[Federal Register Volume 59, Number 178 (Thursday, September 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22677]
[[Page Unknown]]
[Federal Register: September 15, 1994]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
Small Business Size Standards; Environmental Remediation Services
agency: Small Business Administration.
action: Final rule.
-----------------------------------------------------------------------
summary: The Small Business Administration (SBA) is establishing a size
standard of 500 employees for Environmental Remediation Services, an
activity which involves work identified with a number of different
functions associated with restoring a contaminated environment, such
as: preliminary assessment, site inspection, testing, remedial
investigation, containment, remedial action, the transportation and
disposal of waste materials, and security and site closeouts. The
application of this size standard will be for Federal environmental
remediation procurements which involve three or more environmentally
related activities which in turn can be identified in separate
industries under the Standard Industrial Classification (SIC) system.
It will also apply in SBA's non-procurement programs where an applicant
firm is primarily engaged in environmental remediation services as
defined by this final rule.
The adopted size standard of 500 employees is, in practical effect,
an increase above the size standard of $18.0 million proposed on
October 8, 1993 (58 FR 52452). This higher size standard is supported
by more recent data describing the industry structure for this
activity, as well as by comments received in response to the proposed
rule.
DATES: Effective Date: This rule is effective on October 17, 1994.
Applicability Dates: This rule applies to all Federal procurement
solicitations, except noncompetitive Section 8(a) contracts, issued on
or after October 17, 1994.
For Section 8(a) noncompetitive contracting actions, the rule is
applicable to offers of requirements that are accepted by the Small
Business Administration subsequent to October 17, 1994.
for further information contact: Gary M. Jackson, Assistant
Administrator for Size Standards, (202) 205-6618.
supplementary information: On October 8, 1993 the SBA proposed to
establish an environmental services size standard of $18.0 million for
Federal government procurements meeting the following two criteria: (1)
That the overall purpose of the procurement is to restore a
contaminated environment, and (2) that the procurement is composed of
activities in three or more distinct industries identified with
separate Standard Industrial Classification (SIC) four-digit industry
codes, none of which constitutes 50 percent or more of the contract's
value (58 FR 52452). These criteria were established to distinguish
environmental remediation services involving multiple activities from
other environmental related procurements involving services primarily
associated with one particular industry. For non-procurement
applications of this size standard, a firm would have to be primarily
engaged in three or more activities related to environmental
remediation, none of which accounts for 50 percent or more of the
firm's activities. The environmental services activity was designated
as a sub-category under SIC code 8744, Facilities Support Management
Services, because this SIC code generally requires the performance of a
range of different services in support of facilities where no one
activity may be considered the primary activity (see Standard
Industrial Classification Manual: 1987, Executive Office of the
President, Office of Management and Budget).
In this final rule, SBA is adopting a size standard of 500
employees (equivalent to approximately $50 million in annual receipts)
for environmental remediation services, rather than the $18 million
size standard set forth in the October 8, 1993 proposed rule identified
above. This increase takes into account comments received on the
proposed size standard, an analysis of additional industry data on
firms engaged in environmental remediation, and trends in Federal
procurement for this type of activity. These factors are discussed in
greater detail below.
In addition, SBA has changed the title for this activity from
``Environmental Services,'' the title used in the SBA's proposed rule,
to ``Environmental Remediation Services.'' This stems from comments
that environmental services as a title is very broad and could result
in a misclassification of Federal procurements simply because the title
is not sufficiently specific. After reviewing the proposed definition
for environmental services, SBA is changing the title to
``Environmental Remediation Services,'' a title believed to better
specify the type of services for which the SBA intended to establish a
separate, distinct size standard. The proposed rule was directed
towards remediation services, and not all other possible services that
could be performed in connection with the environment. This
definitional modification is for clarification purposes only.
As discussed in the proposed rule, SBA views environmental
remediation services as an emerging industry not explicitly defined
under the present SIC system. Pursuant to the authority set forth in
section 15(a) of the Small Business Act, 15 U.S.C. 644(a), SBA will
consider establishing a further segmentation of an industry category
defined in the four-digit SIC system to recognize a new industry. In
the past, SBA has established other sub-categories within existing
four-digit SIC industries (e.g., base maintenance, dredging, pneumatic
tires, custom cattle feedlots and food services). In this case, SBA is
establishing a separate sub-category under SIC code 8744 because of a
need to establish a specific size standard for the emerging multi-
discipline activity of environmental remediation services, an area of
Federal procurement that has expanded enormously in recent years.
SBA received a total of 69 comments to the proposal to establish an
$18 million size standard for environmental remediation services.
Twenty-three comments supported SBA's proposed rule in all respects
without reservation. Among the 62 comments discussing the $18 million
size standard, 21 comments argued for a higher size standard, 10
comments wanted a lower size standard, and 31 comments generally
supported the proposed $18 million size standard. Fifteen of the 21
comments supporting a higher size standard also argued for a size
standard based on number of employees. Other comments raised
alternatives to the proposed size standard, or opposed the
establishment of any specific size standard for environmental
remediation services. A discussion of these latter comments and SBA's
views regarding them will follow a discussion of SBA's basis for
establishing a 500 employee size standard for environmental remediation
services.
Selection of Size Standard
The SBA has decided to establish a 500 employee size standard for
environmental remediation services. SBA now believes the proposed $18
million size standard does not adequately reflect the structure of the
environmental remediation services industry as revealed by available
data on firms engaged in environmental remediation services. The
decision to propose an $18 million size standard was based primarily on
the premise that, from limited information available at that time,
firms which perform environmental remediation services tend to be
larger in size than firms performing non-environmental services in
related industries. Accordingly, a size standard which reflected a
level similar to the highest size standards then in effect for any of
the related construction or services industries was proposed. Since the
time of the proposed rule, SBA continued in its efforts to assemble the
most recent data available on environmental firms. The assessment of
this newly developed data, as well as public comments in response to
the proposed size standard, has convinced SBA that a 500 employee size
standard would be more suitable for the environmental remediation
services industry than an $18 million size standard. The analysis of
the industry data, and the basis for the decision to use number of
employees as the measure of size, are each discussed below.
