry factors that 

SBA evaluates in establishing and 

reviewing size standards, including the 

4-firm concentration ratio (70%) and 

Gini coefficient (0.90), arguing that 

these factors support a much higher size 

standard for the elevator industry. They 

also noted that generally the elevator 

industry has significant barriers to entry 

and higher average firm size due to 

industry dominance by the largest four 

firms. The companies that exceed the 

current size standard of the elevatorrelated industries cannot compete under 

full and open competition against the 

largest competitors that are more than 

200 times larger than a small elevator 

company, the commenter argued. 

SBA Response 

As stated elsewhere in this document, 

the Small Business Act requires the size 

standards to vary from industry to 

industry to the extent necessary to 

reflect the differing characteristics 

among the various industries. When a 

company operates in closely related 

multiple industries (such as NAICS 

236220 and NAICS 239290), it is not 

uncommon for it to be considered small 

in some industries and other than small 

(‘‘large’’) in others. A good example is 

a company operating both in NAICS 

541310, Architectural Services, and in 

NAICS 541330, Engineering Services. 

NAICS 541310 has a size standard of 

$12.5 million and NAICS 541330 has a 

size standard of $25.5 million. 

Accordingly, the same company may 

qualify as small under NAICS 541330 

but not under NAICS 541310. Thus, the 

issue of the elevator industry is not 

unique. 

The SBA regulations allow small 

business general prime contractors to 

subcontract up to 85% of the value of 

work, excluding the cost of materials, to 

companies that are not similarly 

situated entities (see 13 CFR 

125.6(a)(3)). Similarly, SBA regulations 

allow small business specialty trade 

prime contractors to subcontract up to 

75% of the value of work, excluding the 

cost of materials, to companies that are 

not similarly situated (see 13 CFR 

125.6(a)(4)). 

SBA’s regulations in 13 CFR 21.406(b) 

require contracting officers to designate 

an appropriate NAICS code (along with 

applicable size standard) that best 

describes the principal purpose of the 

product or service being acquired. If it 

is believed that the contracting officer’s 

NAICS code designation or size 

standard is not appropriate, SBA’s 

regulations in 13 CFR 121.1102 allow 

the interested parties to appeal that 

NAICS code designation with the SBA’s 

Office of Hearings and Appeal (OHA). 

Procedures for appealing a NAICS code 

or size standard designation are set forth 

in 13 CFR 121.1103. 

Regarding the commenter’s suggestion 

that SBA create a new NAICS code 

representing the elevator industry, SBA 

does not have authority to create or 

modify a NAICS code. In collaboration 

with the Statistical Agencies of the 

United States, Canada, and Mexico, 

every five years, the Economic 

Classification Policy Committee (ECPC) 

within the Office of Budget and 

Management (OMB) creates new NAICS 

codes or revise the existing codes. Any 

comment or supporting documentation 

for creating a new NAICS code for the 

elevator industry should be directed to 

the ECPC’s comment and notice process 

for the quinquennial NAICS revisions.9

With respect to the suggestion to 

establish a 1,000-employee size 

standard for the new NAICS code for the 

elevator industry, historically SBA has 

been using receipts, not employees, as a 

measure of business size for 

construction-related industries. In 

industries where subcontracting is high, 

such as construction-related industries, 

SBA prefers to use receipts as a measure 

of size standards. When a prime 

contractor subcontracts out a portion of 

a contract, the value of contract being 

subcontracted out is counted toward 

prime’s receipts, but subcontractor’s 


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10Those testimonies are available in entirety at 

the following links: https://www.congress.gov/118/ 

meeting/house/116800/witnesses/HHRG-118-SM00- 

Wstate-MooreB-20230206.pdf; https://

www.congress.gov/118/meeting/house/116800/ 

witnesses/HHRG-118-SM00-Wstate-LambkeJ20230206.pdf. 

11For Federal contracts that combine substantial 

services with the acquisition of computer hardware 

and software, in 2002, SBA proposed establishing 

a new ITVAR subindustry or ‘‘exception’’ category 

under NAICS 541519, Other Computer Related 

Services, with a size standard of 500 employees (67 

FR 48419; July 24, 2002). SBA received a total of 

291 comments, of which 276 or 95% opposed the 

proposed 500-employee size standard for the newly 

created ITVAR exception in support for a smaller 

size standard. In the final rule, SBA adopted 150 

employees. 

employees doing the work are not 

counted toward primes’ employee 

count. Thus, an employee-based size 

standard may lead to excessive 

subcontracting in those industries. 

The Small Business Act limits the 

SBA’s ability to establish a common size 

standard for related industries, such as 

elevator maintenance, repair, 

modernization, and construction 

industries. The statute permits 

establishing a common size standard by 

grouping all industries within the 

NAICS 4-digit level provided that the 

data supports the same size standard for 

each of those industries in the group, 

which is not the case for industries 

related to elevator maintenance, repair, 

modernization, and construction. 

As stated elsewhere in this document, 

the concerns regarding the size 

standards for specific industries are 

beyond the scope of the Revised 

Methodology. The Methodology merely 

provides an analytical framework for 

reviewing existing and calculating new 

size standards. SBA’s actual decisions to 

change or modify size standards are 

implemented through rulemakings. SBA 

encourages the commenter to submit 

their concerns regarding the size 

standards for specific industries, 

including any relevant industry data 

and analysis, by commenting on the 

forthcoming proposed rules reviewing 

size standards for their industries. 

ITVAR NAICS 541519 (Footnote 18). 

An advocacy organization for small 

and mid-size companies submitted as 

comment the testimonies of two 

information technology value added 

resellers (ITVAR) firms provided to the 

House Small Business Committee 

Hearing on size standards, held on 

February 6, 2024.10 Both testimonies 

(commenters) outlined their success as 

a Federal ITVAR and challenges they 

face in competing on information 

technology (IT) procurement 

opportunities. 

