`[Federal Register Volume 74, Number 202 (Wednesday, October 21, 2009)]
[Proposed Rules]
[Pages 53913-53924]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-25204]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AF71


Small Business Size Standards: Accommodation and Food Services 
Industries

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA) proposes to 
increase small business size standards for five industries in North 
American Industry Classification System (NAICS) Sector 72, 
Accommodation and Food Services--namely NAICS 721110, Hotels and 
Motels, from $7.0 million to $30 million; NAICS 721120, Casino Hotels, 
from $7.0 million to $30 million; NAICS 722211, Limited Service 
Restaurants, from $7.0 million to $10 million; NAICS 722212, 
Cafeterias, from $7.0 million to $25.5 million; and NAICS 722310, Food 
Service Contractors, from $20.5 million to $35.5 million. As part of 
its ongoing initiative to review all size standards, SBA has evaluated 
each industry in Sector 72 to determine whether the existing size 
standards should be retained or revised. This proposed rule is one of a 
series of proposals that will examine industries grouped by an NAICS 
Sector. As part of this series of proposed rules SBA is publishing 
concurrently in this issue of the Federal Register a proposed rule to 
modify small business size standards in Sector 44-45, Retail Trade, and 
Sector 81, Other Services. SBA has established its ``Size Standards 
Methodology'' and published elsewhere in this issue of the Federal 
Register a notice of its availability on SBA's Web site at http://www.sba.gov/size. SBA has applied ``Size Standards Methodology'' to 
this proposed rule.

[[Page 53914]]


DATES: SBA must receive comments to this proposed rule on or before 
December 21, 2009.

ADDRESSES: You may submit comments, identified by RIN 3245-AF71 by one 
of the following methods: (1) Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments; 
or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, Chief, Size 
Standards Division, 409 Third Street, SW., Mail Code 6530, Washington, 
DC 20416.
    SBA will post all comments on www.regulations.gov. If you wish to 
submit confidential business information (CBI) as defined in the User 
Notice at www.regulations.gov, please submit the information to U.S. 
Small Business Administration, Khem R. Sharma, Chief, Size Standards 
Division, 409 Third Street, SW., Mail Code 6530, Washington, DC 20416, 
or send an e-mail to [email protected]. Highlight the information 
that you consider to be CBI and explain why you believe SBA should hold 
this information as confidential. SBA will review the information and 
make the final determination of whether it will publish the information 
or not.

FOR FURTHER INFORMATION CONTACT: Carl J. Jordan, Program Analyst, Size 
Standards Division, (202) 205-6618 or [email protected].

SUPPLEMENTARY INFORMATION: To determine eligibility for Federal small 
business assistance programs, SBA establishes small business 
definitions (referred to as size standards) for private sector 
industries in the U.S. SBA's existing size standards use two primary 
measures of business size--receipts and number of employees. Financial 
assets, electric output, and refining capacity are used as size 
measures for a few specialized industries. In addition, SBA's Small 
Business Investment Company (SBIC) and the Certified Development 
Company (CDC) Programs determine small business eligibility using 
either the industry based size standards or net worth and net income 
size standards. Currently, SBA's size standards consist of 45 different 
size levels, covering 1,141 NAICS industries and 17 sub-industry 
activities. Of these size levels, 32 are based on average annual 
receipts, eight are based on number of employees, and five are based on 
other measures. In addition, SBA has established 11 other size 
standards for its financial and procurement programs.
    Over the years, SBA has received comments that its size standards 
have not kept up with changes in the economy and, in particular, that 
they do not reflect the changes in the Federal contracting marketplace. 
The last overall review of size standards occurred during the late 
1970s to early 1980s. Since then, most reviews of size standards have 
been limited to in-depth analyses of specific industries in response to 
requests from the public and Federal agencies. SBA also makes periodic 
inflation adjustments to its monetary based size standards. The latest 
inflation adjustment to size standards was published in the Federal 
Register on July 18, 2008 (73 FR 41237).
    SBA recognizes that industrial changes over time have rendered 
existing size standards for some industries no longer supportable by 
current data. Accordingly, SBA has begun a comprehensive review of its 
size standards to ensure that existing size standards have supportable 
bases and, where necessary, to make revisions to current size 
standards. This proposed rule affords the public an opportunity to 
review and comment on the data and methodology SBA uses to evaluate and 
revise a size standard.
    Rather than review all size standards at one time, SBA believes 
that a more manageable approach would be to examine a group of related 
industries within an NAICS Sector in phases. Except for manufacturing, 
an NAICS Sector generally consists of 25 to 75 industries. Once a 
review of size standards for industries within an NAICS Sector is 
completed, SBA will issue a proposed rule for those industries in which 
the analysis of industry data supports a change to the existing size 
standards. SBA expects to complete a review of all NAICS Sectors in two 
years.
    Below is a discussion of SBA's size standards methodology, 
including analyses of industry structure, Federal procurement trends 
and other factors for industries within Sector 72, Accommodation and 
Food Services, and the impact of the proposed revisions to size 
standards on Federal small businesses assistance.

Size Standards Methodology

    SBA has recently developed a ``Size Standards Methodology'' that it 
uses for developing and modifying size standards when necessary. SBA 
has published the document which is available at http://www.sba.gov/size. SBA does not apply all features of its ``Size Standards 
Methodology'' to all cases because not all are appropriate. However, 
SBA does make it available in its entirety for parties with an interest 
in SBA's overall approach to evaluating, establishing and modifying 
small business size standards. SBA always explains its analysis in the 
proposed and final rules that relate to size standards for specific 
industries. The following discussion is of SBA's size standard analysis 
applied to industries in Sector 72, Accommodation and Food Services.
    SBA welcomes comments from the public on a number of issues. SBA is 
aware that different choices among size standards can involve complex 
tradeoffs among relevant variables; SBA invites comments on how to 
identify and weigh those variables. Suggestions are invited on 
alternative methodologies for determining small businesses; on how 
these size standards affect competition in general and within the 
specific industry; on alternative or additional factors that SBA should 
consider; on whether SBA's approach to small business size standards 
makes sense in the current economic environment; on whether SBA's using 
anchor size standards is appropriate in the current economy; on whether 
there are gaps in SBA's methodology because of the lack of 
comprehensive data; and on alternative datasets SBA should consider for 
a specific sector.
    Congress granted SBA's Administrator discretion to establish 
detailed small business size standards (15 U.S.C. 632(a)(2)). Section 
3(a)(3) of the Small Business Act (15 U.S.C. 632(a)(3)) requires that 
size standards vary by industry to the extent necessary to reflect 
differing characteristics among various industries. Accordingly, the 
economic structure of an industry serves as the underlying basis for 
developing and modifying small business size standards. By examining 
data on economic characteristics defining the industry structure (as 
described below), the small business segment of an industry is 
identified. In addition to the industry structure, SBA also takes into 
consideration its program objectives and whether a size standard 
successfully excludes businesses that are dominant in the industry. 
Discussed below is SBA's analysis of the economic characteristics of 
each industry in Sector 72, Accommodation and Food Services, the impact 
of proposed size standards on SBA programs, and the evaluation of 
whether a revised size standard would exclude dominant firms in the 
industry from being considered as small.

