Size Standards: Round Two SBA is asking for a new round of public comments on its plan to restructure and simplify size standards. An advance notice of proposed rulemaking in the Dec. 3 Federal Register states, “SBA remains committed to modifying its size standards in a manner to make them simpler and easier to use.” SBA issued a proposed rule to overhaul the standards March 19, but withdrew it July 1 in the face of widespread protests. This time, the agency is seeking comments before proposing a rule. SBA said it also plans a series of public meetings to discuss the issues; dates and places will be announced early next year “We are reaching out to engage our stakeholders in the process,” said Allegra McCullough, SBA associate deputy administrator for government contracting and business development. ”We believe a number of areas concerning size standards need to be examined and input from the small business community will greatly assist us in formulating meaningful and relevant changes.” After analyzing the comments, SBA will issue a proposed rule and invite another round of comments before the rule is made final. The March proposal would have based most standards on a company’s employment rather than its revenues. But it would have required companies in 31 industries, including construction and many services, to stay below a receipts cap as well as an employment cap to be eligible for federal small-business programs. (SAA, 4/2, 7/9) SBA said comments on the March proposal raised a wide range of objections. Some of the comments questioned SBA’s methodology for converting dollar-based size standards to employee-based standards. In its new notice, the agency did not say how it plans to address those concerns, but it did not ask for any further comment on the issue, either. The new notice invites comments on 10 issues, including some of the most contentious ones raised in its original proposal: Calculation of number of employees. The March proposal would have counted all employees equally, whether they were full-time, part-time or temporary. Several comments on the proposal recommended calculating a company’s employment on a full-time equivalent basis. “SBA seeks comments on alternative methods of calculating the employment size of a business concern and, in particular, the feasibility of using FTEs,” the notice says. The March proposal would have required a company to calculate its average employment over the previous 12 months to determine whether it qualified as small. SBA invites comments on whether average employment should be based on a longer period or on a fixed period such as a calendar year. It said any proposed method of calculating average employment should address the administrative burden it would place on companies. Use of receipts-based size standards. SBA indicated it will consider scrapping the idea of employment-based standards and continuing to use receipts as the criterion in most industries. Some comments on the March proposal argued that basing size standards on employment would discourage companies from hiring new workers and encourage them to use more independent contractors and subcontractors. “For what industries are receipts-based size standards more appropriate than employee-based size standards, and in what ways are they more appropriate?” the notice asks. “Comments on this issue should address if having one measure of size for some industries and a different measure for other industries creates an unnecessary complication to size standards.” Designation of size standards for federal procurements. Some comments said current size standards create complications for businesses that operate in more than one NAICS code; they may be considered small for some procurements and large in others. SBA is asking for comments on whether the process for applying size standards to federal procurement should be changed, and, if so, how. Establishment of size standards solely for federal procurement. Some comments advocated separate size standards for federal procurement, larger than those for other SBA programs, such as loans. These commenters contended that the growing size and complexity of federal contracts means a company may outgrow its size standard if it wins one or two awards. Before 1984 SBA had a separate set of standards for procurement. The agency is inviting comments on whether it should return to that policy, but SBA officials have said in the past that they did not intend to increase size standards. Establishment of tiered size standards. A number of comments suggested that two levels of size standards are needed, with the lower dollar-value procurements reserved for very small businesses. Legislation would be needed to create tiered standards, but SBA invited comments on the issue. Simplification of small business status and affiliation with other businesses. The notice invites comments on ways to clarify affiliation regulations, but it adds, “SBA is not considering altering its principles of affiliation.” Current regulations generally consider companies to be affiliated when one business controls or has the power to control the other, or a third party (or parties) controls or has the power to control both. Joint ventures and small business eligibility. The notice seeks comments on whether SBA regulations covering joint ventures should be liberalized, such as by allowing a small business joint venture to continue for longer than the current two-year limit. Grandfathering of currently eligible small businesses. SBA asks for comments on how to structure a grandfather clause so that small firms will not suddenly find themselves classified as large under the new standards. SBA estimated that its March proposal would have caused 34,000 firms to lose small-business status. The agency said it expects any new rule “will have significantly less impact” on eligibility. Impact of SBA size standards on the regulations of other federal agencies. Many regulations and programs in other agencies rely on SBA’s standards. The agency asked for help in identifying those programs and in assessing the impact of new standards on them. Participation of businesses majority-owned by venture capital companies in the SBIR program. The notice requests comments on whether it should allow small companies to be eligible for Small Business Innovation Research contracts even if they are majority-owned by a venture capital firm that is not a small business. SBA said its March proposal would have reduced the number of different size standards from 37 to 10, covering 1,151 industries. In issuing that proposed rule, 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. Many comments questioned the methodology, because it included both large and small businesses in its analysis and used the Census Bureau’s 1997 business census. More recent figures were not yet available. SBA said it received more than 4,500 comments on its March proposed rule, but about half of them were form letters generated by an organization that favored one particular portion of the rule. Of the other comments, the majority opposed the new size standards. The notice is available at www.sba.gov/size/anprm.html. Comments may be sent to restructure.sizestandards@sba.gov. Put the identifier RIN 3245-ZA02 in the subject line. The deadline is Feb. 1.