SBA rule changes for women-owned small businesses

Filed under: Contributed Columns |

There is no doubt about it; the last few weeks have had everyone in the business world holding their breath.
Most of us in the baby boomer generation have watched our retirement funds melt before our eyes, while we have resigned ourselves to working far into the future. On the bright side, the opportunity to contract with the government for the delivery of goods and services is ever present.
For businesses that are owned by socially or economically disadvantaged persons and members of other specific groups, various beneficial government contracting programs continue.
The Small Business Administration administers a number of programs that attempt to ensure that small businesses thrive. Several are based upon the characteristics of the business owner. They include, among others: veteran-owned, disadvantaged, Alaskan and Section 8(a).
One such program attempts to foster the development and success of women-owned small businesses. The federal government spent a record $11.6 billion with WOSBs during fiscal year 2006, accounting for 3.4 percent of federal procurement dollars.
But, even that was below the congressionally mandated goal.
Effective at the end of the month, the SBA will be implementing a set of rules the agency claims are meant to increase that percentage to the 5 percent mandated in the Federal Acquisition Streamlining Act of 1994. The rules will implement an entirely new set of procedures in Part 127 entitled, “Women-Owned Small Business Contract Assistance Procedures.”
Perhaps the most important aspect of the new rules is that contracting officers are authorized to restrict competition for certain federal contracts in those industries where it is determined that woman-ownership is disproportionately low and where their agency has further determined it has historically discriminated against women.
The rules are not without their critics, including the National Women’s Law Center. On its blog, published on Oct. 1, Kolbe Franklin of the center wrote, “The rule published today not only signals SBA’s intent to limit the industries in which the contracting goal can be applied, but it also requires that each federal agency determine whether it has itself engaged in discrimination before using the flexibility granted by the program. Despite the obvious need for the continuation of the Women’s Procurement Program, the rule published today imposes prohibitive barriers that virtually ensure that the program will never be used. Moreover, while the rules will undoubtedly be detrimental to women-owned businesses, it may also be used to impose barriers to programs that encourage gender equity in education and employment. It’s another sad day for women …”
The rules do not change the criteria for qualifying as a women-owned business. Women must unconditionally and directly own 51 percent of the company. Also, the management and daily operations of the business must be controlled by one or more women.
To have the designation of being an economically disadvantaged women-owned small business, EDWOSB, the individual woman’s personal net worth must be less than $750,000, excluding her ownership interest in her primary residence.
When a WOSB submits a proposal to the government, it will be required to self-certify its WOSB or EDWOSB status.
Subpart E is the real core of the new changes to the WOSB program. SBA intends to designate industries in which WOSBs are underrepresented or substantially underrepresented in federal procurement. The SBA will be making a list of these impacted industries available by their North American Industry Classification System codes. When a procurement for less than $5 million in manufacturing or less than $3 million in all other areas falls under those industry codes and the contracting officer has a reasonable expectation that two or more WOSBs or EDWOSBs will compete, the contracting officer may restrict the solicitation to WOSBs or EDWOSBs.
Whether this change enhances and focuses set-asides for WOSBs or will serve to constrain the program, only time will tell. Yet, it goes without saying that it presents a significant incentive for unscrupulous business people to make self-certifications that are less than accurate.
The new rules attempt to remove that incentive with a clear and unambiguous assertion of the penalties to be faced if a concern falsely self-certifies or otherwise misrepresents its status to avail itself of the program. Among the litany of enforcement actions the SBA intends to use are: (1) suspension and disbarment from federal contracting; (2) administrative and civil penalties under the False Claims Act and the Program Fraud Remedies Act; (3) administrative and criminal penalties under the Small Business Act; (4) criminal prosecution under the ever present 18 U.S.C. 1001 — False Official Statements; and, (5) any other enforcement action that the law may provide.
During recent years, the SBA has been stepping up its enforcement actions and has promised to be more aggressive in the coming months.
John M. Scorsine is an attorney for Holland and Hart LLP. He can be reached at