1. U.S. Small Business Administration Office of Size Standards October 9, 2014 Small Business Size Standards

2. Introduction Size standards play an important role in federal government programs Size standards define the maximum size a business can be, together with its affiliates, to qualify for federal small business programs

3. Areas Covered List of areas to be covered 1.Statutory and Regulatory Authority 2.Understanding Size Standards 3.Establishing Size Standards 4.Using Size Standards 5.Finding Size Standards 6.Understanding Affiliation 7.Size Protests and NAICS Code Appeals 8.Resources and Tools

4. Authority Small Business Act 13 CFR Part 121 FAR Part 19 SBA's size standards define whether a business entity is small and, thus, eligible for Government programs and preferences reserved for “small business” concerns. Size standards have been established for types of economic activity, or industry, generally under the North American Industry Classification System. (13 CFR 121.101)

5. What is a “Small Business Concern”? SBA’s Small Business Size Regulations require, first of all, that the entity be a business concern. That is, except for small agricultural cooperatives, to be eligible for federal assistance as a small business, it must be a business entity that is organized for profit, has a place of business in the United States, and either operates primarily within the United States or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor. 13 CFR 121.105

6. What are Size Standards? Size Standards define whether a business concern is small and eligible for federal programs and preferences reserved for small businesses Size standards are established by industry or types of economic activity, generally under the North American Industry Classification System – NAICS What are NAICS codes?

7. Size Standards by Industry SBA has established two widely used small business size standards: 1.500 employees for most manufacturing and mining industries 2.$7.5 million in average annual receipts for many nonmanufacturing industries Table of Small Business Size Standards SBA Size Standards Tool 13 CFR 121.201

8. Specific – Size Standards by Industry Sector Agriculture Construction Manufacturing Services Mining Utilities Wholesale Trade Transportation & Warehousing Retail Trade Information Finance & Insurance Real Estate & Rental Leasing Professional, Scientific & Technical Services Management of Companies & Enterprises Administrative Support. Waste Management Health Care & Social Assistance Other Industries Summary of Size Standards by Industry Sector Table of Small Business Size Standards 13 CFR 121.201

9. Reviewing Size Standards SBA has been conducting a comprehensive review of size standards. Receipts Based – Begun in 2007, the last final rules covered Utilities and Construction and were effective January 22, 2014 SBA then increased all receipts based standards for inflation effective July 14, 2014 Employee Based – Proposed rules issued for Wholesale, Manufacturing, and balance of employee based standards not part of Wholesale, Manufacturing, or Retail The review will continue, probably on the same basis, but not necessarily in the same order as we completed them.

10. Methodology for reviewing size standards SBA examines industry characteristics (average firm size, industry concentration, start-up costs) and the federal procurement market To update or change size standards, SBA follows rulemaking processes – hence public comments are important SBA’s size standards methodology is posted on its website at: www.sba.gov/size www.sba.gov/size Size Standards Methodology

11. Data used for reviewing size standards 1.U.S. bureau of the Census Quinquennial Economic Census. Latest available Economic Census data is for 2007 2012 data will be available in 2015 SBA obtains a special tabulation of the data 2.Federal Procurement Data System (FPDS) Usually, last three fiscal years that are available 3.SAM/CCR data, especially for “exceptions” to some size standards for specific contract situations 4.Dynamic Small Business Search 5.Risk Management Association 6.Other types of data and calculations

12. Methodology Overview

13. Federal Procurement Each year, small businesses benefit from about $80 billion in federal prime contracts. To bid on a federal contract – as a small business – a firm must self- certify that it is, in fact, a small business concern under the appropriate size standard in the solicitation – It does this by registering in the System for Award Management (SAM).SAM To qualify for the 8(a) business development and HUBZone programs, a firm must first meet the size standard for its primary industry – then, it must meet the size standard for the NAICS code/industry assigned to each individual contract on which it is bidding, even if that size standard is lower than the one for its primary industry.

