SBA Proposes 5% Contract Set Asides for Woman Owned Small Businesses
December 20, 2007 the SBA published a proposed rule for a very limited contract set aside
for small businesses owned by women. This rule represents the first significant
"race or gender based" set aside category that the feds have introduced since a
series of Supreme Court Rulings in the late 1980's and 1990's severely restricted the use
of such divisive and constitutionally problematic set aside programs. Both
conservatives and liberals will both find something to love and something to hate about
this rule. Read on...
Web Posted Jan. 20, 2008
1. Analysis and Commentary by Tim Fay.
The U.S. Small Business Administration issued a proposed rulemaking regarding Women Owned
Small Businesses (WOSBs) on December 20, 2007. The public comment period has been
extended to March 31, 2008. Comments may be submitted to the SBA at this LINK.
The proposed regulation, as published in the Federal Register, may be downloaded from the
The new SBA rule for WOSBs is modeled in significant part upon the long-standing SBA 8(a)
set aside program which gives government contracting preference to minority business
owners. Many of the size standards and net worth standards for WOSBs in this rule
are the same as those for 8(a) firms.
On December 20, 2007 the U.S. Small Business Administration issued its proposed rule for
federal contracting set asides for WOSBs.
Seven years ago in December 2000 the U.S. Congress enacted a law directing the U.S. Small
Business Administration to establish government-wide contracting goals for WOSBs.
This directive was part of "The Small Business Reauthorization Act" and became
Public Law 106-554. Women's business organizations have been frustrated that it has
taken the SBA seven years to issue a final rule. Now that the proposed rule has been
published, these same organizations are angry that the rule allows set asides for WOSBs
only in extremely limited circumstances.
In fairness to the SBA it should be noted that in passing the 2000 Act the U.S. Congress
delegated to SBA an enormously complex assignment which required SBA to navigate the
current legal and constitutional issues surrounding race or gender set asides. In
previous years Congress itself has taken it upon itself to make a legislative finding of
discrimination as the justification for race or gender based set asides. For
whatever reason this time around Congress delegated this task to the SBA.
Furthermore, in the many years since the enactment of other set aside programs for various
minority groups, the U.S. Supreme Court has issued a series of definitive, precedent
setting decisions which substantially raised the bar for: (a) proving the existence of
contracting discrimination based on race or gender, and (b) for imposing constitutionally
problematic race or gender based set asides as the solution to such discrimination.
Summary of SBA's
Proposed Rule for WOSBs:
In essence, SBA's proposed rule establishes six tests, or hurdles, which each federal
agency must meet in order to reserve a contract for a WOSB. These six tests are:
The proposed rule allows federal contracting agencies to set aside 5% of
their contracts for WOSBs only in industries where SBA has determined that WOSBs are
underrepresented or substantially underrepresented. This determination will be made
on an ongoing basis by SBA. As of publication of this proposed rule SBA has found
underrepresentation or substantial underrepresentation of WOSBs only in the following four
- National Security and International Affairs
(NAICS code 9281)
- Coating, Engraving, Heat Treating, and
Allied Activities (NAICS code 3328)
- Household and Institutional Furniture and
Kitchen Cabinet Manufacturing (NAICS code 3371)
- Other Motor Vehicle Dealers (NAICS code
Test 2: A contract
may not be set aside for a WOSB if the work has been set aside as an 8(a) procurement by
SBA, or if there is an 8(a) firm currently performing the work. (SBA can choose to waive
the 8(a) designation for the work, i.e., re-designate the work as a non-8(a) procurement
if, and only if, an 8(a) firm is not currently performing the work.)
Test 3: The
estimated contract price, including options, must be less than $5 million for
manufacturing and less than $3 million for all other contracts.
Test 4: The
contracting agency must conduct an appropriate analysis of the agency's procurement
history and make a determination of whether there is evidence of relevant gender
discrimination in that industry by that agency. (SBA points out that this analysis
is necessary to justify a gender-based restriction on competition under the equal
protection requirements of the Due Process Clause of the Fifth Amendment of the
Test 5: The
contracting agency must determine if two or more economically disadvantaged
(minority-owned) WOSBs (EDWOSBs) are available, qualified and likely to bid upon the work.