Analysis of Industry Data
In considering the appropriate size standard for an industry, SBA
generally evaluates the structural characteristics of an industry by
analyzing at least four industry factors. These industry factors
include: Average firm size, start-up costs, competition and the
distribution of firms by size. In addition, the impact of alternative
size standards on SBA's programs is assessed. As a relatively new and
developing industry, comprehensive industry data by which to conduct
this structural analysis are limited for the environmental remediation
services industry. The statistical collection agencies of the Federal
government, the primary sources of economic data on industries in the
economy, do not publish data on environmental remediation services
firms since this activity has not yet been identified as an industry
under the SIC system. To overcome this problem, SBA has constructed its
own data base of environmental remediation services firms based on data
from a non-governmental source. SBA believes this data base is
sufficient in coverage to provide an adequate assessment of the
relevant structural characteristics of the environmental remediation
services industry.
SBA constructed its data base by utilizing data and information
published in the 1993 edition of Wards Business Directory. This
publication is viewed by the SBA as the best single data base currently
available to identify firms engaged in environmental remediation
services. This directory lists individual firms by SIC code, provides a
description of a firm's activities, and shows the size of a firm by
revenues and number of employees. From the description of firm
activities, SBA was able to identify firms that perform activities
associated with environmental remediation services. Firms in nine
industries, considered the primary industries from which firms perform
some or all aspects of environmental remediation work, were reviewed to
identify environmental remediation services firms. The nine industries
reviewed are listed below:
------------------------------------------------------------------------
SIC code Description
------------------------------------------------------------------------
1629...... Heavy Construction, Not Elsewhere Classified.
1795...... Wrecking and Demolition Work.
1799...... Special Trade Contractors, Not Elsewhere Classified.
4212...... Local Trucking Without Storage.
4953...... Refuse Systems.
4959...... Sanitary Services, Not Elsewhere Classified.
8711...... Engineering Services.
8731...... Commercial Physical and Biological Research.
8734...... Testing Laboratories.
------------------------------------------------------------------------
Data on these firms were then combined to derive information on the
structure of the environmental remediation services industry.
Although data obtained from the Wards Business Director provided
SBA with useful information on firms performing environmental
remediation services, the directory does not include all firms within
an industry. Instead, it tends to omit many smaller-sized firms in an
industry, thereby creating a bias in the data towards larger-sized
firms. In view of this aspect of the data, SBA's analysis of industry
characteristics focused on the relative differences between
environmental and non-environmental remediation services firms rather
than on absolute values calculated from the Wards data. SBA believes
that Wards data provide a reasonably accurate picture of the relative
difference in average firm size between industries. If the Wards data
show that the average firm size of one industry is twice that of
another industry, it is likely to be accurate, even if the absolute
values listed are not truly representative of each industry as a whole.
In performing the analysis of this size standard, the relative
differences of the four industry factors identified above were
calculated between the derived environmental remediation services
industry and a comparison industry group. The comparison industry group
data was also derived from the Wards Business Director and consisted of
the firms within the same nine SIC codes listed above which were not
shown as engaged in environmental remediation work. From these
differences, a range of size standards was indicated based on
relationships between relative industry differences and size standards
for the non-manufacturing industries. This analytical approach was
necessary to accommodate the data limitations discussed earlier. The
remainder of this section describes in greater detail the analysis of
relative differences performed by SBA in establishing this size
standard.
A total of 374 firms within the nine SIC codes identified above
were found to be engaged in environmental remediation services. An
environmental remediation services industry was constructed by
aggregating data on these firms into one industry group. Structural
characteristics of this industry then were estimated. Industry values
were calculated for each of the four industry factors--average firm
size (as measured by average revenues per firm), start-up costs (using
average assets per firm to measure capital typically employed by firms
in an industry), competition (as measured by percent of total industry
revenues attributed to large firms with 1000 or more employees), and
the distribution of firms by size (as measured by the market share of
total industry revenues obtained by firms with revenues of more than $5
million and more than $18 million). Table 1 below summarizes the
industry characteristics of this derived environmental remediation
services industry, the industry characteristics of a comparison group
(identified as the parent industry group), and the difference between
the characteristics of these two groups (as expressed by a ratio).
Table 1.--Characteristics of the Environmental Remediation Services
Industry and Parent Industry Group
------------------------------------------------------------------------
(A) (C)
Environmental (B) Parent Difference
remediation industry ratio
services group (AB)
------------------------------------------------------------------------
Average Revenues Per Firm..... $115.4M $36.4M 3.17
Average Assets Per Firm....... $59.5M $16.8M 3.54
Competition................... 84.7% 67.1% 1.26
Percent of Revenues by Firm
Size Greater Than:
$5 Million................ 99.2% 96.2% 1.03
$18 Million............... 97.1% 74.4% 1.31
Average................... N/A N/A 1.17
------------------------------------------------------------------------
Source: Data derived from 1993 Wards Business Directory. Average assets
estimated by SBA based on Wards Directory and Industry Norms and Key
Business Ratios, Dun and Bradstreet, 1986.
The relative difference between structural characteristics of the
environmental remediation services and the parent industry group can be
expressed quantitatively as a ``difference ratio,'' and is shown in
table 1 for each industry factor. The difference ratio is simply the
value of an industry factor for the environmental remediation services
industry divided by the value of the same industry factor for the
parent industry group (i.e., the difference ratio for the industry
factor of average firm size is: $115.4 million $36.4 million =
3.17). As can be seen in table 1, the difference ratios range between
1.03 and 3.53.
The relative differences clearly show that the environmental
remediation services industry is comprised of larger firms than are
present in the parent industry group, and that larger firms capture a
greater share of total industry revenues in the environmental
remediation services industry than in the parent industry group. The
implication of these findings is that the environmental remediation
services industry warrants a higher size standard than is generally in
effect for the nine parent industries.
