[Federal Register Volume 64, Number 142 (Monday, July 26, 1999)]
[Proposed Rules]
[Pages 40314-40319]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19022]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
Small Business Size Standards; Arrangement of Transportation of
Freight and Cargo
AGENCY: Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The Small Business Administration (SBA) proposes to modify the
way average annual receipts are calculated for firms in the Arrangement
of Transportation of Freight and Cargo industry (Standard Industrial
Classification (SIC) code 4731). This rule would exclude funds received
in trust for unaffiliated third parties from calculation of a firm's
receipts. The current size standard for this industry, $18.5 million,
is based on gross billings and is equivalent to a firm size of $1.85
million in income from commissions and fees. SBA also proposes a size
standard of $5 million in average annual receipts (after excluding
funds received in trust for unaffiliated third parties). The revisions
are proposed to better define the size of business in this industry
that SBA believes should be eligible for Federal small business
assistance programs.
DATES: Submit comments on or before September 24, 1999.
ADDRESSES: Send comments to Gary M. Jackson, Assistant Administrator
for Size Standards, 409 3rd Street, S.W., Mail Code 6880, Washington
D.C. 20416.
FOR FURTHER INFORMATION CONTACT: Patricia B. Holden, Office of Size
Standards, (202) 205-6618 or (202) 205-6385.
SUPPLEMENTARY INFORMATION: SBA received requests from the public to
review the size standard for the Arrangement of Transportation of
Freight and Cargo industry (SIC 4731). These requests express concern
about the way average annual receipts are calculated for freight
forwarders and customs brokers in this industry.
Under SBA's Small Business Size Regulations (13 CFR 121.104), the
size of a firm for a receipts-based size standard is based on
information reported on a firm's Federal tax returns. Generally,
receipts reported to the Internal Revenue Service (IRS) include a
firm's gross receipts or sales from provision of goods or services. The
requesters believe that receipts collected for payment of charges
imposed by the actual transportation provider or shipper should not be
included in the calculation of a freight forwarder and customs broker's
average annual receipts for size determination purposes.
SBA evaluated this issue and agrees that certain types of receipts
should be excluded from the calculation of size for firms in this
industry. Related to this issue is whether the current size standard is
appropriate if a significant proportion of receipts is excluded from a
firm's gross receipts. In reviewing the size standard for this
industry, SBA believes the current $18.5 million size standard is not
appropriate if size is not measured by gross receipts.
Accordingly, SBA proposes a revision to the size standard for the
Arrangement of Transportation of Freight and Cargo industry by
excluding funds received in trust for unaffiliated third parties and by
changing the size standard from $18.5 million in average annual
receipts (gross receipts) to $5 million (excluding funds received in
trust for unaffiliated third parties). The following discussion
explains the reasons for these two proposed revisions.
Calculation of Average Annual Receipts
Although SBA reviews requests to exclude receipts of certain
business activities on a case-by-case basis, the structure of the
reviews is consistent with past proposed rules on this issue (e.g.,
advertising agencies, 57 FR 38452, and conference management planners,
60 FR 57982). The reviews identify and evaluate five industry
characteristics under which it might be appropriate to exclude certain
funds received and later transmitted to an unaffiliated third party:
1. A broker or agent-like relationship exists between a firm and a
third party provider which is a dominant or crucial activity of firms
in the industry;
2. The pass-through funds associated with the broker or agent-like
relationship are a significant portion of the firm's total receipts;
3. Consistent with the normal business practice of firms in the
industry, a firm's income remaining after the pass-through funds are
remitted to a third party is typically derived from a standard
commission or fee;
4. Firms in this industry do not usually consider billings that are
reimbursed to other firms as their own income, preferring instead to
count only
[[Page 40315]]
receipts that are retained for their own use; and,
5. Federal government agencies which engage in the collection of
statistics and other industry analysts typically represent receipts of
the industry firms on an adjusted receipts basis.
SBA's review of information obtained on the Arrangement of
Transportation of Freight and Cargo industry finds that these
characteristics exist in the industry. These characteristics support
the proposal to exclude funds received in trust for unaffiliated third
parties from the calculation of a freight forwarder's or customs
broker's receipts-size. The following discussion summarizes these
findings.
1. Agent-Like Relationship
The Standard Industrial Classification Manual (1987) states that
this industry encompasses ``establishments primarily engaged in
furnishing shipping information and acting as agents in arranging
transportation for freight and cargo'' (See SIC 4731, page 280). About
half of the establishments in this industry are freight forwarders and
customs brokers who advise customers on the options for transporting
cargo and coordinate the actual shipment of cargo. These firms act as
agents, ensuring that customs, shippers and others for whom the funds
are collected get paid. The remaining establishments are other types of
agents and brokers and establishments that provide shipping
information. Therefore, the dominant activity in this industry is
carried out in a broker or agent-like relationship.
2. Pass-Through Funds Are a Significant Portion of Total Receipts
It is common practice in the industry, although not mandatory, for
the client's bill from the freight forwarder and customs broker to
include charges of transportation providers, duties, etc., which are
temporarily held in trust by the firm for remittance to the
transportation provider, government agency, or other parties. The
charges by other providers are stated on the bill. Moreover, these
remitted funds are typically much larger in magnitude than the firm's
own earnings for arranging the transportation. It is not unusual for
the remitted funds to be over 90% of the total billing.