If so, competition for the contract can be restricted (set aside) for an
Test 6: If no
EDWOSBs are available to bid upon the work, then and only then can the contracting agency
set aside the work for a non-minority owned WOSB, but only if it determines that there are
two or more WOSBs available, qualified, and likely to bid upon the work.
Political Party Differences:
Conservatives and liberals alike have reasons both to celebrate and to complain about this
proposed new rule.
Political conservatives will probably celebrate the fact that SBA's proposed regulation is
very limited in scope (as mandated by a series of Supreme Court rulings), and effectively
makes it difficult for a federal contracting officer to set aside federal contracts based
in any part upon the gender of the business owner.
Political liberals will probably celebrate the fact that they have won a set aside for a
putative "underrepresented group" of federal contractors, WOSBs, which may
increase business opportunities for this group.
Conservatives will also celebrate the fact that SBA's proposed new rule pays legal homage
to the Supreme Court decisions which collectively established a principle of "strict
scrutiny" regarding race or gender based contracting preferences.
These Supreme Court decisions essentially said that race or gender based set asides are
only to be used as a last resort to correct "historic discrimination" against
"underrepresented groups", and that race neutral and gender neutral efforts to
correct for that prior discrimination must first be exhausted prior to imposing more
legally and constitutionally problematic race or gender based preferences.
These same court rulings also set a very high bar for proving that discrimination is the
reason for any existing underrepresentation. This is a significant part of the
reason that it was so difficult, and that it took so long, for SBA to craft a new rule for
On the other hand, conservatives will complain that the feds should get out of the
business of awarding contracting opportunities based in any part upon the race or gender
of the business owner. Conservatives will tend to argue that race neutral and
gender neutral outreach and assistance efforts, market forces, and adherence to principles
of nondiscrimination are sufficient to ensure that WOSBs, as well as all other groups,
have an equal opportunity to bid on and competitively win federal contracts.
Similarly, liberals will complain that the SBA has only found a tiny handful of industries
in which WOSBs are underrepresented.
In the final analysis, the proposed SBA rule provides very little in the way of contract
set asides and preferences for WOSBs. Conservatives believe this is as it
should be, while liberals believe that WOSBs should be guaranteed at least 5% of all
federal contract awards. In fact, this past autumn one Congressman submitted an
amendment which would have required an 8% set aside for WOSBs. The amendment was not
The SBA contracted with the Rand Corporation to document the degree of underrepresentation
of WOSBs in federal contract awards. In its final report, Rand pointedly noted that
underrepresentation per se does not prove the existence of gender discrimination. In
other words, in order to justify the extreme measure of imposing a gender-based set aside
there must be a definitive finding that the underrepresentation of WOSBs in federal
contracting is due to gender discrimination.
Also, SBA's proposed rule requires that each federal contracting agency provide proof that
WOSBs are, in fact, underrepresented in that agency's contract awards and that the reason
for that underrepresentation is gender discrimination. Liberals will argue that this
is burdensome and that it is a disincentive for federal contracting officers to set aside
contracts for WOSBs.
Statistical Facts Regarding Set
Historically, the biggest federal contract set aside programs have been reserved for
racial minorities. These include the 8(a) program, the Small Disadvantaged Business
(SDB) program, and the Historically Underutilized Business Zone (HUBZone) program.
Together these three programs accounted for $42.6 billion or 12.5% of all federal
contracts in FY 2006. It should be noted that 33% of 8(a) program participants are
woman-owned, and 30% of HUBZone participants are woman-owned.
Data from SBA's
"Federal Procurement System Small Business Goaling Report"
Total Contract Dollars:
Percent of All Federal
Disabled Veteran Owned Businesses
Business (regardless of race or gender)
currently no statutory set aside for WOSBs. However, for many years federal agencies
have been required to track and report the proportion of contracts their agencies award to
The small business set aside program is race and gender neutral. This means that any
small business may bid on contracts set aside for small businesses without regard to the
race, gender or ethnicity of the owner. 22.8% ($77.7 billion) of all federal
contracts were set aside for small businesses in FY 2006.