Industry Analysis

    For the current comprehensive size review, SBA has established 
three ``base'' or ``anchor'' size standards that apply to most 
industries--$7.0 million in average annual receipts for industries that 
have receipts based size standards,

[[Page 53915]]

500 employees for manufacturing and other industries that have employee 
based size standards (except for Wholesale Trade), and 100 employees 
for industries in the Wholesale Trade Sector. SBA established 500 
employees as the anchor size standard for the manufacturing industries 
at SBA's inception in 1953 and shortly thereafter established a 
receipts based anchor size standard of $1 million in average annual 
receipts for the nonmanufacturing industries. The receipts based anchor 
size standard has been adjusted periodically for inflation. The 
inflation adjustment over the years has increased it to $7.0 million 
today. Since 1986, all industries in the Wholesale Trade Sector have 
had the 100-employee size standard for non-procurement SBA programs. 
For procurement purposes, the size standard for a non-manufacturer is 
500 employees.
    These long standing anchor size standards have gained legitimacy 
through practice and general public acceptance. An anchor size standard 
is neither a minimum nor a maximum size standard. It is a common size 
standard for a large number of industries that have similar economic 
characteristics and serves as a reference point in evaluating size 
standards for individual industries. SBA uses the anchor in lieu of 
trying to establish precise small business size standards for each 
industry. Otherwise, theoretically, that could require that the number 
of size standards be as high as the number of industries for which SBA 
establishes size standards. SBA presumes an anchor size standard is 
appropriate for a particular industry unless that industry displays 
significantly different economic characteristics, as compared to the 
characteristics of industries with the anchor size standard, thereby 
suggesting a need for revision to an existing size standard.
    When evaluating a size standard, the economic characteristics of a 
specific industry under review are compared to the average 
characteristics of industries with one of the three anchor size 
standards (referred to as ``anchor comparison group'') to assess 
industry structure and to determine whether the industry displays 
significant differences relative to the industries in the anchor size 
standard group. If the characteristics of a specific industry under 
review are similar to the average characteristics of the anchor 
comparison group, the anchor size standard would be considered 
appropriate for that industry. SBA will consider adopting a size 
standard below the anchor size standard only when (1) all or most of 
the industry characteristics are significantly smaller than the average 
characteristics of the anchor comparison group, or (2) other industry 
considerations strongly suggest that the anchor size standard would be 
an unreasonably high size standard for the industry.
    If the specific industry's characteristics are significantly higher 
than those of the anchor comparison group, a size standard higher than 
the anchor size standard may be considered appropriate. The larger the 
differences are between the characteristics of the industry under 
review and those in the anchor comparison group, the larger will be the 
difference between the appropriate industry size standard and the 
anchor size standard. To determine the level of a size standard above 
the anchor size standard, the characteristics of a second comparison 
group are analyzed. For industries with receipts based size standards, 
SBA has developed a second comparison group consisting of industries 
with the highest levels of receipts based size standards. The size 
standards for this group of industries range from $23 million to $35.5 
million in average receipts, with the weighted average size standard 
for the group equaling $29 million. SBA refers to this comparison group 
as the ``higher level receipts based size standard group.''
    The primary factors that SBA evaluates in analyzing the structural 
characteristics of an industry include average firm size, startup costs 
and entry barriers, industry competition, and distribution of firms by 
size (13 CFR 121.102(a) and (b)). SBA also evaluates the possible 
impact of both existing and revised size standards on Federal 
contracting assistance to small businesses as an additional primary 
factor. SBA generally considers these five factors as the most 
important ones for establishing or revising a size standard for an 
industry. However, SBA will also consider and evaluate other 
information that it believes relevant to the decision on a size 
standard for a particular industry (such as technological changes, 
growth trends, SBA financial assistance and other program factors, 
etc.). Public comments on a proposed size standard rule also provide 
important additional information. SBA thoroughly reviews all public 
comments before making a final decision on its proposed size standard. 
Below is a brief description of each of the five primary evaluation 
factors. A more detailed description of this analysis is provided in 
the ``SBA Size Standards Methodology'' paper which is available at 
http://www.sba.gov/size.
    1. Average firm size. SBA computes two measures of average firm 
size: simple average firm size and weighted average firm size. For 
industries with receipts based standards (including Accommodation and 
Food Services industries), the simple average firm size is calculated 
as total receipts of an industry divided by the total number of firms 
in that industry. The weighted average firm size is computed as the sum 
of weighted simple average firm size in different receipts size classes 
where weights are the shares of total industry receipts for respective 
size classes. The simple average firm size weighs all firms within an 
industry equally regardless of their size. The weighted average 
overcomes that limitation by giving more weights to larger firms.
    If the average firm size of an industry under review is 
significantly higher than the average firm size of industries in the 
anchor comparison industry group, this would generally support a size 
standard higher than the anchor size standard. Conversely, if the 
industry's average firm size is similar to or significantly lower than 
that of the anchor comparison industry group, it would be a basis to 
adopt the anchor size standard or, in rare cases, a standard lower than 
the anchor.
    2. Startup costs. Startup costs reflect a firm's initial size in an 
industry. New entrants to an industry must have sufficient capital to 
start and maintain a viable business. If firms entering a particular 
industry have greater capital requirements than firms do in industries 
in the anchor comparison group, this will form a basis for establishing 
a size standard higher than the anchor standard. In lieu of data on 
actual startup costs, SBA uses average assets size as a proxy measure 
to assess the levels of capital requirements for new entrants to an 
industry.
    SBA calculates the average assets size within a particular industry 
by applying the sales to total assets ratios from the Risk Management 
Association's Annual Statement Studies, 2006-2008 to the average 
receipts size of firms in that industry. An industry with a 
significantly higher level of average assets size than that of the 
anchor comparison group is likely to have higher startup costs, which 
would support a size standard higher than the anchor size standard. 
Conversely, if the industry has a significantly smaller average assets 
size compared to the anchor comparison group, the anchor size standard, 
or in rare cases one lower than the anchor, would be considered 
appropriate.

[[Page 53916]]