3. Remaining Income Is Derived From Standard Commission or Fee
The freight forwarder or customs broker earns income as a
commission from the transportation provider or as a fee for services
from their customers. Only six percent to ten percent of the billings
are income from commissions and fees.
4. Firms in This Industry Only Count Receipts Retained for Their Own
Use
Firms in this industry do not consider funds collected for
unaffiliated third parties as their own funds. As discussed above, the
role of freight forwarders and customs brokers is to facilitate the
transportation of goods, not to act as the actual shipper. Their income
is largely derived from commissions and fees provided by the underlying
transporter from the payment of shipping charges paid on behalf of the
customer. This payment structure shows that charges for shipping costs
are not those of the freight forwarder or customs broker. This point is
also reinforced by the fifth and final characteristic.
5. Federal Agencies and Industry Analysts Typically Represent Receipts
of These Firms on an Adjusted Receipts Basis
Finally, data from the U.S. Bureau of the Census (Census Bureau) on
this industry that SBA uses to evaluate size standards show firm
receipts on a commission or fee basis. The survey form used by the
Census Bureau (UT 4700) when surveying freight forwarders, customs
brokers, shipping agents, and other freight brokers or arrangers
specifically instructs them to only report ``Agency or brokerage
commissions or fees for arranging transportation of freight and cargo''
and ``Freight Forwarding (net)'' (UT 4700, Page 2, items 1 and 2).
Thus, the Census Bureau recognizes that the normal arrangement in
this industry is to handle money for others, retaining a small fraction
as commission or fee income. Similarly, the credit reporting firm of
Dun and Bradstreet also reports receipts for firms in this industry by
using income derived from commission and fees, not gross billings.
Based on these findings, SBA believes it is appropriate to exclude
amounts collected on behalf of a third party when calculating receipts
for firms in the Arrangement of Transportation of Freight and Cargo
industry, as it presently does for real estate agencies, travel
agencies, conference planners and advertising agencies. More
specifically, charges by the shipper for transporting cargo, customs
duties, and other direct fees associated with the cost of shipping
cargo which the firm holds in trust for an unaffiliated third party and
to which it does not have a claim of right would be excluded from gross
receipts. Receipts from fees, commissions, and income derived from
other activities would be attributable to the firm.
Size Standard for the Arrangement of Transportation of Freight and
Cargo
The above proposal effectively increases the current $18.5 million
size standard. A firm with receipts exclusive of pass-throughs to third
parties of $18.5 million would be equivalent to a firm with gross
billings between $185 million to $308 million.
Accordingly, SBA believes it is appropriate to re-evaluate the size
standard along with its proposal to allow exclusions for certain types
of pass-through funds. Based on that evaluation, SBA proposes a $5
million size standard for this industry--net of pass-through funds. The
following discussion describes SBA's size standards methodology and the
evaluation of data on the Arrangement of Transportation of Freight and
Cargo industry supporting a revision to the current size standard.
Size Standards Methodology
Congress granted SBA discretion to establish detailed size
standards. SBA's Standard Operating Procedure (SOP) 90 01 3 ``Size
Determination Program'' sets out four categories for establishing and
evaluating size standards:
(1) The structure of the industry and its various economic
characteristics.
(2) SBA program objectives and the impact of different size
standards on these programs.
(3) Whether a size standard successfully excludes those businesses
which are dominant in the industry, and
(4) Other factors, if applicable.
Other factors may come to SBA's attention during the public comment
period or from SBA's own research on the industry. The reason SBA has
not adopted a general formula or uniform weighting system is to ensure
that the factors will be evaluated in context of a specific industry.
Below is a discussion of SBA's analysis of the economic characteristics
of an industry, the impact of a size standard on SBA programs, and the
evaluation of whether a firm at or below a size standard could be
considered dominant in the industry.
Industry Analysis
In 13 CFR part 121.102 (a) and (b), evaluation factors are listed
which are the primary factors describing the structural characteristics
of an industry--average firm size, distribution of firms by size,
start-up costs and entry barriers, and degree of industry competition.
While these evaluation factors are generally considered the most
important indicators of industry structure, SBA will consider and
evaluate all relevant information that
[[Page 40316]]
would assist it in assessing an industry's size standard. Below is a
brief description of the industry structure evaluation factors.
1. Average firm size is simply total industry revenues (or number
of employees) divided by the total number of firms. If an industry has
an average firm size significantly higher than the average firm size of
a group of comparative industries (in this case, industries with the
anchor size standard of $5 million in receipts), this fact may support
establishing a higher size standard than the one in effect for the
group of related industries. Conversely, data showing an industry with
a significantly lower average firm size relative to the related group
of industries tends to support a lower size standard.
2. The distribution of firms by size examines the proportion of
industry sales, employment, or other economic activity accounted for by
firms of different sizes within an industry. If the preponderance of an
industry's output is by large firms, this would tend to support a
higher size standard than the anchor. The opposite is true for an
industry in which the distribution of firms by size indicates that
output is concentrated among the smaller firms in an industry.
