The Small Business Administration (SBA) published a final rule on February 10, 2012, that generally increases the size definitions for Professional, Technical, and Scientific Services, and certain other services. This rule is important to business because it reflects a trend improve agency analysis required in Federal rulemaking and include more businesses. In short, increasing the size of “small business” and, therefore, the number of qualifying small business entities will require new thinking by regulators as they develop rules and analyze the impact of those rules under the Regulatory Flexibility Act (RFA).
The SBA Final Rule: SBA doubled, for example, the ‘cap’ on the size of ‘small’ Administrative Management and General Management Consulting Services from $7 million in annual receipts to $14 million. Not all categories of professional services were changed.
This is more than an inflation adjustment – the changes reflect a modern methodology and comprehensive review of the size standards that define the RFA and eligibility for a variety of loan and contracting programs. The RFA is critical to rulemaking – and forms a foundation for regulatory review by the SBA Office of Advocacy – because every agency must consider the impact of a proposed or final rule on small entities, defined by the SBA standards.
SBA’s Long-Range Plan: SBA’s existing size standards use two primary measures of business size – receipts and number of employees. The size standards are detailed by specific industries under the North American Industrial Classification System (NAICS). The Small Business Jobs Act of 2010, Public Law 111-240, directed SBA to conduct a detailed review of at least one-third of all size standards during every 18-month period from the date of its enactment and a complete review of all size standards not less frequently than once every five years. In implementing these reviews, SBA will use a more sophisticated size standard methodology. This process will take years, but will affect every industry.
Private Advocates: Two advocacy groups watch these standards and process closely, although they use different standards for their own membership. The National Federation of Independent Business (NFIB) defines its membership as non-publicly held business no matter the actual size. The National Small Business Association (NSBA) limits its membership to businesses with fewer than 500 employees without regard to revenue. Both advocacy organizations support small business in dealing with the government. The difference is important because the agencies must use more refined criteria and must frequently develop specialized analysis of an affected industry before applying the SBA size standards to determine a rule impact.
RFA Analysis After March 12: The SBA final rule becomes effective March 12, 2012, and all proposed and final rules – and initial and final regulatory flexibility analyses – published after that date should reflect the new standards. Some flexibility needs to be permitted here because analysis takes time, but the agencies should at lease acknowledge the new standards. In effect, the increased size standards and enlarged pools of small businesses mean that agencies should be considering greater costs and burdens on small business.
Judicially Reviewable Determinations: The RFA provides that a small entity that is adversely affected by a rule may seek judicial review of the agency’s determinations under the RFA. Accordingly, a rule may be struck down if the agency does not follow the procedural requirements of the RFA or its analysis:
- fails to examine the relevant data relating to small business;
- fails to consider an important aspect of the problem;
- fails to consider viable alternatives;
- fails to articulate a satisfactory explanation for its action, including a rational connection between the facts found in that data and the choice made,
- explains its decision in a way that runs counter to the evidence; or
- the agency’s explanation is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.
Business – whether large or small – should be aware of these new metrics and watch for their application – including new rules applicable to other industry groups.