The next step in the analysis was to calculate a weighted average
size standard for the nine SIC codes making up the parent industry
group. The nine parent industries have widely varying size standards,
ranging between $2.5 million for engineering services (SIC code 8711)
to 500 employees for research and development (SIC code 8731). To
create a single size standard for environmental remediation services
based on data comparisons with the parent industry group, a single size
standard representing the varying size standards of the industries
within that group needed to be derived. To obtain such a single size
standard, a weighted average of the size standards for the nine parent
industries was calculated.
Based on the current size standards, and weighting each industry by
the total number of firms in the industry as reported by the U.S.
Bureau of the Census, a weighted average size standard of $12 million
was calculated based on annual revenues (the actual calculated figure
of $11.95 million was rounded up). Since the size standard for research
and development is based on number of employees, it was first converted
to a receipts size standard by multiplying the 500 employee size
standard by the revenues per employee for that industry.
A weighted average size standard based on number of employees was
also calculated to assist in the analysis. To make this calculation,
the receipts-based size standards were first converted to number of
employees by dividing the receipts size standards by revenues per
employee for each industry (for the industries of SIC codes 4953 and
4959, revenues per employee for all private sector industries was used
in the absence of current revenue data on these two specific
industries). Using employee equivalent size standards for eight of the
nine industries, a size standard of 141 employees was calculated (the
actual calculated figure of 141.1 employees was rounded down).
These two weighted average size standards became the base size
standards ($12 million and 141 employees) by which to estimate how much
higher the size standards should be for environmental remediation
services than for the parent industry group based upon the relative
industry differences shown in Table 1. Table 2 below shows the
calculations used in developing the weighted average size standards.
Table 2.--Weighted Average Size Standards for the Parent Industries
----------------------------------------------------------------------------------------------------------------
Size standard Composite
--------------------------- No. of Percent of -------------------------
SIC Employees\1\ firms total firms
Receipts Receipts Emp.
----------------------------------------------------------------------------------------------------------------
1629............................. $17.0M 162 10,088 9.3 $1.57M 15.0
1795............................. 7.0M 92 865 0.8 0.06M 0.7
1799............................. 7.0M 91 23,181 21.3 1.49M 19.4
4212............................. 18.5M 235 37,145 34.1 6.31M 80.2
4953............................. 6.0M 45 2,208 2.0 0.12M 0.9
4959............................. 5.0M 38 852 0.8 0.04M 0.3
8711............................. 2.5M 29 28,494 26.2 0.65M 7.5
8734............................. 5.0M 79 2,844 2.6 0.13M 2.0
8731............................. \2\52.7M 500 3,265 3.0 1.58M 15.0
--------------
Total...................... ........... ............ 108,942 100.0 11.95M 141.1
----------------------------------------------------------------------------------------------------------------
Source: U.S. Bureau of the Census, Standard Statistical Establishment List, Special Tabulation, 1990.
\1\Estimated employee size standard based on revenues per employee (except SIC code 8731).
\2\Estimated receipts size standard based on revenues per employee.
The next step in the analysis was to assure that the new size
standard would be consistent with all of SBA's size standards as to the
way in which those standards in turn relate to industry differences.
Failure to take this factor into account could result in a size
standard that would be aberrational in terms of SBA's overall size
standards system. This step was an examination of each of the same four
industry factors and the existing size standards with respect to two
large groups of industries close to either end of the existing size
standard spectrum for non-manufacturing industries. To demonstrate this
analysis, the paragraph below sets forth the calculations with respect
to one of the four industry factors: average firm size. The groups of
industries selected for consistency purposes were (1) representative
industries covered by a $5 million standard, and (2) representative
industries covered by standards of $17 million-$25 million, which have
an average of $18.5 million.
This examination revealed that, as to the representative industries
covered by the $5 million standard, those industries in the aggregate
had an average firm size of $1.15 million, and as to the representative
industries covered by standards of $17 million-$25 million, those
industries had an average firm size of $3.76 million. In order to
identify the relationship between size standards and average firm size
in terms of the extent to which differences between average firm size
have influenced size standards, SBA used ratios of the size standards
between the two groups of industries and the average firm sizes between
the two groups. These ratios are expressed as 18.5/5 divided by 3.76/
1.15, or 1.13. This number suggests that there is a consistency
correlation of 113 percent between average firm size and size standards
generally. This means that data which reveals average firm size for a
particular industry needs an adjustment by only an added 13 percent
before calculating the size standard in order to achieve consistency
with the way average firm size relates to size standards as a whole.
Table 3 shows the calculations of a ``consistency ratio'' for average
firm size and the other industry factors. The size standards ratio of
3.7 (18.5/5) is a constant in these calculations, and is shown in the
description of column (D).
Table 3.--Characteristics of Selected Non-Manufacturing Industries
----------------------------------------------------------------------------------------------------------------
(A) (D)
Industries (B)Industries (C)Difference Consistency
with $5M with $17M to ratio ratio
standard $25M standard (BA) (3.7C)
----------------------------------------------------------------------------------------------------------------
Average Revenues Per Firm............................ $1.15M $3.76M 3.27 1.13
Average Assets Per Firm.............................. $0.76M $2.10M 2.76 1.34
Competition.......................................... 25.5% 41.1% 1.61 2.30
Percent of Revenues by Firm Size Greater Than:
$ 5 Million...................................... 56.2% 84.8% 1.51 2.45
$18 Million...................................... 36.1% 59.5% 1.65 2.24
Average.......................................... N/A N/A 1.58 2.35
----------------------------------------------------------------------------------------------------------------
Source: U.S. Bureau of the Census, Special Tabulation, Standard Statistical Establishment List, 1990.
Since average firm size ``data'' in the case of environmental
remediation has to be calculated as a differential figure (see Table
1), the consistency ratios were multiplied by the corresponding
difference ratios. For example, the average firm size consistency ratio
of 1.13 was multiplied by the average firm size difference ratio of
3.17, for a final size factor of 3.58. Looking back to the weighted
average size standards established for the parent industry group of
either $12 million or 141 employees, average firm size, as one of only
four industry factors, would therefore suggest that for the
environmental remediation services industry the size standard should be
3.58 times greater than those parent industry group standards, or
approximately $45 million or 500 employees. Similar calculations were
performed with respect to each of the other three industry factors. The
data are shown in Table 4 below.