14. Using Size Standards for Government Procurement Federal procurement programs Small Business Set-asides 8(a) Business Development Programs WOSB (Women Owned Small Businesses) EDWOSB (Economically Disadvantaged Women Owned Small Businesses) HUBZone (Historically Underutilized Business Zones) Program SDVOSB (Service Disabled Veteran Owned Small Businesses) Contracting Support Federal Acquisition Portal

15. Qualifying as Small for federal procurement The buying agency contracting officer designates the NAICS code and corresponding size standard, selecting the single NAICS code that best describes the principal purpose of the product or service being acquired. If it reserved for small businesses, then a concern must not exceed the size standard for the NAICS code specified in the solicitation. See 13 CFR 121.40213 CFR 121.402

16. Qualifying as small to sell goods and other products to the government A small business can supply products and goods, if It is the manufacturer. However, if it is not the manufacturer, it cannot have more than 500 employees; must be primarily engaged in the retail or wholesale trade and normally sell the type of item being supplied; must take ownership or possession of the item(s) with its personnel, equipment or facilities in a manner consistent with industry practice; and must supply the end item of a small business manufacturer, processor or producer made in the United States, or obtain a waiver of such requirement. See 13 CFR 121.40613 CFR 121.406

17. Qualifying as small for Other SBA Programs SBA financial assistance programs 7(a) Guarantee Business Loan Program CDC/504 – Loans from Certified Development Companies in local communities SBIC – Small Business Investment Companies EIDL – Economic Injury Disaster Loan Program SBIR/STTR (Small Business Innovation Research) and (Small Business Technology Transfer) Programs SBA Loan Programs SBIR/STTR

18. Finding Size Standards SBA Size Standards ToolSBA Size Standards Tool can help a business find out if it is an eligible small business for federal government contracting Table of Small Business Size Standards 13 CFR 121.201 Bureau of the Census NAICS lookup

19. NAICS Codes Size standards are based on 6-digit NAICS industry codes It is important to understand how a business has to meet the size standard for a specific NAICS code Understanding NAICS CodesUnderstanding NAICS Codes (What is NAICS?) NAICS FAQs

20. Calculating Receipts A company’s “receipts” are based on its most recently completed fiscal three years. “Receipts” are equal to the company’s “total income” (or in the case of a sole proprietorship, “gross income”) plus “cost of goods sold” as these terms are defined and reported on Internal Revenue Service tax return forms. There are very few exclusions, and generally it is most of a company’s gross receipts. The full definition of “Receipts” and the exclusions are in SBA’s Small Business Size Regulations at 13 CFR 121.104. These are the only “pass throughs.” 13 CFR 121.104

21. Calculating Number of Employees Count full ‑ time, part-time, or anyone else hired on any basis. This includes employees obtained from a temporary employee agency, professional employee organization, or leasing concern. SBA considers the totality of the circumstances, including IRS criteria for Federal income tax purposes, to determine who are employees. Volunteers (i.e., individuals who receive no compensation) are not considered employees. For a concern in business less than 12 months, see 13 CFR 121.106. 13 CFR 121.106

22. Affiliation To meet a size standard, the company must include its affiliates receipts and employees Affiliation exists when one or more individuals or businesses controls or has the power to control another or when a third party controls or has the power to control both businesses. SBA counts the firm’s annual receipts and its number of employees, together with the receipts and employees of any foreign or domestic affiliates – including for-profit and non-profit concerns – it may have Control may arise through ownership, management, or other relationships or interactions between the parties It makes no difference whether the control is exercised – only that it exist. 13 CFR 121.103

23. General Principals of Affiliation Stock Ownership Stock Options, Convertible Securities and Agreements to Merge Common Management Identity of Interest Between Individuals or Businesses Contractual Relationships Newly Organized Concerns Joint Ventures Franchises and License Agreements Affiliation Discussion

24. Affiliation – Investors Some firms have investors, such as a venture capital company, hedge fund, or private equity firm and their affiliation can impact eligibility for small business size status The exceptions for venture capital companies to which there are references in SBA’s Small Business Size Regulations do not apply to federal procurement. They are specific to a small number of other programs. 13 CFR 121.103 Affiliation Discussion

25. Affiliation – Stock Ownership Control of 50% or more of voting stock Control of less than 50% voting stock, but large compared to others Control of less than 50% voting stock by multiple minority owners Voting stock is widely held 13 CFR 121.103 (c)

26. Affiliation – Stock Options, Convertible Securities SBA treats stock options, convertible securities, and agreements to merge as though the rights granted have been actually exercised Agreements to merge or sell stock, including agreements in principle resulting, are given present effect on the power to control a concern 13 CFR 121.103(d)

