May 4, 2015 1417 Views

SBA Issues Proposed Rule for WOSB Program; Continuation of Self-Certification on Shaky Legal Ground

The U.S. Small Business Administration proposed rule for changes to the WOSB Women-Owned Small Business Set-Aside Program leaves legitimately majority-women-owned firms on shaky legal ground.

On May 1, 2015, the Small Business Administration issued a proposed rule to amend federal regulations to implement Section 825 of the 2015 National Defense Authorization Act (2015 NDAA). The U.S. Women’s Chamber of Commerce will continue to review the proposed rule (and the failure to address the end of self-certification as was also required through Section 825 of the FY2015 NDAA), consider the legal ramifications and seek your comments. Comments from all interested parties are due by June 30, 2015.

With the proposed rules, the SBA:

  1. Announces the first delay of implementation for the Congressional mandated end of self-certification. As the SBA seeks to continue the acceptance of self-certification (even though self-certification no longer has statutory authority), it forces legitimately majority-women-owned firms onto shaky legal ground.
  2. Seeks to provide greater flexibility when determining industries eligible for the WOSB/EDWOSB Program (which could open the door for a broader set of industries included).
  3. Provides the statutory framework to add sole source authority.
  4. Continues to mischaracterize adding sole source authority as the final action to bring parity to the WOSB/EDWOSB program – as compared with all set-aside programs.

Background

Congress, through the 2015 NDAA, made several changes/updates to the WOSB/EDWOSB majority-women-owned small business set-aside program. These changes included: (1) Ending the self-certification option (which has brought about a high level of ineligible firms receiving contracts intended for WOSB/EDWOSB firms) and requiring that firms be certified as a WOSB or EDWOSB by a Federal Agency, a State Government, SBA, or a national certifying entity approved by the SBA. (2) Adding sole source authority to the program (for contracts that do not exceed $4M / $6.5M for manufacturing contracts). (3) Completing a study by January 2, 2016 to update eligible industries for the program.

Self-Certification No Longer Has Statutory Authority

With the issuance of these proposed regulations, the SBA announced the first delay in implementation for the Congressional mandated end of self-certification. Congress acted to remove the self-certification option from the WOSB program because the Government Accountability Office (and the U.S. Women’s Chamber of Commerce) found high levels of ineligible firms receiving WOSB/EDWOSB set-asides.1 The GAO found that the SBA has not appropriately verified the majority-women-owned small business (or economically disadvantaged) status of firms. This problem is magnified by the use of self-certification (where firms simply assert their status without scrutiny). Further, the regulations issued by the SBA for the use of the WOSB/EDWOSB program turned contract managers into de facto certifiers – which may limit their desire (and the practicality) to use the WOSB/EDWOSB set-asides.

The SBA has consistently fought against ending self-certification. From the perspective of the U.S. Women’s Chamber of Commerce, the SBA’s desire to fight against assuring only legitimately majority-women-owned firms are in the program comes down to a failure to properly request and allocate resources to oversee the program and the desire to promote high goaling number achievements so as to secure positive public relations opportunities. Each year the SBA is required to publish a report of their small business goaling achievements (goals for federal contracting with small, women-owned, service-disabled veterans, HUBZone and socially and economically disadvantaged firms). Without a quality process in place to assure that only legitimately majority-women-owned firms are being counted in these goaling reports, the SBA may promote inflated results – that the federal government is reaching higher goaling percentages than are really being achieved. Inflated results may be great for SBA public relations – but, clearly these inflated achievements are bad for legitimately majority-women-owned firms who are being robbed of opportunities.

Failure to End the Self-Certification Option Places Women-Owned Firms on Shaky Ground

Already, attorney Steven Koprince (Managing Partner at Koprince Law LLC with a practice focusing on federal government contracts law) has asserted that SBA’s continued acceptance and use of self-certification (after Congress acted to statutorily remove self-certification) may not be legal and may leave businesses open to legal claims.2

Koprince states the SBA’s approach to continue acceptance of self-certification until the SBA adopts a new regulatory framework, “may be legally problematic given that Congress did not authorize a continuation of WOSB self-certification pending SBA regulatory action.”