Table 4.--Computation of Suggested Environmental Remediation Services Size Standards
----------------------------------------------------------------------------------------------------------------
(A) (D)Suggested (E)Suggested
Environmental (B)Consistency (C)Size receipts employee
difference ratio factor (A x standard standard
ratio B) ($12M x C) (141 x C)
----------------------------------------------------------------------------------------------------------------
Average Revenues Per Firm............... 3.17 1.13 3.58 $42.9M 505
Average Assets Per Firm................. 3.54 1.34 4.74 56.9M 668
Competition............................. 1.26 2.30 2.90 34.8M 409
Percent of Revenues by Firm Size Greater
Than:
$5 Million.......................... 1.03 2.45 2.53 30.3M 355
$18 Million......................... 1.31 2.24 2.93 35.2M 413
Average............................. N/A N/A N/A 32.7M 385
----------------------------------------------------------------------------------------------------------------
Preliminary size standards were suggested by the calculations in
table 4 of approximately $42 million or 490 employees. These
preliminary size standards reflect an average of the suggested size
standards indicated by the four industry factors, without giving one
factor more weight than another.
The impact of preliminary size standards of these magnitudes on
Federal procurements was also assessed before finally adopting a size
standard. This assessment also supported a very high size standard. The
primary reason for development of this size standard is to standardize
the classification of environmental remediation service activities
under one industry size standard for procurement purposes. Information
available to SBA shows that a number of full-service Federal
remediation projects and site restoration projects, usually multi-year
projects, have been projected to fall in the $20 to $30 million range,
with some contracts exceeding $100 million. In rate cases such
contracts may even exceed $1.0 billion with prime contractors
subcontracting much of the work. These are extraordinarily large
contracts for Federal procurements that are not contracts for
manufactured goods. In addition to the large size of contracts, there
is also an extensive level of sophistication required on these
contracts given the concern for public health and safety regarding
hazardous materials, and the specialized equipment, personnel and work
precautions needed by a contractor when handling hazardous materials.
Moreover, since the SBA is requiring that contracts which fall in this
category be composed of activities in three industries (as explained
below), such contracts would naturally tend to be larger contracts.
Relatively large companies will necessarily have to be involved on
environmental remediation services contracts given the size and
sophistication of Federal government remedial efforts. A very high size
standard is thus suggested by the nature of the Federal procurement
marketplace and the presence of large firms which tend to dominate
these Federal procurement activities. The preliminary size standards of
$42 million and 490 employees are consistent with this factor.
Based on the industry analysis and a consideration of the available
information on Federal procurement, the SBA has decided to establish a
500 employee size standard for environmental remediation services. As
the previous industry analysis shows, a 490 employee size standard
adequately reflects the structure of the environmental remediation
services industry based on available data on firms engaged in these
services. For administrative convenience, the 490 employee level is
rounded up to 500 employees to be consistent with other SBA employee-
based size standards.
The SBA has decided to adopt number of employees as the size
standard measure for environmental remediation services rather than a
size standard based on annual receipts, as was proposed. As stated in
the proposed rule, the SBA generally utilizes a receipts-based size
standard for non-manufacturing industries, but it stated it would
consider establishing an employee-based size standard for environmental
remediation services if information was provided that indicated the use
of a receipts-based size standard would be inequitable. SBA
specifically solicited comments indicating the need for an employee-
based size standard. In response, SBA received 15 comments which
advocated adoption of an employeee-based size standard. Only one
comment was received which specifically stated that the size standard
should be based on receipt and not member of employees. Other comments
supported or opposed the $18 million size standard,but did not discuss
specifically whether receipts or employees would be a more equitable
means of measuring size. SBA also continued its own assessment of
whether a receipts-based or an employee-based size standard would be a
better measure of size for this new, emerging industry.
The comments which explained their preference for an employee size
standard pointed out that environmental remediation contracts using
this size standard would be obtained by contractors who would
subcontract out a relatively high proportion of work, and that revenues
passed-through to subcontractors should not be attributed to the prime
contractor. SBA agrees that there likely will be a very high percentage
of subcontracting; this consideration, in combination with the fact
that the contracts involved will be extremely large contacts, and the
fact that environmental remediation is an emerging industry, suggests
that a receipts-based size standard would be less equitable than an
employee standard. If a $42 million size standard were established
instead of one at 500 employees, a firm which is already generating
significant revenues could receive a single environmental remediation
contract in an amount close to the size standard and effectively become
large for purposes of future contracts, even though one-third or more
of the revenues of the contract might be attributed to another firm.
This result would hinder the ability of small businesses in this
emerging industry to grow and continue to participate in the Federal
market. SBA believes it would be inconsistent with the purposes of the
small business and minority small business set-aside programs to
establish a size standard which would effectively be useful to firms on
only one or two contracts before disqualifying them from further
benefits from the program. This principle is particularly important for
new industries where the small business segment is generally less able
to compete effectively due to uncertainties as to market and fast-
moving technologies. Moreover, since firms from nine or more industries
have the capability to perform some or all of the environmental
remediation requirements, the type and amount of activity to be
subcontracted will vary considerably by contract and by the
capabilities of the prime contractor. Accordingly, SBA doubts that it
can establish a receipts-based size standard which reflects a
``typical'' subcontracting pattern for environmental remediation
services.
SBA recognizes that, in other contexts, pass-through revenue by
itself has not warranted establishment of an employee-based size
standard. Here, the additional factors of the extremely large size of
the expected contracts, and the status of environmental remediation
services as an emerging industry with its special needs for growth
opportunities for small business, have persuaded SBA that an employee-
based size standard is appropriate.
