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Contracting

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Guide to Size Standards

Guide to Size Standards

Guide to SBA's Definitions of Small Business

The U. S. Small Business Administration (SBA) has prepared this Guide to SBA's Definitions of Small Business (Guide) to help you understand how SBA defines a small business and how it establishes its small business size standards.  A small business size standard is numerical and represents the largest a concern can be and still be considered a small business for Federal Government programs.  This Guide provides general information on size standard requirements and addresses most typical concerns about using size standards.

The regulations specifying size standards and governing their use are set forth in Title 13, Code of Federal Regulations, part 121 (13 CFR part 121), Small Business Size Regulations.  The Guide is advisory only, and carries no legal weight.  SBA has written it in non-technical language.  For further information, you should contact the sources listed at the end or consult the applicable regulations in the CFR.

SBA's size regulations pertaining to Federal procurement are also found in the Federal Acquisition Regulation (FAR), Part 19.

BACKGROUND TO SIZE STANDARDS

The Small Business Act (Act) established SBA to aid, counsel, assist, and protect the interests of small business concerns, to preserve free competitive enterprise, to insure that small businesses receive a fair portion of the Federal Government's purchases, and to maintain and strengthen the Nation's overall economy.  The Act defines a small business concern as one that "is independently owned and operated and which is not dominant in its field of operation."  The Act states that the definition of a small business shall vary from industry to industry to the extent necessary to reflect industry differences.

Since SBA's inception, the fundamental question has been what should be the numerical definition of small business, industry-by-industry, to establish eligibility for SBA's programs.  This numerical definition is called the “Size Standard” and is usually stated in either number of employees or average annual receipts.

Small business size standards define the largest that a concern, together with all of its affiliates, may be if it is to be eligible for Federal small business programs.  Besides establishing eligibility for SBA’s programs, all Federal agencies use them to determine eligibility for Federal contracts specifically designated for small business, and for their own programs and regulations.  Other laws or programs may require the use of the SBA's definition of small business as well.

DEFINITIONS

These definitions help clarify terms in this Guide.  SBA's Small Business Size Regulations also contain the definitions, usually in more detail.

8(a) Business Development Program – An SBA program for small concerns owned by socially and economically disadvantaged persons.  Firms admitted to the program can receive Federal contracts designated for 8(a) Business Development Program participants, as well as management and technical assistance.

Affiliates – Affiliation with another business concern is based on the power to control, whether exercised or not.  Factors such as common ownership, common management, and identity of interest (often found in members of the same family), among others, are indicators of affiliation.  Power to control exists when a party or parties have 50 percent or more ownership.  It may also exist with considerably less than 50 percent ownership by contractual arrangement or when one or more parties own a large share compared to other parties.  Affiliated business concerns need not be in the same line of business.  The calculation of a concern's size includes the employees or receipts of all affiliates.  SBA has provided further explanation in its "Affiliation Discussion," with examples.

Annual Receipts – Receipts means “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.  The term does not include net capital gains or losses; taxes collected for and remitted to a taxing authority if included in gross or total income, such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees; proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker.  For size determination purposes, the only exclusions from receipts are those specifically provided for in this paragraph.  All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer's request, and employee-based costs such as payroll taxes, may not be excluded from receipts.  Receipts are averaged over a concern's latest three (3) completed fiscal years to determine its average annual receipts.  If a concern has not been in business for three (3) years, the average weekly revenue for the number of weeks the concern has been in business is multiplied by 52 to determine its average annual receipts.

Business Concern – A business concern eligible for assistance as a small business is a business entity organized for profit, which has a place of business located in the United States, and which 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.  A business concern can also be a small agricultural cooperative.

Dominance – To qualify as a small business concern, the firm may not be dominant in its field of operation.  That is, it cannot exercise a controlling or major influence on an industry.  As part of its review of a size standard, SBA investigates whether a concern at or below a particular standard would dominate the industry on a national basis.  Thus, a concern at or below the size standard is presumed not to be dominant in its field of operation.