3. Start-up costs affect a firm's initial size because entrants
into an industry must have sufficient capital to start a viable
business. To the extent that firms in an industry have greater start-up
capital requirements than firms in other industries, SBA is justified
in considering a higher size standard. As a proxy measure for start-up
costs, SBA examines the average level of assets for firms in an
industry. An industry with a relatively high level of average assets
per firm as compared with the average assets per firm of the group of
comparative industries with a $5.0 million size standard is likely to
be a capital intensive industry in which start-up costs tend to be
higher for firms entering the industry. For those types of industries,
that circumstance may support the need for a relatively higher size
standard than the anchor size standard.
4. SBA assesses the degree of industry competition by measuring the
proportion or share of industry sales obtained by firms above a
relatively large firm size. In this proposed rule, SBA analyzes the
proportion of industry sales generated by the four largest firms in an
industry--generally referred to as the ``four-firm concentration
ratio.'' If a significant proportion of revenue from sales within an
industry is concentrated among a few relatively large producers, SBA
tends to set a higher size standard to assist a broader range of firms
to compete with firms that are clearly dominant in the industry. If
this factor shows the industry to be highly competitive, SBA tends to
apply the anchor.
5. Competition for Federal procurements and SBA financial
assistance. SBA also evaluates the impact of a size standard on its
programs and other applications of size standards to determine whether
small businesses defined under the existing size standard are receiving
a reasonable level of assistance. This assessment mainly focuses on the
proportion or share of Federal contract dollars awarded to small
businesses. In general, the lower the share of Federal contract dollars
awarded to small businesses in an industry which receives significant
Federal procurement revenues, the greater is the justification for a
size standard higher than the existing one.
As another factor to evaluate the impact of a proposed size
standard on SBA programs, the volume of guaranteed loans within an
industry and the size of firms in that industry obtaining loans in
SBA's financial assistance programs is considered when determining
whether or not the current size standard may inappropriately restrict
the level of financial assistance to firms in that industry. If small
businesses receive ample assistance through these programs, a change to
the size standard (especially if it is already above the anchor size)
may not be appropriate.
SBA established a size standard of 500 employees for the
manufacturing and mining industries at SBA's inception in 1953 and
shortly thereafter established a $1 million size standard for the
nonmanufacturing industries. These two size standards are generally
referred to as ``a base or anchor size standards.'' The revenue-based
size standards were adjusted for inflation so that, currently, the
anchor size for the nonmanufacturing industries is $5 million.
If the structural characteristics of an industry are significantly
different from the average characteristics of industries with the
anchor size standard, a size standard higher or, in rare cases, lower
than the anchor size standard may be supportable. Only when all or most
of the industry data are significantly smaller than the average
characteristics of the anchor group industries, or other industry
considerations suggest the anchor standard is an unreasonably high size
standard, will SBA adopt a size standard below the anchor size
standard.
Excluding agriculture and subsistence categories which for the most
part have size standards established by statute, only seven industries
in the revenue-based size standards are below the $5.0 million anchor
and none in the manufacturing or mining industries is below the 500
employee-based size standards.
For the Arrangement of Transportation of Freight and Cargo industry
under review in this proposed rule, SBA begins by comparing the
characteristics of the five evaluation factors for this industry to the
average characteristics of the nonmanufacturing industries which have
the anchor size standard of $5 million (hereafter referred to as the
nonmanufacturing anchor group). If the characteristics of the industry
are similar to the average characteristics of the nonmanufacturing
anchor group, then the anchor size standard of $5 million is considered
an appropriate size standard for that industry. If, however, the
industry characteristics significantly differ from the average
characteristics of the nonmanufacturing anchor group, then a size
standard above or below $5 million may be appropriate.
Evaluation of Industry Size Standard
SBA analyzed the size standard for the Arrangement of
Transportation of Freight and Cargo industry by comparing the
industry's characteristics with the average characteristics of the
nonmanufacturing group discussed above. SBA examined economic data on
the industry using:
A special tabulation of the 1992 Economic Census prepared
on contract by the U.S. Bureau of the Census (which for the Arrangement
of Transportation of Freight and Cargo industry collects revenue data
based on commissions and fees, not gross billings);
Asset data from Dun and Bradstreet's 1998 Industry Norms
and Key Business Ratios (revenue data are also reported based on
commissions and fees); and
Federal contract award data for fiscal years 1997 and 1998
from the U.S. General Services Administration's Federal Procurement
Data Center.
7(a) Business Loans from SBA's database.
The table below shows the characteristics for the Arrangement of
Transportation of Freight and Cargo industry compared to the average
characteristics for the nonmanufacturing anchor group. A review of
these factors leads to a proposed size standard of $5 million for this
industry.