Mr. Koprince continues by stating the SBA has acknowledged that the 2015 NDAA eliminated WOSB self-certification. The SBA states:

SBA recognizes that Section 825 also created a requirement that a firm be certified as a WOSB or EDWOSB by a Federal Agency, a State government, SBA, or a national certifying entity approved by SBA. This statutory requirement appears to apply to both sole source and set asides under the WOSB Program, and may require substantial resources. Establishing a certification requirement and process will require a more prolonged rulemaking before SBA can establish such a program. In our view, there is no evidence that Congress intended to halt the existing WOSB Program until such time as SBA establishes the infrastructure and issues regulations implementing the statutory certification requirement. Instead, we maintain that the new WOSB sole source authority can and should be implemented as quickly as possible, using existing program rules and procedures, while SBA proceeds with implementing the certification requirement through a separate rulemaking.3

However, Attorney Koprince asserts that the SBA’s position as stated above may not be on sound legal ground and provides details of two potential problems with SBA’s actions:

  1. The SBA “acknowledges that there is already a statutorily-compliant WOSB certification process in place: the third-party WOSB certification process described on the SBA’s own website.” But, due to the existing third-party certification process it is NOT the case that, “the elimination of self-certification would require a “halt” to the WOSB program.”
  2. “The SBA’s suggestion that self-certification may continue pending the SBA’s regulatory action is inconsistent with the 2015 NDAA itself. Nothing in the NDAA suggests that self-certification may remain in place until the SBA takes action. As the Supreme Court itself has written, “it is well established that, absent a clear direction by Congress to the contrary, a law takes effect on the date of its enactment.”

Attorney Koprince concludes, “The Small Business Act – the statute under which the SBA derives its authority – no longer authorizes WOSB self-certification. In my mind, it is very questionable whether the government has authority to accept WOSB self-certification in the absence of a statutory authorization.”

The SBA seeks flexibility when determining industries eligible for the WOSB/EDWOSB Program

The U.S. Women’s Chamber of Commerce was pleased to note that the SBA is taking steps through the proposed regulations to end the limited approach for selecting industries that are eligible for the program (which was developed during the Bush Administration). The U.S. Women’s Chamber of Commerce has long asserted that the methodology previously employed to determine underrepresented and substantially underrepresented was overly limiting and did not comply with the recommendations provided by the National Academy of Sciences. Instead, the SBA now seeks to define “underrepresentation” and “substantial underrepresentation” simply as, “determined by a study using a reliable and relevant methodology.” We believe this is a positive step forward; however – without a clear methodology, we will not know if this action is favorable until we view the outcome of the new study of eligible industries (which is due by January 2, 2016).

The SBA provides the statutory framework to add sole source authority

The SBA has taken the expected steps to add sole source authority to the WOSB/EDWOSB program: (a) adds sole source contracts to the definitions of EDWOSB and WOSB requirement, (b) adds the contracting officer’s ability to make a sole source award in industries in which competition may be restricted to WOSB/EDWOSBs, (c) adds the typical language that requires these sole source contracts may only be used after a contracting officer conducts market research and cannot identify two or more WOSBs or EDWOSBs that can perform the contract at a fair and reasonable price, (d) includes a cap of $6.5M for manufacturing contracts and $4M for other contracts, (e) addresses sole source awards for contracting opportunities at or below the simplified acquisition threshold, (f) amends protest regulations to include procedures for protests involving sole source contracts.

However, there are two important additional elements for women-owned firms to note: (1) Without explaining why, the SBA seeks to strike the following from the existing regulations, “Any other party or individual may submit information to the contracting officer or SBA in an effort to persuade them to initiate a protest or to persuade SBA to conduct an examination pursuant to subpart D of this part.” (2) Given that there is now no statutory authority to employ self-certification, the newly published proposed regulations to add sole source authority should not allow firms to use self-certification in the award of sole source contracts.

The SBA continues to mischaracterize adding sole source authority as the final action to bring parity to the WOSB/EDWOSB program

The Government Accountability Office has reported, without legitimate certification, the WOSB/EDWOSB program awarded more than 40% of women-owned set-aside contracts to ineligible firms in FY 2012 and FY 2013. And yet the 8(a) set-aside program – clearly the most successful set-aside program in federal contracting – does not accept self-certifications. Real parity with the successful 8(a) set-aside program won’t come about for legitimately majority-women-owned firms until self-certification is ended and high standards are held in the certification process, thus bringing greater assurance that the competitive pool for WOSB/EDWOSB set-asides consists of only majority-women-owned firms.

Next Steps

The U.S. Women's Chamber of Commerce will continue to review the proposed regulations and looks forward to hearing from our members regarding your views. In addition, you may review the proposed regulations here. All comments are due to June 30, 2015.

Please submit your comments to the U.S. Women's Chamber of Commerce here.


Footnotes

Previous USWCC Announces 2015 Award Winners
Next #GetRealSBA: Public Citizen Calls Out SBA Misrepresentation of Small Business Goal Achievements

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