Dynamic Small Business Search (DSBS) – A Federal Government database of registered small businesses to help them increase opportunities to provide goods and services to the Federal Government.  The Small Business Administration maintains the DSBS database.  When a small business registers in SAM, there is an opportunity to fill out the small business profile.  A small business needs to enter its business information in SAM, which will then automatically populate the DSBS.  Firms may supplement their DSBS profiles with additional information to enhance their marketing efforts to the Federal government and to larger prime contractors.  Concerns interested in receiving HUBZone, 8(a), WOSB, SDVOSB, or any other certification(s), must apply separately to SBA to complete that process.

Employee Calculation – The number of employees of a concern is the average number of persons employed for each pay period over the concern's latest 12 calendar months.  Any person on the payroll must be included as one employee regardless of hours worked or temporary status.  That is, it is a “head count.”  The number of employees of a concern in business less than 12 months is the average for each pay period that it has been in business.

HUBZone – The HUBZone Empowerment Contracting Program, which is included in the Small Business Reauthorization Act of 1997, stimulates economic development and creates jobs in urban and rural communities by providing contracting preferences to small businesses that are located in a HUBZone and that hire employees who live in a HUBZone.  SBA is responsible for regulating and implementing the HUBZone Program.  It certifies concerns for eligibility to receive HUBZone contracts and maintains a listing of qualified HUBZone small businesses federal agencies can use to locate prospective vendors.

Industry – Concerns primarily engaged in the same kind of economic activity are classified in the same industry regardless of their types of ownership (such as sole proprietorship, partnership or corporation).  OMB classifies approximately 1,100 activities as industries under the North American Industry Classification System (NAICS).  For each industry, except those in the Public Administration Sector, SBA has established a size standard.  Industries are described in detail in North American Industry Classification System – United States, 2012.  It can be found in many libraries or purchased from the National Technical Information Service, by calling (800) 553‑6847 or (703) 605‑6000.  Information on NAICS is also available at http://www.census.gov/.

Nonmanufacturer – For Federal government contracts, a concern that supplies a product it did not manufacture is termed a nonmanufacturer.  To qualify for Federal government contracting, a nonmanufacturer must have 500 or fewer employees, be primarily in the wholesale or retail trade, and supply the product of a US small manufacturer, if the contract is set aside for a small business.  This requirement is called the "nonmanufacturer rule."  This rule does not apply to supply contracts of $25,000 or less that are processed under Simplified Acquisition Procedures.  The requirement may also be waived through formal procedure by the Associate Administrator for Government Contracting if there is no small manufacturer in the Federal market for a class of products.  The nonmanufacturer rule is more detailed in paragraph (b) of 13 CFR §121.406

Representations and Certifications (Reps and Certs) – This is part of SAM.  It is a business concern’s representations and self‑certifications that apply to Federal government procurements.  Firms must maintain complete and accurate records.  The Reps and Certs in SAM are considered public information.

Service Disabled Veteran Owned Small Business (SDVOSB) – A small business concern that is at least 51 percent unconditionally and directly owned by one or more service-disabled veterans may represent itself as a Service-Disabled Veteran-Owned Small Business Concern in SAM.  To participate in the Federal marketplace, the Veteran must have a service-connected disability that has been determined by the Department of Veterans Affairs or his or her respective military branch of service. 

Set-aside Contract – A "set-aside" is a Federal contract for which only small business may submit offers.  Opportunities to bid on “set‑aside” contracts may also be restricted to 8(a), HUBZone, SDVOSB, or WOSB concerns.

Small Agricultural Cooperative – A small agricultural cooperative is an association (corporate or otherwise) acting pursuant to the provisions of the Agricultural Marketing Act (12 U.S.C.A. 1141j) whose size does not exceed the size standard established by SBA for other similar agricultural small business concerns.  A small agricultural cooperative's member shareholders are not considered affiliates of the cooperative by virtue of their membership in the cooperative.  However, a business concern or cooperative that does not qualify as small under part 121 of SBA's Small Business Size Regulations may not be a member of a small agricultural cooperative.