The commenters maintained that 

small business ITVARs play an 

important role in meeting the 

Government IT procurement needs in 

three ways: (1) obtaining IT equipment 

and supporting services from a single 

source; (2) acquiring multiple 

multivendor IT products from a single 

acquisition; and (3) customizing 

computer hardware or software. They 

pointed out that ITVARs provide costeffective IT solutions to the Government 

by serving as an intermediary between 

the Government and creators of IT 

hardware and software, usually known 

as the original equipment manufacturers 

(OEMs). Besides selling the IT hardware 

and software, ITVARs also provide the 

Government with beneficial valueadded services, including, but not 

limited to, configuration consulting and 

design, systems integration, installation 

of multi-vendor computer equipment, 

customization of hardware or software, 

training, product technical support, 

maintenance, and end user support, 

they added. The commenters have 

identified the following challenges 

small business ITVARs face in the 

Federal marketplace and potential 

solutions to address them. These are 

summarized below even though these 

issues are outside the scope of the 

Revised Methodology. 

Challenges 

1. The changing landscape of the IT 

procurements. 

The commenters explained that, in 

2003, SBA created a new subindustry 

category or ‘‘exception’’ for ITVARs 

under NAICS 541519, Other Computer 

and Related Services, with a size 

standard of 150 employees (68 FR 

74833; December 29, 2003).11 For this, 

SBA created a new footnote (Footnote 

18), which provides a definition of an 

ITVAR and describes the circumstances 

under which a procurement could 

properly be classified under the ITVAR 

exception and its 150-employee size 

standard, the commenters noted. When 

SBA first established the ITVAR 

exception, IT procurement market was 

vastly different than it is today, they 

argued. The commenters contended that 

selling to the Government then was 

much simpler and required fewer 

employees than it does now. They 

claimed that today Federal customers 

need much more complex IT solutions 

that include artificial intelligence (AI), 

robotics, cybersecurity, and cloud 

computing. As the focus of Government 

spending shifts more and more towards 

innovation and meeting its burgeoning 

technology needs, small businesses, 

including small ITVARs, are providing 

the Government with IT more than ever 

before, the commenters noted. The 

current regulatory landscape includes a 

patchwork of rules and regulations 

specific to small businesses and the IT 

industry that have made it challenging, 

and in some cases impossible, for small 

business ITVARs to participate in the 

Federal market without potentially 

violating the law, they asserted. 

SBA Response 

The changing landscape with respect 

to IT procurements is not necessarily 

bad for the ITVAR contractors or the 

Government. With introduction of 

category management, strategic 

sourcing, and other initiatives in the 

Federal market, the changing Federal 

procurement landscape has touched 

most sectors and industries with a 

significant Federal spend. The changing 

IT landscape of the Federal market has 

led to improvement and modernization 

of how agencies purchase IT goods and 

services, resulting in creation of value, 

efficiency, and innovation of 

procurement activities, while reducing 

risks and costs. By adopting current best 

practices, agencies can secure cost 

savings and improve quality of products 

and services being acquired. SBA small 

business rules and regulations are 

intended to serve the interests of small 

businesses that need Federal assistance 

the most. 

2. 15–50% value-added services 

requirement. 

Footnote 18 requires an ITVAR 

classified under NAICS 541519 to 

provide multivendor hardware and 

software along with significant valueadded services, the commenters 

asserted. They stated that Footnote 18 

provides that an IT procurement 

classified under the ITVAR exception 

and its 150-employee size standard 

must consist of at least 15% and not 

more than 50% of these value-added 

services, as measured by the total 

contract price. However, much of the 

value-added services provided by 

ITVARs occur prior to contract award 

and/or are built into existing pricing 

and not separately charged, commenters 

contended. Commenters asserted that, 

under the current rule, measuring the 

percent of value-added services as 

compared to the total contract price, the 

15–50% value-added requirement is 

unrealistic and will increase the costs to 

the Government. They argued that 

ITVARs generally do not charge 

separately for value-added services 

whose costs are incorporated into the 

company’s overhead costs. As such, the 

value-added services often do not 

account for 15% of the total contract 

price, they noted. 


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12SBA has granted several individual waivers for 

software products under NAICS 513210, Software 

Publishers. 

SBA Response 

Footnote 18 provides that if the 

contract consists of less than 15% of 

value-added services, then it must be 

classified under a manufacturing NAICS 

industry. If the contract consists of more 

than 50% of value-added services, then 

it must be classified under the NAICS 

industry that best describes the 

predominate service of the procurement. 

If it is believed that the NAICS code 

contracting officers designate to a 

solicitation is not correct, SBA 

regulations in 13 CFR 121.1102 allow 

the interested parties to appeal the 

contracting officer’s decision to SBA’s 

Office of Hearings and Appeal (OHA). 

3. The nonmanufacturer rule (NMR) 

and waivers. 

The commenters noted that, under 

Footnote 18, an ITVAR contractor must 

comply with the NMR. They stated that 

this is a change to the regulation SBA 

made in 2016 (81 FR 4436; January 26, 

2016). Prior to this, an ITVAR contractor 

was not subject to the NMR, they 

argued. The commenters maintained 

that specific to supply contracts, the 

NMR allows a small business to supply 

products it did not manufacture if 

certain requirements are met, including 

that the supplied products were 

manufactured by another small 

business. They stated that small 

businesses may supply products 

manufactured by any size business if the 

SBA grants a waiver of the NMR. In 

most cases, the Government requires the 

ITVARs to provide computer hardware 

and software manufactured or produced 

from large OEMs, they argued. Thus, 

applying the NMR to procurements of IT 

products presents several challenges for 

small business ITVARs and, in many 

cases, is inconsistent with what 

agencies specifically require in their 

solicitations, they contended. The 

commenters argued that while class 

waivers exist for some hardware, 

currently, there are no class waivers for 

software products. Thus, a small 

business ITVAR cannot participate in 

opportunities involving the purchase of 

commercial software manufactured by 

large businesses even where the 

Government specifically requires such 

software, they reasoned. Rather, small 

businesses can participate in such 

opportunities only when the contracting 

officer requests an individual waiver, 

the commenters claimed. Notably, it is 

not mandatory for the contracting officer 

to request an individual waiver, they 

noted. They contended that, in most 

cases, the contracting officer will choose 

not to seek a waiver, even if the 

acquisition is set up as a small business 

set-aside for product for which there is 

no small business manufacturer. They 

declared that this practice flies in the 

face of established rules and sets up 

unwary ITVAR contractors to violate the 

NMR (and, potentially, the False Claims 

Act) simply for following the 

requirements set forth by the 

Government. 

