The Small Business Administration (SBA) has finally published its long-awaited proposed rule on certification of firms participating in the Women-Owned Small Business (WOSB) program. The proposed rule had been in the works at SBA since 2016, after Congress eliminated the ability of firms to self-certify eligibility for the WOSB program as part of the 2015 National Defense Authorization Act (NDAA), Public Law 113-291. SBA has been criticized for its failure to properly monitor self-certification by firms as well as the performance of third-party certifiers, which has resulted in a large number of ineligible firms receiving WOSB contract awards. The proposed rule is a step in the right direction for SBA and the WOSB program. Once the proposed rule is finalized, however, SBA will need to devote adequate resources to ensure that certification applications are properly reviewed and processed in a timely manner.
The WOSB contracting program became effective in February 2011. Since that time, firms seeking to participate in the WOSB program had two options: self-certify eligibility to the SBA or be certified by an SBA approved third-party certifier. Self-certification, the more popular option, however, has proven to be troublesome for the WOSB program. Several GAO and agency Office of Inspector General reports have found that many of the contracts awarded to purported women-owned businesses under the WOSB program, as well as contract awards counted by agencies to meet small business goals, were, in fact, going to ineligible firms.
As part of the 2015 National Defense Authorization Act, Congress directed SBA to end the self-certification option and institute a certification process for the WOSB program. The Act provided that firm eligibility must be certified by SBA, a federal agency, a state agency or third-party certifiers approved by the SBA. Shortly after enactment of the Act, the SBA published an advance notice of proposed rulemaking to solicit public comments for a proposed rule to implement a new WOSB certification program including the option for SBA to act as a certifier itself. At the time of passage of the Act, four organizations were approved by the SBA as third-party certifiers: the National Women Business Owners Corporation (NWBOC); Women’s Business Enterprise National Council (WBENC); the U.S. Women’s Chamber of Commerce (USWCC); and the El Paso Hispanic Chamber of Commerce (EPHCC). In comments submitted in response to the advance notice of proposed rulemaking, the third party certifiers opposed SBA itself becoming a WOSB certifier. Self-certification remains in effect pending finalization of the SBA proposed rule.
In 2014, only three years after the WOSB program began, GAO issued a report entitled GAO-15-54 Certifier Oversight and Additional Eligibility Controls Are Needed. This report, as its title indicates, examined the WOSB certification process and identified several deficiencies, including a lack of oversight of self-certification and third-party certifiers. The report found that “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.” The GAO Report cited to SBA’s own study which found that in 2012 and 2013, more than 40 percent of firms receiving WOSB contracts improperly self-certified that they were eligible for the program.
Five years later, in March 2019, GAO issued a second report, GAO-19-563T Actions Needed to Address Continued Oversight Issues. In this report, the GAO criticized SBA for not addressing the oversight deficiencies and recommendations identified by GAO in its 2014 report. GAO specifically called out SBA for not reviewing on a regular basis the reports submitted by third-party certifiers and for failing to conduct compliance reviews of the third-party certifiers. The GAO also criticized SBA for its long delay in publishing a proposed rule for WOSB program certification as required by Congress.
Whether by coincidence or design, SBA finally published the proposed rule on WOSB certification two months after the March 2019 GAO report criticized SBA for not doing so.
Under the proposed rule, firms will have several options to obtain WOSB certification. First, in what will likely be the most popular option, firms would be able to seek certification directly from SBA through a free online application process. The proposed rule states that applicants will receive a decision on WOSB status within 90 days after a complete application is submitted to SBA. Further, the SBA proposes to accept certifications obtained by women-owned firms under SBA’s 8(a) business development and HubZone programs. In addition, certifications issued to women-owned firms by a Federal agency, most notably the Department of Veteran Affairs, and by State certifying authorities under the Department of Transportation Disadvantaged Business Enterprise (DBE) program will be accepted by SBA. In California, for example, DOT/DBE applications are reviewed and decided by one of the several local certifying agencies authorized by the California Department of Transportation.
The proposed rule also addresses third-party certifiers. Under the proposed rule, all third-party certifiers must be approved by SBA, can be a non-profit or for-profit entity, and may charge a fee for the certification service. Importantly, SBA proposes to establish minimum standards for eligibility with the goal of increasing consistency among the various third-party certifiers in their eligibility decision. In addition, the proposed rule would require recertification of WOSB status every three years. The procedures regarding protests of WOSB eligibility in the context of a contract award would continue under the proposed rule.
If you are interested in commenting on the proposed rule, it can be found at 84 Federal Register 21256 (May 14, 2019). Comments must be received by SBA on or before July 15, 2019.