System for Award Management (SAM) – Formerly known as the Central Contractor Registration (CCR), SAM is the primary vendor database for the U.S. Federal Government.  SAM collects, validates, stores, and disseminates business data to support agency acquisition missions.  Both current and potential federal government vendors are required to register in SAM to contract with the federal government.  Vendors are required to complete a one-time registration to provide basic information relevant to procurement and financial transactions.  Vendors must, however, update or renew their registration at least once per year to maintain an active status.  SAM is on the web at www.sam.gov.

Woman Owned Small Business (WOSB) – A business concern in which one or more women have 51 percent or more stock ownership.  The WOSB program authorizes contracting officers to limit or set aside certain requirements for competition solely among women owned small businesses (WOSBs) or economically disadvantaged women owned small businesses (EDWOSBs).

SUMMARY OF SIZE STANDARDS BY INDUSTRY SECTOR

Small business size standards define the largest that a business concern, including all of its affiliates, may be and yet qualify as a small business concern for most SBA and other federal programs,  The SBA has established two widely used size standards – 500 employees for most manufacturing and mining industries and $7.0 million in average annual receipts for many nonmanufacturing industries.  However, many exceptions exist.  For the applicable size standard, see the SBA’s Small Business Size Regulations, 13 CFR §121.201, or the Table of Small Business Size Standards matched to NAICS industries for which SBA has established standards.  (SBA periodically changes a size standard for an industry.  The process for changing a size standard is discussed later in this Guide.)  The size standards for major industries or industry groups within various NAICS industry sectors are summarize below. 

Agriculture

  • Majority of agricultural industries have a size standard of $750,000 in average annual receipts, which is set by the statute.
  • Several of the remaining industries - $7  million

Mining

  • All mining industries, except mining services, have a size standard of 500 employees.

Utilities

  • Fossil and nuclear electric power generation – 750 employees
  • Hydroelectric power generation – 500 employees
  • Renewable electric power generation – 250 employees
  • Electric power distribution – 1,000 employees
  • Natural gas distribution – 500 employees

Construction

  • General building and heavy construction contractors – $33.5 million average annual receipts.
  • Special trade construction contractors – $14.0 million average annual receipts.
  • Land Subdivision – $25.5 million in average annual receipts. 
  • Dredging is – $25.5 million in average annual receipts.

Manufacturing

  • For approximately 75 percent of the manufacturing industries, the size standard is 500 employees. 
  • A small number have a 1,500 employee size standard
  • The balance have a size standard of either 750 or 1,000 employees.

Wholesale Trade

  • For all wholesale trade industries, a size standard of 100 employees is applicable for loans and other federal programs.(except federal procurement programs) 
  • When a wholesaler or distributor is acting as a dealer on Federal contracts under a small business set-aside, SDVOSB set‑aside, WOSB or EDWOSB set-aside, or 8(a) contract, the size standard is 500 employees and the firm must deliver the product of a small domestic manufacturer, as set forth in SBA’s nonmanufacturer rule, unless waived by the SBA for a particular class of product. 
  • However, for those procurements made under the Simplified Acquisition Procedures of the FAR and where the purchase does not exceed $25,000, the nonmanufacturer may deliver the goods of any domestic manufacturer.

Retail Trade

  • The size standard for about one‑third of the retail trade industries is $7.0 million in average annual receipts. 
  • A few, such as grocery stores, department stores, motor vehicle dealers (except new car dealers) and electrical appliance dealers, have higher size standards. 
  • None is above $35.5 million.
  • The size standard for New Car Dealers is 200 employees and Fuel Dealers is 50 employees.
  • When a retailer is acting as a dealer on Federal contracts under a small business set-aside, SDVOSB set‑aside, WOSB or EDWOSB set-aside, or 8(a) contract, the size standard is 500 employees and the firm must deliver the product of a small domestic manufacturer, as set forth in SBA’s nonmanufacturer rule, unless waived by the SBA for a particular class of product. 
  • However, for those procurements made under the Simplified Acquisition Procedures of the FAR and where the purchase does not exceed $25,000, the nonmanufacturer may deliver the goods of any domestic manufacturer.

