SBA Published Final Rule: Effective May 2, Small Business Size Standards for Engineering Services will be $22.5M

SBA Published Final Rule: Effective May 2, Small Business Size Standards for Engineering Services will be $22.5M

From Dan Hilton, ACEC*

The SBA has published its final rule raising Small Business Size Standards to $22.5M, effective May 2.  As you may recall, the $22.5 million threshold was what the agency originally proposed in November of 2020.  ACEC submitted comments raising concerns over the data used to support the proposal, and those comments are referenced below in the agency’s responses.

By way of background, to determine eligibility for federal small business assistance, SBA establishes small business size definitions or standards for private sector industries. SBA uses two primary measures of business size for size standards purposes: Average annual receipts and average number of employees, and for A/E services, average annual receipts are used. In evaluating an industry's size standard, SBA examines its characteristics (such as average firm size, startup costs, industry competition and distribution of firms by size) and the small business level and share of federal contract dollars in that industry. SBA also examines the potential impact a size standard revision might have on its financial assistance programs, and whether a business concern under a revised size standard would be dominant in its industry. In accordance with PL 111-240, Congress requires the SBA to review these standards every five years. This final rule is one of a series of final rules that will revise size standards of industries grouped by various NAICS sectors.

As noted previously, SBA directly references the comments submitted by ACEC, in addition to the meeting between SBA and the ACEC Size Standards Working Group. In our comments, we emphasized that to successfully achieve parity and equity in this process, it is critical to understand the many differences between board-licensed engineering professionals working on physical infrastructure projects and engineers working in the design, development, and utilization of machines, materials, instruments, processes, and systems. As our comments make clear, unfortunately, the census data used by the SBA does not distinguish between real property engineering services and other engineering services. Federal procurement data is also impacted by the lumping of all engineering services together, most notably, companies such as Raytheon, General Dynamics, Northrup Grumman, SAIC, and others.

ACEC comments to SBA: here.  

Copy of the final rule: here.  Excerpted below is information from the final rule, including references to ACEC’s comments.

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SBA received a total of 45 comments on its proposal to increase the size standard for NAICS 541330 from $16.5 million to $22.5 million. Of those 45 comments, 24 expressed support for the proposed increase, six opposed the proposal, 14 expressed mixed support for the proposal, and one comment was from SBA. Of the 14 comments expressing mixed support for the SBA's proposed $22.5 million size standard for this industry, 12 comments petitioned SBA to further increase the size standard for NAICS 541330 to at least $39.5 million. One of these 12 comments was submitted on behalf of the 12 engineering companies, several of which also submitted their own comment including more or less the same information. The comments also included a submission from SBA detailing a meeting that occurred during the comment period between SBA and an engineering industry trade association regarding SBA's size standard methodology and its calculations used in deriving the proposed size standard for the Engineering Services industry. The same trade association also submitted its own comment detailing its concerns with the data and approach SBA used to analyze the size standard for NAICS 541330.

Of interest in the final rule: One engineering trade association representing more than 5,500 engineering firms and 600,000+ engineers, surveyors, architects, and other specialists nationwide recommended that SBA create additional size standards (in addition to the existing four) under NAICS 541330 to account for the wide spectrum of engineering disciplines (such as civil, electrical, mechanical, environmental, structural, etc.) and services offered by this industry. The association asserted that it is critical to understand the differences between engineering services related to physical infrastructure projects (such as buildings, wells, dams, mines, canals, and roads, etc.) and other engineering activities related to the design, development, and utilization of machines, materials, instruments, processes, and systems. The association further explained that in order to establish a meaningful size standard for the Brooks Act covered engineering industry involved with physical infrastructure projects for Government and public works entities, the sector's data needs to be separated from the manufacturing and management firms and separate size standards be developed. It expressed concerns over the use of combined data gathered from disparate sectors of the engineering services industries and recommended that SBA obtain sufficient information from the Department of Commerce to overcome the issues it raised and propose appropriate size standards for the Brooks Act covered Engineering Services segment and the rest of the industry.

SBA’s Response: In response to the comment that SBA should create additional size standard exceptions under NAICS 541330 to better reflect the differing characteristics and specializations of engineering firms, SBA surveyed the alternative data sources available from the U.S. Census Bureau and determined that the available data was not sufficient to conduct a size standard analysis for the different segments of the engineering industry as suggested by the commenter. As explained in the proposed rule, SBA's primary source of industry data for evaluating industry characteristics and developing size standards is a special tabulation of the latest Economic Census from the Census Bureau. The data from the special tabulations are limited to the 6-digit NAICS industry level, and hence, do not provide separate data to evaluate a size standard at the subindustry level. SBA was not able to find other sources of data detailed enough to accurately capture the economic characteristics and industry composition of engineering firms. To account for different services and specializations that engineering firms provide, SBA has already established three subindustries (or exceptions) under NAICS 541330, in addition to the size standard for the general engineering industry.

-- *Shared with ACEC/MA by Dan Hilton, Director of Procurement Advocacy & International Affairs, American Council of Engineering Companies