Comments to Proposed Rule
In response to its proposed rule, the SBA received comments from 69
interested parties. Sixty-two of those comments discussed the proposed
size standard. All comments dealing with the appropriate level or type
of size standard were carefully considered by SBA, and the discussion
above has explained in detail how SBA has selected the size standard of
500 employees. None of the comments presented SBA with credible data
which would conflict with SBA's analysis in any significant way, and
most comments discussed the proposed size standard in only general
terms. Some comments did raise other issues related to the proposal
which warrant discussion. Those issues are discussed below:
Environmental Remediation and the Brooks Act
A few comments questioned whether SBA's designation of
Environmental Remediation Services as a new sub-category under SIC code
8744, Facilities Support Management Services, complied with the Federal
Government's selection criteria for awarding architecture and
engineering services contracts under the Brooks Act. These comments
primarily came from engineering firms and associations. Under the
Brooks Act procedures (see Subpart 36.6 of the Federal Acquisition
Regulation (FAR), Title 48 of the Code of Federal Regulations),
contracts for architecture and engineering services are competed based
on the qualifications of architectural and engineering firms. This
differs from many of the procedures for most other services where the
primary criterion is usually price competition.
Because application of the Brooks Act procedures does not depend on
the SIC code assigned to a particular requirement, it is SBA's view
that the establishment of a new sub-category within SIC code 8744 for
Environmental Remediation Services will not disturb the Brooks Act
determination process. It is a requirement's statement of work and how
the requirement is to be performed, and not the SIC code assigned to
it, that determines whether Brooks Act procedures should be used. The
Brooks Act and Subpart 36.6 of the FAR do not require contracts to be
awarded through Brooks Act procedures merely because architects or
engineers might do part of the contract work. In this regard, the
Brooks Act procedures apply to requirements that include both
architect-engineer services and other services ``if the statement of
work, substantially or to a dominant extent, specifies performance or
approval by a registered or licensed architect or engineer,'' FAR,
Sec. 36.601-3(b). As such, architect and engineering services may
account for an identifiable portion of a particular requirement without
the Brooks Act applying where these services are not substantial or
dominant. The SIC code assigned to a requirement will not preclude
Brooks Act procedures where the statement of work itself specifies a
substantial or dominant amount of work by a registered or licensed
architect or engineer. It is the extent of the architect and
engineering services to be required by the statement of work that
drives that determination. Case law and the Brooks Act's legislative
history make clear that contracting officers have a great deal of
discretion in determining whether the Brooks Act procedures apply to a
particular procurement. See, e.g., H.R. Rep. No. 1070, 100th Cong., 2d
Sess. 89, 90, reprinted in 1988 U.S. Code Cong. & Ad. News 5523;
Association of Soil and Foundation Engineers, B-209547, 83-1 CPD 551
(May 23, 1983); and Department of Energy Request for Decision, B-
207849, 82-2 CPD 63 (July 20, 1982).
It is not uncommon for a single procurement to require more than
one product or service. These products or services are often
individually associated with different industries and size standards.
Where this occurs in connection with an environmental remediation
services procurement, this final rule provides explicit guidance as to
the classification of the procurement by SIC code based on the
principal purpose of the procurement and the relative value and
importance of each of the components in the procurement. This guidance,
however, refers only to the classification of the procurement for SIC
code designation and size standard purposes. It leaves undisturbed the
possible application of the Brooks Act or the award procedures to be
used for the procurement.
Impact on Small Business Competitiveness Demonstration Program
A few comments also questioned whether the establishment of the
environmental remediation service size standard circumvents the Small
Business Competitiveness Demonstration Program (Demonstration Program)
by shifting procurements that might otherwise be designated as
engineering, construction or refuse systems procurements into the
environmental remediation services industry.
The Demonstration Program was established by Title VII of the
Business Opportunity Development Reform Act of 1988, Public Law 100-
656, 102 Stat. 3853, 3889, to test, over a four-year period, ``whether
the expanded use of full and open competition will adversely affect
small business participation in designated industry categories.'' It
was statutorily extended through September 30, 1996. Four designated
industry groups have been identified for inclusion in the program
consisting of (1) all construction industries except for dredging; (2)
the refuse systems and related services industries within SIC codes
4212 and 4953, but generally not including contracts for dealing with
hazardous materials; (3) the architectural and engineering services
industries within SIC codes 7389, 8711, 8712, and 8713, but generally
not including contracts for military and aerospace equipment, military
weapons, marine engineering and naval architecture; and, (4) non-
nuclear ship repair.
In general, the Demonstration Program was implemented to remedy the
problem of too many set asides in industries where small businesses
dominated because agencies overused set asides in those industries. The
Demonstration Program targeted the specific industry categories listed
above because they were overwhelmingly dominated by small business set
asides, suspended the set asides in these specific industry categories,
and barred SBA from changing the size standards for these industries.
Pursuant to the Small Business Act, SBA generally has the authority
to establish size standards on an industry by industry basis, and
particularly for emerging industries. See, 15 U.S.C. sections 632(a)
and 644(a). Although the Agency is constrained from changing the size
standards for the industries within the Demonstration Program, it is
SBA's view that the statutory restriction imposed by the Demonstration
Program would not apply to the establishment of a sub-category within
SIC code 8744, which is not one of the SIC codes statutorily identified
for inclusion in the Program.
Under this rule, a contracting officer may use the newly
established Environmental Remediation Services sub-category and
accompanying size standard only where (1) a procurement's general
purpose is to restore a contaminated environmental area, (2) three or
more distinct types of services are required by the procurement, and
(3) no single industry accounts for at least 50 percent of the value of
the entire procurement. It is our view that where these conditions are
met, the requirement loses its identity as one for ``construction,''
``refuse systems,'' or ``architectural or engineering services.'' Thus,
the restriction imposed by the Demonstration Program on changing the
size standards for those industries is inapplicable. If a procurement
is primarily (i.e., at least 50 percent) engineering, or construction,
or refuse cleanup and disposal, it still would be assigned a SIC code
in one of those industries and not in the environmental remediation
services industry. Such a procurement could be subject to the
Demonstration Program. Because of the rule's definition of
environmental remediation services, only procurements which have
multiple industry activities and which are also designed to restore the
environment would be classified properly under the environmental
remediation services size standard, and procurements properly
classified in industries covered by the Demonstration Program would not
be affected by this rule.