SBA Response 

If a small business set-aside IT 

procurement classified under the ITVAR 

exception includes products for which 

there are no small businesses 

manufacturing the product being 

acquired, SBA regulations in 13 CFR 

121.406(b)(5) allow the contracting 

officers, and in some cases the public, 

to request a waiver of the NMR from 

SBA. There are two types of waivers of 

the NMR: class waivers and individual 

waivers. SBA grants a class waiver only 

upon its determination that no small 

business manufacturer or processor of 

the product or class of products is 

available to participate in the Federal 

procurement market. SBA issues an 

individual waiver if the Agency 

determines that no small business 

manufacturer or processor reasonably 

can be expected to offer a product 

meeting the specifications (including 

period for performance) required by a 

particular solicitation.12 The procedures 

for requesting and granting these 

waivers are set forth in 13 CFR 

121.1204. 

4. Inappropriate use of NAICS. 

The comments stated that the 

Government uses the NAICS codes to 

identify the purpose of a procurement 

and to identify the size standard a 

business must meet to qualify as small 

for that procurement. When issuing 

solicitations, contracting officers must 

designate a single NAICS code that best 

describes the principal purpose of the 

product or service being acquired, they 

attested. They argued that, often, an IT 

procurement may be a mixed 

procurement, involving both products 

and services. However, the contracting 

officer still must assign a single NAICS 

code according to the component that 

accounts for the greatest percentage of 

contract value, they asserted. The 

commenters argued that this causes 

problems for ITVARs that provide both 

products and services. ITVARS offer 

computer hardware or software and/or 

services that reasonably can be 

classified either under a supply or a 

service NAICS code, they declared. 

They argued that the existing NAICS 

codes are not appropriate for small 

business ITVARs. Establishments that 

primarily provide services are classified 

under a service NAICS code, they 

added. The commenters maintained that 

small business ITVARs primarily 

provide computer hardware, software, 

and related products (supplies) along 

with some services that cannot be 

classified under the service NAICS 

codes. Likewise, the supply codes cover 

establishments that manufacture a 

specific product, they argued. 

Commenters contended that since 

products ITVARs provide often are 

manufactured by other companies, 

small business ITVARs do not fit neatly 

under the supply NAICS codes either. 

SBA Response 

SBA’s regulations in 13 CFR 

121.402(b) require contracting officers to 

designate an appropriate NAICS code 

that best describes the principal purpose 

of the product or service being acquired. 

If it is believed that the contracting 

officer’s NAICS code designation is not 

appropriate, SBA’s regulations in 13 

CFR 121.1103 allow the interested 

parties to appeal that NAICS code 

designation to the SBA’s Office of 

Hearings and Appeal (OHA). As stated 

elsewhere in this document, the 

nonmanufacturer rule allows 

contractors to supply products that they 

did not manufacture or produce. 

Recognizing that the ITVAR exception 

has led to misuse, inconsistency, and 

confusion with respect to designation of 

NAICS codes for ITVAR solicitations by 

contracting officers, in 2014, as part of 

the first 5-year review of size standards 

under the Jobs Act (79 FR 53646; 

September 10, 2014), SBA proposed 

eliminating the ITVAR exception (and 

Footnote 18) to address those issues. By 

definition, ITVAR contracts account for 

15–50% of value-added services and 

50–85% of computer hardware and 

software (supplies). Thus, by definition, 

the ITVAR exception is for contracts 

that are primarily for supplies, with 

some services. As stated in the 2014 

proposed rule, if the ITVAR exception is 

eliminated, all ITVAR contracts would 

be reclassified under the employeebased size standard for the 

manufacturing industries or under the 

500-employee NMR size standard. IT 

procurements with more than 50% of 

services will be appropriately classified 

under services NAICS codes. However, 

in response to overwhelming comments 

against eliminating the ITVAR 

exception, in the final rule, SBA 

retained the ITVAR exception along 

with 150 employees, but subjected the 

supply component of the ITVA 

contracts to manufacturing requirements 


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and the NMR (81 FR 4436; January 26, 

2016). 

5. Increased compliance 

requirements. 

With changes in IT procurement 

landscape, the burden placed on 

ITVARs has increased drastically as 

well, the commenters explained. They 

argued that numerous employees are 

needed for compliance. ITVARs are 

required to obtain a wider breadth of 

knowledge with multiple OEMs than an 

IT service company would, they 

contended. They claimed that small 

business ITVARs are not exempt from 

these requirements from the 

Government nor from the OEMs. They 

held that to stay under the 150- 

employee size standard, small business 

ITVARs must sacrifice hiring at the 

expense of obtaining and maintaining 

Government mandated certifications, or 

forgo obtaining required certifications 

with the OEMs, which hurts the 

portfolio of products they are able to 

offer and also negatively affects their 

pricing discounts and profitability. With 

an increased focus on secure supply 

chain and numerous certification 

requirements (such as International 

Organization for Standardization (ISO) 

certifications, cybersecurity maturity 

model certification (CMMC), supply 

chain risk management, ITAR, security 

clearances, affirmative action and 

others), ITVARs must now hire 

employees to manage compliance, the 

commenters contended. They argued 

that OEM partners also require ITVARs 

to hold advanced certifications to be 

authorized to sell their products. 

Government customers also require 

advanced OEM certifications to bid on 

certain procurements, they added. It is 

often difficult for small business 

ITVARs to navigate these issues 

particularly, where the Government has 

set aside a procurement based on an 

inappropriate NAICS code, the 

commenters noted. 

SBA Response 

Maintaining compliance is not unique 

to delivering IT goods and services to 

Government agencies under the ITVAR 

exception. Contractors providing goods 

and services in other industries are also 

required to ensure that they comply 

with applicable existing law and 

regulations. Larger small businesses are 

likely to maintain in-house specialized 

workforce dedicated to carry out 

compliance work, while smaller small 

business are likely to hire external 

consultants and attorneys. Achieving 

compliance with regulations, law and 

other requirements would reduce the 

ITVAR contractors’ risks of violating 

law and facing fines, debarment, or 

other penalties. Compliance with 

applicable law and regulations would 

also provide confidence to the Federal 

clients, thereby increasing the 

likelihood of wining Federal contracts. 

