Women-Owned Small Business Program Certifier Oversight and Additional Eligibility Controls Are Needed
Women-Owned Small Business Program Certifier Oversight and Additional Eligibility Controls Are Needed
October 2014
WOMEN-OWNED
SMALL BUSINESS
PROGRAM
Certifier Oversight
and Additional
Eligibility Controls Are
Needed
GAO-15-54
October 2014
Businesses have two options to certify their eligibility for the women-owned small
business (WOSB) program. Whether self-certifying at no cost or using the feebased services of an approved third-party certifier, businesses must attest that
they are a WOSB or an economically disadvantaged WOSB (EDWOSB).
Businesses also must submit documents supporting their attestation to a
repository the Small Business Administration (SBA) maintains (required
documents vary depending on certification type), and, if they obtain a third-party
certification, to the certifier.
SBA performs minimal oversight of third-party certifiers and has yet to develop
procedures that provide reasonable assurance that only eligible businesses
obtain WOSB set-aside contracts. For example,
Contents
Letter
1
Background
Businesses Can Use Two Methods to Certify Eligibility for WOSB
Program
SBAs Oversight of Certifiers Has Been Minimal and Does Not
Provide Reasonable Assurance That Only Eligible Businesses
Obtain Set-Aside Contracts
Program Set-Asides Have Had Minimal Effect on WOSB
Contracting
Conclusions
Recommendations for Executive Action
Agency Comments and Our Evaluation
18
25
27
27
Appendix I
29
Appendix II
32
Appendix III
33
7
9
Tables
Table 1: Fees for Third-Party Certification for the Women-Owned
Small Business (WOSB) Program
Table 2: Top Contracting Departments and Agencies, by Total
Obligations under the WOSB Program, from April 2011
through May 2014
Table 3: Percentage of Contract Obligations Awarded to WomenOwned Small Businesses, Fiscal Years 2011-2013
6
20
23
Figure
Figure 1: Percentage of Obligations for Contracts (Set-Aside and
Not Set-Aside) Awarded to Women-Owned Small
Businesses (WOSB), from April 2011 through May 2014
Page i
21
Abbreviations
DHS
DOD
EDWOSB
FPDS-NG
GSA
HUBZone
NAICS
SAM
SBA
SDVOSBC
SOP
WBENC
WOSB
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Page ii
October 8, 2014
The Honorable Maria Cantwell
Chairwoman
Committee on Small Business and Entrepreneurship
United States Senate
The Honorable Mary Landrieu
United States Senate
Women-owned businesses contribute significantly to the U.S. economy.
According to the most recent Census Survey of Business Owners, 28.7
percent, or 7.8 million, of all U.S. businesses in 2007 were womenowned.1 Between 1997 and 2007, the number of women-owned
businesses grew by 44 percent (or twice as fast as businesses owned by
men) adding roughly 500,000 jobs nationwide, according to the U.S.
Department of Commerce.2 However, the federal government has yet to
meet its annual goal of awarding 5 percent of its procurement to womenowned small businesses (WOSB).
Over the years, Congress has taken a number of actions to increase
opportunities for small business (including minority-owned and
economically disadvantaged) participation in federal contracting. In 1978,
Congress amended the Small Business Act to require federal agencies to
negotiate with the Small Business Administration (SBA) to establish prime
and subcontracting goals for certain businesses, which did not specifically
include WOSBs until 1994.3 In 2000, Congress authorized a contracting
15 U.S.C. 644(g). The Small Business Act defines various socioeconomic categories of
businesses and SBA administers contracting programs targeted to these groups. Small
businesses are those that are independently owned and operated and are not dominant in
their field of operations. 15 U.S.C. 632(a). Women-owned small businesses must have
at least 51 percent female ownership and must be controlled by one or more women who
are U.S. citizens. The ownership must be direct, not subject to conditions, and the woman
must manage the day-to-day operations of the business and make its long-term decisions.
See 15 U.S.C. 632(n); 13 C.F.R. 127.102; 13 C.F.R. 127.201; 13 C.F.R. 127.202.
