SBA adjusts rules to boost representation

Infotech and the Law | Legal insights for today's market

In the first week of October, the Small Business Administration issued two new sets of rules: one governing set-asides of federal contracts for woman-owned small businesses (WOSBs) and the other changing the requirements regarding which firms may certify their status as small disadvantaged businesses (SDBs).

More than 90,000 WOSBs are registered in the government's Central Contractor Registration database, but not more than a handful of them ever receive government contracts. In an effort to expand federal contracting opportunities for such companies, Congress amended the Small Business Act in 2000 to require federal agencies to award more contracts to WOSBs in industries in which they are underrepresented in federal contracts. Congress' goal is for a modest 5 percent of federal contract awards go to WOSBs. On Oct. 1, SBA finally issued rules to implement the set-aside.

Under the new rules, a contracting officer may set aside a procurement for WOSBs in those industries in which SBA has determined they are underrepresented in federal contracting. However, SBA has not issued its list of industries in which WOSBs are underrepresented and, therefore, entitled to set-asides, and the agency has not committed to a date for its release. When SBA posts the list, contracting officers making procurements under the selected industrial codes may restrict the solicitation to WOSBs if at least two such companies are expected to make offers and the contract value does not exceed $3 million ($5 million for manufacturing).

However, even after SBA issues its list, it might not make much difference in the use of WOSBs in federal contracts. Under the new rule, an industry sector will be considered underrepresented based on a comparison of the percentage of federal contract dollars going to WOSBs in that industry versus the total revenue from all sources going to WOSBs in that industry. If an industry traditionally has discriminated against WOSBs, SBA will not list it as eligible for set-asides as long as the government's discrimination in that sector is not appreciably worse than that of the rest of the industry.

SBA commissioned a study in 2007 to determine whether WOSBs actually were underrepresented in federal contracts. Not surprisingly, the study showed that depending on how the data was viewed, it could show that WOSBs were underrepresented in 87 percent of the industrial classifications, 0 percent or anywhere in between. SBA chose a method that resulted in a finding of underrepresentation in only four industries.

WOSBs wishing to participate in the set-aside program must certify their status. The rules allow a WOSB to self-certify its status for participation in the set-aside program or use a third-party certifying agency. Entities that falsely self-certify are subject to suspension, debarment or other penalties.
SBA has also issued a new rule concerning the certification of SDBs. That program, started in the late 1980s, permitted less than full and open competition for contracts for which at least two SDBs were expected to compete and also gave the companies pricing evaluation advantages. The Defense Department has been prohibited from using the price evaluation authority since 1999. Only the Coast Guard and NASA are authorized to give SDBs that advantage, and that authority will expire in 2009.

As a result of the declining significance of the SDB program governmentwide, SBA will no longer certify a business as an SDB. Entities that still want to obtain that status must now apply to the procuring agency for certification. Prime contractors may rely on subcontractors' representations that they meet the SDB requirements.

Jonathan Cain (jtcain@mintz.com) is a member of law firm Mintz Levin.

About the Author

Jonathan Cain is a member of law firm Mintz Levin.

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