Even without the proposed WOSB set aside program, woman-owned businesses are entitled to
bid upon -- and do win -- significant contracting opportunities which are shielded from
open competition. The woman owned businesses in all of the above set aside programs are
also permitted and encouraged to bid upon all federal contracts, including especially the
race-neutral small business set aside program.
In addition, if a woman owned business is certified as an 8(a) firm or as an SDB firm then
they are automatically certified as a WOSB for purposes of this proposed rule.
According to the SBA's own figures, women owned small businesses have enjoyed a steadily
increasing percentage of federal contracting dollars. Federal contracts to WOSBs accounted
for $11.6 billion in FY 2006 and 3.4 percent of federal procurement, an increase of $1.4
billion or 0.2 percent from FY 2005.
Currently, SBA's support for WOSBs includes funding or affiliations with Small Business
Development Centers (SBDC), Womens Business Centers (WBC), SCORE, Procurement
Technical Access Centers (PTAC), and the Office of Small Disadvantaged Business
Utilization (OSDBU) centers within each federal agency. Most OSDBUs have a women's
implemented other new initiatives to increase small business access to government
contracts, which will be advantageous to WOSBs. In the summer of 2007, a semi-annual
Scorecard was instituted to report on federal procuring agencies progress toward
small business contracting goals, including the 5 percent goal for women-owned small
businesses. At this writing, this 5% goal is purely aspirational, i.e., there is no
statutory authority to force federal contracting agencies to award 5% of their contracts
to WOSBs. The exception, of course, lies within those few industries identified by
SBA in this rulemaking in which WOSBs are either underrepresented or substantially
The pertinent question is whether a set aside for woman owned small businesses is
necessary or desirable.
There are already literally dozens of federal programs and initiatives designed to help
all small businesses compete, including programs specifically targeted toward helping
woman owned small businesses.
In FY 2006 the federal government awarded fully 41.3% of all contracts ($140.7 billion) to
small businesses many of which are owed by racial minorities and women. 12.5% of contracts
($42.6 billion) went to firms owned by racial or ethnic minorities, a substantial number
of which are owned by women.
The U.S. Supreme Court has ruled that preferences based in any part upon race, gender or
ethnicity must be narrowly tailored, limited in duration, and must be designed to
alleviate actual discriminatory practices. Most importantly, under current case law race
and gender neutral methods to remedy any discrimination must be exhausted prior to
imposing legally and constitutionally problematic race or gender preferences. The purpose
of any preference is not to correct underrepresentation but to correct actual
-- Tim Fay, Adversity.Net
Download the MS Word version of this analysis.
2. SBA Facts about WOSBs
help women-owned small businesses"
by Steve Preston
U.S. Small Business Administration
Originally published on the SBA Web Site 1/15/08
"In 1994, Congress set a government-wide target that 5 percent of all federal
contracts should go to women-owned small businesses (WOSBs). More recently, legislation
was signed into law creating a set-aside for such businesses but requiring that the Small
Business Administration study the issue to determine in which if any of the
governments 313 contracting categories, many of which are defense-related, WOSBs
then there has been an SBA study, a National Academy of Sciences review, a court case, and
an external, independent study by the respected RAND Corporation on the issue. The RAND
study concluded that WOSBs were underrepresented in four contracting categories, based on
a review of dollars going to such firms.
"Two weeks ago, based upon the RAND study, statutory law and constitutional
precedent, SBA issued a proposed set-aside rule for women-owned small businesses. Our
responsibility was to implement the statute in a constitutional manner, and that is what
"Some critics have not been satisfied, pointing out that women are 52 percent of the
population and own 28 percent of American businesses, yet in 2006 the last year for
which we have data they received only 3.4 percent of federal contract dollars.
"However, it is important to recognize this is an apples-to-oranges comparison.
Women-owned businesses may be more than one-fourth of all businesses, but their gross
receipts were only 4.2 percent of the economy, according to census data, because of the
inclusion of large companies, many of which are led by women.
"The census also indicates that women-owned businesses with fewer than 500 employees
make up 3.4 percent of the economy. For the SBA rule, the pool was confined to the nearly
56,000 women-owned small businesses that were registered federal contractors at the time.
