SBA Proposes Limitations on Set-Asides to Women-Owned Small Businesses

On January 30th, 2008 women's groups rallied in protest at a hearing held by the U.S. Senate Committee on Small Business & Entrepreneurship, chaired by Sen. John Kerry (D-Mass), regarding the Small Business Administration's (SBA) recent proposal to limit set-asides to women-owned small businesses (WOSBs) in federal contracting. These set-asides would be limited to four out of some 140 possible sectors in which women were underrepresented, as indicated by a recent RAND Corporation study. [1] Among the groups involved were the U.S. Women's Chamber of Commerce and National Association of Women Business Owners. According to Margot Dorfman, executive director of the U.S. Women's Chamber of Commerce, the RAND data can also be read to show that 87% of industrial sectors are underrepresented by WOSBs. [2]

The Clinton Administration recognized the relatively low success rate of WOSBs in winning federal contracts. In 1994 the Administration urged Congress to pass the Federal Acquisition Streamlining Act of 1994. This set a government-wide goal of ensuring that 5% of the total value of all prime contract and subcontract awards for each fiscal year go to WOSBs. [3] Realizing that this alone may not be enough to help women's businesses reach the goal, the Small Business Reauthorization Act of 2000 included a provision that authorized contracting officers to restrict competition for some contracts to eligible groups. [4] This helped the percentage of WOSB contracts rise slightly. Between 2000 and 2006 the percentage went from 2.3% to 3.4%. [5] The law also stipulated that the SBA was to conduct a study to identify the industries in which WOSBs are underrepresented.

The SBA originally completed their study in September 2001, but in 2005 the National Academy of Science issued an independent evaluation stating the SBA's study was "fatally flawed". [6] The SBA sought a contractor to independently perform the study and in February 2006 the contract was awarded to RAND. [7]

The RAND report identified twenty eight possible approaches to determine underrepresentation. The SBA chose one of those approaches which compared 2004 to 2005 data based on a full sample of the dollar value of the contracts awarded. [8] This approach identified four sectors in which women were underrepresented: national security and international affairs, engraving, furniture and cabinet manufacturing, and other motor vehicles. [9]

Based on these results, the SBA proposed a rule that would limit set-asides to WOSBs in those four sectors. However, before any set-asides could be made, the rule requires that the agency issuing the contract determine that the set-aside is "substantially related to remedying sex discrimination in that industry." [10]

February 1st, the day after the Senate hearing, Senators John Kerry, Carl Lebin (D-Mich), Joseph Lieberman (I/D-Conn), Maria Cantwell (D-Wash), Benjamin Cardin (D-Md), and Jon Tester (D-Mont) strongly urged the SBA to reconsider the proposed rule. A letter addressed to Steve Preston, SBA Administrator, claimed the SBA used the narrowest statistical model and repeated Margot Dorfman's assertion that the RAND report could have been fairly read to say that as much as 87% of federal contracting industries were underrepresented by WOSBs. [11] The letter asks that the SBA change the proposal to expand the number of industries and drop the requirement that each agency ensure the set-aside will be substantially related to remedying sex discrimination. Senator Cardin was later quoted as saying that "the newly proposed rule is a step backwards and denies women-owned businesses the equal opportunities that the SBA is supposed to be promoting." [12]

However, Steve Preston argues there is a better way to get more federal contract dollars to women than using set-asides. "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 dollars." [13] Preston touted a figure that showed that actual contracting dollars to WOSBs have risen from $4.6 billion in 2000 to $11.6 billion in 2006, indicating, Preston says, progress on the part of the SBA to achieve the 5% goal. [14]

Comments on the rule must be received by February 25th, 2008. Nevertheless, with so much opposition from Congress and women's groups, the fate of the new WOSB set-aside rule appears uncertain.

Sources:

[1] Women-Owned Small Business Federal Contract Assistance Procedures, 72 Fed. Reg. 73285, 73287-88 (proposed Dec. 27, 2007)(to be codified at 13 C.F.R. pt. 121, 125, 127, 134).


[2] Peter Galuszka, Fight Against SBA Set-Asides Plan Goes to Senate, FORTUNE SMALL BUSINESS, Jan. 30, 2008, http://money.cnn.com/2008/01/29/smbusiness/sba_set_asides.fsb/index.htm?postversion=2008013010.


[3] Federal Acquisition Streamlining Act of 1994, Pub. L. No. 103-355, 108 Stat. 3243 (Oct. 13, 1994).


[4] Women-Owned Small Business Federal Contract Assistance Procedures, 72 Fed. Reg. 73285, 73286 (proposed Dec. 27, 2007)(to be codified at 13 C.F.R. pt. 121, 125, 127, 134).


[5] Id.


[6] Id. at 73287


[7] Id.


[8] Id.


[9] Id. at 73288


[10] Id.


[11] Letter from Democratic Members of Senate Committee on Small Business & Entrepreneurship to Steven Preston, Administrator, Small Business Administration (Feb. 1, 2008), available at http://sbc.senate.gov/lettersout/080201-SBAPreston-WomenProcurement.pdf


[12] Democrats Decry Bush Administration's Policy for Women Entrepreneurs, http://sbc.senate.gov/record.cfm?id=291771 (last visited Feb. 11, 2008).


[13] Letter from Steve Preston, Administrator, Small Business Administration (Jan. 15, 2008)(on file with Small Business Administration), available at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_news_from_the_hill.pdf

[14] Id.

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