DATE: August 9, 2000

FROM: Barry McVay, CPCM

SUBJECT: Small Business Administration (SBA); Small Business Size Standards for Arrangement of Freight and Cargo Transportation

SOURCE: Federal Register, August 9, 2000, Vol. 65, No. 154, page 48601

AGENCIES: Small Business Administration (SBA)

ACTION: Final Rule

SYNOPSIS: The SBA is changing the way average annual receipts are calculated for brokers and agents in the arrangement of freight and cargo transportation industry (such as freight forwarders and customs brokers) to allow the "pass-through" of funds held in trust for unaffiliated third parties. With this change in calculation method, SBA is reducing the small business size standard for Standard Industrial Classification (SIC) 4731, Arrangement of Transportation of Freight and Cargo, from $18.5 million to $5.0 million, with two exceptions.

EDITOR'S NOTE: The SBA's regulations are in Title 13 of the Code of Federal Regulations. The SBA small business size regulations are in Chapter 1, Small Business Administration; Part 121, Small Business Size Regulations; Subpart A, Size Eligibility Provisions and Standards; Section 121.201, What size standards has SBA identified by Standards Industrial Classification codes?

For more on recent increases in the small business size standards for other industries, see the June 6, 2000, FEDERAL CONTRACTS DISPATCH "Small Business Administration (SBA); Small Business Size Standards for Help Supply Services", and the June 16, 2000, FEDERAL CONTRACTS DISPATCH "Small Business Administration (SBA); Small Business Size Standards for Construction and Garbage and Refuse Collection."

EFFECTIVE DATE: September 8, 2000.

FOR FURTHER INFORMATION CONTACT: Patricia Holden, Office of Size Standards, 202-205-6385.

SUPPLEMENTAL INFORMATION: In response to numerous requests from the public regarding the method of calculating average annual receipts for size determination purposes for SIC 4731, SBA published on July 26, 1999, a proposed rule to revise the method of calculating receipts to exclude receipts collected for payment of charges imposed by the actual transportation provider or shipper ("pass-through charges"). About half of the establishments in SIC 4731 are freight forwarders and customs brokers that act as agents, and they collect monies from their clients to make sure that customs, shippers, and others get paid. Firms in this industry do not consider the pass-through funds collected for unaffiliated third parties as their own funds. Many have observed that counting pass-through funds as average annual receipts for these establishments means that some firms are receiving SBA assistance that should not be receiving it. Since SBA calculated that changing the calculation method to exclude pass-through funds effectively increases the size standard by about three times, SBA also proposed to reduce the size standard from $18.5 million to $5 million.

SBA received 12 comments on the proposed SIC 4731 size standards. Two comments were from associations and 10 were from businesses. Nine of the 12 comments opposed the proposed size standard, and they all were household goods forwarders and non-vessel owning common carriers that do not receive any funds that would qualify for the pass-through provision. Since their method of calculating annual receipts would remain unchange, the size standard reduction from $18.5 million to $5 million would constitute a 73% reduction. The three comments in support of the proposed size standard were all freight forwarders and customs brokers that pass-through funds.

Based on the comments, SBA recognized there are two major types of firms in the industry: those that operate as agents or brokers and have funds held in trust for others, and those that do not. Therefore, SBA is amending the size standard for SIC 4731 to $5.0 million (and adding Footnote 6, which reads "SIC codes 4724, 4731 (part), 6531,7311,7312, 7313, 7319, and 8741 (part): As measured by total revenues, but excluding funds received in trust for an unaffiliated third party, such as bookings or sales subject to commissions. The commissions received are included as revenue."). However, SBA is retaining, as an exception, the $18.5 million size standard for "Non-Vessel Owning Common Carriers and Household Goods Forwarders".

EDITOR'S NOTE: On May 15, 2000, the SBA announced that it is replacing its SIC-based small business size standards with size standards based on the North American Industry Classification System (NAICS) effective October 1, 2000 (see the May 15, 2000, FEDERAL CONTRACTS DISPATCH "Small Business Administration (SBA); North American Industry Classification System (NAICS) Small Business Size Standards").

The distinction between firms actually moving freight and cargo and those that only arrange or provide transportation services is obvious in the NAICS:

The Bureau of the Census maintains an NAICS web site at http://www.census.gov/epcd/www/naics.html. Available on the web site are tables cross-referencing SIC codes to the comparable NAICS codes (http://www.census.gov/epcd/naics/naicstb2.txt) and NAICS codes to the comparable SIC codes (http://www.census.gov/epcd/naics/naicstb1.txt).

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

Copyright 2000 by Panoptic Enterprises. All Rights Reserved.

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