[[Page 40317]]
Industry Characteristics of SIC 4731 Compared to the Nonmanufacturing Anchor Group
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Percent of industry-sales by firms of Percent of
--------------------------------------- Average gov't
Average assets per Four-firm procurement
Category firm size firm ($ concentration dollars to
($ mil.) <$5mil.><$10mil.><$25mil. mil.)="" ration="" small="" business="" --------------------------------------------------------------------------------------------------------------------------------------------------------="" nonmanufacturing="" anchor="" group..............................="" $0.85="" 51.0="" 61.0="" 67.0="" $0.5="" 15.0="" 21.0="" arrangement="" of="" transportation="" of="" freight="" &="" cargo...........="" 0.94="" 52.5="" 61.8="" 70.9="" 0.2="" 5.7="" 50.1="" --------------------------------------------------------------------------------------------------------------------------------------------------------="" the="" average="" firm="" size="" in="" the="" arrangement="" of="" transportation="" of="" freight="" and="" cargo="" industry="" is="" very="" close="" to="" the="" average="" firm="" size="" of="" the="" nonmanufacturing="" anchor="" group,="" and="" supports="" a="" size="" standard="" at="" the="" $5="" million="" anchor="" size="" standard.="" similarly,="" the="" distribution="" of="" sales="" by="" firm="" size="" also="" supports="" a="" size="" standard="" for="" this="" industry="" at="" the="" anchor="" size="" standard.="" under="" this="" factor,="" the="" proportion="" of="" industry="" sales="" obtained="" by="" firms="" of="" $5="" million="" and="" less="" in="" sales,="" $10="" million="" and="" less="" in="" sales,="" and="" $25="" million="" and="" less="" in="" sales,="" is="" nearly="" identical="" with="" that="" of="" firms="" of="" the="" same="" size="" class="" found="" for="" the="" anchor="" nonmanufacturing="" group.="" the="" average="" assets="" per="" firm="" and="" the="" four-firm="" concentration="" ratio="" support="" a="" size="" standard="" no="" higher="" than="" $5="" million.="" the="" average="" assets="" for="" firms="" in="" the="" arrangement="" of="" transportation="" of="" freight="" and="" cargo="" industry="" is="" less="" than="" half="" the="" average="" assets="" of="" the="" comparable="" nonmanufacturing="" industries="" in="" the="" anchor="" group.="" this="" factor="" indicates="" that="" the="" industry="" is="" not="" as="" capital="" intensive="" as="" those="" in="" the="" anchor="" group,="" and="" thus,="" would="" support="" a="" size="" standard="" moderately="" below="" the="" anchor="" of="" $5="" million.="" the="" four-firm="" concentration="" ratio="" shows="" that="" the="" four="" largest="" firms="" in="" the="" arrangement="" of="" transportation="" of="" freight="" and="" cargo="" industry="" account="" for="" only="" about="" one-third="" of="" the="" proportion="" accounted="" for="" by="" the="" four-firm="" concentration="" of="" the="" anchor="" group.="" this="" factor="" shows="" the="" industry="" is="" already="" highly="" competitive.="" if="" a="" few="" large="" firms="" were="" controlling="" a="" large="" portion="" of="" the="" industry="" revenues,="" then="" raising="" the="" size="" standard="" above="" the="" anchor="" size="" standard="" might="" help="" smaller="" firms="" compete.="" however,="" when="" the="" industry="" is="" already="" competitive,="" as="" this="" one="" is,="" nothing="" would="" be="" gained="" in="" competitiveness="" by="" lowering="" the="" size="" standard.="" therefore,="" we="" conclude="" that="" the="" four-firm="" concentration="" ratio="" does="" not="" support="" a="" standard="" higher="" than="" the="" anchor,="" but="" do="" not="" make="" the="" parallel="" argument="" supporting="" a="" size="" standard="" lower="" than="" the="" anchor.="" purpose="" of="" and="" impact="" on="" sba="" programs="" the="" percent="" of="" federal="" contract="" dollars="" awarded="" to="" small="" firms="" in="" the="" arrangement="" of="" transportation="" of="" freight="" and="" cargo="" industry="" during="" fiscal="" years="" 1997="" and="" 1998="" is="" more="" than="" twice="" as="" large="" as="" the="" share="" of="" federal="" contracting="" going="" to="" small="" firms="" within="" the="" nonmanufacturing="" anchor="" group="" and="" does="" not="" seem="" to="" support="" an="" increase="" to="" the="" current="" size="" standard.="" in="" fiscal="" years="" 1997="" and="" 1998,="" of="" the="" 208="" actions="" reported="" by="" the="" federal="" procurement="" data="" system,="" 97="" went="" to="" small="" firms.="" while="" the="" 97="" actions="" were="" 46.6%="" of="" the="" total="" actions,="" they="" were="" 50.1%="" of="" the="" total="" contract="" dollars="" awarded,="" when="" the="" two="" years="" are="" combined.="" assuming="" small="" businesses="" used="" gross="" billings="" (as="" required="" under="" the="" current="" size="" standard)="" when="" they="" identify="" themselves="" as="" ``small,''="" they="" had="" obtained="" a="" reasonable="" share="" of="" federal="" procurements.