    3. Industry competition. Industry competition is generally assessed 
by measuring the share of total industry receipts obtained by firms 
that are among the largest in an industry. In this proposed rule, SBA 
evaluates the share of industry receipts generated by the four largest 
firms in the industry. This is referred to as the ``four-firm 
concentration ratio.'' SBA then compares the four-firm concentration 
ratio for an industry under review to the average four-firm 
concentration ratio for industries in the anchor comparison group. If a 
significant share of economic activity within the industry is 
concentrated among a few relatively large companies, SBA would 
establish a size standard relatively higher than the anchor size 
standard. SBA would not consider the four-firm concentration ratio as 
an important factor in assessing a size standard if its value for an 
industry under review is less than 40 percent. For industries in which 
the four largest firms account for 40 percent or more of an industry's 
total receipts, SBA examines the average size of the four largest firms 
in determining a size standard.
    4. Distribution of firms by size. SBA examines the shares of 
industry total receipts accounted for by firms of different receipts 
and employment size classes in an industry. This is an additional 
factor SBA evaluates in assessing competition within an industry. If 
the preponderance of an industry's economic activity is attributable to 
smaller firms, this would indicate that small businesses are 
competitive in that industry and supports adopting the anchor size 
standard. A size standard higher than the anchor size standard would be 
supported for an industry in which the distribution of firms indicates 
that most of the economic activity is concentrated among the larger 
firms.
    Concentration among firms is a measure of inequality of 
distribution. To evaluate the degree of inequality of distribution 
within an industry, SBA computes the Gini coefficient by constructing 
the Lorenz curve. The Gini coefficient values vary between zero and 
one. If receipts are distributed perfectly equally among all the firms 
in an industry, the value of the Gini coefficient would equal to zero. 
If an industry's total receipts are attributed to a single firm, the 
Gini coefficient would equal to one.
    SBA compares the degree of inequality of distribution for an 
industry under review with that for industries in the anchor comparison 
group. If an industry shows a higher degree of inequality of 
distribution (i.e., higher Gini coefficient) compared to industries in 
the anchor comparison industry group this would, all else being equal, 
warrant a higher size standard than the anchor. Conversely, for 
industries with similar or more equal distribution (i.e., similar or 
lower Gini coefficient values) than the anchor group, the anchor 
standard, or in some cases a standard lower than the anchor, would be 
adopted
    5. Impact on SBA programs. SBA examines the possible impact a size 
standard change may have on the level of Federal small business 
assistance. This assessment most often focuses on the share of Federal 
contracting dollars awarded to small businesses in the industry in 
question. In general, if the share of Federal contracting dollars 
awarded to small businesses in an industry that receives a significant 
amount of Federal contracting dollars is significantly less than the 
small business share of the industry's total receipts, a justification 
would exist for considering a size standard higher than the existing 
size standard. The disparity between the small business Federal market 
share and industry-wide share may be attributed to a variety of 
reasons, such as extensive administrative and compliance requirements 
associated with Federal contracts, the different skill set required on 
Federal contracts as compared to typical commercial contracting work, 
and the size of contracting requirements of Federal customers. These, 
as wells as other factors, are likely to influence the type of firms 
within an industry that compete for Federal contracts and, hence, the 
firms receiving such contracts are expected to possess different 
characteristics than the average characteristics for all firms in that 
industry. By comparing the small business Federal contracting share 
with the industry-wide small business share, SBA includes in its size 
standards analysis the latest Federal contracting trends. This analysis 
may indicate a size standard larger than the current standard.
    For this proposed rule, SBA considered Federal procurement trends 
in the size standards analysis only if (1) the small business share of 
Federal contracting dollars is at least 10 percentage points lower than 
the small business share of total industry receipts and (2) the amount 
of total Federal contracting averages $100 million or more during 
fiscal years 2006-2008 (the latest years for which complete Federal 
procurement data are available). SBA has selected these thresholds 
because they reflect a significant level of contracting in which a 
revision to a size standard may have an impact on expanding small 
business opportunities.
    Another factor that SBA evaluates is the impact of a proposed size 
standard on SBA's loan programs, that is, the volume of SBA guaranteed 
loans within an industry and the size of firms obtaining those loans. 
This factor is examined to assess whether the existing or the proposed 
size standard for a particular industry may be restricting the level of 
financial assistance to small firms in that industry. If the analysis 
shows a reduction in financial assistance to small businesses, a higher 
size standard would be supportable. If small businesses have already 
been receiving significant amounts of financial assistance through 
SBA's loan programs, or if the financial assistance has been provided 
mainly to businesses that are much smaller in size than the existing 
size standard, consideration of this factor for determining the size 
standard may not be necessary.

Sources of Industry and Program Data

    The primary source of data for SBA's industry analysis is a special 
tabulation of the 2002 Economic Census (see http://www.census.gov/econ/census02/) prepared by the U.S. Bureau of the Census (Census 
Bureau) for SBA. The special tabulation provides SBA with industry-
specific data on the number of firms, number of establishments, number 
of employees, annual payroll and annual receipts of companies by the 
size of firm reporting the data to Census. That is, the data are by the 
size class of the total company; however, the data itself, within a 
particular size class, represents the company's total data in that 
industry only. The special tabulation enables SBA to evaluate average 
firm size, the four-firm concentration ratio, and distribution of firms 
by receipts and employment size.
    In some cases, where Census data were not available due to 
disclosure prohibitions, SBA either estimated missing values using 
available relevant data or, examined data at a higher level of industry 
aggregation, such as at the 2- or 3-digit NAICS level. In some 
instances, SBA had to base its analysis only on those factors for which 
data were available or missing values could be estimated. Data sources 
and estimation procedures SBA uses in its size standards analysis are 
documented in detail in the ``SBA Size Standards Methodology'' paper, 
which is available at http://www.sba.gov/size.
    Sales to total assets ratios used to calculate average assets size 
are from the Risk Management Association's Annual Statement Studies, 
2006-2008.

[[Page 53917]]

    To evaluate Federal contracting trends, SBA examined Federal 
contract award data for fiscal years 2006-2008 from the U.S. General 
Service Administration's Federal Procurement Data System--Next 
Generation (FPDS-NG). SBA's internal data on its guaranteed loan 
programs for fiscal years 2006-2008 were analyzed to assess the impact 
on financial assistance to small businesses.

Dominant in Field of Operation

    Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a 
small business concern as one that is (1) independently owned and 
operated, (2) not dominant in its field of operation, and (3) within a 
specific small business definition or size standard established by the 
SBA Administrator. SBA considers as part of its evaluation of a size 
standard whether a business concern at a proposed size standard would 
be considered dominant in its field of operation. For this, SBA 
generally examines the industry's market share of firms at the proposed 
standard or other factors that may indicate whether a firm can exercise 
a major controlling influence on a national basis in which significant 
numbers of business concerns are engaged. If SBA's analysis indicates 
that a proposed size standard would include a dominant firm, a lower 
size standard would be considered to exclude the dominant firm from 
being defined as small.

Selection of Size Standards

    To simplify size standards, for the ongoing comprehensive size 
standards review, SBA has proposed to select a size standard for an 
industry from a limited number of receipts based size standard levels. 
For many years, SBA has been concerned about the complexity of 
determining small business status caused by a large number of varying 
receipts based size standards (see 69 FR 13130, March 4, 2004, and 57 
FR 62515, December 31, 1992). Currently, there are 32 different levels 
of receipts based size standards, ranging from $0.75 million to $35.5 
million, with many of those levels applying to one or just a few 
industries only. SBA believes that such a large number of variations 
with small variations are both unnecessary and difficult to justify 
analytically. Simplifying the administration of SBA's size standards to 
a fewer number of size standard levels will produce more common size 
standards for businesses operating in multiple related industries and 
greater consistency in the size standards among industries that are 
similar in their economic characteristics.
    This proposed rule, therefore, applies one of eight receipts based 
size standards to each industry in Sector 72. These eight ``fixed'' 
size standard levels are $5 million, $7 million, $10 million, $14 
million, $19 million, $25.5 million, $30.0 million and $35.5 million. 
These eight receipts based size standard levels are established by 
taking into consideration the minimum, maximum, and the more commonly 
used receipts based size standards. Currently, the more commonly used 
receipts based size standards cluster around the following six levels--
$2.5 million to $4.5 million, $7 million, $9.0 million to $10 million, 
$12.5 million to $14.0 million, $25.0 million to $25.5 million, and 
$33.5 million to $35.5 million. SBA has selected $7 million as one of 
eight fixed levels of receipts based size standards because this is 
also an anchor standard for receipts based standards. A lower or 
minimum receipts based size level is established at $5 million. 
Excluding monetary standards for agriculture and those based on net 
commissions (such as real estate brokers and travel agents), $5 million 
is in the close neighborhood of the current minimum receipts based 
standard of $4.5 million. Among the higher levels size clusters, $10 
million, $14 million, $25.5 million, and $35.5 million are selected as 
other four levels of the fixed size standards. Because of a large gap 
between two of the size standard intervals, SBA has established 
intermediate levels of $19 million between $14 million and $25.5 
million, and $30 million between $25.5 million and $35.5 million. These 
two intermediate size levels reflect roughly similar proportional 
differences between the two successive size standard levels.
    In a further effort to simplify size standards, SBA may propose a 
common size standard for certain closely related group of industries. 
Although the size standard analysis may support a specific size 
standard level for each industry, SBA believes that establishing 
different size standards for closely related industries may not be 
appropriate. For example, in cases where many of the same businesses 
operate in the same two industries, establishing the common size 
standard would better reflect the industry marketplace than 
establishing separate size standards for each of those industries. This 
situation has led SBA to establish a common size standard for the 
information technology (IT) services industries (NAICS 541511, NAICS 
541112, NAICS 541513 and NAICS 541519), even though the industry data 
might support a distinct size standard for each industry. Businesses 
engaged in IT related services typically perform activities in two or 
more other related industries. Whenever SBA proposes a common size 
standard for closely related industries it will provide a justification 
for that in the proposed rule.

