# Women-Owned Small Business Federal Contract Program > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2010-3887 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** March 4, 2010 - **Citation:** 75 FR 10030 ## Text SMALL BUSINESS ADMINISTRATION 13 CFR Parts 121, 127, and 134 RIN 3245-AG06 Women-Owned Small Business Federal Contract Program AGENCY: Small Business Administration. ACTION: Notice of proposed rulemaking; withdrawal of proposed rule. SUMMARY: The U.S. Small Business Administration (SBA) proposes to amend its regulations governing small business contracting procedures. This Proposed Rule would amend part 127, that was promulgated in a Final Rule on October 1, 2008, and entitled “The Women-Owned Small Business Federal Contract Assistance Procedures,” RIN 3245-AF40. This Proposed Rule would implement procedures authorized by the Small Business Act (Act) (Pub. L. 85-536, as amended) to help ensure a level playing field on which Women-Owned Small Businesses (WOSBs) can compete for Federal contracting opportunities. SBA proposes changes to part 127 that include eliminating the requirement for an agency-by-agency determination of discrimination, adopting both “numbers” and “dollars” measures of underrepresentation, and using the Fiscal Year 2006 Central Contractor Registration (CCR) database as the data source for determining eligible industries under the WOSB Program. This Proposed Rule thus identifies the eligible industries under the Program as those industries in which WOSBs are underrepresented or substantially underrepresented using either the numbers or the dollars approach. This Proposed Rule seeks to retain, for the most part, parts 121 and 134 of the Final Rule published on October 1, 2008, titled “The Women-Owned Small Business Federal Contract Assistance Procedures,” RIN 3245-AF40; these portions of the rule govern various implementation procedures of the Program, as more fully discussed below. In addition, SBA is withdrawing its proposed rule entitled “The Women-Owned Small Business Federal Contract Assistance Procedures,” which was published on October 1, 2008, in the Federal Register together with a request for comments on two data sets used to determine the eligible industries under the WOSB Program. DATES: Date of Withdrawal: The proposed rule published on October 1, 2008, in the Federal Register at 73 FR 57014 is withdrawn as of March 4, 2010. Comment Date: Submit comments on or before May 3, 2010. ADDRESSES: You may submit comments, identified by 3245-AG06, by any of the following methods: • Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. • Mail, Hand Delivery/Courier: Dean Koppel, Assistant Director, Office of Policy and Research, Office of Government Contracting, U.S. Small Business Administration, 409 Third Street, SW., Washington, DC 20416. All comments will be posted on http://www.regulations.gov. If you wish to submit confidential business information (CBI) as defined in the User Notice at http://www.regulations.gov, please submit the comments to Dean Koppel and highlight the information that you consider to be CBI and explain why you believe this information should be held confidential. SBA will make a final determination as to whether the comments will be published or not. FOR FURTHER INFORMATION CONTACT: Dean Koppel, Assistant Director, Office of Policy and Research, Office of Government Contracting, U.S. Small Business Administration, 409 Third Street, SW., Washington, DC 20416. SUPPLEMENTARY INFORMATION: I. Background On December 21, 2000, Congress enacted the Small Business Reauthorization Act of 2000, Public Law 106-554. Section 811 of that Act addressed the difficulties women-owned businesses have endured in competing for Federal procurement contracts by adding a new section 8(m), 15 U.S.C. 637(m), authorizing Federal contracting officers to restrict competition to eligible Women-Owned Small Businesses (WOSBs) for Federal contracts in certain industries. The law responds to decades of sex discrimination that have inhibited the ability of women to form firms and then to compete equally for contracts. By providing small, women-owned businesses an opportunity to gain a critical foothold in the Federal procurement market, the statute helps WOSBs overcome the economic barriers they have faced and helps ensure that the Federal government does not perpetuate the effects of economic sex discrimination. In enacting this statute, Congress acted against a backdrop of discrimination against women that has been examined in Congressional hearings over many years and which persists to this day, as well as a history of largely unsuccessful Federal attempts to remedy that discrimination and provide a level playing field for WOSBs to compete for Federal contracts. Women-owned firms have been persistently underrepresented in Federal procurement contracting. For example, in 1979, when Executive Order 12138 charged Federal agencies with responsibility for providing procurement assistance to women-owned businesses, WOSBs received only 0.2% of all Federal procurements. LaLa Wu and Kate Collier, The National Plan of Action: Then and Now, Bella Abzug Leadership Institute, Nov. 2007 (hereinafter referred to as National Plan of Action), publicly available at http://www.abzuginstitute.org/NationalPlanofAction_ThenandNow-Final.pdf . 1 In the nine succeeding years (through 1989), the percentage of WOSB Federal procurements grew to 1 percent. See id. In later years, 1 In 1988, the Women's Business Ownership Act, Public Law 100-588 (Oct. 25, 1988), “was enacted to assist women in starting, managing and growing small businesses.” Ibid. The National Plan of Action reported that “while this program has assisted thousands of women in obtaining business financing and information, it has had less success” at increasing the percentage of the total value of all prime contract and subcontract awards going to WOSBs or increasing the WOSB share in the economy because WOSBs have not experienced a proportional increase in their share of Federal contracting dollars. Subsequently, in 1994, section 7106 of the Federal Acquisition Streamlining Act (FASA), Public Law 103-355, “amended the Small Business Act by establishing a target that was aimed at increasing opportunities for women to compete for Federal contracts.” Id. “FASA, among other things, established a government-wide goal for participation by WOSBs in procurement contracts of not less than 5 percent of the total value of all prime contract and subcontract awards for each fiscal year.” Ibid. That goal has not been reached to date. [a]lthough the growth rate in the number of women-owned small businesses (WOSBs) was almost twice that of all firms between 1997 and 2002, WOSBs [did] not experience[] a proportional increase in their share of Federal contracting dollars. See id. Evidence presented to Congress shows that women-owned firms continue to be significantly underrepresented in Federal contracting. 