="" however,="" sba's="" review="" of="" preliminary="" data="" reveals="" that="" there="" may="" have="" been="" inconsistencies="" on="" how="" firms="" were="" self-certifying="" as="" small="" business="" that="" significantly="" affects="" how="" this="" factor="" should="" be="" assessed="" and="" the="" conclusions="" regarding="" an="" appropriate="" size="" standard.="" an="" industry="" association="" informed="" us="" that="" there="" is="" no="" standard="" way="" for="" firms="" to="" report="" revenues="" to="" the="" internal="" revenue="" service.="" whether="" they="" report="" gross="" billings="" and="" deduct="" pass-through="" funds="" as="" ``cost-of="" goods="" sold''="" to="" arrive="" at="" gross="" or="" total="" income,="" or="" whether="" they="" report="" commissions="" and="" fees="" as="" gross="" or="" total="" income,="" the="" tax="" consequences="" are="" the="" same.="" for="" sba="" size="" standard="" purposes,="" the="" different="" methods="" have="" different="" results.="" sba="" procedures="" changed="" effective="" march="" 1996="" making="" the="" federal="" tax="" returns="" forms="" the="" predominant="" documentation="" for="" determining="" annual="" receipts.="" historically,="" sba="" has="" interpreted="" the="" size="" standard="" for="" sic="" 4731="" to="" be="" based="" on="" $18.5="" million="" in="" gross="" billings="" without="" any="" deductions="" for="" pass-through="" funds.="" the="" proportion="" of="" contracts="" reported="" to="" small="" businesses="" in="" this="" sic="" has="" doubled="" since="" sba="" started="" using="" federal="" tax="" returns="" for="" self-certifying="" to="" a="" revenue-="" based="" size.="" when="" the="" procurement="" data="" are="" reviewed="" before="" and="" after="" that="" procedural="" change,="" it="" shows="" a="" big="" difference="" in="" proportion="" of="" contract="" dollars="" going="" to="" small="" businesses.="" the="" 50%="" share="" reported="" above="" is="" a="" two-year="" average="" for="" fy="" 1997="" and="" 1998.="" in="" fy="" 1994="" small="" businesses="" in="" sic="" 4731="" obtained="" 26.3%,="" 21.6%="" in="" fy="" 1995,="" 39.9%="" in="" fy="" 1996.="" the="" procurement="" data="" suggests="" that="" the="" proportion="" of="" contracts="" reported="" to="" small="" business="" may="" have="" been="" overstated="" over="" the="" last="" two="" years="" as="" compared="" to="" how="" sba="" prefers="" to="" define="" a="" small="" business="" in="" this="" industry.="" when="" considering="" that="" there="" is="" some="" evidence="" that="" awards="" reported="" to="" small="" businesses="" were="" likely="" made="" to="" businesses="" exceeding="" $18.5="" million="" in="" gross="" revenues,="" it="" leads="" to="" some="" uncertainty="" about="" how="" to="" suitably="" evaluate="" this="" factor.="" if="" the="" small="" business="" awards="" were="" made="" only="" to="" firms="" with="" $18.5="" million="" in="" gross="" billings="" (equivalent="" to="" $1.85="" million="" in="" commissions="" and="" fees),="" the="" current="" size="" standard="" would="" be="" appropriate.="" however,="" sba="" believes="" that="" some="" of="" the="" reported="" small="" business="" awards="" have="" been="" made="" to="" firms="" exceeding="" $18.5="" million="" in="" gross="" billing="" (although="" these="" firms="" earned="" commissions="" and="" fees="" less="" than="" $18.5="" million).="" if="" so,="" a="" size="" standard="" higher="" than="" $18.5="" million="" in="" gross="" billings="" or="" $1.85="" million="" in="" commissions="" and="" fees="" would="" be="" supportable.="" based="" on="" these="" considerations,="" sba="" believes="" that="" a="" $5="" million="" size="" standard="" measured="" in="" adjusted="" gross="" receipts="" (i.e.,="" adjusted="" to="" exclude="" funds="" held="" in="" trust="" for="" unaffiliated="" third-parties)="" indicated="" by="" most="" of="" the="" industry="" factors="" would="" be="" a="" reasonable="" size="" standard="" in="" terms="" of="" its="" impact="" on="" federal="" procurement.="" that="" size="" standard="" would="" likely="" result="" in="" a="" small="" business="" share="" no="" higher="" than="" currently="" shown,="" but="" would="" not="" return="" to="" the="" lower="" 1994-1995="" levels="" either.="" also,="" an="" increase="" to="" the="" size="" standard="" for="" this="" industry="" appears="" reasonable="" based="" on="" the="" distribution="" of="" sba="" guaranteed="" loans="" under="" the="" 7(a)="" program.="" in="" fiscal="" years="" 1997="" and="" 1998,="" [[page="" 40318]]="" small="" businesses="" in="" the="" arrangement="" of="" transportation="" of="" freight="" and="" cargo="" industry="" received="" approximately="" $14.5="" million="" in="" loans="" per="" year.