Requirements for increased knowledge, 

qualifications/certifications, and 

capabilities to participate in the delivery 

of IT products can not only enhance the 

quality of IT goods and services being 

procured by the Government by 

ensuring that they meet its 

specifications and standards, but also 

enhance contractors’ ability to meet 

Government needs. 

6. Industry consolidation and size 

standard. 

The commenters stated that there is 

increased consolidation and 

acquisitions in the ITVAR industry. It is 

common for ITVARs, once they exceed 

150 employees, to sell their businesses, 

they argued. The commenters 

contended that these ITVARs, who 

usually have years of experience in 

Government contracting and proven 

capabilities, are purchased by larger 

industry competitors or private equity 

firms. There has been a mass exodus of 

firms from the industry once they 

exceed the size standard, they asserted. 

They argued that this hurts the Federal 

agencies as they lose small businesses 

and qualified suppliers who are often 

replaced with less qualified and less 

capable suppliers. The unicorn in the 

ITVAR industry has become those 

companies with between 151 employees 

and 500 employees, they noted. They 

claimed that to go from successfully 

competing as a small business to 

competing with large companies, like 

CDW and IBM, is an improbable 

endeavor for a small ITVAR. The result 

is an erosion of the supplier base that 

has valuably served the Government, 

the commenters argued. Not only does 

the Government suffer under this 

scenario, but so do the employees and 

the communities where these businesses 

are located as the acquiring companies 

or private equity firms are 

headquartered in larger metropolitan 

areas, the commenters contended. They 

pointed out that increasing the 

employee size limit to 500 employees 

would insure there are ample small 

businesses that are qualified to meet the 

increasing demands of today’s 

Government customers. 

SBA Response 

The commentary that small 

businesses, once they exceed their size 

standards, are acquired by large 

corporations or private equity firms is 

not unique to ITVAR firms. SBA 

frequently receives such concerns from 

businesses in other industries as well. 

SBA believes that such concerns would 

remain regardless of how high the size 

standards are. For example, SBA’s 

recent increases to size standards have 

not alleviated these concerns. SBA 

increased 604 size standards under the 

first 5-year review of size standards and 

436 size standards under the second 5- 

year review of size standards. 

Additionally, SBA has periodically 

increased its monetary-based size 

standards for inflation. SBA also has 

increased the averaging periods for 

calculating annual receipts for size 

standards from 3 years to 5 years and for 

calculating the average number of 

employees for size standards from 12 

months to 24 months, thereby extending 

the runway for small businesses to 

successfully transition from small 

business to mid-size or large business 

status in the Federal marketplace. With 

respect to the commenter’s suggestion to 

increase the ITVAR size standard to 500 

employees, SBA will review that size 

standard as part of the forthcoming third 

5-year review of size standards under 

the Jobs Act and determine if it needs 

to be revised. The commenters are 

advised to submit their comments when 

SBA issues a proposed rule with the 

results of its analysis. 

7. Limitations on subcontracting rule. 

The commenters maintained that, for 

both supplies and services, the 

limitations on subcontracting rule 

(‘‘LOSR’’) requires that a small business 

not subcontract more than 50% of the 

prime contract amount to businesses 

that are not ‘‘similarly situated.’’ In 

contracts for mixed procurements (i.e., 

both supplies and services), the LOSR 

applies only to subcontracts that 

correspond to the principal purpose of 

the prime contract, they argued. The 

commenters contended that the LOSR is 

problematic for small business ITVARs 

that resell to the end-user IT products 

(e.g., hardware, computers, etc.) and/or 

services (e.g., cloud, hardware/software 

maintenance, etc.) that mostly originate 

from other companies. Often, the 

products and services the Government 

requires under the ITVAR solicitation 

are provided only by large companies, 

and easily exceed 50% of the total 

contract amount, the commenters 

reasoned. Thus, the commenters argued, 

the LOSR has the effect of eliminating 

small business ITVAR participation in 

many Federal acquisitions for IT 

products and services although they are 

set-aside for small businesses. 

SBA Response 

In accordance with SBA’s regulations 

in 13 CFR 125.6(a)(2), procurements of 

supplies from a nonmanufacturer of 

such supplies are exempt from the 


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LOSR. In other words, the NMR 

supersedes the LOSR. In the case of a 

contract for supplies from a 

nonmanufacturer, a small business will 

comply with all requirements at 13 CFR 

121.406(b)(1) to qualify as a 

nonmanufacturer, including supplying 

the product of a domestic small 

business manufacturer or processor, 

unless a waiver is granted pursuant to 

SBA’s regulations in 13 CFR 

121.406(b)(5). If a waiver is granted, the 

offeror is not required to comply with 

the NMR requirements. 

8. Potential liability for small 

businesses. 

The commenters contended that the 

Government regularly issues 

solicitations under inappropriate NAICS 

codes, thereby inviting small business 

ITVARs to violate the Small Business 

Act and exposing them to risk of fines, 

debarment, or other penalties. There is 

little compliance oversight by the 

Government with respect to NAICS 

codes, they claimed. Rather, the onus 

has shifted to small business ITVARs to 

use scarce time and resources to police 

Government agencies via NAICS code 

protests, the commenters stated. They 

held that relying on protests to check 

this frequent misuse is unrealistic, 

costly, and unfair for small business 

ITVARs. Another issue facing small 

business ITVARs is misapplication of 

the ITVAR code, for example, as when 

the contract includes services that 

account for less than 15% of the total 

contract price, the commenters argued. 

They mentioned that, in this situation, 

small business ITVARs can choose to 

bid, knowing they will not provide 

value-added services that account for 

15–50% of the total contract price as 

required by the ITVAR exception, and 

thus potentially setting themselves up 

for an allegation that they have violated 

the law or made a false certification. Or, 

the small business can forgo the 

opportunity altogether, while less riskaverse competitors are awarded the 

work, the commenters argued. Where a 

small business ITVAR contractor is not 

compliant with the SBA regulations, it 

is susceptible to size protests, potential 

suspension or debarment, or False 

Claims Act liability, they pointed out. 