Page 1
Although the statute requires SBA to conduct a study to identify industries in which
WOSBs are underrepresented, according to officials SBAs interpretation of the statute is
that it requires the agency to identify industries in which EDWOSBs are underrepresented
and industries in which WOSBs are substantially underrepresented. Economically
disadvantaged is a determination made if a woman can demonstrate that her ability to
compete in the free enterprise system is impaired due to diminished capital and credit
opportunities as compared with others in the same or similar business. For example, a
woman can demonstrate disadvantage with a net worth of less than $750,000 (with certain
regulatory exclusions). Generally, a woman with an adjusted gross income for the prior 3
years averaging $350,000 or with assets of $6 million or more is not deemed economically
disadvantaged. Additionally, a spouses financial situation can be considered.
5
Women-Owned Small Business Federal Contract Program, 75 Fed. Reg. 62258 (Oct. 7,
2010). WOSB program provisions were formally added to the Federal Acquisition
Regulations on April 1, 2011.
6
In 2006, SBA asked the RAND Corporation to compute disparity ratios for WOSBs based
on the number and dollar value of federal contracts awarded to WOSBs. See KauffmanRAND Institute for Entrepreneurship Public Policy, The Utilization of Women-Owned Small
Businesses in Federal Contracting (Santa Monica, Calif.: 2007). According to this study,
underrepresentation in government contracting has come to mean that the share of
contracts awarded to a particular type of business is small relative to the prevalence of
such businesses in the pool of businesses ready, willing, and able to perform
government contracts. This measure of underrepresentation is typically referred to as a
disparity ratio. The RAND study identified 83 North American Industry Classification
System (NAICS) sectors, which were published in the WOSB program final rule on
October 7, 2010. In 2012, SBA updated four-digit NAICS codes to six-digit codes to
incorporate Office of Management and Budget modifications of the classification system
(identified as NAICS 2012) into its table of small business size standards. According to
SBAs interim final rule on August 20, 2012, the large majority of changes involve
renumbering or redefining codes (or both) without warranting change to the agencys size
standards. On August 19, 2013, SBA published a list of 330 industry sectors (identified by
six-digit codes) eligible for use in the WOSB program, with some codes eligible for use
under the WOSB set-aside, and some under the EDWOSB set-aside.
Page 2
We were not able to determine how many self-certified businesses obtained contracts
under the program because SBA does not maintain this information.
Page 3
Background
Page 4
Page 5
Table 1: Fees for Third-Party Certification for the Women-Owned Small Business (WOSB) Program
Fee based on
gross annual
sales
Other characteristics
Initial
Renewal
Member
discount
El Paso Hispanic
Chamber of
Commerce
$225
$100
None
U.S. Womens
Chamber of
Commerce
$275-$350
$275-$350
$200-300 based on
gross annual sales.
None
Women-owned small
business (WOSB) and
economically
disadvantaged WOSB
certification offered as a
package certification for
$700.
$350-$1,000. Fee
varies by 14 regional
partner organizations.
None
Varies based on
gross annual sales
with ranges from
under $1 million to
$100 million and
over.
A WOSB third-party
certification is obtained
as part of a bundle
including a Womens
Business Enterprise
certification.
National Women
Business Owners
Corporation
$400
Womens Business
Enterprise National
Council
$350-$1,000. Fee
varies by 14 regional
partner organizations.
Page 6
According to the program regulation, businesses may use self- or thirdparty certification to demonstrate they are eligible for WOSB or EDWOSB
status. Both certification processes require signed representations by
businesses about their WOSB or EDWOSB eligibility. For this reason,
SBA has described all participants in the program as self-certified. When
using the self-certification option, businesses must provide documents
supporting their status to the online document repository for the WOSB
program that SBA maintains.8 Required submissions include copies of
citizenship papers (birth or naturalization certificates or passports) and,
depending on business type, items including copies of partnership
agreements or articles of incorporation. Businesses must submit a signed
certification on which the owners attest that the documents and
information provided are true and accurate. Moreover, businesses must
register and attest to being a WOSB in the System for Award
Management (SAM), the primary database of vendors doing business
with the federal government.9 Businesses also must make
representations about their status in SAM before submitting an offer on a
WOSB or EDWOSB solicitation.
