Size Standards Analysis:
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:
General 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 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
Adjustment of monetary size
standards for inflation
Industry structure and Federal
procurement trends
Primary factors
1. Industry structure
1.1. Average firm size
1.2. Average assets size
1.3. Industry concentration
1.4. Size distribution of firms
2. Federal procurement - small business
share in federal contracts
Secondary factors
1.Technological change
2. Competing products from other
industries
3. Industry growth trends
4. History of activity in the industry
5. Impacts on SBA programs
Weighting method
Proposed size standards
Final size standards
Public input
• Input from industry groups
• Public comments on proposed rule
• Input from other Federal agencies
What Triggers A Size Standards
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 Analysis
Average firm size
 Receipts
 Number of employees
Average assets size (startup costs)
Industry concentration
 4-firm concentration ratio
Distribution of firms’ market share by size
 Gini 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
Analysis
 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 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)
Comparison Groups Contd.
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
Receipts-based Size Standards
(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
(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
$6.0
$4.95
$5.0
$4.0
$3.00
Millions $3.0
$2.0
$1.15
$1.0
Industry
Data About
50%
Between
Anchor &
Higher
Level
Group
$0.0
Anchor Industries
Higher Level Group
Industry
Example – Contd.
Size Standard Based on Average Firm Size
$29.0
$30.0
$25.0
$20.0
$17.71
Millions $15.0
$10.0
Size
Standard
About 50%
Between
Anchor &
Higher Level
Group
$7.0
$5.0
$0.0
Anchor Industries
Higher Level Group
Industry
Development of Size Standard: Analysis
of 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 - Example
Factor
Value
Average firm size
$19 million
(Rounded from $17.71 million)
$10.0 million
Average assets size
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 Analysis
1. 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
Challenges
 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
Comprehensive Size Review Schedule (tentative)
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
56
Administrative & Support and Waste Management & Remediation Services
11
Agriculture, Forestry, Fishing & Hunting
52
Finance & Investment
61
Educational Services
21
Mining
23
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
Our Contact Information
Mail
Small Business Administration
Office of Size Standards
409 3rd Street, SW., 8th Floor
Washington, DC 20416
Email:
Telephone:
Website:
[email protected]
202-205-6618
http://www.sba.gov/size