Thus, simply by submitting a proposal 

where the business cannot comply with 

the NMR, or with the 15–50% service 

requirement under the ITVAR 

exception, a small business contractor 

could potentially expose itself to False 

Claims Act liability, suspension or 

debarment, a size protest by a 

competitor, contract termination, and 

loss of business, the commenters 

declared. 

SBA Response 

Pursuant to SBA’s regulations in 13 

CFR 121.402(b), Federal agencies are 

required to select a single NAICS code 

for an acquisition that best describes the 

principal purpose of the service or 

product being acquired. If businesses 

believe that the NAICS code selected by 

the contracting officer for the contract is 

inappropriate, pursuant to 13 CFR 

121.1103, they can file a NAICS code 

appeal with the SBA’s Office of 

Hearings and Appeals (OHA). However, 

because contractors do not have 

affirmative responsibility for ensuring 

that the NAICS code selected by a 

contracting officer is appropriate, they 

are not liable for bidding on or 

performing solicitations for which the 

NAICS code selected by the contracting 

officer is inappropriate. The 

determination on whether an ITVAR 

contract meets the 15–50% service 

requirement is made prior to the award 

and does not become the terms and 

conditions of the contract. Accordingly, 

small business ITVAR contractors may 

not be liable even though value-added 

services account for less than 15% or 

more than 50% of the contract value. 

However, when the NMR requirement 

falls under the terms and conditions of 

the contract, small ITVARs are bound to 

comply with the NMR unless there is a 

waiver. 

9. Software NAICS 513210 (Footnote 

15). 

The commenters maintained that, in 

2016, SBA promulgated a new rule 

relating to NAICS 513210, Software 

Publishers, providing that unmodified, 

commercially available software 

supplied in procurements under that 

NAICS code is an item of supply rather 

than a service, thus subjecting these 

items to the NMR (81 FR 34243; May 31, 

2016). The commenters stated that, for 

this, the SBA created a new footnote 

(Footnote 15), which explains that 

NAICS 513210 is the proper NAICS 

code to use when the Government is 

purchasing COTS (‘‘commercial-of-theshelf’’) software, which is eligible for a 

waiver of the NMR. The 

Characterization of COTS software as a 

product subject to the NMR presents the 

added complication of seemingly 

conflicting size standards applicable to 

these procurements, the commenters 

reasoned. NAICS 513210, a services 

code, has a revenue-based size standard 

of $47 million, while a company may 

also qualify as small under the NMR 

based on a size standard of 500 

employees, they noted. 

The commenters pointed out that one 

consequence of changing the 

classification for COTS software to a 

supply was that the NMR then became 

applicable to procurements for this type 

of software, and waivers then could be 

sought. The 2016 rule amended the 

SBA’s regulations that SBA may grant 

an individual waiver for the 

procurement of software, provided that 

the software meets certain conditions, 

the commenters noted. The commenters 

held that individual waivers may be 

requested by contracting officers and the 

public can request that SBA issue class 

waivers for software items. However, 

they argued that, in practice, contracting 

officers have been reluctant to request a 

contract specific waiver, and, to date, no 

class waivers for software have been 

granted. 

Commenters contended that a class 

waiver for the Footnote 15 portion of 

NAICS 513210 would be appropriate for 

resolving many of the issues facing 

small business ITVARs for four reasons: 

(1) the COTS software procured under 

NAICS 513210 is overwhelmingly 

manufactured by large businesses that it 

obviates the purpose of the NMR; (2) the 

small business set-asides are almost 

universally in violation of the NMR; (3) 

these violations are almost forced by the 

Government’s dual need for both large 

business software and small business 

credit, leading to improper solicitations; 

and (4) this situation invites small 

businesses to expose themselves to the 

risk of misrepresenting their size status. 

The commenters pointed out that the 

Government regularly posts solicitations 

for acquisitions of COTS software 

manufactured by large businesses that 

are classified under NAICS 513210 and 

set-aside for small businesses. The NMR 

applies to these solicitations unless the 

contracting officer has obtained a waiver 

from SBA, the commenters argued. If a 

waiver is granted, the solicitation can be 

set-aside for small businesses, and the 

small business awardee can provide an 

end-product made by any size 

manufacturer, they added. In practice, 

waivers are rarely obtained, the 

commenters argued. They asserted that 

if the solicitations do not include a 

waiver of the NMR, any small business 

awardee must provide an end-product 

made by a small business manufacturer. 

In many instances, this is not possible 

because the Government often 

specifically requests items 

manufactured exclusively by large 

businesses, or because certain products 

are not manufactured by small 

businesses, the commenters argued. 

They contended that, without a waiver, 

any small business awardee that 

provides the required COTS software 

(manufactured by a large business) 

under a set-aside is violating the Small 

Business Act, opening itself to liability 


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under the False Claims Act for making 

false statements and certifications to the 

Government, and subjecting itself to a 

host of other negative consequences—all 

at the behest of the Government agency. 

SBA Response 

SBA grants a class waiver of the NMR 

for a class of products or supplies only 

upon the determination that no small 

business manufacturer or producer is 

available in the Federal market for such 

products or supplies. The procedures 

for requesting and granting class 

waivers are contained in 13 CFR 

121.1204. Any interested person, 

business, association, or Federal agency 

may submit a request for a waiver for a 

particular class of products. Requests 

should be addressed to the Director, 

Office of Government Contracting, 

Small Business Administration, 409 3rd 

Street SW, Washington, DC 20416. 

Requests for a waiver of a class of 

products should include a statement of 

the class of products to be waived, the 

applicable NAICS code, and detailed 

information on the efforts made to 

identify small business manufacturers 

or processors for the class of products. 