="" about="" 92%="" of="" the="" loans="" went="" to="" firms="" with="" 50="" or="" fewer="" employees="" (equivalent="" to="" firms="" with="" less="" than="" $4="" million="" in="" receipts)="" and="" they="" received="" $12="" million="" per="" year="" in="" loans,="" or="" 83%="" of="" the="" value="" of="" 7(a)="" loans="" made="" to="" all="" firms="" in="" this="" industry.="" the="" percentage="" of="" firms="" and="" 7(a)="" loans="" to="" firms="" in="" this="" industry="" with="" less="" than="" 50="" employees="" is="" similar="" but="" somewhat="" below="" the="" comparable="" percentages="" for="" all="" industries="" combined="" (96%="" of="" firms="" and="" 93%="" of="" loans="" made="" to="" firms="" with="" less="" than="" 50="" employees).="" a="" size="" standard="" of="" $5="" million="" (equivalent="" to="" approximately="" 60="" employees)="" could="" moderately="" expand="" the="" level="" of="" financial="" assistance="" sba="" is="" currently="" providing="" to="" firms="" in="" this="" industry.="" almost="" all="" new="" loans="" would="" likely="" go="" to="" firms="" in="" the="" 20="" to="" 50="" employee="" range,="" thereby="" raising="" the="" share="" of="" loans="" to="" firms="" with="" less="" than="" 50="" employees="" in="" this="" industry="" closer="" to="" the="" average="" percentage="" for="" all="" industries="" combined.="" as="" with="" the="" federal="" procurement="" data,="" the="" same="" size="" reporting="" uncertainties="" as="" discussed="" above="" may="" exist="" here.="" however,="" only="" a="" very="" few="" loans="" could="" have="" been="" made="" to="" firms="" exceeding="" the="" current="" size="" standard.="" thus,="" the="" potential="" increase="" in="" 7(a)="" loans="" in="" this="" industry="" is="" expected="" to="" be="" modest="" and="" would="" support="" a="" $5="" million="" size="" standard="" as="" one="" providing="" a="" reasonable="" level="" of="" assistance="" to="" small="" businesses="" in="" this="" industry.="" considering="" these="" industry="" structure="" factors="" and="" the="" impact="" on="" sba="" programs="" in="" the="" aggregate,="" sba="" believes="" that="" the="" $5="" million="" anchor="" size="" standard="" is="" reasonable="" and="" would="" provide="" assistance="" to="" firms="" we="" believe="" should="" be="" eligible="" as="" small="" business="" for="" this="" industry.="" three="" of="" the="" industry="" factors="" support="" a="" size="" standard="" in-line="" with="" the="" nonmanufacturing="" anchor="" group="" and="" one="" industry="" factor="" supports="" a="" size="" standard="" lower="" than="" the="" anchor="" size="" standard.="" as="" discussed="" above,="" there="" exists="" some="" uncertainly="" on="" how="" to="" fully="" assess="" the="" program="" factor,="" especially="" for="" the="" federal="" procurement="" data.="" however,="" $5="" million="" appears="" to="" be="" a="" reasonable="" size="" standard="" for="" sba="" programs.="" without="" more="" of="" the="" factors="" pointing="" to="" a="" size="" standard="" lower="" than="" the="" anchor="" standard,="" and="" with="" no="" factor="" pointing="" to="" a="" higher="" size="" standard,="" we="" believe="" the="" anchor="" standard="" is="" a="" reasonable="" standard="" for="" this="" industry.="" dominant="" in="" field="" of="" operation="" section="" 3(a)="" of="" the="" small="" business="" act="" defines="" a="" small="" concern="" as="" one="" that="" is="" independently="" owned="" and="" operated,="" not="" dominant="" in="" its="" field="" of="" operation,="" and="" within="" detailed="" definitions="" or="" standards="" established="" by="" the="" sba="" administrator.="" sba="" considers="" as="" part="" of="" its="" evaluation="" of="" a="" size="" standard="" whether="" a="" business="" concern="" at="" or="" below="" a="" recommended="" size="" standard="" would="" be="" considered="" dominant="" in="" its="" field="" of="" operation.="" this="" assessment="" generally="" considers="" the="" market="" share="" of="" firms="" at="" a="" proposed="" size="" standard="" as="" well="" as="" other="" factors="" that="" may="" reveal="" if="" a="" firm="" can="" exercise="" a="" major="" controlling="" influence="" on="" a="" national="" basis="" in="" which="" significant="" numbers="" of="" business="" concerns="" are="" engaged.="" sba="" has="" determined="" that="" at="" the="" recommended="" size="" standard="" of="" $5="" million="" for="" the="" arrangement="" of="" transportation="" of="" freight="" and="" cargo="" industry="" no="" firm="" at="" or="" below="" that="" level="" would="" be="" of="" a="" sufficient="" size="" to="" be="" dominant="" in="" its="" field="" of="" operation.="" a="" firm="" at="" the="" proposed="" size="" standard="" of="" $5="" million="" accounts="" for="" less="" than="" 0.1%="" of="" industry="" total="" industry="" sales.="" this="" level="" of="" market="" share="" effectively="" precludes="" any="" firm="" from="" exerting="" a="" controlling="" effect="" on="" an="" industry.="" this="" is="" the="" third="" of="" four="" evaluations="" and="" all="" three="" support="" a="" size="" like="" the="" anchor.