"The data in fact reveal positive news for women: When WOSBs compete for contracts,
they do well. In 136 of the 140 categories where RAND had sufficient survey samples to
analyze, the data indicated that when women compete for federal contracts they succeed.
"Actual contracting dollars to women-owned small businesses have increased
dramatically under President Bush: Prime contract dollars to such companies increased from
$4.6 billion in 2000 to $11.6 billion in 2006. The year-over-year increase from 2005 to
2006 was the largest ever, $1.5 billion. Subcontracting dollars also increased, from $3.6
billion in 2000 to more than $10 billion in 2006.
"Moreover, the share of federal contracting dollars that goes to WOSBs is growing as
a percentage of the federal contracting universe. In 2000, these businesses received 2.3
percent of the federal governments contracts. That share has increased steadily each
year of the administration and, as mentioned, reached 3.4 percent in 2006.
agencies are working hard to reach the 5 percent WOSB target, but how do we get there the
right way? We need to understand that the data do not show significant
under-representation in the contracting arena, but rather, that too few qualified
women-owned small businesses are choosing to enter that arena. A broad set-aside would be
advantageous to women-owned small businesses already pursuing contracts, but again, the
data indicate that as a group theyre already doing comparatively well.
"The better way to increase women-owned small businesses share of federal
contracts is to get more such firms ready, willing and able to perform federal
contracts, and ensure they are registered in the Central Contractor Registration system.
"Currently, there are some 63,000 women-owned small businesses in the registration
system, receiving 3.4 percent of contracting dollars. It stands to reason that if we can
get more ready, willing and able WOSBs into the system, we can increase their share of
federal contracting dollars. Simple arithmetic suggests that to reach the target of 5
percent, there will need to be thousands more qualified women-owned small businesses in
the system competing.
"Therefore, a bipartisan agenda that should unite all parties and avoid
constitutional hurdles is to increase the number of capable WOSBs competing for federal
"On this, SBA has
taken the lead:
staff is focused on contracting to businesses owned by targeted groups, including women.
instituted a government-wide scorecard of federal agencies to rate their small business
contracting efforts, including for women, bringing greatly enhanced transparency and
accountability to the process.
"And, on a smaller
but still significant level, in 2007 SBA women-owned business procurements exceeded the
government-wide statutory goal of 5 percent, reaching 24.7 percent.
"In this age of partisanship, people want positive solutions. Helping more
women-owned small businesses compete for government contracts, and doing it the right way,
is a winner for all sides."
Steve Preston, Administrator, SBA
LINK to access the original copy of Preston's remarks on
the SBA web site.
3. Additional Resources and Reading
ARTICLE - National Review Online
Jan. 14, 2008
HEAD: Setting Aside Set
SUBHEAD: The Bush administration on sex
By Roger Clegg (Center for Equal
"The Bush administration is under fire from various womens groups because of a
new rule its Small Business Administration has proposed regarding set-asides for
female-owned companies. No surprise here: Naturally, the womens groups want more
set-asides than the rule would allow.
"The truth is that the administration actually did a good job here, since the
Constitution itself allows such discrimination only if, at a minimum, the government can
show that women are being denied contracting opportunities on account of their sex. As it
turns out, there are relatively few sectors in which this can be shown, and so the rule
quite rightly limits set-asides to those sectors. ..."
Read the entire article at National Review
Online at the last known LINK.
ARTICLE - Washington Post Jan. 7,
HEAD: Coverage Continues on
Criticism of SBA's Proposal
By Sharon McLoone, Washington Post
"In today's Business section Washington Post staff writer Kendra Marr
covers the uproar over the Small Business Administration's new proposal to change
contracting rules governing women-owned businesses.
"In its proposal, released two weeks ago, the agency identified just four industries
in which it said women-owned small businesses are underrepresented and thereby eligible
for set-asides: intelligence; engraving and metalworking; furniture and kitchen cabinet
manufacturing; and a limited category of motor vehicle dealers, Marr reports.
"Federal agencies could decide that women-owned businesses are underrepresented in
other industries, but first they would have to find sufficient evidence of discrimination
by the government before setting aside contracts. The SBA further limited the size of any
contract to $5 million for manufacturing work and $3 million for other jobs.