Prior to this rule, solicitations requiring environmental remedial
services type work have been classified inconsistently and sometimes
incorrectly within the Demonstration Program. Some requirements have
been classified under one of the SIC codes within the Demonstration
Program, even though the requirement actually was for a multi-
disciplinary approach to environmental cleanup with most of the work
not related to the assigned SIC code.
This rule will have the effect of clarifying that any environmental
remediation services requirement for which one component accounts for
at least 50 percent of the value of the requirement should be
designated under the SIC code for that component. Thus, if that one
component is an item covered by the Demonstration Program, the
procurement should be assigned a Demonstration Program SIC code, and
the contracting officer should not avoid the Demonstration Program by
assigning a different SIC code to match another type of service
contained within the requirement. As a consequence of this rule, fewer
solicitations will be misclassified because there will be a more
accurate classification system for the environmental remediation
services requirements.
The Three Industry Criteria
Some comments raised concerns regarding the definitional
requirement that for a procurement to be designated under the
environmental remediation services category and given the applicable
size standard, it would have to contain at least three different
industry components. Several of the comments argued that the three
industry requirement would limit the use of the size standard of
environmental remediation services procurements. Several other comments
alleged either that the present SIC codes are adequate to classify
environmental remediation services procurements or that a three
industry criteria would be confusing and result in errors in which
procurements would be misclassified by SIC code and size standard.
Several comments mentioned that a firm would have to be performing in
three or more industries before it could qualify as a small business
for environmental remediation services procurements.
For a number of reasons, SBA believes it is appropriate to
establish a separate description of environmental remediation services
with the requirement that there be three or more activities associated
with distinct four-digit SIC codes. First, the available information
and data reveal an emerging industry which is characterized by firms
that already have multi-disciplinary capabilities related to different
aspects of environmental cleanup. Second, environmental remediation
procurements frequently include requirements for many different
services that need to be interrelated by a single prime contractor. As
indicated above, such procurements have been vulnerable to widely
divergent approaches by contracting offices as to the proper SIC code
classification. Third, the three industry requirement, when combined
with the requirement that a single component not exceed 50 percent,
ensures that procurements which primarily consist of an activity within
the Competitiveness Demonstration Program are so classified rather than
as an environmental remediation services requirement.
SBA believes that limiting the use of the environmental remediation
services size standard to contracts where less than 50 percent of a
procurement consists of a particular activity is appropriate. As
indicated above, many of the SIC codes which sometimes entail
environmental remediation activity are also included within the
Competitiveness Demonstration Program. In its desire to accommodate an
emerging industry, SBA does not wish to create a size standard which
would permit the avoidance of that Program where the majority of the
work required would fall under one of the SIC codes covered by the
Program. Since an emerging industry exists, which is not adequately
defined by an existing SIC code other than SIC code 8744, a further
segmentation of that SIC code is required for size standard purposes.
SBA also believes that the three industry criteria will not be
confusing to any great extent. The same general criteria apply to the
selection process of the size standard for Base Maintenance, a category
which the SBA has maintained as a separate component of Facilities
Support Management Services for many years without significant
confusion.
Comments received on this issue suggest a need to clarify the
application of the three industry requirement. The description of
environmental remediation services regarding Federal procurements is
designed to inform contracting officers as to which procurements should
be assigned the size standard. Section 121.902 of SBA's regulations
describes the criteria for making SIC designations. A firm qualifying
as an eligible small business on an environmental remediation services
procurement is only required to meet the size standard for that
procurement. It is the contracting officer's responsibility to
determine if the eligible small business is capable of performing the
various requirements of the procurement, and whether that firm intends
to perform all of the activities associated with the procurement or to
subcontract one or more activities to another firm.
For other SBA programs, such as the ``7(a) General Business Loan
Program,'' the size standard would be based on a firm's primary
industry activity. A firm citing environmental remediation services as
its primary industry would have to demonstrate that it currently
operates in three or more industries and that no one industry accounts
for 50 percent or more of its total business activity.
Multiple Size Standards
A few comments recommended a two-tier standard for environmental
remediation services in which ``technical or professional''
environmental remediation services would have a different size standard
from ``non-professional and non-technical remediation'' services. These
comments generally recommended a size standard of $18 million to $25
million for non-professional remediation services, but disagreed on the
size standard for professional environmental services. Some believed a
size standard lower than $18 million would be appropriate to assist
small businesses, while others recommended $25 million or 750 employees
to increase procurement opportunities for small businesses. Other
comments recommended establishing a separate size standard within many
industries which sometimes perform activities related to environmental
services, rather than a single environmental remediation size standard
under SIC code 8744. SBA believes that either the establishment of two
separate environmental remediation services size standards, or the
establishment of a separate environmental size standard within a number
of related industries, would be unwarranted and would add needless
complexity and confusion to SBA's size standards.
The SBA generally establishes size standards by four-digit SIC
code, unless a segment of an industry possesses unique characteristics
which make the size composition of firms within that industry segment
substantially different from other firms in the industry. The SBA
believes this to be the case for environmental remediation services. To
go further and create yet another segmentation within environmental
remediation services would be unprecedented and unnecessary. The SBA
lacks any significant data suggesting that a further differentiation
within this industry is needed to reflect different characteristics
divided along professional versus non-professional lines.
To create a new segmentation of each of the nine SIC codes
primarily associated with environmental remediation would be
impractical, would add substantial and needless complexity to the size
standard system, and would undercut SBA's ongoing efforts to simplify
and consolidate size standards, where appropriate. As indicated above,
the purpose of this size standard is to establish a definition of small
business for an emerging industry where very large firms dominate the
industry, and where Federal procurements tend to be large scale, multi-
activity contracts. While other types of environmentally related
procurements usually will have a scope of work confined to one industry
activity and be smaller procurements. This generally is not the case
for environmental remediation services.