Evaluation of Industry Structure

    SBA has evaluated the structure of each industry in the 
Accommodation and Food Services Sector to assess the appropriateness of 
the current size standards. As described above, SBA compared data on 
the economic characteristics of each industry in that Sector to the 
average characteristics of industries in two comparison groups. The 
first comparison group is comprised of all industries with $7.0 million 
size standards--referred to as the ``receipts based anchor comparison 
group.'' Because the goal of SBA's size review is to assess whether a 
specific industry's size standard should be at or different from the 
anchor size standard, this is the most logical set of industries to 
group together for the industry analysis. In addition, this group 
includes a sufficient number of firms to provide a meaningful 
assessment and comparison of industry characteristics.
    If the characteristics of an industry under review are similar to 
the average characteristics of industries in the anchor comparison 
group, the anchor size standard would be considered an appropriate 
standard for that industry. If an individual industry's structure is 
significantly different from that of the anchor group, a size standard 
lower or higher than the anchor size standard would be selected. The 
level of the new size standard is determined based on the difference 
between the characteristics of the anchor comparison group and a second 
industry comparison group. As described above, the second comparison 
group for receipts based standards consists of industries with the 
highest receipts based size standards, ranging from $23 million to 
$35.5 million, with the average size standard for the group equaling 
$29 million. SBA refers to this group of industries as the ``higher 
level receipts based size standard comparison group.'' Differences in 
industry structure between an industry under review and the industries 
in the two comparison groups are determined by comparing data on each 
of the industry factors, including average firm size, average assets 
size, four-firm concentration ratio, and the Gini coefficient of 
distribution of firms by size. Table 1 shows two measures of the

[[Page 53918]]

average firm size (simple and weighted), average assets size, four-firm 
concentration ratio, average receipts of the four largest firms, and 
the Gini coefficient for both anchor level and higher level comparison 
groups for receipts based size standards.

                                          Table 1--Average Characteristics of Receipts Based Comparison Groups
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         Avg. firm size ($ million)                                Avg. four- firm     Avg. receipts of
 Receipts based comparison group ------------------------------------------ Avg. assets size ($  concentration ratio  four largest firms       Gini
                                     Simple average      Weighted average         million)               (%)            ($ million) \a\     coefficient
--------------------------------------------------------------------------------------------------------------------------------------------------------
Anchor Level....................  1.19...............  17.64..............  0.71...............  18.7...............  189.9.............           0.599
Higher Level....................  4.77...............  52.27..............  2.05...............  22.3...............  639.4.............           0.725
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ To be used for industries with a four-firm concentration ratio of 40% or greater.

Derivation of Size Standards Based on Industry Factors

    For each of the industry factors shown in Table 1, SBA derives a 
separate size standard based on the amount of differences between their 
values for an industry under review and those for the two comparison 
groups. An estimated size standard that is supported by each industry 
factor is derived by comparing its value for a specific industry under 
review to the corresponding value for the two comparison groups. If the 
industry value for a particular factor is near that for the anchor 
comparison group, the $7.0 million anchor size standard would be 
considered appropriate for that factor.
    If an industry's value for a factor is significantly above or below 
the anchor comparison group value, a size standard above or below the 
$7.0 million anchor size would be warranted. The level of the new size 
standard in these cases is derived based on the proportional difference 
between the industry value and the values for the two comparison 
groups.
    For example, if an industry's simple average receipts size equals 
$3.0 million, SBA's analysis would supports a size standard of $19 
million. The $3.0 million level is 50.6 percent between the average 
firm size of $1.19 million for the anchor comparison group and $4.77 
million for the higher level comparison group (($3.00 million--$1.19 
million) / ($4.77 million--$1.19 million) = 0.506 or 50.6%). This 
proportional difference is applied to the difference between the $7.0 
million anchor size standard and average size standard of $29 million 
for the higher level size standard group and then added to $7.0 million 
to estimate a size standard of $18.12 million ([{$29.0 million--$7.0 
million{time}  * 0.506] + $7.0 million = $18.12 million). The final 
step rounds the estimated size standard of $18.12 million to the 
nearest fixed size standard level, in this case to $19 million.
    SBA applies the above method of calculation to derive a size 
standard for each industry factor. Detailed formulas involved in these 
calculations are presented in ``SBA Size Standards Methodology'' which 
is available at http://www.sba.gov/size. Table 2 shows ranges of values 
for each industry factor and the levels of size standards supported by 
those values.

                        Table 2--Values of Industry Factors and Supported Size Standards
----------------------------------------------------------------------------------------------------------------
                                                                   Or if avg.
                               Or if weighted     Or if avg.      receipts of                        Then size
If simple avg. receipts size   avg. receipts    assets size ($    largest four      Or if gini    standard is ($
         ($ million)              size ($          million)         firms ($       coefficient       million)
                                  million)                          million)
----------------------------------------------------------------------------------------------------------------
< 1.03......................  < 16.07........  < 0.65.........  < 169.4........  < 0.593........             5.0
1.03 to 1.43................  16.07 to 20.00.  0.65 to 0.80...  169.4 to 220.5.  0.593 to 0.608.             7.0
1.44 to 2.00................  20.01 to 25.51.  0.81 to 1.02...  220.6 to 292.0.  0.609 to 0.628.            10.0
2.01 to 2.74................  25.52 to 32.59.  1.03 to 1.29...  292.1 to 384.0.  0.629 to 0.653.            14.0
2.75 to 3.67................  32.60 to 41.65.  1.30 to 1.64...  384.1 to 501.5.  0.654 to 0.686.            19.0
3.68 to 4.57................  41.66 to 50.30.  1.65 to 1.97...  501.6 to 613.8.  0.687 to 0.718.            25.5
4.58 to 5.38................  50.31 to 58.17.  1.98 to 2.28...  613.9 to 716.1.  0.719 to 0.746.            30.0
> 5.38......................  >58.17.........  > 2.28.........  > 716.1........  > 0.746........            35.5
----------------------------------------------------------------------------------------------------------------

    Table 3 shows the results of industry analysis for each industry in 
Sector 72, Accommodation and Food Services. Each NAICS industry row in 
columns 2, 3, 4, 6 and 7 shows two numbers. The upper number is the 
value for the industry factor shown on the top of the column and the 
lower number is the size standard supported by that factor. For the 
four-firm concentration ratio, a size standard is estimated based on 
the average receipts of the top four firms if its value is 40 percent 
or more. If the four-firm concentration ratio for an industry is less 
than 40 percent, no size standard is estimated for that factor and 
column 5 is left blank. Column 8 shows the proposed or revised size 
standard for each industry, calculated as the average of size standards 
supported by each industry factor and rounded to the nearest fixed size 
level. Analytical details involved in the averaging procedure are 
described in the SBA ``Size Standards Methodology'' paper which is 
available at http://www.sba.gov/size. For comparison, the current size 
standards for industries in Sector 72 are also shown in column 9 of 
Table 3.