="" as="" for="" ``other="" factors'',="" everything="" we="" have="" obtained="" from="" the="" industry="" association="" or="" otherwise,="" has="" been="" considered="" in="" the="" first="" three="" evaluations,="" industry="" structure,="" dominance="" in="" the="" industry,="" or="" purpose="" of="" or="" impact="" on="" sba="" programs.="" however,="" during="" the="" public="" comment="" period,="" we="" may="" obtain="" other="" information="" and="" will="" consider="" it="" before="" going="" forward="" with="" a="" final="" rule.="" alternative="" size="" standards="" sba="" considered="" two="" alternative="" size="" standards="" for="" this="" industry.="" one="" alternative="" considered="" was="" modifying="" the="" average="" annual="" receipts="" method="" to="" allow="" for="" pass-through="" funds="" received="" in="" trust="" for="" third="" parties="" without="" adjusting="" the="" current="" $18.5="" million="" size="" standard.="" assuming="" that="" firms="" in="" this="" industry="" normally="" earn="" receipts="" of="" six="" percent="" to="" ten="" percent="" of="" gross="" billings,="" $18.5="" million="" is="" equivalent="" to="" $185="" million="" to="" $308="" million="" in="" gross="" billings.="" had="" sba="" only="" modified="" the="" receipts="" calculation="" method="" and="" retained="" the="" current="" size="" standard,="" it="" would="" define="" all="" but="" 158="" out="" of="" 9,631="" firms="" in="" the="" industry="" as="" small.="" further,="" small="" businesses="" with="" $18.5="" million="" or="" less="" in="" commissions="" and="" fees="" cumulatively="" account="" for="" two-thirds="" of="" total="" industry="" sales.="" sba="" considers="" a="" size="" standard="" that="" defines="" that="" large="" of="" a="" proportion="" of="" an="" industry="" as="" small="" businesses="" to="" be="" undesirable.="" a="" second="" alternative="" considered="" was="" to="" select="" a="" size="" standard="" between="" $1.1="" million="" and="" $1.8="" million="" to="" conform="" to="" the="" six="" percent="" to="" ten="" percent="" of="" gross="" billings="" that="" firms="" in="" the="" industry="" with="" gross="" billings="" of="" $18.5="" million="" report="" as="" receipts.="" however,="" the="" industry="" characteristics="" of="" the="" arrangement="" of="" transportation="" of="" freight="" and="" cargo="" industry,="" as="" compared="" with="" the="" average="" characteristics="" of="" the="" nonmanufacturing="" anchor="" group,="" support="" a="" higher="" size="" standard="" than="" one="" simply="" based="" on="" an="" arithmetic="" conversion="" of="" the="" existing="" size="" standard.="" sba="" welcomes="" public="" comments="" on="" the="" proposed="" size="" standards="" for="" the="" arrangement="" of="" transportation="" of="" freight="" and="" cargo="" industry.="" comments="" addressing="" the="" basis="" for="" allowing="" an="" exclusion="" of="" funds="" held="" in="" trust="" for="" third="" parties="" from="" the="" calculation="" of="" average="" annual="" receipts,="" as="" well="" as="" the="" types="" of="" receipts="" held="" in="" trust="" for="" others="" would="" be="" especially="" helpful="" to="" sba="" in="" making="" its="" final="" decision.="" also,="" sba="" solicits="" comments="" on;="" 1.="" whether="" or="" not="" six="" percent="" to="" ten="" percent="" of="" gross="" billings="" typically="" represents="" the="" commissions="" and="" fees="" earned="" by="" firms="" in="" this="" industry,="" and="" 2.="" whether="" a="" size="" standard="" between="" the="" anchor="" size="" of="" $5="" million="" and="" the="" current="" effective="" size="" of="" $="" 1.8="" million="" would="" be="" more="" appropriate.="" in="" your="" comments="" on="" any="" of="" these="" alternatives,="" or="" alternatives="" not="" yet="" discussed,="" please="" present="" the="" reasons="" why="" it="" is="" preferable="" to="" the="" proposed="" size="" standard.="" compliance="" with="" executive="" orders="" 12612,="" 12988,="" and="" 12866,="" the="" regulatory="" flexibility="" act="" (5="" u.s.c.="" 601-612),="" and="" the="" paperwork="" reduction="" act="" (44="" u.s.c.="" 3501="" et="" seq.)="" sba="" certifies="" that="" this="" rule,="" if="" adopted,="" would="" not="" be="" a="" significant="" rule="" within="" the="" meaning="" of="" executive="" order="" 12866.="" the="" total="" amount="" of="" federal="" procurement="" and="" sba="" guaranteed="" loans="" combined="" is="" less="" than="" $50="" million="" to="" this="" industry="" annually.="" it="" is="" unlikely="" that="" these="" programs="" would="" be="" significantly="" affected="" by="" a="" change="" to="" the="" size="" standard.="" for="" purposes="" of="" the="" regulatory="" flexibility="" act,="" this="" rule="" would="" not="" have="" a="" substantial="" impact="" on="" a="" significant="" number="" of="" small="" entities.