For third-party certification, businesses submit documentation to
approved certifiers. According to third-party certifiers we interviewed, they
review documents (and some may conduct site visits to businesses) and
make determinations of eligibility. If approved, businesses will receive a
document showing receipt of third-party certification. Business then can
upload the certificate to the WOSB program repository along with
Page 7
10
11
If the business had uploaded a third-party certificate, SBA could determine that the
business had used third-party certification to establish its eligibility for the program. If a
given business had not uploaded a third-party certificate but uploaded all required
documents for self-certification, SBA might then presume the business to have self
certified.
Page 8
SBAs Oversight of
Certifiers Has Been
Minimal and Does
Not Provide
Reasonable
Assurance That Only
Eligible Businesses
Obtain Set-Aside
Contracts
To date, SBA generally has not conducted performance reviews of thirdparty certifiers and does not have procedures in place for such reviews.
According to federal standards for internal control, agencies should
conduct control activities such as performance reviews and clearly
document internal controls.12 Third-party certifiers agree to be subject to
performance reviews by SBA at any time to ensure that they meet the
requirements of the agreement with SBA and program certification
regulationsincluding requirements related to the certification process,
obtaining supporting documents, informing businesses about the no-cost
12
Page 9
Page 10
SBA has not yet developed written procedures to review required monthly
reports from certifiers and does not have a consistent format for reports.
In SBAs agreement with third-party certifiers, the agency requires each
certifier to submit monthly reports that must include
Page 11
13
See GAO/AIMD-00-21.3.1.
Page 12
Page 13
of the Small Business Act sets forth eligibility criteria businesses must
meet to receive a contract under the WOSB program set-aside. SBA
examines a sample of businesses with a current attestation in SAM and
that received a contract during SBAs examination year. SBA does not
include in its sample businesses that had not yet obtained a WOSB
program contract. According to SBA officials, staff conducting the
eligibility examination review the documents each business owner
uploaded to the WOSB program repository to support the representation
in SAM of eligibility for WOSB or EDWOSB status. For example, agency
officials said that reviewers ensure that all documents required have been
uploaded and review the contents of the documents to ensure that a
business is eligible. SBA said staff conducting the examination then
determine that the business has met the requirements to document its
status as a WOSB, or determine that information is missing or not
consistent with the program requirements and the business is not eligible
at the time of SBAs review to certify itself as a WOSB. SBA officials said
the agency also uses the same process to investigate the eligibility of
businesses on an ad hoc basis in response to referrals from contracting
agencies or other parties, such as other businesses, that question the
eligibility of a business.
If a business has not sufficiently documented its eligibility representation,
SBA sends a letter directing the business to enter required information or
documents into the repository or remove its attestation of program
eligibility in SAM within 15 days. If SBA receives no response after 15
days, it sends a second letter instructing the business to remove its
WOSB attestation in SAM within 5 days. In 2012 and 2013, SBA sent final
5-day letters to 44 businesses identified through annual examinations or
examinations following a referral. If the business does not do so, it may
be subject to enforcement actions including suspension or debarment
from federal contracting or criminal penalties, according to SBA officials.
An SBA official said that the agency is unaware of any such enforcement
actions as part of the WOSB program.
SBA also decides protests from contracting agency staff or any other
interested parties relating to a businesss eligibility. SBA considers
protests if there is sufficient, credible evidence to show that the business
may not be at least 51 percent owned and controlled by one or more
women, or if the business has failed to provide documents required to
establish eligibility for the program. Once SBA has obtained a protest, it
examines documents submitted in the case, makes a determination of
program eligibility based on the content of these documents and notifies
relevant partiestypically, the contracting officer, protester (if not the
Page 14
same), and the businessof the determination. If eligible for the setaside, the contracting officer may make an award to the business.