If SBA decides that there are small 

business manufacturers or processors in 

the Federal procurement market, it will 

deny the request for waiver, issue notice 

of the denial, and provide the names, 

addresses, and telephone numbers of 

the sources found. If SBA does not 

initially confirm the existence of small 

business manufacturers or processors in 

the Federal market, it will: (i) publish 

notices in the Commerce Business Daily 

and the Federal Register seeking 

information on small business 

manufacturers or processors, 

announcing a notice of intent to waive 

the NMR for that class of products and 

affording the public a 15-day comment 

period; and (ii) if no small business 

sources are identified, publish a notice 

in the Federal Register stating that no 

small business sources were found and 

that a waiver of the NMR for that class 

of products has been granted. SBA my 

expedite the procedure for issuing a 

class waiver under emergency situations 

(see 13 CFR 121.1204(5)). SBA has 

granted several individual waivers for 

the COTS software under NAICS 

513210. If commenters feel that SBA can 

reasonably issue a class waiver for this 

code, then an interested party should 

request one and provide the required 

documentation. 

Proposed Solutions 

The commenters declared that the 

current system for classifying and 

executing procurements involving 

ITVARs has serious flaws that should be 

addressed. They stated that any 

comprehensive solution must: (1) create 

a new industry by recognizing what 

ITVARs actually do (i.e., the type and 

mix of services and products they 

provide); (2) capture and account for 

how services currently are billed to the 

Government, and eliminate the 15–50% 

value-added requirement; (3) provide a 

realistic size standard that is not overor under-inclusive; and (4) address the 

NMR requirements for COTS 

procurements. 

1. Creation of the new NAICS code. 

The commenters pointed out that, 

while there are a number of possible 

solutions, the most viable and sensical 

solution is to create a new NAICS code 

that accurately captures the core 

competency of the ITVAR, accompanied 

by creation of an appropriate SBA size 

standard and elimination of the ITVAR 

exception at Footnote 18. They 

contended that the new code should 

focus on the ITVAR’s role as a 

consultant that provides pre-sales 

engineering and subject matter expertise 

on a variety of software and hardware 

products. Ideally, the Economic 

Classification Policy Committee (ECPC) 

within OMB will create a new, standalone NAICS code for ITVARs, they 

noted. Once established, the SBA 

should then revise its current size 

standard accordingly and eliminate 

Footnote 18 under NAICS 541519, the 

commenters added. 

SBA Response 

In 2014, because of inconsistencies, 

confusion and misuse surrounding the 

application of NAICS codes for ITVAR 

contracts, SBA proposed to eliminate 

the ITVAR exception, along with its 

150-employee size standard and the 

accompanying footnote (Footnote 18) 

under NAICS 541519 (79 FR 53646; 

September 10, 2014). SBA received a 

total of 168 comments, of which 163 

opposed the SBA’s proposal. In 

response, SBA retained the 150- 

employee size standard and Footnote 

18, while subjecting the supplies 

component of an ITVAR contract to the 

manufacturing performance 

requirements and the NMR. 

Any documentation and information 

in support of the creation of a new 

NAICS for the ITVAR industry should 

be directed to the ECPC within OMB. As 

stated elsewhere in this document, in 

collaboration with Statistical Agencies 

from the U.S., Mexico and Canada, the 

ECPC, every 5 years, creates new NAICS 

codes or revises the existing ones. The 

NAICS website has established a 

factsheet regarding the time schedules 

for the 2027 NAICS revisions. 

2. Elimination of the 15–50% service 

requirement. 

The commenters contended that the 

SBA’s size standard for the new NAICS 

code must not include a service 

requirement that is based on a percent 

of the total contract price, but it should 

be based on value-added services 

provided by a typical ITVAR. The 

commenters noted that the current 

ITVAR 15–50% services requirement 

ignores the reality in following ways: (1) 

the fixed cost of the component far 

exceeds the cost of the services and 

implementation of equipment, and (2) 

the provided services generally are not 

separately billed. The commenters 

stated that ITVARs provide valuable 

services to the Government, but the 

costs of those services are included in 

overhead costs, covered by narrow 

margins on the IT products, and not 

separately charged. Therefore, the 

current requirement that services 

account for 15–50% of the total contract 

price is unattainable and should be 

eliminated under the new size standard, 

the commenters argued. 

SBA Response 

The 15–50% service requirement 

provides that if the contract consists of 

less than 15% of value-added services, 

then it must be classified under a 

manufacturing NAICS industry. If the 

contract consists of more than 50% of 

value-added services, then it must be 

classified under the NAICS industry 

that best describes the predominate 

service of the procurement. SBA is 

concerned that eliminating the 15–50% 

requirement would lead the contracting 

officers to improperly apply the ITVAR 

exception, instead of the manufacturing 

NAICS code, to IT procurements where 

the value-added services account for 

less than 15% of the contract value. 

Similarly, the elimination of the 15– 

50% requirement would encourage the 

contracting officers to use the ITVAR 

exception, at the expense of small 

business services firms, for IT 

acquisitions that account for more than 

50% of value-added services. 

3. Revision to the size standard. 

As soon as practicable, after the new 

NAICS code is established, SBA should 

revise its size standard to account for 

the new NAICS code and institute an 

appropriate employee-based size 

standard, the commenters argued. 

Recognizing that ITVARs typically 

operate on low margins even though 

their annual receipts may be high, the 

size standard should be based on 

employee count rather than annual 

revenue, the commenters reasoned. The 

commenters attested that a reasonable 


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size standard for the new code is 500 

employees. 

SBA Response 

It should be noted that SBA proposed 

a 500-employee size standard when it 

first created the ITVAR exception (67 FR 

48419; July 24, 2002). As discussed in 

detail in the final rule (68 FR 74833; 

December 29, 2003), of a total of 291 

comments received, 276 or 95% of 

comments opposed the proposed 500- 

employee size standard for the ITVAR 

exception in support of a smaller size 

standard. Commenters argued that 

businesses with 500 employees are not 

small in the ITVAR industry, and that 

smaller IT businesses are not 

competitive against businesses with 

hundreds of employees. The 

commenters contented that, under the 

proposed 500-employee size standard, 

Federal agencies are more likely to 

award ITVAR contracts to the larger 

small businesses at the expense of much 

smaller businesses. Several comments 

considered a 500-employee ITVAR firm 

to be dominant in this field, and 

therefore does not meet the Small 

Business Act’s statutory definition of a 

small business which excludes 

dominant businesses as small. Finally, 

the commenters argued that a vast 

majority of firms engaged in the ITVAR 

industry are much smaller than 500 

employees. Commenters to the 2014 

proposed rule (79 FR 53646; September 

10, 2014) that proposed eliminating the 

ITVAR exception (along with Footnote 

18) validated the above concerns. 

