SBA Proposes New Size Standards Many services contractors and construction companies would face limits on both employment and revenue in order to be eligible for federal small business programs under SBA’s proposed new size standards. As previously reported, the new standards would be based on the number of employees rather than a company’s receipts, with limits ranging from 50 employees to 1,500, depending on the industry. But SBA proposes ceilings on receipts as well as employment in 31 industries, including NAICS codes covering construction and many services; to be classified as small, a company would have to stay below both the employment and receipts limits. In most building construction categories, the caps are 150 employees and $35 million in receipts. For information technology services, limits are 150 employees and $30 million. For most administrative, management and consulting services, limits are 50 employees and $10 million. (For a list of industries, see separate story.) “The purpose of the receipts cap is to prevent businesses from creatively manipulating their employment levels to remain small,” SBA said in its announcement, published in the March 19 Federal Register. It cited the construction industry as an example; a contractor could stay under the employment ceiling by subcontracting more work. SBA said it set the receipts caps generously high and believes most companies that are small under current standards will be eligible under the proposed ones. The most common dollar-based standard under current rules is $6 million; the proposed standards would set a $7 million receipts cap for architectural and engineering services, but all other caps would be $10 million or more. Standards would not change for industries that are currently measured by employment, primarily manufacturing and mining, with one exception: SBA proposes to reduce the nonmanufacturer size standard from 500 employees to 100. The agency said substantially all nonmanufacturers are wholesalers (NAICS sector 42). It found that 97% of all wholesalers have fewer than 100 employees. SBA said it assigned identical size standards to companies in closely related NAICS codes to eliminate situations where a company was considered small in one of its lines of business and large in another. The proposed rule would reduce the number of different size standards from 37 to 10, covering 1,151 industries. “Small business owners have told us that the current system is overly complex and difficult for the owners to understand,” SBA Administrator Hector Barreto said. SBA estimated that 35,200 businesses would gain eligibility as small and 34,100 would lose their eligibility, for a net gain of 1,110 additional businesses defined as small. The impact on companies will vary from industry to industry. “There are some losers here,” said Angela Styles, former administrator of the Office of Federal Procurement Policy and now a Washington lawyer. She participated in discussions on the new standards before leaving government in September. “In theory, it’s a great idea to simplify things,” she told Set-Aside Alert. “But you also have to be very cautious, especially this (election) year.” Several small business advocates said in interviews that they have heard little or no complaint about the standards so far. SBA said it converted current dollar-based size standards to employment-based standards by using U.S. Census figures to calculate the average receipts per employee in each industry. The definition of “employee” includes part-time and temporary workers. The Defense Department spearheaded the change to employment-based standards, saying its contracts are so large that a company can outgrow the current revenue standards by winning a single award. Frank Ramos, DOD’s director of small and disadvantaged business utilization, has said this hurts the department’s ability to plan, since a company that is small today may be considered large if it wins a contract tomorrow. The rule is FR Doc 04-5049 in the March 19 Federal Register. Comments are due May 18. Comments may be sent to restructure.sizestandards@sba.gov.