Otherwise, the contracting officer may not award a contract to the
business in question. From program implementation in April 2011 through
July 2, 2014, SBA responded to 27 protests, and in 7 protests the
businesses involved were found to be ineligible for the WOSB program. In
the remaining protests, the businesses were found eligible, the party that
filed the protest withdrew it, or SBA dismissed the protest.14
As described earlier in the report, contracting officers check for the
presence of documents in the repository when making a WOSB program
award. This could be considered part of SBAs framework to oversee
certifications, but the requirement for contracting officers to review
documents is limited to ensuring that businesses have uploaded
documents listed in the regulation. Representatives from some of the
contracting offices we interviewed believed that they had to assess the
validity of the documents or did not think they had the necessary
qualifications to assess the documents. However, program guidance does
not require contracting officers to assess the validity of these documents,
and SBA officials told us contracting officers are not expected to evaluate
the eligibility of businesses.
14
SBA dismisses protests under the WOSB program for various reasons. For example, in
one case the party that submitted the protest was not eligible to do so because no specific
solicitation was involved in the case. Therefore, SBA dismissed the protest without
determining whether the business in question would have been eligible for the program.
Page 15
15
See GAO/AIMD-00-21.3.1.
16
In 2012, SBA included 113 businesses in its annual eligibility examination, and in 2013 it
included 119 businesses in its examination. SBA has statutory authority to conduct
program eligibility examinations at any time for any firm asserting eligibility to receive a
WOSB program contract.
Page 16
Page 17
Program Set-Asides
Have Had Minimal
Effect on WOSB
Contracting
Set-asides under the WOSB program to date have had a minimal effect
on overall contracting obligations to WOSBs and attainment of WOSB
contracting goals. WOSB program set-aside obligations increased from
fiscal year 2012 to fiscal year 2013. The Department of Defense (DOD),
the Department of Homeland Security (DHS), and the General Services
Administration (GSA) accounted for the majority of these obligations. The
WOSB program set-asides represented less than 1 percent of total
federal awards to women-owned small businesses. Contracting officers,
WOSBs, and others with whom we spoke suggested a number of
program changes that might increase use of the WOSB program,
including increasing awareness, allowing for sole-source awards, and
expanding the list of eligible industries for the set-aside program.
Page 18
17
The program awarded the first contract in April 2011. Fiscal year 2011 was not a full
fiscal year for the program and full fiscal year 2014 data were not available at the time of
our review.
18
Beginning in 2000, the Small Business Act set forth statutory thresholds of $5 million for
manufacturing and $3 million for all other contracts for set-aside awards under the WOSB
program. In an interim final rule published on April 1, 2011, the Federal Acquisition
Regulatory Council (FAR Council) adjusted the statutory threshold so that the anticipated
award price of contracts awarded under WOSB Program must not exceed $6.5 million in
the case of manufacturing contracts and $4 million in the case of all other contracts.
Page 19
Table 2: Top Contracting Departments and Agencies, by Total Obligations under the WOSB Program, from April 2011 through
May 2014
Agency
Economically
disadvantaged womenowned small business Women-owned small
set-aside ($) business set-aside ($)
62.2%
$34,720,817
$26,900,145
$61,620,962
26.9
42,935,173
5,259,021
15,513,431
58,448,604
25.5
6,356,298
11,615,318
5.1
5,854,874
4,853,875
10,708,748
4.7
17,863,601
6,571,815
24,435,416
10.7
Percentage of
program
5,259,176
3,879,886
9,139,063
4.0
11,258,193
41,683,849
52,942,043
23.1
$123,150,855
$105,759,299
$228,910,154
100%
Source: GAO analysis of Federal Procurement Data System-Next Generation data. | GAO-15-54
Note: No other individual agency accounted for more than 3.4 percent of total obligations awarded
through the program. These figures do not include the last 4 months of fiscal year 2014. According to
SBA officials, the last quarter of each fiscal year is the part of the year when most federal contracts
are awarded
Page 20
19
To participate in the 8(a) program, a business must be certified as meeting several
criteria, including being a small business as defined by SBA; being unconditionally owned
and controlled by one or more socially and economically disadvantaged individuals who
are U.S. citizens; and showing potential for success. Under the HUBZone program,
contracting preferences are available to qualified small businesses located in an area
designated by SBA as a historically underutilized business zone. The SDVOSBC program
provides veterans who incurred or aggravated disabilities in the line of duty with certain
sole-source and set-aside contracting opportunities. Finally, contracting officers can set
aside contracts to small businesses (generally for contracts worth $3,000$150,000 or for
contracts worth more than $150,000) as long as at least two small businesses are likely to
compete for the contract.