"The proposal prompted many small-business owners to protest, and some are mobilizing
to press their concerns during a 60-day public comment period that ends Feb. 25.
"For more background information, see Small Business blog posts I've written on the
reaction of women's groups and lawmakers."
Read this article at the last known LINK:
Published Response by Roger Clegg, Center
for Equal Opportunity Jan. 9, 2008:
"It's no surprise that various women's groups are unhappy with the Small Business
Administration's proposed rules regarding set-asides for female-owned companies.
Naturally, they think there should be more set-asides.
"But, as a legal and policy matter, there should no such preferences, period. The
underlying statute requires no such discrimination, and it is extremely unlikely that, in
the year 2008, the only way to ensure that contracting is nondiscriminatory for women is
by mandating discrimination in their favor. And, of course, the taxpayers lose whenever
contracts go to anyone other than the lowest bidder. The Bush administration should, at a
minimum, go no further down this silly road than the proposed rules would take it;
ideally, it would reconsider and not go down this road at all."
ARTICLE - Boston Herald Fri., Jan.
HEAD: Latest federal regs
still aren't enough aid for biz women
By Jennifer Heldt Powell
"Wendi Goldsmith is the poster child for government programs that favor women and
"As president of the Bioengineering Group in Salem she has built a successful company
in the male-dominated field of construction and environmental engineering in part because
of government favoritism.
"That's why she is among those disappointed with proposed regulations who say they
fail to give women more access to government contracts. "They fall short of offering
a useful strategy to solve a very real problem," she said. "The playing field is
"The regulations are designed to make bullet-proof against constitutional challenges
a new law requiring the government to set aside 5 percent of its contracts for women-owned
businesses. [In fact, a series of
Supreme Court rulings spanning the late 1980's into the 1990's definitively stipulate that
contracting preferences based in any part upon the race or gender of the owner are to be
used only after race neutral and gender neutral alternatives have been tried and
exhausted. --Editor, Adversity.Net]
"The first set of rules was so weak that congressional supporters of the law
pressured SBA officials to try again. They're not much happier this time around. "The
SBA's proposal should be scrapped because it does not embody the program that Congress
envisioned," said Nydia M. Velazques (D-New York), chairwoman of the House Committee
on Small Business. "If the rule becomes final, women entrepreneurs would be unjustly
kept out of the federal marketplace."
legal challenges, SBA officials said the only agencies that can have set-asides are those
that have discriminated against women in the past.
"The problem is the
regulations leave it up to the agencies to show that they have discriminated against
women. [In fact, in accord with the
Supreme Court rulings on the subject, SBA points out that this analysis is necessary to
justify a gender-based restriction on competition under the equal protection requirements
of the Due Process Clause of the Fifth Amendment of the Constitution. --Editor,
"Of course, that seems highly unlikely. But not everyone is upset about the proposed
"Roger Clegg, president of the Center for Equal Opportunity in Virginia, said in an
article for National Review that if anything, they went too far. He says that if contracts
go to anyone but the lowest bidder, taxpayers lose.
"The study the SBA used to write the regulations showed that women are
under-represented in only four of 140 categories: national security and international
affairs; coating and engraving; furniture and cabinet making; and all terrain vehicle
"Under the SBA criteria, of the 6.5 million women-owned businesses, only 1,247 could
potentially benefit from the program, according to the Center for Women's Business
Read the entire Boston
Herald story at this last known LINK.
4. RAND Study of Underrepresentation of WOSBs
Utilization of Women-Owned Small Businesses in Federal Contracting
||Elaine Reardon, Nancy Nicosia, Nancy Y. Moore
||Prepared for the Small Business Administration by the Kauffman-RAND
Institute for Entrepreneurship Public Policy
Limited Electronic Distribution Rights
This document and
trademark(s) contained herein are protected by law as indicated in a notice appearing
later in this work. This electronic representation of RAND intellectual property is
provided for noncommercial use only. Permission is required from RAND to reproduce, or
reuse in another form, any of our research documents for commercial use.