Transportation and Warehousing

  • Air transportation – 1,500 employees
  • Water transportation – 500 employees
  • Truck transportation - $25.5 million in average annual receipts
  • Transit and ground passenger transportation - $14 million
  • Pipeline transportation of crude oil and refined petroleum products – 1,500 employees
  • Support activities for air transportation - $30 million
  • Support activities for water transportation - $35.5 million
  • Warehousing and storage - $25.5 million

Information

  • Publishing industries (except software and internet publishers) – 500 employees
  • Broadcasting - $35.5 million in average annual receipts
  • Telecommunications (except satellite) – 1,500 employees

Finance and Insurance

  • Depository institutions and credit card issuing companies - $500 million in average assets
  • Most non-depository institutions - $35.5 million in average annual receipts
  • Direct property and casualty insurance carriers – 1,500 employees
  • Other direct insurance carriers - $35.5 million
  • Funds, trusts and other financial vehicles - $30 million

Real Estate and Rental Leasing

  • Lessors of real estate - $25.5 million in average annual receipts
  • Leasing of building space to Federal Government by owners - $35.5 million
  • Office of real estate agents and brokers - $7 million
  • Activities related to real estate - $7 million
  • Automotive equipment rental and leasing - $35.5 million
  • Commercial and industrial machinery and equipment rental and leasing - $30 million

Professional, Scientific and Technical Services

  • Legal services - $10 million in average annual receipts
  • Accounting and related services - $19 million
  • Architectural services - $7 million
  • Engineering, surveying and mapping services - $14 million
  • Specialized design services - $7 million
  • Computer system design and related services - $25.5 million
  • Management, scientific and technical consulting services - $14 million
  • Advertising, public relations and related services - $14 million
  • Research and development in biotechnology – 500 employees
  • Research and development in the physical, engineering and life sciences (except biotechnology) – 500 to 1,500 employees
  • Research and development in social sciences and humanities - $19 million in average annual receipts

Management of Companies and Enterprises - $19 million in average annual receipts

Administrative Support, Waste Management and Remediation Services

  • Employment services - $25.5 million in average annual receipts
  • Business support services - $14 million
  • Travel arrangement and reservation services - $19 million
  • Investigation and security services - $19 million
  • Other support services - $19 million
  • Waste collection, treatment and disposal - $35 million
  • Remediation services - $19 million
  • Environmental remediation services – 500 employees

Health Care and Social Assistance

  • Office of physicians - $10 million in average receipts
  • Office of dentists - $7 million
  • Office of other health practitioners - $7 million
  • Hospitals - $35.5 million

Other Sectors

Other sectors include

  • Education,
  • Arts, Entertainment and Recreation
  • Accommodation and Food Services
  • Other Services
  • More than half of the industries in these sectors have a size standard of $7 million in average annual receipts
  • Other most common size standards are $10 million, followed by $25.5 million, $14 million, and $35.5 million.

For specific size standards as of January 1 of each year refer to the size regulations in 13 CFR §121.201.  SBA maintains on its website a current table of small business size standards that includes all changes and modifications made since January 1 of the most recent year.  (See www.sba.gov/size)

USE OF SIZE STANDARDS FOR LOANS AND OTHER FINANCIAL ASSISTANCE PROGRAMS

To qualify for financial assistance under the SBA’s 7(a), Small Business Investment Company (SBIC) and Development Company (504) Loan Programs, an must meet the size standard for the industry in which it, including its affiliates, is primarily engaged as well as the size standard for the primary industry of the applicant concern, not including its affiliates or an alternative size standard shown below:
 

                                                                   SBIC Program                               7(a)/504 Program
Tangible Net Worth                                    $18 million                                      $15.0 million
and
Average (2 year) Net Income                     $6.0 million                                     $5.0 million
after Federal Income Taxes
(excluding any carry-over loses)

For Surety Bond Guaranty Assistance, the business concern, combined with its affiliates, must meet the size standard for the primary industry in which such business concern, combined with its affiliates, is engaged..

USE OF SIZE STANDARDS FOR SBA’s SMALL BUSINESS INNOVATION RESEARCH PROGRAM

The Small Business Innovation Research (SBIR) Program provides small concerns a competitive opportunity to propose innovative concepts to meet the research and development needs of the Federal government.  To be eligible, a business concern must be either

  • at least 51 percent owned and controlled by US citizens or lawfully admitted permanent resident aliens, and, including affiliates, not exceed 500 employees; or,
  • at least 51% owned and controlled by another business concern that is itself at least 51% owned and controlled by individuals who are citizens of, or permanent resident aliens in the United States.

