New SBA Size Standards: When Will They Become Final?

Recently, the Small Business Administration (SBA) published a new rule setting size standards for the North American Industry Classification System (NAICS) codes known as NAICS 2012.  See 77 Fed. Reg. 49,991 (Aug. 20, 2012).  The rule, which has an effective date of October 1, 2012, will affect 199 industry codes, most of which are in the manufacturing sector.  Given that Federal solicitations are required to state both the applicable NAICS code and the size standard that has been established by the SBA for that NAICS code so that offerors can correctly represent themselves as “small” business concerns (or as large businesses), the effective date for new size standards is important for both government and industry.  But the SBA’s dilatory rulemaking in this case, plus impending changes to Federal Acquisition Regulation (FAR) Subpart 19, raise questions about when the new SBA size standards will actually take effect.  See 77 Fed. Reg. 56,741 (Sept. 13, 2012).

 

One reason for the uncertainty over the effective date of the new rule arises from the fact that three different government agencies are involved in the process of promulgating and implementing new NAICS codes and corresponding size standards:  (1) the Office of Management & Budget (OMB), which reviews all  NAICS codes for potential revisions every five years; (2) the SBA, which sets the size standards for each of the OMB-designated NAICS codes on an industry-by-industry basis; and (3) the FAR Council, which amends the FAR to incorporate changes to NAICS codes and size standards.  As the FAR Council recently pointed out, however, the process used by OMB for developing new NAICS codes and the process used by SBA to approve size standards for new NAICS codes “are not performed simultaneously.”  77 Fed. Reg. at 56,741.

 

In this case, the SBA has unduly exacerbated the uncertainty over the effective date of the new size standards.  To begin with, OMB published NAICS 2012 in August 2011, see 76 Fed. Reg. 51,240 (Aug. 17, 2011), and it should not have taken a full year for the SBA to establish corresponding size standards.  Then, largely because it failed to issue a proposed rule in time to allow public comments, the SBA issued the new size standards as an “interim final rule with request for comments.”  77 Fed. Reg. at 49,991.  Moreover, it set October 19 — i.e., nearly three weeks after the effective date of the rule — as the deadline for the comments, and then stated:  “If SBA adopts NAICS 2012 for its table of size standards either as outlined in this rule or with modifications, it will issue a final rule.”   77 Fed. Reg. at 50,005 (emphasis added).  Although it is not that unusual for an agency to issue an interim rule with request for comments, it is rare for an agency to then state that it will issue a final rule “if” it adopts the underlying raison d’être for the rulemaking in the first place.  Even worse, the rule is contradictory:  it states at one point that “SBA is adopting the latest modifications into its table of small business size standards,” 77 Fed. Reg. at 49,991, but then makes the conditional statement (“If SBA adopts NAICS 2012 for its table of size standards”) quoted above.

 

To make matters even more uncertain for both contracting officers and potential contractors, the FAR Council has now amended the FAR to provide that new NAICS codes “are not available for use in Federal contracting until the Small Business Administration publishes corresponding industry size standards (see 19.102(a)(1)).”  77 Fed. Reg. 56,741, 56,742 (to be codified at FAR 19.102(a)(2)) (emphasis added).  Why does that make things “more uncertain”?  Because FAR 19.102(a)(2), which will become effective October 15, states that applicable small business size standards “are published by the Small Business Administration and are available at http://www.sba.gov/content/table-small-business-size-standards.”  Id. at 56,742 (italics in original; emphasis added).  While it is theoretically possible that the SBA will “publish” the new size standards at that URL by October 15, there is good reason for skepticism.  After all, it took the SBA a year to issue the new rule after OMB issued NAICS 2012.  In addition, the SBA website is very uneven, and often unreliable.  Indeed, although the URL leads to a page titled “Table of Small Business Size Standards” on the SBA website, the page states, inter alia:  “For more information on these size standards, please visit http://www.sba.gov/size.”  But that page does not exist.  See http://www.sba.gov/size (last visited Sept. 19, 2012).

In short, the FAR Council has taken a great leap of faith that the SBA will “publish” the new size standards at http://www.sba.gov/content/table-small-business-size-standards by October 15, 2012.

 

ADDENDUM

 

Since the foregoing blog was posted in mid-September 2012, the SBA promulgated three new Federal Register notices concerning changes to the size standards for certain NAICS codes.  Specifically, the SBA increased the size standards for (a) nine industries in NAICS Sector 61, Educational Services, see 77 Fed. Reg. 58,739 (Sept. 24, 2012); (b) 21 industries and one sub-industry in NAICS Sector 53, Real Estate and Rental and Leasing, see 77 Fed. Reg. 58,747 (Sept. 24, 2012); and (3) 28 industries in NAICS Sector 62, Health Care and Social Assistance.  See 77 Fed. Reg. 58,755 (Sept. 24, 2012).  Besides the fact  that each of these three notices covers different NAICS code Sectors from the August 20, 2012 Federal Register notice, the three new notices also differ from the earlier notice in two significant respects:  (1) the three new notices are final, not interim, rules; and (2) the three new rules all will become effective on October 24, 2012, instead of October 1, 2012.  Unfortunately, none of the three makes any mention of  publication at the URL that will trigger their applicability to Federal procurements — http://www.sba.gov/content/table-small-business-size-standards — by their “effective date” of October 24, 2012.  Accordingly, whether the SBA will actually publish them on the URL and comply with the new FAR 19.102(a)(2) any time soon remains to be seen.  Stay tuned.

 

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