SIC Code Selection
Several comments expressed concern that a misclassification of
procurements by SIC code (and, therefore the size standard associated
with the SIC code) by a contracting agency would occur if the nature of
a procurement had to be determined before the actual scope of work for
each activity would be known. For example, a contracting officer
reasonably could believe that at least three distinct SIC codes were
involved, or that no SIC code would comprise more than 50 percent of
contract activities before contract award, but actual contract
performance would reveal a different pattern of work. These comments
warned that a dichotomy between pre-contract expectations and actual
contract performance experiences would result in an increased level of
protests.
The SBA recognizes that the actual distribution of work on a
multiple-activity procurement may differ from the anticipated
distribution. Nonetheless, contracting officers presently must use
their best judgment in designating a SIC code for a procurement based
on their knowledge of the work statement associated with the
procurement, and the situation for application of this SIC code is no
different. Moreover, SBA's experience with the base maintenance size
standard, where a similar assessment of work to be performed must be
made, has shown the approach to be workable.
Size Standards on Subcontracts
Several comments expressed concern as to the proper size standard
for a subcontract for environmental remediation services let by a
contractor which had been awarded a federal prime contract under a
different SIC code. For subcontracts of more than $10,000, current SBA
regulations provide that the same procedures for designating the proper
SIC code for a Federal prime contract also apply on subcontracts. Thus,
if a subcontract is primarily for environmental remediation activities
and can be identified with at least three separate SIC industries, none
accounting for 50 percent or more of the work, the environmental
remediation services size standard of 500 employees would apply. On the
other hand, if the subcontract does not have three or more separate
industries or one of its industries exceeds 50 percent of the value of
the contract, the appropriate size standard would be that of the
primary industry and not the environmental remediation industry's size
standard. For subcontracts of $10,000 or less, a size standard of 500
employees should be applied regardless of the nature of the work. SBA's
size regulations at 13 C.F.R. 121.910-911 discuss the designation of
SIC codes and size standards for subcontracting.
Compliance With Regulatory Flexibility Act, Executive Orders 11612,
12788, and 12866 and the Paperwork Reduction Act
General
This rule has been reviewed under Executive Order 12866.
Based on all available information, the SBA believes that this
final rule will have a significant economic impact on a substantial
number of small entities within the meaning of the Regulatory
Flexibility Act, 5 U.S.C. 601, et seq. Immediately below the SBA has
set forth a regulatory impact analysis.
(1) Description of Entities to Which This Rule Applies
Based on SBA's knowledge of the relative importance of
environmental remediation activities among the nine industries surveyed
in this rule, the SBA estimates that over 1,100 firms would immediately
gain eligibility to bid on procurements for this activity competed
under various small business and small disadvantaged business
procurement preference programs, or would be able to seek assistance
under the SBA's financial assistance programs. Of these 1,100 firms,
200 would fall in the $18.0 million to 500 employee (equivalent to
approximately $50.0 million) range and be included by SBA's decision to
adopt a size standard of 500 employees for this activity rather than
the proposed $18.0 million. SBA believes these 1,100 firms are active
in environmental remediation, but exceed the size standard of the
various environmentally related industries (construction, engineering,
refuse collection, etc.) in which procurements have been classified in
the absence of an environmental remediation services size standard.
Since the size standards for all but one of these industries are less
than 500 employees, a number of firms exceeding these industries' size
standards would gain eligibility. From a longer term perspective,
however, many more firms than the estimated 1,100 firms will eventually
be impacted by this rule, as firms expand or shift their capabilities
in response to the anticipated growth of federal contracting for
environmental remediation efforts.
(2) Description of Potential Benefits of This Rule
The establishment of a size standard of 500 employees would expand
procurement opportunities to hundreds of firms previously not
considered small and permit Federal agencies to better utilize
procurement preference programs for small business and small
disadvantaged businesses (SDB) and the SBA's 8(a) Program. The amount
of Federal contracting in this area is projected to fall in the
billions of dollars on a yearly basis. It is possible that over a ten
year period, Federal contracting will exceed $50 billion for this
activity. At present, many Federal procurements are not set aside for
small firms or reserved for SDB or 8(a) firms because the alternative
size standards for environmental work are considered too low, thus
restricting small business eligibility to firms without the resources
to adequately perform the work. The result is that the preference
programs for small businesses are not fully utilized and many contracts
which could be set-aside or reserved for small disadvantaged businesses
are competed on an unrestricted basis.
In the SBA's Business Loan Program, it is estimated that twelve
additional loans amounting to $6 million will be made to firms newly
eligible to participate in the program under the 500 employee size
standard established by this rule. This fairly small impact occurs
because only a small percentage of eligible firms seek financial
assistance in this program in any one year, especially firms within the
size ranges affected by this rule.
(3) Description of the Potential Costs of This Rule
The potential costs of the establishment of this size standard are
expected to be minimal. With respect to the General Business Loan
Program, no additional costs to the government should result since all
of the SBA's lending authority is established by appropriations which
the Agency does not have the authority to exceed.
The costs to the Federal government through the procurement process
are also thought to be minimal for two reasons: First, competition
between two or more small firms must be present before a contract can
be set aside for small business. Second, set-asides are expected to be
awarded at reasonable prices. If competition and reasonable pricing do
not exist on a proposed set-aside, the procuring agency is expected to
issue an unrestricted procurement. This process suggests that losses in
the form of increased costs to the government, if at all, are unlikely
to be significant.
In addition, this new size standard is not expected to have
significant adverse effect on competition, employment, investment,
prices, productivity, innovation or the ability of U.S. based
businesses to compete with foreign-based businesses in domestic or
export markets. The competitive effects of size standard changes differ
from those normally associated with most regulations affecting factors
such as prices of goods and services, costs of labor, profits, growth,
innovations, mergers and access to foreign trade because no firm is
required to respond to a size standard revision.