[[Page 53919]]



                                                Table 3--Size Standards Supported by Each Industry Factor
                                                                  [Millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Simple      Weighted                              Four-firm                  Revised      Current
                      NAICS                         average      average      Average     Four-firm     average        Gini         size         size
                                                   firm size    firm size   assets size   ratio (%)    firm size   coefficient    standard     standard
(1)                                                       (2)          (3)          (4)          (5)          (6)          (7)          (8)          (9)
--------------------------------------------------------------------------------------------------------------------------------------------------------
721110--Hotels (except Casino Hotels) & Motels..         $2.5       $118.5         $4.9  ...........  ...........        0.765  ...........  ...........
                                                        $14.0        $35.5        $35.5        22.4%  ...........        $35.5        $30.0         $7.0
721120--Casino Hotels...........................       $203.8       $523.8       $179.8  ...........     $3,557.7        0.611  ...........  ...........
                                                        $35.5        $35.5        $35.5        42.6%        $35.5        $10.0        $30.0         $7.0
721191--Bed-and-Breakfast Inns..................         $0.3         $0.7  ...........  ...........  ...........        0.061  ...........  ...........
                                                         $5.0         $5.0  ...........         3.0%  ...........         $5.0         $5.0         $7.0
721199--All Other Traveler Accommodation........         $0.3         $1.1  ...........  ...........  ...........        0.123  ...........  ...........
                                                         $5.0         $5.0  ...........         9.9%  ...........         $5.0         $5.0         $7.0
721211--RV (Recreational Vehicle) Parks &                $0.4         $2.5         $0.5  ...........  ...........        0.287  ...........  ...........
 Campgrounds....................................
                                                         $5.0         $5.0         $5.0         9.1%  ...........         $5.0         $5.0         $7.0
721214--Recreational & Vacation Camps (except            $0.6         $1.7          0.8  ...........  ...........        0.276  ...........  ...........
 Campgrounds)...................................
                                                         $5.0         $5.0        $10.0         5.1%  ...........         $5.0         $7.0         $7.0
721310--Rooming & Boarding Houses...............          0.3         $1.2  ...........  ...........  ...........        0.187  ...........  ...........
                                                         $5.0         $5.0  ...........         6.6%  ...........         $5.0         $5.0         $7.0
722110--Full Service Restaurants................         $0.9        $46.1         $0.3  ...........  ...........        0.467  ...........  ...........
                                                         $5.0        $25.5         $5.0         8.6%  ...........         $5.0         $7.0         $7.0
722211--Limited Service Restaurants.............         $1.0        $52.3         $0.3  ...........  ...........        0.599  ...........  ...........
                                                         $5.0        $30.0         $5.0        10.2%  ...........         $7.0        $10.0         $7.0
722212--Cafeterias..............................         $1.3        $61.3  ...........  ...........  ...........        0.729  ...........  ...........
                                                         $7.0        $35.5  ...........        39.2%  ...........        $30.0        $25.5         $7.0
722213--Snack & Nonalcoholic Beverage Bars......         $0.5        $29.9         $0.2  ...........  ...........        0.454  ...........  ...........
                                                         $5.0        $14.0         $5.0        24.6%  ...........         $5.0         $7.0         $7.0
722310--Food Service Contractors................         $7.7       $471.8         $2.3  ...........     $3,357.8        0.937  ...........  ...........
                                                        $35.5        $35.5        $35.5        64.4%        $35.5        $35.5        $35.5        $20.5
722320--Caterers................................         $0.6         $2.4         $0.1  ...........  ...........        0.333  ...........  ...........
                                                         $5.0         $5.0         $5.0         2.1%  ...........         $5.0         $5.0         $7.0
722330--Mobile Food Services....................         $0.4         $9.1  ...........  ...........  ...........        0.464  ...........  ...........
                                                         $5.0         $5.0  ...........        24.7%  ...........         $5.0         $5.0         $7.0
722410--Drinking Places (Alcoholic Beverages)...         $0.3         $1.4         $0.1  ...........  ...........        0.151  ...........  ...........
                                                         $5.0         $5.0         $5.0         2.2%  ...........         $5.0         $5.0         $7.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As can be seen in Table 3, the results of SBA analyses of industry 
data would support lowering size standards from $7 million in annual 
receipts to $5 million in annual receipts for seven industries in 
Sector 72. Those seven industries are NAICS 721191, Bed and Breakfast 
Inns; NAICS 721199, All Other Traveler Accommodation; NAICS 721211, 
Recreational Vehicle Parks and Campgrounds; NAICS 721310, Rooming and 
Boarding Houses; NAICS 722320 Caterers; NAICS 722330, Mobile Food 
Services; and NAICS 722410, Drinking Places.
    However, SBA believes that lowering size standard for those 
industries would not be in the best interests of small businesses when 
the economy is in a deep recession. Aiming to promote economic recovery 
and to preserve and create jobs the U.S. Congress passed and the 
President signed the American Recovery and Reinvestment Act of 2009 
(Recovery Act). The purposes and goals of the Recovery Act are to 
promote economic recovery and to preserve and create jobs. Under the 
Recovery Act, SBA has changed its various programs to assist small 
businesses, including the following: (1) Temporary reduction or 
elimination of fees in the 7(a) and 504 loan guarantee programs; (2) 
creation of a temporary 90 percent guarantee loan program; (3) creation 
of a temporary Secondary Market Guarantee Authority to provide a 
Federal guarantee for pools of first lien 504 loans that are to be sold 
to third-party investors; (4) new authority for refinancing community 
development loans under the 504 program; (5) revision of the job 
creation goals of the 504 program; (6) simplification of the maximum 
leverage limits and aggregate investment limits required of Small 
Business Investment Companies; (7) temporary authority to provide loans 
on a deferred basis to viable small business concerns that have a 
qualifying small business loan and are experiencing immediate financial 
hardship; (8) temporary increase in the surety bond maximum amount; (9) 
establishment of a Secondary Market

[[Page 53920]]

Lending Authority to make loans to systemically important broker 
dealers in SBA's 7(a) secondary market; and (10) application of SBA's 
Certified Development Company (CDC) alternative size standard to its 
7(a) Business Loan Program (see 13 CFR 121.301).
    SBA believes that to reduce size standards and thereby reduce 
eligibility for those programs, or to reduce the number of firms that 
can participate in financial and Federal procurement assistance 
programs would run counter to what it is trying to do for small 
businesses. Reducing size eligibility for Federal procurement 
opportunities would not preserve or create more jobs; rather, it would 
have the opposite effect. Therefore, SBA has decided not to propose to 
reduce the size standards for those industries. SBA has decided to 
retain their current size standards. Further, SBA does not anticipate 
that it will propose to lower size standards after the Recovery Act 
terminates on September 30, 2010. SBA intends for the proposed size 
standards, if adopted, to remain in effect unless and until it receives 
information or data that suggests a change is needed.