To determine the SBIR firm’s size, you must include the employees of all of its affiliates, wherever they are, and whether they are for-profit or not-for-profit entities.  Many SBIR participants and applicants for participation have one or more Venture Capital Operating Company (VCOC) investors.  This has raised questions about the relationship of the SBIR Company to the VCOCs and about the relationships among the VCOCs themselves.  Because determining the SBIR company’s eligibility as a small business involves counting the employees of all of its affiliates, SBA has provided further explanation in its "Affiliation Discussion" , with examples, of affiliation relationships, and how a company could be affected.

For purposes of the SBIR and STTR programs, SBA’s affiliation regulations can be found at 13 C.F.R. § 121.702.  Further information about the specific affiliation rules for the SBIR and STTR programs, including a compliance guide and FAQs, is available at www.sbir.gov.

 

USE OF SIZE STANDARDS FOR GOVERNMENT PROCUREMENT

The contracting officer will designate, as part of the solicitation, the applicable size standard for the government procurement.  The size standard is based on the industry classification of the goods or services being procured.  The proper NAICS industry is that which best describes the principal purpose of the procurement, considering the industry description in NAICS.  When more than one NAICS is involved in a contract, consideration is given to the function of the goods and services being purchased and the relative value and importance of each.  To bid on Federal contracts, the concern must self-certify in SAM that it is a small business under the appropriate size standard set forth in the solicitation.  The size of the concern at the time of self-certification prevails for that contract.  A concern may grow above the size standard before or after award without loss of eligibility to perform on that contract.  In the 8(a), HUBZone, WOSB, and SDVOSB Programs, the concern must meet the size standard for its primary industry to be admitted to the program.  Then it must meet the size standard for the NAICS industry assigned to each individual contract.  If a procurement calls for two or more items with different size standards and the offeror must bid on all end items, it may qualify as a small business if it meets the common size standard for those items accounting for the greatest percentage of total contract value.  If the offeror is not required to bid on all items, it may bid only on items for which it meets the size standard.  To be awarded a Government small business set-aside contract, the concern must perform at least a given percentage of the contract.  This provision limits the amount of subcontracting a concern may enter into with other firms when performing these types of contracts.  The provisions are as follow:

  • Construction – For general and heavy construction contractors, the prime contractor with its own employees must perform at least 15 percent of the cost of the contract, not including the cost of materials.  For special trade construction, such as plumbing, electrical or tile work, this requirement is 25 percent.
  • Manufacturing – The prime contractor must do at least 50 percent of the cost of manufacturing, not including the cost of materials.
  • Services – The prime contractor’s own employees must perform at least 50 percent of the contract cost for personnel.

See 13 CFR §125.6, Prime contractor performance requirements (limitations on subcontracting), for more information.

PENALTIES FOR MISREPRESENTATION OF SIZE STATUS

In addition to other applicable laws, section 16(d) of the Small Business Act, 15 U.S.C.  645(d) provides severe criminal penalties for knowingly misrepresenting the small business size status of a concern in connection with procurement programs.  Section 16(a) of the Act also provides, in part, for criminal penalties for knowingly making false statements or misrepresentations to SBA for influencing in any way the actions of the Agency.  (13 CFR §121.108)

SIZE PROTESTS AND NAICS CODE APPEALS

Any party to a procurement may protest the self-certification of a bidder as a small business.  The protest must follow certain procedures and shall include the specific reason(s) why the protester believes the challenged firm is not a small business.  A protest must be sent to the contracting officer, who transmits it to an SBA Office of Government Contracting Area Office for a size determination of the challenged firm.  Procedures for protest and appeal of size determinations are detailed in 13 CFR §121.1001 through §121.1010.  Size determination and appeal procedures for SBA’s financial assistance programs are found at the same citation.  An interested party may appeal an NAICS code designation made by the contracting officer on a specific procurement that has been set aside for small business.  The most likely reason for such an appeal would be to correct an NAICS code classification to one with a different size standard.  These appeals are sent directly to SBA’s Office of Hearings and Appeals (OHA) and must follow the required procedures.  (Different rules apply to NAICS code designations of 8(a) contracts.)