(4) Description of the Potential Net Benefits of the Rule
From the above discussion, the SBA believes that because the
potential costs of this rule are minimal, the potential net benefits
(potential benefits minus potential costs) would approximately equal
the potential benefits. The impact of the size standard would be
concentrated in Federal Procurement.
(5) Legal Basis for This Rule
The legal basis for this rule is sections 3(a), 5(b) and 15(a) of
the Small Business Act, 15 U.S.C. 632(a), 634(b)(6) and 644(a).
(6) Federal Rules
There are no Federal rules which duplicate, overlap or conflict
with this final rule. The SBA has statutorily been given exclusive
jurisdiction in establishing size standards.
(7) Significant Alternatives to This Rule
In compliance with the Regulatory Flexibility Act, the SBA has
examined alternatives to the 500 employee size standard established in
this final rule. Other alternatives have been considered and rejected
as discussed in the supplementary information above.
The SBA certifies that this rule will not impose any requirements
subject to the Paperwork Reduction Act of 1980, 44 U.S.C. chapter 35.
The SBA certifies that this rule will not have federalism
implications warranting the preparation of a Federalism Assessment in
accordance with Executive Order 12612. For purposes of Executive Order
12778, the SBA certifies that this rule is drafted, to the extent
practicable, in accordance with the standards set forth in section 2 of
that order.
List of Subjects in 13 CFR Part 121
Government procurement, Government property, Grant programs-
business, Loan programs-business. Small business.
Accordingly, part 121 of 13 CFR is amended as follows:
PART 121--[AMENDED]
1. The authority citation for part 121 continues to read as
follows:
Authority: 15 U.S.C. 632(a), and 632(b)(6), 637(a), 644(a) and
644(c).
Sec. 121.601 [Amended]
2. Section 121.601, Major Group 87 is amended by revising SIC code
8744 within Major Group 87 to read as follows:
Sec. 121.601 Standard Industrial Classification codes and size
standards.
* * * * *
----------------------------------------------------------------------------------------------------------------
Size
standards
in number
SIC (* = new SIC code in 1987, not used Description (N.E.C. = note elsewhere classified) of
in 1972) employees
or millions
of dollars
----------------------------------------------------------------------------------------------------------------
Major Group 87--Engineering,
Accounting, Research, Management, and
Related Services:
* * * * * * *
8744*.................................. Facilities Support Management Services\19\................ $5.0
Base Maintenance\20\...................................... $20.0
Environmental Remediation\23\............................. 500
* * * * * * *
----------------------------------------------------------------------------------------------------------------
\19\Facilities Management, a component of SIC code 8744, has the following definition: Establishments, not
elsewhere classified, which provide overall management and the personnel to perform a variety of related
support services in operating a complete facility in or around a specific building, or within another business
or Government establishment. Facilities management means furnishing three or more personnel supply services
which any include, but are not limited to, secretarial services, typists, telephone answering, reproduction or
mimeograph service, mailing service, financial or business management, public relations, conference planning,
travel arrangements, word processing, maintaining files and/or libraries, switchboard operation, writers,
bookkeeping, minor office equipment maintenance and repair, use of information systems (not programming), etc.
A\20\SIC code 8744: If one of the activities of base maintenance as defined below, can be identified with a
separate industry, and that activity (or industry) accounts for 50 percent or more of the value of an entire
contract, then the proper size standard shall be that for the particular industry, and not the base
maintenance size standard.
A``Base Maintenance'' constitutes three or more separate activities. The activities may be either service or
special trade construction related activities. As services, these activities must each be in a separate
industry. These activities may include, but are not limited to, such separate maintenance activities as
Janitorial and Custodial Service, Protective Guard Service, Commissary Service, Fire Prevention Service,
Safety Engineering Service, Messenger Service, and Grounds Maintenance and Landscaping Service. If the
contract involves the use of special trade contractors (plumbing, painting, plastering, carpentering, etc.),
all such specialized special trade construction activities will be considered a single activity, which is Base
Housing Maintenance. This is only one activity of base maintenance and two additional activities must be
present for the contract to be considered base maintenance. The size standard for Base Housing Maintenance is
$7 million, the same size standard as for Special Trade Contractors.
*****
\23\SIC code 8744: For SBA program assistance as a small business concern in the industry of Environmental
Remediation Services, other than for Government procurement under SIC code 8744, the following requirements
must be met: Such a concern must be engaged primarily in furnishing a range of services for the remediation of
a contaminated environment to an acceptable condition. Such services include, but not limited to, preliminary
assessment, site inspection, testing, remedial investigation, feasibility studies, remedial design,
containment, remedial action, removal of contaminated materials, storage of contaminated materials and
security and site closeouts. If one of such activities accounts for 50 percent or more of a concern's total
revenues, employees, or other related factors, the concern's primary industry shall be that of the particular
industry and not the Environmental Remediation Services Industry.
For purposes of classifying a Government procurement as Environmental Remediation Services under SIC code 8744,
the following is required: (1) That the general purpose of the procurement is to restore a contaminated
environment; and (2) that the procurement is composed of activities in three or more separate industries
identified with separate Standard Industrial Classification four-digit industry codes or, in some instances
(e.g., engineering), smaller sub-components of four-digit industry codes with separate, distinct size
standards. These activities may include, but are limited to, separate activities in industries such as: Heavy
Construction; Special Trade Construction; Engineering Services; Architectural Services; Management Services;
Refuse Systems; Sanitary Services, Not Elsewhere Classified; Local Trucking Without Storage; Testing
Laboratories; and Commercial, Physical and Biological Research. If any activity in the procurement can be
identified with a separate four-digit industry code, or component of a code with a separate distinct size
standard, and that industry accounts for 50 percent or more of the value of the entire procurement, then the
proper size standard shall be the one for that particular industry, and not the Environmental Remediation
Service size standard.
* * * * *
Dated: September 8, 1994.
Cassandra M. Pulley,
Deputy Administrator.
[FR Doc. 94-22677 Filed 9-14-94; 8:45 am]
BILLING CODE 8025-01-M