Evaluation of Federal Contracting and SBA Loan Data

    Besides industry structure, SBA also evaluates Federal contracting 
data to assess the extent to which small businesses are successful in 
getting Federal contracts under the existing size standards. However, 
the available data on Federal contracting are limited to identifying 
businesses as small or other than small, with no information on exact 
size of businesses receiving Federal contracts in order to conduct a 
more precise analysis.
    Given limited data, for the current comprehensive size review, SBA 
has decided to designate a size standard at one level higher than their 
current size standard for industries where the small business share of 
total Federal contracting dollars is between 10 and 30 percentage 
points lower than their shares in total industry receipts and at two 
levels higher than the current size standard if the difference is 
higher than 30 percentage points.
    SBA has chosen not to designate a size standard for the Federal 
contracting factor alone that is higher than two levels above the 
current size standard because doing so would result in most cases of 
designating a size standard more than twice the current size standard. 
Given the limitations of the FPDS data, and the complex relationships 
among a number of variables affecting small business participation in 
the Federal marketplace, SBA believes that a larger adjustment to size 
standards based on Federal contracting activity should be based on a 
more detailed analysis of the impact of any subsequent revision to the 
current size standard. In limited situations, however, SBA may conduct 
a more extensive examination of Federal contracting experience to 
support a different size standard than indicated by this general rule 
to take into consideration significant and unique aspects of small 
business competitiveness in the Federal contract market.
    SBA welcomes comment on its methodology of incorporating the 
Federal contracting factor in the size standard analysis and 
suggestions for alternative methods and other relevant information on 
small business experience in the Federal contract market.
    Only two industries in Sector 72, Accommodation and Food Services, 
received an average of $100 million or more annually in Federal 
contracting dollars during fiscal years 2006-2008. These industries are 
NAICS 721110, Hotels (except Casino Hotels) and Motels, and NAICS 
722310, Food Service Contractors. However, because the small business 
share of total Federal contracting dollars was already higher than 
small business share of total industry receipts for both of these 
industries, the Federal procurement factor was not considered in 
determining the level of size standard. The latest data show that 
Federal contracting activity is insignificant for most of the 
industries in Sector 72 and, for those two industries where it is 
significant, small businesses seem to be doing well in terms of their 
share in Federal marketplace relative to their share in industry's 
total sales.
    Before deciding on an industry's size standard, SBA also considers 
the impact of new or revised standards on SBA's loan programs. SBA 
examined 7(a) Loan Program data for fiscal years 2006-2008 to assess 
whether the existing or proposed size standards need further 
adjustments to ensure credit opportunities for small businesses through 
that program. For the industries reviewed, primarily small businesses 
that are much smaller than the size standards use the 7(a) Loan 
Program. Based on that analysis, no size standard Sector 72, 
Accommodation and Food Services, needs an adjustment based on this 
factor.

Summary of Size Standards Changes

    The analyses of industry structure, Federal contracting data and 
SBA loan information, support retaining the existing $7.0 million 
standard for three industries in Sector 72, Accommodation and Food 
Services. These are NAICS 721214, Recreational and Vacation Camps 
(except Campgrounds); NAICS 722110, Full Service Restaurants; and NAICS 
722213, Snacks and Nonalcoholic Beverage Bars.
    The analyses support an increase to the current size standard for 
five industries, namely NAICS 721110, Hotels and Motels, from $7.0 
million to $30 million; NAICS 721120, Casino Hotels, from $7.0 million 
to $30 million; NAICS 722211, Limited Service Restaurants, from $7.0 
million to $10 million; NAICS 722212, Cafeterias, from $7.0 million to 
$25.5 million; and NAICS 722310, Food Service Contractors, from $20.5 
million to $35.5 million. These revisions are summarized in Table 4.

          Table 4--Summary of Proposed Size Standard Revisions
------------------------------------------------------------------------
                                        Current size      Revised size
                NAICS                    standard ($       standard ($
                                          million)          million)
------------------------------------------------------------------------
721110--Hotels (except Casino                     $7.0             $30.0
 Hotels) & Motels...................
721120--Casino Hotels...............               7.0              30.0
722211--Limited Service Restaurants.               7.0              10.0
722212--Cafeterias..................               7.0              25.5
722310--Food Service Contractors....              20.5              35.5
------------------------------------------------------------------------


[[Page 53921]]

    SBA's analyses support a decrease to the current standard for seven 
industries from $7.0 million to $5.0 million. These industries are 
NAICS 721191, Bed and Breakfast Inns; NAICS 721199, All Other Traveler 
Accommodation; NAICS 721211, Recreational Vehicle Parks and 
Campgrounds; NAICS 721310, Rooming and Boarding Houses; NAICS 722320 
Caterers; NAICS 722330, Mobile Food Services; and NAICS 722410, 
Drinking Places. However, as discussed above, SBA has decided that 
proposing to lower small business size standards would be inconsistent 
with its ongoing effort to promote small business assistance under the 
Recovery Act. Therefore, SBA proposes to retain the current size 
standards for those industries. SBA intends for the proposed size 
standards, if adopted, to remain in effect unless and until it receives 
information or data that suggests a change is needed.

Evaluation of Dominance in Field of Operation

    SBA has determined that for the industries in Sector 72, 
Accommodation and Food Services, no firm at or below the proposed size 
standard would be large enough to dominate its field of operation. A 
firm at the proposed size standard within these industries generates 
less than one percent of total industry receipts. This level of market 
share effectively precludes a firm at or below the proposed size 
standard from exerting a controlling effect on this industry.

Request for Comments

    SBA invites public comments on the proposed rule, especially on the 
following areas.
    1. In an effort to simplify size standards, for this proposed rule 
SBA has proposed a set of eight fixed size levels for receipts based 
size standards: $5.0 million, $7.0 million, $10.0 million, $14.0 
million, $19.0 million, $25.5 million, $30.0 million, and $35.5 
million. SBA invites comments on whether simplification of size 
standards in this way is necessary and if these proposed fixed size 
levels are appropriate, or suggestions on alternative approaches to 
simplifying small business size standards.
    2. For all industries in Sector 72, Accommodation and Food 
Services, SBA has proposed receipts based size standards ranging from 
$7 million to $35.5 million. SBA seeks feedback on whether the levels 
of size standards it proposes seem right given the economic 
characteristics of each industry. SBA also seeks feedback and 
suggestions on alternative standards, if they would be more 
appropriate, including whether an employee based standard for certain 
industries is a more suitable measure of size, and what that employee 
level should be.
    3. SBA's proposed standards are based on its evaluation of five 
primary factors--average firm size, average assets size (as proxy of 
startup costs and entry barriers), four-firm concentration ratio, 
distribution of firms by size, and the level and small business share 
of Federal contracting dollars. SBA welcomes comments on these and 
other factors that interested parties believe are important to consider 
for describing industry characteristics when SBA evaluates its size 
standards. Please provide relevant data sources, if available.
    4. SBA derives its proposed standards by applying equal weights to 
each of the five primary factors in all industries. Should SBA continue 
with the equal weighting of each factor or should it give more weight 
to one or more factors in size standard determination of certain 
industries? If it is more appropriate to weigh some factors more than 
others, SBA welcomes suggestions on specific weights for each factor 
along with supporting information.
    5. For some industries, SBA proposes to increase the existing size 
standards by a large amount, while for others the proposed increase is 
less. Should SBA, as a policy, limit the amount of increase or decrease 
to a size standard? Also should SBA, as a policy, establish certain 
minimum or maximum values for its size standards? SBA seeks suggestions 
on appropriate levels of change to size standards and on their minimum 
or maximum levels.
    6. For analytical simplicity and efficiency, SBA has refined its 
size standard methodology to obtain a single value as a proposed size 
standard instead of a range of values as was SBA's methodology in its 
past size regulations. SBA welcomes any comments on this procedure and 
suggestions for alternative methods.
    Public comments on above issues are very critical for SBA to 
validate its size standard methodology and move forward in a timely 
manner with review of size standards of other industry groups under the 
two-year comprehensive size review.
    Compliance With Executive Orders 12866, 12988, and 13132, the 
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory 
Flexibility Act (5 U.S.C. 601-612).