Parties interested in making a protest of appeal should avail themselves of the procedures governing the time limitations for appeals in effect at that time.  These procedures are contained in 13 CFR § 121.1001 through §121.1103, and 13 CFR §134 (Office of Hearings and Appeals).

REVIEW AND REVISION OF SIZE STANDARDS

The SBA's Administrator has responsibility for establishing small business size standards.  Requests to change existing or to establish a new size standard should be addressed to the Chief, for the Office of Size Standards in Washington, DC.  The Office of Size Standards has the responsibility of reviewing industry and other relevant information and making recommendations to the Administrator.  Important factors are the structure of the industry, Federal market conditions, and the impact of the size standards revisions might have on small business eligibility on Federal Government programs .  Changes to size standards must follow the rulemaking procedures of the Administrative Procedure Act.  A proposed rule changing a size standard is first published in the Federal Register allowing for public comment.  Documentation establishing that a significant problem exists requiring a revision of a size standard, plus an economic analysis of the change, must be included in a proposed rule.  Comments from the public, plus any other new information, are reviewed and evaluated before a final rule is promulgated which establishes a new size standard.

WHERE TO GET ADDITIONAL INFORMATION

Small business regulations are in 13 CFR § 121 and the Federal Acquisition Regulation 48 CFR §19.  For the applicable size standard and for size standard questions, you may contact SBA in one of the Area Offices of the Office of Government Contracting, or in Washington, DC.  The full table of small business size standards matched to NAICS codes is available on the SBA’s Internet Web Site.  Please visit http://www.sba.gov/size/.  There are six area offices in SBA’s Office of Government Contracting, listed below.  Each has someone designated as a Size Specialist.

 

Contacts
SBA’s Office of Government Contracting has six offices with an employee designated as a Size Specialist. 
Below are the office addresses and telephone numbers.

Area I
Office of Government Contracting
Boston Area Office
U.S. Small Business Administration
10 Causeway Street
Room 265
Boston, MA  02222-1093
Tel: (617) 565-5622

Area IV
Office of Government Contracting
Chicago Area Office
U.S. Small Business Administration
500 West Madison Street
Suite 1250
Chicago, IL  60661-2511
Tel: 312.353.7674

Area II
Office of Government Contracting
Philadelphia Area Office 
U.S. Small Business Administration 
Parkview Tower
1150 First Avenue
Suite 1001
King of Prussia, PA  19406
Tel: (610) 382‑3190

Area V
Office Government Contracting
Dallas Area Office 
U.S. Small Business Administration 4300 Amon Carter Boulevard,
Suite 116 
Fort Worth, TX 76155 
Tel: (817) 684-5303

Area III
Office of Government Contracting
Atlanta Area Office 
U.S. Small Business Administration 
233 Peachtree Street, NE
Suite 1805
Atlanta, GA  30309
Tel: (404) 331-7587 

Area VI
Office of Government Contracting
San Francisco Area Office 
U.S. Small Business Administration
455 Market Street
6th Floor 
San Francisco, CA 94105 
Tel: (415) 744-8429

IN WASHINGTON, DC, THERE ARE TWO OFFICES THAT YOU MAY CONTACT

Office of Size Standards 
U.S. Small Business Administration 
409 3rd Street, SW 
Washington, DC 20416 
Tel: (202) 205-6618

Office of Contracting Assistance 
U.S. Small Business Administration
409 3rd Street, SW 
Washington, DC 20416
Tel: (202) 205-6460

 

ADVISORY NOTICE

As stated above in the Introduction, this guidance paper is advisory only and summarizes in simplified form the most basic provisions of the complete regulations found in 13 CFR §121.  Part 121 regulations are legally controlling.

ENDNOTE:

The term “person” used throughout this document and the regulations includes an individual, entity, or business concern.  13 CFR § 121.103(c)(1).

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