4. Elimination of the NMR 

requirements. 

With respect to qualifying as a small 

business under the new NAICS code, 

SBA should acknowledge that the NMR 

is explicitly inapplicable, the 

commenters argued. Because ITVARs, 

by definition, do not manufacture the 

products they resell, it is nonsensical to 

require them to comply with the NMR— 

particularly where solicitations 

overwhelmingly seek COTS items 

manufactured by large businesses, the 

commenters held. They maintained that 

both the ITVAR code (NAICS 541519, 

Footnote 18) and the COTS code 

(NAICS 513210, Footnote 15) require 

compliance with the NMR, but allow for 

waivers of the NMR. Rather than 

eliminating the NMR with respect to 

procurements using these codes, SBA 

opted to put the onus on agencies to 

seek waivers, they noted. In practice, 

this has not been a viable solution, as 

shown by how ineffective and 

underutilized the waiver has been to 

date, the commenter argued. Contracting 

officers have been reluctant to request 

contract specific waivers and, to date, 

no class waivers for software have been 

granted, they added. 

SBA Response 

Considering the rapid pace of 

development in the IT industry, SBA 

believes that it is not unreasonable to 

assume that there will be new products 

purchased by the Federal Government 

using the ITVAR exception in the future 

that will be manufactured by small 

businesses. Thus, by eliminating the 

NMR for the ITVAR exception, SBA 

could disadvantage small firms who are 

currently offering, or plan to offer 

products to the Government. SBA also 

believes it would be inconsistent with 

the intent of the Small Business Act if 

ITVAR resellers could provide the 

supplies produced primarily by large 

OEMs, or other large manufacturers, 

without the NMR. SBA is concerned 

that without the compliance with the 

NMR, the ITVAR exception may allow 

small business ITVARs to simply serve 

as ‘‘pass throughs’’ for large OEMs and 

other large manufacturers. While SBA 

recognizes that the NMR may work 

better for some products than for others, 

it strongly believes that the rule must 

apply to all supply contracts equally. 

Thus, like all other products and 

supplies, the nonmanufacturer rule 

must also apply to IT products, 

including those purchased through the 

ITVAR exception. 

5. Blanket waivers. 

The commenters stated that a separate 

work-around involves obtaining 

waivers. One way to allow small 

businesses to supply software 

manufactured by large corporations is to 

secure an individual waiver issued for 

a vehicle that covers a full array of IT 

orders of a Government department, the 

commenters contended. They noted 

that, in 2020, the Department of 

Homeland Security (DHS) obtained an 

individual waiver from SBA for all the 

products and services to be procured 

under the FirstSource III. Under 

FirstSource III, any commercial IT 

product would be available, including 

products manufactured by large 

companies, they added. The 

commenters pointed out that, notably, 

FirstSource III will have two NAICS 

codes, NAICS 541519 (ITVAR) and 

NAICS 513210 (Software Publishers). To 

resolve the NMR issues, DHS is 

pursuing an individual contract level 

NMR waiver for FirstSource III, the 

commenters added. If SBA approves the 

wavier, there would be no need for 

individual waivers for each order under 

FirstSource III, the commenters 

reasoned. They attested that DHS’s 

attempt to secure a blanket waiver for 

the FirstSource III contract signals the 

Government’s recognition of the need to 

change the rules to adapt to the evolving 

IT landscape. The commenters argued 

that a broader change is warranted for 

other types of IT procurements, 

particularly for those involving small 

business ITVARs. 

SBA Response 

As explained above, SBA’s 

regulations in 13 CFR 121.1204(a) allow 

Federal agencies to request for class 

waivers of the NMR from SBA if they, 

based on market research, demonstrate 

that there are not small businesses that 

manufacture or produce a class of IT 

hardware and software. For example, in 

2020, SBA granted a class waiver of the 

NMR for commercially available off-theshelf laptops and tablet computers 

under NAICS 334111, Electronic 

Computer Manufacturing (85 FR 13692; 

March 9, 2020). Procedures for 

requesting individual waivers are laid 

out in 13 CFR 121.1204(b). SBA has 

granted several individual waivers for 

the COTS software under NAICS 513210 

and computer hardware and software 

under NAICS 541519. 

D. Public Forums 

As mandated by section 1344 of the 

Jobs Act, SBA is required to hold not 

less than two public forums during its 

quinquennial review of size standards. 

SBA held two virtual public forums on 

size standards to update the public on 

the status of the ongoing five-year 

reviews of size standards under the Jobs 

Act and to consider public feedback on 

changes contained in the Revised 

Methodology. The two virtual public 

forums were held on January 23, 2024, 

and on January 25, 2024. Over the 

course of the two days, of 44 total 

participants, SBA received testimony 

from one commenter, mostly relating to 

the SBA’s approach to evaluating the 

size standard for the ERS exception 

under NAICS 562910, Remediation 

Services. The comment received during 

the virtual public forums is included in 

the count of comments above. 

The comment expressed general 

support for the SBA’s Revised 

Methodology and its data-driven 

approach to size standards. The 

commenter argued, unlike other 

‘exceptions’’ that are NAICS 

subindustry categories, the ERS 

exception is a superindustry category, 

because it consists of activities from 

several different NAICS industries. The 

commenter expressed concern over 

SBA’s approach to creating the ERS 

industry by trimming the largest 

environmental companies for which the 

ERS work is not a primary source of 

their total revenues. The commenter 


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Federal Register / Vol. 89, No. 177 / Thursday, September 12, 2024 / Rules and Regulations 74131 

argued that large competitors in the ERS 

industry have a serious advantage over 

smaller businesses in terms of winning 

and executing work, even where only a 

small portion of their total revenue 

comes from ERS work. Large firms can 

leverage their vast resources, extensive 

experiences and economies of scale that 

give them a tremendous competitive 

advantage over a small business making 

roughly similar revenue. Thus, SBA 

should not trim such companies, the 

commenter noted. If SBA believes that 

trimming is necessary, it should provide 

a list of companies that were trimmed 

so that the public can comment on its 

analysis, the commenter added. The 

commenter also urged SBA to let the 

data drive the results rather than 

policies. The commenter also submitted 

a more detailed comment to 

www.regulations.gov, which has been 

summarized above. 