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
proposed rule is a ``significant'' regulatory action for purposes of 
Executive Order 12866. Accordingly, the next section contains SBA's 
Regulatory Impact Analysis. This is not a major rule, however, under 
the Congressional Review Act, 5 U.S.C. 800.

Regulatory Impact Analysis

1. Is there a need for the regulatory action?

    SBA believes that adjustments to certain size standards in Sector 
72, Accommodation and Food Services, are needed to better reflect the 
economic characteristics of small businesses in those industries. SBA's 
mission is to aid and assist small businesses through a variety of 
financial, procurement, business development, and advocacy programs. To 
assist effectively the intended beneficiaries of these programs, SBA 
must establish distinct definitions of which businesses are deemed 
small businesses. The Small Business Act (15 U.S.C. 632(a)) delegates 
to SBA's Administrator the responsibility for establishing small 
business definitions. The Act also requires that small business 
definitions vary to reflect industry differences. The supplementary 
information section of this proposed rule explains SBA's methodology 
for analyzing a size standard for a particular industry.

2. What are the potential benefits and costs of this regulatory action?

    The most significant benefit to businesses obtaining small business 
status as a result of this rule is eligibility for Federal small 
business assistance programs, including SBA's financial assistance 
programs, economic injury disaster loans, and Federal procurement 
preference programs for small businesses. Federal procurement provides 
opportunities for small businesses under SBA's business development 
programs, such as 8(a), Small Disadvantaged Businesses (SDB), small 
businesses located in Historically Underutilized Business Zones 
(HUBZone), women owned small businesses, and service disabled veteran 
owned small businesses (SDVOSB). Other Federal agencies also may use 
SBA size standards for a variety of regulatory and program purposes. 
Through the assistance of these programs, small businesses become more 
knowledgeable, stable, and competitive businesses. In five industries 
under Sector 72 for which SBA has proposed to increase their size 
standards, about 2,050 additional firms are estimated to obtain small 
business status and become eligible for these

[[Page 53922]]

programs. In the seven industries for which SBA's analyses indicated a 
lower size standard as appropriate, there are about 450 firms that 
might have lost their small business status, had SBA proposed lowering 
them. That number is less than 0.6 percent of total number of firms in 
those industries defined as small under the current standards. Thus, 
the net impact for the sector as a whole is about 2,050 additional 
firms gaining and none losing small business status under the proposed 
rule. This will increase the small business share of total industry 
receipts for the Sector from about 46 percent under the current size 
standards to nearly 50 percent under the proposed standards.
    The benefits of increasing certain size standards to a more 
appropriate level would accrue to three groups: (1) Businesses that 
benefit by gaining small business status from the higher size standard 
that also use small business assistance programs; (2) growing small 
businesses that may exceed the current size standards in the near 
future and that will retain small business status from the higher size 
standard; and (3) Federal agencies that award contracts under 
procurement programs that require small business status.
    Nearly 90 percent of Federal contracting dollars spent in Sector 72 
during fiscal years 2006-2008 was accounted for by two of five 
industries for which size standards have been proposed to increase. SBA 
estimates that additional firms gaining small business status in those 
two industries under the proposed size standards could potentially 
obtain Federal contracts totaling up to $75 million per year under the 
small business set-aside program, the 8(a), HUBZone, and SDVOSB 
Programs, or unrestricted procurements. This represents about 5.5 
percent of the $1.13 billion in average Federal contracts awarded to 
the Accommodation and Food Services Sector during fiscal years 2006-
2008. The added competition for many of these procurements also would 
likely result in a lower price to the Government for procurements 
reserved for small businesses, but SBA is not able to quantify this 
benefit.
    Under SBA's 7(a) Guaranteed Loan Program and Certified Development 
Company (504) Program, SBA estimates only a few additional loans 
totaling $1 million to $2 million in Federal loan guarantees could be 
made to these newly defined small businesses. Because of the size of 
the loan guarantees, however, most loans are made to small businesses 
well below the size standard. Moreover, under the Recovery Act, 
effective February 17, 2009, SBA is temporarily raising guarantees on 
its SBA's 7(a) loan program and also temporarily eliminating fees for 
borrowers on SBA 7(a) loans and for both borrowers and lenders on 504 
Certified Development Company loans, through calendar year 2009, or 
until the funds are exhausted. The fee elimination is retroactive to 
February 17, 2009, the day the Recovery Act was signed. Furthermore, 
SBA is developing a mechanism for refunding fees paid on loans since 
then. In addition, since SBA has applied its CDC alternative size 
standard to its 7(a) Business Loan Program, more capital is available 
to small businesses. Thus, increasing the size standards will likely 
result in an increase in small business guaranteed loans to businesses 
in these industries, but it would be impractical to try to estimate the 
extent of their number and the total amount loaned.
    The newly defined small businesses would also benefit from SBA's 
Economic Injury Disaster Loan (EIDL) Program. Since this program is 
contingent upon the occurrence and severity of a disaster, no 
meaningful estimate of benefits can be projected for future disasters.
    To the extent that 2,050 additional firms could become active in 
Federal procurement programs, this may entail some additional 
administrative costs to the Federal Government associated with 
additional bidders for Federal small business procurement 
opportunities, additional firms seeking SBA guaranteed lending 
programs, additional firms eligible for enrollment in the Central 
Contractor Registration's Dynamic Small Business Search database, and 
additional firms seeking certification as 8(a) or HUBZone firms or 
qualifying for SDB status. Among businesses in this group seeking SBA 
assistance, there could be some additional costs associated with 
compliance and verification of small business status and protests of 
small business status. These additional costs are likely to be minimal 
because mechanisms are already in place to handle these additional 
administrative requirements.
    The costs to the Federal Government may be higher on some Federal 
contracts. With a greater number of businesses defined as small, 
Federal agencies may choose to set aside more contracts for competition 
among small businesses rather than using full and open competition. The 
movement from unrestricted to set-aside contracting is likely to result 
in competition among fewer bidders. In addition, higher costs may 
result if additional full and open contracts are awarded to HUBZone and 
SDB businesses because of a price evaluation preference. The additional 
costs associated with fewer bidders, however, are likely to be minor 
since, as a matter of law, procurements may be set aside for small 
businesses or reserved for the 8(a) or HUBZone Programs only if awards 
are expected to be made at fair and reasonable prices.
    The proposed size standards may have distributional effects among 
large and small businesses. Although the actual outcome of the gains 
and losses among small and large businesses cannot be estimated with 
certainty, several likely impacts can be identified. There will likely 
be a transfer of some Federal contracts to small businesses from large 
businesses. Large businesses may have fewer Federal contract 
opportunities as Federal agencies decide to set aside more Federal 
contracts for small businesses. Also, some Federal contracts may be 
awarded to HUBZone or SDB concerns instead of large businesses since 
those two categories of small businesses may be eligible for an 
evaluation adjustment for contracts competed on a full and open basis. 
Similarly, currently defined small businesses may obtain fewer Federal 
contracts due to the increased competition from more businesses defined 
as small. This transfer may be offset by a greater number of Federal 
procurements set aside for all small businesses. The number of newly 
defined and expanding small businesses that are willing and able to 
sell to the Federal Government will limit the potential transfer of 
contracts away from large and currently defined small businesses. The 
potential distributional impacts of these transfers may not be 
estimated with any degree of precision because the data on the size of 
business receiving a Federal contract are limited to identifying small 
or other than small businesses, without regard to the exact size of the 
business.
    The proposed revisions to the existing size standards for 
Accommodation and Food Services industries is consistent with SBA's 
statutory mandate to assist small business. This regulatory action 
promotes the Administration's objectives. One of SBA's goals in support 
of the Administration's objectives is to help individual small 
businesses succeed through fair and equitable access to capital and 
credit, Government contracts, and management and technical assistance. 
Reviewing and modifying size standards, when appropriate, ensures that 
intended beneficiaries have access to small business programs designed 
to assist them.