27. Affiliation – Common Management If one or more officers, directors, managing members, or general partners of a business controls the Board of Directors and/or the management of another business, both firms are affiliates 13 CFR 121.103 (e)

28. Affiliation – Identity of Interest Individuals or firms that have identical or substantially identical business or economic interests may be treated as one party unless they can demonstrate otherwise Family members, persons with common investments, or firms that are economically dependent through contractual or other relationships, are among those treated this way by the SBA 13 CFR 121.103 (f)

29. Affiliation – Contractual Relationships A firm that is economically dependent upon another business will (likely) be found to be affiliated with the other business or businesses on which it is dependent 13 CFR 121.103 (f)

30. Affiliation – Newly Organized Concerns A new business that is organized by the former officers, directors, principal stockholders, managing members, or key employees of another concern (in the same or similar line of business) may be considered affiliated with the older business concern, if the older concern furnishes the new business with contracts, financial or technical assistance, indemnification, or other facilities. 13 CFR 121.103 (g)

31. Affiliation – Joint Ventures A joint venture is an association of individuals and/or business concerns for the purpose of combining efforts, property, money, skill, or knowledge, but not on a continuing or permanent basis SBA may determine that the relationship between a prime contractor and its subcontractor is a joint venture, and that affiliation between the two exists 13 CFR 121.103 (h)

32. Affiliation – Franchises and License Agreements Restraints imposed on a franchisee or licensee by its franchise or license agreement relating to standardized quality, advertising, accounting format and other similar provisions, generally will not be considered in determining whether the franchisor or licensor is affiliated with the franchisee or licensee Affiliation, however, may be evident through other means, such as common ownership, common management or excessive restrictions on the sale of the franchise interest 13 CFR 121.103 (i)

33. Size Protests and Certificates of Competency Protest by another firm or interested party occurs when the size status of the winning bidder or offeror is questioned Contracting officer must then forward the size protest to SBA’s Area Office of Government Contracting --- that is responsible for the region where the headquarters of the protested firm is located Only certain parties or individuals can make a size protest COC (Certificate of Competency) Program

34. Size Determination SBA – through its appropriate Area Office – makes a formal size determination after a size protest Formal size determinations may be appealed to SBA’s Office of Hearings and Appeals Procedures for Size Protests and Requests for Formal Size Determinations Appeals of Size Determinations and NAICS Code Designations Size Protests, Size Determinations, and Appeals

35. Appeals of NAICS code and size standard designations Appeal of Contractor’s NAICS code and/or size standard designation on a procurement Appeal from a contracting officer's NAICS code or size standard designation must be in writing to SBA’s Office of Hearings and Appeals (OHA). The appeal must be served and filed within 10 calendar days after the issuance of the solicitation or amendment affecting the NAICS code or size standard. SBA may file a NAICS code appeal at any time before offers are due. OHA will summarily dismiss an untimely NAICS code appeal. OHA decisions are final. See 13 CFR 121.1102 and 121.110313 CFR 121.1102 and 121.1103

36. Appeals of Size Determinations Appeal of a size determination Appeal petition must be in writing to SBA’s Office of Hearings and Appeals (OHA). Size appeal must be served and filed within 15 calendar days after the receipt of the formal size determination. OHA’s decision is final. Procedures for Size Protests and Requests for Formal Size Determinations

37. Resources and Tools What are Small Business Size Standards? Guide to Size Standards Affiliation discussion SBA Office of Hearings and Appeals - Decisions SBA Size Standards Tool Size Standards Methodology What’s New With Size Standards Table of Small Business Size Standards Summary of Size Standards by NAICS Sector Size Protests, Size Determinations, and Appeals SBA’s small Business Size Regulations Nonmanufacturer rule and Waivers of the Nonmanufacturer rule Federal Acquisition Regulations

38. Resources and Tools Learn more about: SAM Registration SBA Size Standards 8(a) Business Development Program WOSB Program HUB Zone Program All of SBA’s government contracting programs For Contracting Officials Local (client) resources: SBA Government Contracting Area Offices, and Contracting Field Staff Procurement Technical Assistance Center (PTAC) Government Contracting Classroom (free online courses)Government Contracting Classroom

39. Contact Us… Thank you for your time Please contact us with any questions you may have U.S. Small Business Administration Office of Size Standards You may also email sizestandards@sba.govsizestandards@sba.gov