SBA response: SBA has responded to 

the ERS concern above. 

E. Conclusion 

As discussed above, SBA proposed 

two changes to the Methodology: (1) 

adoption of the disparity ratio approach 

to account for the small business 

participation in the Federal market; and 

(2) use of the FPDS–NG and SAM data 

to calculate the 20th percentile and 80th 

percentile values of industry factors to 

evaluate the size standards at the 

subindustry levels, usually known as 

‘‘exceptions.’’ 

SBA received four comments 

supporting the adoption of the disparity 

ratio approach to measure small 

business participation in the Federal 

market. SBA received three comments 

addressing the second issue, with one 

supporting the SBA’s proposal to use 

FPDS–NG and SAM data to derive the 

20th percentile and 80th percentile 

values of industry factors to evaluate 

exception size standards and two 

opposing it. As stated elsewhere, the 

data from the Census Bureau’s 

Economic Census tabulation are limited 

to the six-digit NAICS industry level 

and therefore do not provide 

information on economic characteristics 

of firms at the subindustry level. Thus, 

SBA uses the FPDS–NG and SAM data 

to derive the industry factors for 

exceptions. Therefore, to be consistent, 

SBA is adopting FPDS–NG and SAM 

data to obtain the 20th percentile and 

80th percentile values of industry 

factors for evaluating size standards for 

the NAICS exceptions, instead of using 

the percentiles from the Economic 

Census. As such, SBA is adopting both 

proposed changes in the Revised 

Methodology. 

Several commenters submitted 

comments pertaining to size standards 

for specific industries, including the 

ITVAR exception to NAICS 541519, the 

ERS exception to 562910, Software 

Publishers (NAICS 513210), and a few 

other industries. Comments pertaining 

to specific size standards are beyond the 

scope of the Methodology. Those 

commenters have been advised to 

submit their comments when SBA 

issues proposed rules as part of the third 

5-year review of size standards under 

the Small Business Jobs Act of 2010. 

Isabella Casillas Guzman, 

Administrator. 

[FR Doc. 2024–20228 Filed 9–11–24; 8:45 am] 

BILLING CODE 8026–09–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 71 

[Docket No. FAA–2024–1556; Airspace 

Docket No. 24–ASW–12] 

RIN 2120–AA66 

Establishment of Class E Airspace; 

Langtry, TX 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule. 

SUMMARY: This action establishes Class 

E airspace at Langtry, TX. The FAA is 

proposing this action to support new 

public instrument procedures. 

DATES: Effective date 0901 UTC, 

December 26, 2024. The Director of the 

Federal Register approves this 

incorporation by reference action under 

1 CFR part 51, subject to the annual 

revision of FAA Order JO 7400.11 and 

publication of conforming amendments. 

ADDRESSES: A copy of the Notice of 

Proposed Rulemaking (NPRM), all 

comments received, this final rule, and 

all background material may be viewed 

online at www.regulations.gov using the 

FAA Docket number. Electronic 

retrieval help and guidelines are 

available on the website. It is available 

24 hours each day, 365 days each year. 

FAA Order JO 7400.11H, Airspace 

Designations and Reporting Points, and 

subsequent amendments can be viewed 

online at www.faa.gov/air_traffic/ 

publications/. You may also contact the 

Rules and Regulations Group, Office of 

Policy, Federal Aviation 

Administration, 800 Independence 

Avenue SW, Washington, DC 20591; 

telephone: (202) 267–8783. 

FOR FURTHER INFORMATION CONTACT: Raul 

Garza Jr., Federal Aviation 

Administration, Operations Support 

Group, Central Service Center, 10101 

Hillwood Parkway, Fort Worth, TX 

76177; telephone (817) 222–5874. 

SUPPLEMENTARY INFORMATION: 

Authority for This Rulemaking 

The FAA’s authority to issue rules 

regarding aviation safety is found in 

Title 49 of the United States Code. 

Subtitle I, Section 106 describes the 

authority of the FAA Administrator. 

Subtitle VII, Aviation Programs, 

describes in more detail the scope of the 

agency’s authority. This rulemaking is 

promulgated under the authority 

described in Subtitle VII, Part A, 

Subpart I, Section 40103. Under that 

section, the FAA is charged with 

prescribing regulations to assign the use 

of the airspace necessary to ensure the 

safety of aircraft and the efficient use of 

airspace. This regulation is within the 

scope of that authority as it establishes 

Class E airspace extending upward from 

700 feet above the surface at 4M Ranch 

Airfield, Langtry, TX, to support 

instrument flight rule operations at this 

airport. 

History 

The FAA published an NPRM for 

Docket No. FAA 2024–1556 in the 

Federal Register (89 FR 46339; May 29, 

2024), proposing to establish the Class 

E airspace at Langtry, TX. Interested 

parties were invited to participate in 

this rulemaking effort by submitting 

written comments on the proposal to the 

FAA. One comment was received. The 

commenter asked if the surrounding 

private airfields will also be considered 

for Class E airspace. The FAA only 

considers airports for Class E airspace 

establishment to support instrument 

flight rule operations at an airport. 

Incorporation by Reference 

Class E airspace designations are 

published in paragraph 6005 of FAA 

Order JO 7400.11, Airspace 

Designations and Reporting Points, 

which is incorporated by reference in 14 

CFR 71.1 on an annual basis. This 

document amends the current version of 

that order, FAA Order JO 7400.11H, 

dated August 11, 2023 and effective 

September 15, 2023. FAA Order JO 

7400.11H is publicly available as listed 

in the ADDRESSES section of this 

document. These amendments will be 

published in the next update to FAA 

Order JO 7400.11. 

FAA Order JO 7400.11H lists Class A, 

B, C, D, and E airspace areas, air traffic 

service routes, and reporting points. 


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