[[Page 53923]]

Executive Order 12988

    For purposes of Executive Order 12988, SBA has determined that this 
rule is drafted, to the extent practicable, in accordance with the 
standards set forth in that Order.

Executive Order 13132

    For purposes of Executive Order 13132, SBA has determined that this 
rule does not have any federalism implications warranting the 
preparation of a federalism assessment.

Paperwork Reduction Act

    For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, 
SBA has determined that this rule would not impose new reporting or 
record keeping requirements, other than those required of SBA.

Initial Regulatory Flexibility Analysis

    Under the Regulatory Flexibility Act (RFA), this rule, if 
finalized, may have a significant impact on a substantial number of 
small entities in Sector 72, Accommodation and Food Services. As 
described above, this rule may affect small entities seeking Federal 
contracts, SBA (7a) and 504 Guaranteed Loan Programs, SBA Economic 
Injury Disaster Loans, and other Federal small business programs.
    Immediately below, SBA sets forth an initial regulatory flexibility 
analysis (IRFA) of this proposed rule addressing the following 
questions: (1) What is the need for and objective of the rule? (2) what 
is SBA's description and estimate of the number of small entities to 
which the rule will apply? (3) what are the projected reporting, record 
keeping, and other compliance requirements of the rule? (4) what are 
the relevant Federal rules which may duplicate, overlap or conflict 
with the rule? and (5) what alternatives will allow the Agency to 
accomplish its regulatory objectives while minimizing the impact on 
small entities?

(1) What is the need for and objective of the rule?

    Most of SBA's size standards for Accommodation and Food Services 
industries have not been reviewed since the early 1980s. Technology, 
productivity growth, international competition, mergers and 
acquisitions, and updated industry definitions may have changed the 
structure of many industries. Such changes can be sufficient to support 
a revision to size standards for some industries. Based an analysis of 
the latest data available to the Agency, SBA believes that the revised 
standards in this proposed rule more appropriately reflect the size of 
businesses in those industries that need Federal assistance.

 (2) What is SBA's description and estimate of the number of small 
entities to which the rule will apply?

    If the proposed rule is adopted in its present form, SBA estimates 
that approximately 2,050 additional firms will become small because of 
increases in size standard in five industries. That represents 1.1 
percent of total firms in those industries. This will result in an 
increase in the small business share of total industry receipts for 
this Sector from about 46 percent under the current size standard to 
nearly 50 percent under the proposed standards.

(3) What are the projected reporting, record keeping, and other 
compliance requirements of the rule and an estimate of the classes of 
small entities which will be subject to the requirements?

    A new size standard does not impose any additional reporting, 
record keeping or compliance requirements on small entities. Revising 
size standards alters the access to SBA programs that assist small 
businesses, but does not impose a regulatory burden as they neither 
regulate nor control business behavior.

(4) What are the relevant Federal rules which may duplicate, overlap or 
conflict with the rule?

    This proposed rule overlaps with other Federal rules that use SBA's 
size standards to define a small business. Under Sec.  3(a)(2)(C) of 
the Small Business Act, 15 U.S.C. 632(a)(2)(c), Federal agencies must 
use SBA's size standards to define a small business, unless 
specifically authorized by statute. In 1995, SBA published in the 
Federal Register a list of statutory and regulatory size standards that 
identified the application of SBA's size standards as well as other 
size standards used by Federal agencies (60 FR 57988-57991, dated 
November 24, 1995). SBA is not aware of any Federal rule that would 
duplicate or conflict with establishing size standards.
    However, the Small Business Act and SBA's regulations allow Federal 
agencies to develop different size standards if they believe that SBA's 
size standards are not appropriate for their programs, with the 
approval of SBA's Administrator (13 CFR 121.903). The Regulatory 
Flexibility Act authorizes an Agency to establish an alternative small 
business definition, after consultation with the Office of Advocacy of 
the U.S. Small Business Administration (5 U.S.C. 601(3). Thus, there 
may be instances where this rule conflicts with other rules.

(5) What alternatives will allow the Agency to accomplish its 
regulatory objectives while minimizing the impact on small entities?

    SBA is required to develop numerical size standards for identifying 
businesses eligible for Federal small business programs. Other than 
varying the size standards, no viable alternative exists to the systems 
of numerical size standards.

List of Subjects in 13 CFR Part 121

    Administrative practice and procedure, Government procurement, 
Government property, Grant programs--business, Individuals with 
disabilities, Loan programs--business, Reporting and recordkeeping 
requirements, Small businesses.
    For the reasons set forth in the preamble, SBA proposes to amend 
part 13 CFR Part 121 as follows.

PART 121--SMALL BUSINESS SIZE REGULATIONS

    1. The authority citation for part 121 continues to read as 
follows:

    Authority:  15 U.S.C. 632, 634(b)(6), 636(b), 637(a), 644, and 
662(5); and Pub. L. 105-135, sec. 401 et seq., 111 Stat. 2592.
    2. Amend the table in Sec.  121.201 by revising all entries under 
Sector 72 to read as follows:


Sec.  121.201  What size standards has SBA identified by North American 
Industry Classification System codes?

* * * * *

[[Page 53924]]



             Small Business Size Standards by NAICS Industry
------------------------------------------------------------------------
                                          Size standards  Size standards
      NAICS codes          NAICS U.S.     in millions of   in number of
                         industry title       dollars        employees
------------------------------------------------------------------------
 
                              * * * * * * *
               Sector 72--Accommodation and Food Services
Subsector 721--Accommodation............................................
721110................  Hotels (except             $30.0  ..............
                         Casino Hotels)
                         and Motels.
721120................  Casino Hotels...            30.0  ..............
721191................  Bed-and-                     7.0  ..............
                         Breakfast Inns.
721199................  All Other                    7.0  ..............
                         Traveler
                         Accommodation.
721211................  RV (Recreational             7.0  ..............
                         Vehicle) Parks
                         and Campgrounds.
721214................  Recreational and             7.0  ..............
                         Vacation Camps
                         (except
                         Campgrounds).
721310................  Rooming and                  7.0  ..............
                         Boarding Houses.
            Subsector 722--Food Services and Drinking Places
722110................  Full[dash]Servic             7.0  ..............
                         e Restaurants.
722211................  Limited[dash]Ser            10.0  ..............
                         vice
                         Restaurants.
722212................  Cafeterias......            25.5  ..............
722213................  Snack and                    7.0  ..............
                         Nonalcoholic
                         Beverage Bars.
722310................  Food Service                35.5  ..............
                         Contractors.
722320................  Caterers........             7.0  ..............
722330................  Mobile Food                  7.0  ..............
                         Services.
722410................  Drinking Places              7.0  ..............
                         (Alcoholic
                         Beverages).
------------------------------------------------------------------------

* * * * *

    Dated: October 9, 2009.
Karen G. Mills,
Administrator.
[FR Doc. E9-25204 Filed 10-20-09; 8:45 am]
BILLING CODE 8025-01-P`