[Note: In the text
below use of the pronoun "we" refers to Kaufman-RAND and/or the authors cited
"In 2000, the Small Business Reauthorization Act (Public Law 106-554, Section 811)
authorized contracting officers to restrict competition for federal contracts on a
discretionary basis in certain industries to women-owned small businesses (WOSBs). These
industries are determined by the Small Business Administration (SBA) to be characterized
by underrepresentation or substantial underrepresentation of WOSBs in federal prime
contracts. Through a series of legal decisions, especially decisions regarding
minority-owned firms, underrepresentation in government contracting has come to mean that
the share of contracts awarded to a particular type of firm is small relative to the
prevalence of such firms in the pool of firms that are ready, willing, and
able to perform government contracts.
"This measure of underrepresentation is typically referred to as a disparity ratio. A
disparity ratio of 1.0 suggests that firms of a particular type are awarded contracts in
the same proportion as their representation in the industrythat is, there is no
disparity. A disparity ratio of less than 1.0 suggests that the firms are underrepresented
in federal contracting, and a ratio greater than 1.0 suggests that they are
Measuring Disparity Ratios in
"The SBA asked RAND to compute disparity ratios for WOSBs based on both the dollar
value and the number of contracts awarded to WOSBs. The SBA also requested that RAND
define the population of firms that are ready, willing, and able to perform federal
contracts in two ways: (1) as the population of all firms in the economy and (2) as the
population of firms that have registered as potential bidders for federal contracts.
in this report, we present disparity ratios computed in four ways: ratios based on number
of contracts and on contract dollars in which the population of ready, willing, and able
firms is essentially all firms, and ratios based on number of contracts and contract
dollars in which the population of ready, willing, and able firms is all firms that have
registered as potential bidders for federal contracts. We also explored whether there was
a subset of smaller contract sizes (such as contracts under $100,000) for which it might
make more sense to examine small-business contracting, but we did not find evidence of
such a subset.
"In this study, we compute disparity ratios by industry, defined according to the
North American Industry Classification System (NAICS) at the 2-, 3-, and 4-digit levels
(corresponding to increasingly disaggregated industry classifications). Following SBA
guidelines, we classify WOSBs as underrepresented in industries in which the disparity
ratio is between 0.5 and 0.8, and substantially underrepresented in industries in which
the disparity ratio is between 0 and 0.5.
"We used three datasets to compute the four types of disparity ratios. The Federal
Procurement Data System (FPDS) contains data on federal prime contracts over a certain
size. These data can be used to compute the value of federal contracts awarded to WOSBs
and all other firms. We use FPDS data from three fiscal years (FYs): FY02, FY03, and FY05.
The Central Contractor Registry (CCR) lists the firms that have registered with the
federal government in anticipation of bidding on federal contracts. With these data,
we computed the number of ready, willing, and able WOSBs and the number of all ready,
willing, and able businesses. Because the CCR data are not archived, we used the October
2006 file to compare with the most recent available contracting data in the FY05 FPDS.
Finally, we constructed measures of the total number of employer businesses and
women-owned employer businesses in the population, using the 2002 Survey of Business
Owners (SBO), part of the 2002 Economic Census.
"We did not make any adjustments to the official NAICS industry groupings; thus,
dissimilar industries sometimes fall into the same code. (For example, NAICS code 6115
includes cosmetology schools as well as flight-training schools.) Finally, only industries
with samples large enough to calculate significant differences across groups were
"We found that the measurement of whether WOSBs are underrepresented in federal
contracting is sensitive to whether contract awards are measured in dollars or in number
of awards and to whether the population of ready, willing, and able firms comprises
essentially all employer firms or just those firms that have registered as potential
bidders on federal contracts. Depending on the measure used, underrepresentation of WOSBs
in government contracting occurs either in no industries or in up to 87 percent of
industries. The variation is especially large in the measures that use contract dollars
rather than number of contracts. This report does not advocate a particular measure.
Rather, it highlights industries where disparities occur and discusses how the
identification of these industries varies depending on the methodology used and on data
synopsis of their disparity study for the SBA>
Download a more detailed
summary of RAND's disparity study HERE.
Visit the RAND web site to
purchase the complete 62 page study HERE.
END: SBA Contract Set Aside
Rule for Woman Owned Small Businesses