Page 21
20
SBAs FY2013 Small Business Goaling Report includes federal contracting dollars
obligated to small businesses, with some exclusions including contracts that are funded
with agency generated sources; acquisitions by agencies on behalf of foreign
governments, entities, or international organizations; and contracts that are performed
outside of the United States or its territories.
21
The Chief Financial Officer and Federal Financial Reform Act of 1990, among other
measures, created the position of Chief Financial Officer in each executive department
and in each major executive agency in the federal government. Chief Financial Officer Act
agencies are defined in 31 U.S.C. 901(b).
Page 22
Government-Wide
2011 (%)
2012 (%)
2013 (%)
3.98%
4.00%
4.32%
Department of Defense
3.43
3.38
3.57
5.95
6.43
7.04
9.15
9.06
7.75
Contracting Officers,
WOSBs, and Others
Suggested Program
Changes That Might
Increase Use of the SetAside
Page 23
consequences for agency leaders for failure to meet contracting goals for
WOSBs or use the set-aside program. SBA officials described to us
consequences that included a low rating in the publicly available SBA
contracting scorecard, which may draw negative attention to the agency.
Also, the National Defense Authorization Act for Fiscal Year 2013
includes the extent to which agencies meet contracting goals as a
competency by which members of the senior executive service are rated.
All of the businesses we interviewed that received WOSB program
contracts cited the need for increased agency outreach or awareness of
the program. For example, one participant advocated increasing
contracting officer awareness and understanding of how an agency could
benefit from using the WOSB set-aside program.
Changes to increase use of program. Contracting officers also
identified changes they believe could increase use of the WOSB setaside. For example, some noted that allowing sole-source contracts could
increase program use. Currently, contract officers can establish a setaside only if there is a reasonable expectation that at least two eligible
WOSBs will submit a bid for the contract. Some contracting officers
suggested expanding the list of North American Industry Association
Classification System (NAICS) codes eligible for use under the WOSB
set-aside. For example, one contracting office said that the designated
NAICS for the set-aside program did not meet their procurement needs.
One representative pointed out that SBA had designated some NAICS
codes just for EDWOSB and others for WOSBs. SBA officials told us the
agency does not have the authority to change the list of industry sectors
eligible for program set-asides without conducting a study of industries in
which WOSBs were underrepresented or substantially underrepresented.
Representatives from all of the WOSB advocacy groups, three of which
are also third-party certifiers, said that expanding the NAICS codes would
improve the program. For example, one advocacy group said that certain
WOSBs would like to obtain WOSB or EDWOSB set-asides but did not
have NAICS codes that were listed as eligible. Another said that they
would not limit the number of eligible industries under the program.
Finally, the businesses we interviewed also believed that allowing solesource awards or adding more NAICS codes would increase program
use. Six participants commented on the limitations for awarding solesource contracts through the WOSB set-aside. Five participants felt that
Page 24
the NAICS codes under the program were limited.22 One program
participant mentioned that she felt that limiting set-asides for the WOSB
program to certain NAICS codes was inconsistent with other SBA
programs with set-asides, such as 8(a), HUBZone, and SDVOSBC. She
gave an example of an agency that issued a draft solicitation that sought
to award two contracts each to WOSB set-asides, HUBZone, and
SDVOSBC businesses. However when it became clear that the contract
was not in an eligible NAICS code for the WOSB program, the agency
converted the two contracts intended for WOSB set-aside to a general
small business category.
