Size Standards Analysis: Size Standards Analysis: SBA Methodology SBA Methodology

Presented to:

The Council on Federal Procurement of Architectural & Engineering Services

(COFPAES)

By: Khem R. Sharma

SBA Office of Size Standards

December 15, 2009

Size Standards Analysis:Size Standards Analysis:General ApproachGeneral Approach

Assess industry characteristics & structure

Examine Federal contracting trends

Evaluate impacts on Federal small business assistance programs

Ensure supportability & consistency

An Overview of Size Standards MethodologyAn Overview of Size Standards Methodology

Legislative definitions/requirements (15 U.S.C. § 632)• Independently owned & operated• Not dominant in field of operation• U.S. based – make significant contributions to the economy• “Smallness” shall vary by industry to reflect differing industry characteristics

Primary factors1. Industry structure 1.1. Average firm size 1.2. Average assets size 1.3. Industry concentration 1.4. Size distribution of firms2. Federal procurement - small business share in federal contracts

Proposed size standards

Secondary factors1.Technological change2. Competing products from other industries3. Industry growth trends4. History of activity in the industry5. Impacts on SBA programs

Weighting method

Public input• Input from industry groups• Public comments on proposed rule• Input from other Federal agencies

Industry structure and Federal procurement trends

Adjustment of monetary size standards for inflation

Final size standards

What Triggers A Size Standards What Triggers A Size Standards Review?Review?

Changes in industry structure

Inflation

Changes in the industry classification system

Changes in Federal contracting market place and other small business assistance programs

Requests from industry groups and other Federal agencies

Economic events and disasters

Industry AnalysisIndustry Analysis

Average firm sizeReceipts

Number of employees

Average assets size (startup costs)

Industry concentration4-firm concentration ratio

Distribution of firms’ market share by sizeGini coefficient

Program Considerations and Other Factors

Federal contracting programs

Small business share of total Federal contracting dollars

Small business share of total industry’s receipts

SBA loan programs (secondary factor)

Technological change (secondary)

Industry growth trends (secondary)

Historical experience in the industry (secondary)

Development of Size Standards: Industry Development of Size Standards: Industry AnalysisAnalysis

Establish comparison industry groups

Establish a set of fixed size standard levels

Compare characteristics of each industry with those of the anchor size group

Establish a separate size standard for each characteristic If specific industry’s characteristics are similar to those of the

anchor group, the anchor standard is adopted

Significant differences from the anchor group would support a size standard above or below the anchor size standard

Comparison GroupsComparison Groups

Receipts-based size standards: I. Anchor group Industries with $7 million size standard

II. Higher-level size standard group Industries with size standards of $23 million or higher (group average $29 million)

Employee-based Size Standards:

I. Anchor Group Industries with 500-employee Size Standard

(100 employees for wholesale industries)

II. Higher-level size standards group Industries with size standards of 1,000

employees

Comparison Groups Contd. Comparison Groups Contd.

Receipts-based Size Standards Receipts-based Size Standards (8 fixed levels) (8 fixed levels)

$5.0 million $7.0 million (anchor size)$10.0 million$14.0 million$19.0 million$25.5 million$30.0 million$35.5 million

Employee-based Size Standards Employee-based Size Standards (8 fixed levels) (8 fixed levels)

50 employees

100 employees (anchor size for Wholesale Trade)

150 employees

200 employees

250 employees

500 employees (anchor size for Manufacturing)

750 employees

1,000 employees

Example: Size Standard Based on Average Firm Size

$1.15

$4.95

$3.00

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

Millions

Anchor Industries Higher Level Group Industry

Industry Data About 50% Between Anchor & Higher Level Group

$7.0

$29.0

$17.71

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

Millions

Anchor Industries Higher Level Group Industry

Size Standard About 50% Between Anchor & Higher Level Group

Example – Contd. Example – Contd. Size Standard Based on Average Firm Size Size Standard Based on Average Firm Size

Development of Size Standard: Analysis Development of Size Standard: Analysis of Federal Contracting Dataof Federal Contracting Data

Review industries with ≥ $100 million in Federal contracts annually

Compare small business share of Federal contract dollars to small business share of industry’s total sales

If Federal procurement small business share is significantly less than industry’s small business share, apply a fixed size standard above current size standard, as follows: 10% to 30% discrepancy, one fixed size standard level > 30% discrepancy, two fixed size standard levels

Average Size Standard - ExampleAverage Size Standard - Example

Factor Value

Average firm size $19 million

(Rounded from $17.71 million)

Average assets size $10.0 million

Industry concentration $35.5 million

Size distribution $35.5 million

Federal contracting $25.5 million

Average of factors $25.5 million

(Rounded from $25.1 million)

Steps in Size Standards AnalysisSteps in Size Standards Analysis1. Compare specific industry with comparison group

averages

2. Estimate size standard for each industry and Federal procurement factor

3. Round estimated size standard to a fixed size standard level

4. Calculate average size standard from all factors

5. Select size standard

6. Prepare proposed rule and seek public comments

7. Evaluate public comments and prepare final rule

ChallengesChallenges Lack of documentation of a detailed analysis for

historical development of some size standards

Lack of up-to-date data on industry structure, especially at a sub-industry level (e.g., exceptions under NAICS 541330, or separating surveying and mapping services)

Economic Census (industry data)- 4 to 5 years old Risk Management Association (average assets data) – some

industries are not covered

FPDS (Federal procurement data) – lacks specific size of individual contractors

Rule making process

NAICS Title

44-45 Retail Trade (completed and proposed rule issued)

72 Accommodations & Food Services (completed and proposed rule issued)

81 Other Services (completed and proposed rule issued)

54 Professional, Scientific & Technical Services

48 Transportation & Warehousing

22 Utilities

56Administrative & Support and Waste Management & Remediation

Services

11 Agriculture, Forestry, Fishing & Hunting

52 Finance & Investment

61 Educational Services

21 Mining

2323 Construction Construction

33 Manufacturing

42 Wholesale Trade

55 Management of Companies

62 Health Care & Social Assistance

51 Information

71 Arts, Entertainment & Recreation

53 Real Estate and Rental & Leasing

Comprehensive Size Review Schedule (tentative)Comprehensive Size Review Schedule (tentative)

Our Contact InformationOur Contact Information

MailSmall Business

AdministrationOffice of Size Standards409 3rd Street, SW., 8th

FloorWashington, DC 20416

Email: sizestandards@sba.gov

Telephone: 202-205-6618Website: http://www.sba.gov/size