="" although="" potentially="" 1,000="" additional="" firms="" could="" gain="" small="" business="" status="" as="" a="" result="" of="" this="" rule,="" only="" a="" very="" small="" percentage="" of="" firms="" in="" the="" industry="" compete="" for="" federal="" procurements="" or="" obtain="" guaranteed="" loans="" through="" sba's="" financial="" assistance="" programs.="" for="" the="" purpose="" of="" the="" paperwork="" reduction="" act,="" 44="" u.s.c.="" 3501="" et="" seq.,="" sba="" certifies="" that="" this="" rule="" would="" not="" impose="" new="" reporting="" or="" record-keeping="" requirements="" other="" than="" those="" already="" required="" of="" sba.="" for="" purposes="" of="" executive="" order="" 12612,="" sba="" certifies="" that="" this="" rule="" does="" [[page="" 40319]]="" not="" have="" any="" federalism="" implications="" warranting="" the="" preparation="" of="" a="" federalism="" assessment.="" for="" purposes="" of="" executive="" order="" 12988,="" sba="" certifies="" that="" this="" rule="" is="" drafted,="" to="" the="" extent="" practicable,="" in="" accordance="" with="" the="" standards="" set="" forth="" in="" that="" order.="" list="" of="" subjects="" in="" 13="" cfr="" part="" 121="" government="" procurement,="" government="" property,="" grant="" programs-="" business,="" loan="" programs-business,="" small="" business.="" for="" the="" reasons="" stated="" in="" the="" preamble,="" sba="" proposes="" to="" amend="" 13="" cfr="" part="" 121="" as="" follows:="" part="" 121--small="" business="" size="" regulations="" 1.="" the="" authority="" citation="" of="" part="" 121="" continues="" to="" read="" as="" follows:="" authority:="" pub.="" l.="" 105-135="" sec.="" 601="" et.="" seq.,="" 111="" stat.="" 2592;="" 15="" u.s.c.="" 632(a),="" 634(b)(6),="" 637(a),="" and="" 644(c);="" and="" pub.="" l.="" 102-486,="" 106="" stat.="" 2776,="" 3133.="" 2.="" revise="" sec.="" 121.104="" (a)="" (1)="" to="" read="" as="" follows:="" sec.="" 121.104="" how="" does="" sba="" calculate="" annual="" receipts?="" (a)="" *="" *="" *="" receipts="" means="" ``total="" income''="" (or="" in="" the="" case="" of="" a="" sole="" proprietorship,="" ``gross="" income'')="" plus="" the="" ``cost="" of="" goods="" sold''="" as="" these="" terms="" are="" defined="" or="" reported="" on="" internal="" revenue="" service="" (irs)="" federal="" tax="" return="" forms="" (form="" 1120="" for="" corporations;="" form="" 1120s="" for="" subchapter="" s="" corporations;="" form="" 1065="" for="" partnerships;="" and="" form="" 1040,="" schedule="" f="" for="" farm="" or="" schedule="" c="" for="" other="" sole="" proprietorships).="" however,="" the="" term="" receipts="" excludes="" net="" capital="" gains="" or="" losses,="" taxes="" collected="" for="" and="" remitted="" to="" a="" taxing="" authority="" if="" included="" in="" gross="" or="" total="" income,="" proceeds="" from="" the="" transactions="" between="" a="" concern="" and="" its="" domestic="" or="" foreign="" affiliates="" (if="" also="" excluded="" from="" gross="" or="" total="" income="" on="" a="" consolidated="" return="" filed="" with="" the="" irs),="" and="" amounts="" collected="" for="" another="" by="" a="" travel="" agent,="" real="" estate="" agent,="" advertising="" agent,="" conference="" management="" service="" provider,="" freight="" forwarder="" or="" customs="" broker.="" *="" *="" *="" *="" *="" sec.="" 121.201="" [amended]="" 3.="" in="" sec.="" 121.201,="" the="" table="" ``size="" standards="" by="" sic="" industry,''="" is="" amended="" as="" follows:="" a.="" under="" division="" e-transportation,="" communications,="" electric,="" gas,="" and="" sanitary="" services,="" major="" group="" 42--motor="" freight="" transportation="" and="" warehousing,="" revise="" the="" entry="" 4731:="" b.="" revise,="" in="" the="" table="" ``size="" standards="" by="" sic="" industry,''="" footnote="" 6="" to="" read="" as="" follows:="" size="" standards="" by="" sic="" industry="" ------------------------------------------------------------------------="" size="" standards="" in="" number="" sic="" code="" and="" description="" of="" employees="" or="" millions="" of="" dollars="" ------------------------------------------------------------------------="" *="" *="" *="" *="" *="" division="" e--transportation,="" communications,="" electric,="" gas,="" and="" sanitary="" services="" *="" *="" *="" *="" *="" 4731="" arrangement="" of="" transportation="" of="" freight="" and="" cargo...="" \6\="" $5.0="" *="" *="" *="" *="" *="" ------------------------------------------------------------------------="" \6\="" sic="" codes="" 4724,="" 4731,="" 6531,="" 7311,="" 7312,="" 7313,="" 7319,="" and="" 8741="" (part):="" as="" measured="" by="" total="" revenues,="" but="" excluding="" funds="" received="" in="" trust="" for="" an="" unaffiliated="" third="" party,="" such="" as="" bookings="" or="" sales="" subject="" to="" commissions.="" the="" commissions="" received="" are="" included="" as="" revenue.="" dated:="" july="" 20,="" 1999.="" aida="" alvarez,="" administrator.="" [fr="" doc.="" 99-19022="" filed="" 7-23-99;="" 8:45="" am]="" billing="" code="" 8025-01-p="">