Some program participants also mentioned positive aspects of the
program. Five participants believed that the program provided greater
opportunities for their businesses and WOSBs in general. Furthermore,
five of the six businesses with whom we spoke that received only one or
two contracts felt that the program improved their ability to compete for a
federal contract. For example, one participant noted that while she has
not seen many set-aside solicitations for the NAICS code under which her
business primarily operates, the existence of the program prompted her
to bid on set-asides under other NAICS codes.
Conclusions
22
Before changing the list, SBA officials stated that the agency interprets the statutory
requirements to mandate that the agency first must conduct a study to identify industries
in which EDWOSBs are underrepresented and WOSBs are substantially
underrepresented. A study could indicate the need for either an increase or a decrease in
eligible WOSB program industries, and SBA will continue to base their NAICS list on such
studies. In SBAs final rule implementing the program and establishing the NAICS codes,
SBA addressed a number of comments that advocated expanding the number of NAICS
codes beyond the 83 that SBA determined based on its industry study of WOSB
underrepresentation. In the final rule, SBA explained that section 8(m) of the Small
Business Act instructs SBA to conduct a study to identify industries in which WOSBs are
underrepresented in federal procurement contracting. Therefore, the only way SBA could
expand the list of eligible NAICS was to conduct a new study.
Page 25
Page 26
Recommendations for
Executive Action
Agency Comments
and Our Evaluation
We provided a draft of this report to SBA, DHS, DOD, and GSA for review
and comment. SBA provided written comments that are described below
and reprinted in appendix II. The other agenciesDHS, DOD, and
GSAdid not provide comments on this report. SBA generally agreed
with our recommendations and said that the agency is already in the
process of implementing many of our recommendations.
While SBA generally agreed with our recommendations, the agency
stated that the report could be clearer about the program examination
process. Specifically, SBA stated that the agency has authority to conduct
eligibility examinations at any time for any firm asserting eligibility to
Page 27
William B. Shear
Director, Financial Markets and
Community Investment
Page 28
Page 29
System (NAICS) codes for 2011 through 2013. For each, we selected two
contracting offices using the same criteria we used to select agencies,
which included identifying a high- and mid-level program obligation
amount and offices with multiple contracts and under multiple NAICS
codes. We excluded one Customs and Border Patrol office because only
one office awarded multiple contracts under multiple NAICS codes.
We also interviewed three of the four SBA-approved third-party certifiers
(the El Paso Hispanic Chamber of Commerce, the National Women
Business Owners Corporation, and the U.S. Womens Chamber of
Commerce). We were unable to interview the Womens Business
National Enterprise Council (WBENC). SBA requested documentation of
WBENCs oversight procedures for the certification activity and fee
structures of its regional partner organizations. WBENC provided a
written response to SBA, which was not fully responsive to the request,
as discussed in the report. We conducted semi-structured interviews with
a sample of 10 businesses that were certified for the program, 9 of which
had received a set-aside contract.
To evaluate SBAs oversight of certification, we reviewed the program
regulation and program documents, agreements with third-party certifiers,
135 monthly reports submitted by all four third-party certifiers, and letters
SBA sends to inform businesses when their WOSB or EDWOSB status is
in question, among other documents. We discussed the agencys
procedures to monitor certifiers and ensure participant eligibility with SBA
officials from the Office of Government Contracting. We compared
officials descriptions of their oversight activities with federal internal
control standards.1 We inquired about documentation and eligibility
examinations conducted in 2012 and 2013, and a planned examination
for 2014, and reviewed reports of the 2012 and 2013 examination results.
We also inquired about ongoing plans to develop a standard operating
procedure, and future plans to evaluate the program.
To determine what effect, if any, the WOSB program has had on federal
contracting opportunities available to WOSBs, we identified set-aside
contract obligations in FPDS-NG from April 2011 through May 2014 to
identify trends in program participation by contracting agencies included
Page 30
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