2 In 2002, for example, there were 6.5 million women-owned firms in the United States, which accounted for 28.2 percent of all non-farm businesses in the United States. See SBA Office of Advocacy, Women in Business: A Demographic Review of Women's Business Ownership, 2007 (available at http://www.sba.gov/advo/research/rs280tot.pdf ). Despite this presence, however, the share of women-owned small business prime contract awards (in dollar terms) was 2.9 percent in FY 2002 and 3.39 percent in FY 2008. See Federal Procurement Data System/Next Generation (available at http://www.fpds.gov/fpdsng_cms/ ). 3 2 This underrepresentation is mirrored by disparities that women-owned firms face in the marketplace more generally. See, e.g., Opportunities and Challenges for Women Entrepreneurs on the 20th Anniversary of the Women's Business Ownership Act: Roundtable Before the S. Comm. on Small Business and Entrepreneurship, 110th Cong. 3 (2008) (available at http://www.access.gpo.gov/congress/Senate/Senate17ch110.html ); Expanding Opportunities for Women Entrepreneurs: The Future of Women's Small Business Programs: Hearing Before the S. Comm. on Small Business and Entrepreneurship, 110th Cong. 2 (2007) (statement of the Hon. John F. Kerry, Chairman and Sen. from Massachusetts) (stating that “women owned small businesses still continue to have markedly lower revenue and fewer employees than firms, even comparable ones, owned by men”) (available at http://sbc.senate.gov/hearings/20070920.cfm ); Women in Business: Leveling the Playing Field: Roundtable Before the S. Comm. on Small Business and Entrepreneurship, 110th Cong. 8 (2008) (available at http://sbc.senate.gov/hearings/20080319.cfm ). 3 See also Small Business Administration, FY 2008 Official Goaling Report; Small Business Administration (available at http://www.sba.gov/aboutsba/sbaprograms/goals/index.html (last visited February 12, 2010). Substantial academic literature and evidence presented to Congress demonstrates that women face discrimination both in the ability to form and grow their businesses and in the treatment they receive in contracting markets. 4 4 See, e.g., Women in Business: Leveling the Playing Field: Roundtable Before the S. Comm. on Small Business and Entrepreneurship, 110th Cong. 8 (2008) (discussing challenges facing women business owners) (available at http://sbc.senate.gov/hearings/20080319.cfm ); The Department of Transportation's Disadvantaged Business Enterprises Program: Hearing Before the H. Comm. on Transp. and Infrastructure, 111th Cong. 299 (2009) (statement of Joann Payne, President, Women First National Legislative Committee) (describing sex discrimination in business lending) (available at http://transportation.house.gov/hearings/hearingdetail.aspx?NewsID=859 ); Opportunities and Challenges for Women Entrepreneurs: Roundtable Before the S. Comm. on Small Business and Entrepreneurship, 110th Cong. 25 (2008) (detailing, among other things, sex discrimination in lending, and women's exclusion from informal business networks that are a crucial source of business opportunities) (available at http://sbc.senate.gov/hearings/20080909.cfm ); National Economic Research Associates, Inc., Race, Sex and Business Enterprise: Evidence from Memphis, Tennessee 100 (2008) (explaining that discrimination in the labor force reduces the future availability of women-owned businesses by limiting women's ability to obtain the kinds of employment experiences that are most likely to lead to entrepreneurial opportunities) (The Minority Business Development Agency: Enhancing the Prospects for Success: Hearing Before the H. Subcomm. on Commerce, Trade, and Consumer Protection of the H. Comm. on Energy and Commerce, 111th Cong. (2009) available at http://energycommerce.house.gov/index.php?option=com_content&view=article&id=1772:the-minority-business-development-agency-enhancing-the-prospects-for-success&catid=129:subcommittee-on-commerce-trade-and-consumer-protection&Itemid=70 ). The following sections explain the operation of the Program. II. Section 8(m): The WOSB Program Legislation Congress established the WOSB Program as a tool to enable contracting officers to identify and establish a sheltered market for competition among WOSBs for the provision of goods and services to the Federal Government. H.R. Rep. No. 106-879, at 2 (2000) (publicly available at http://thomas.loc.gov/cgi-bin/cpquery/T?&report=hr879&dbname=106& ). Consistent with these goals, section 8(m) of the Act authorizes contracting officers to restrict competition for “any contract for the procurement of goods or services by the Federal Government” to WOSBs under certain enumerated circumstances. 15 U.S.C. 637(m)(2). To be deemed a WOSB for purposes of section 8(m), a firm must be a “small business concern owned and controlled by women.” As defined in section 3(n) of the Act, this means that at least 51 percent of the concern must be owned by one or more women, and that the management and daily business operations of the concern must be controlled by one or more women. 15 U.S.C. 632(n). Section 8(m) establishes six criteria that must be satisfied in order for a contracting officer to reserve an acquisition for WOSBs: • First, each eligible concern must be not less than 51 percent owned by one or more women who are “economically disadvantaged.” However, SBA may waive this requirement of economic disadvantage if it determines that the concern is in an industry in which WOSBs are “substantially underrepresented.” • Second, the contracting officer must have a reasonable expectation that two or more WOSBs will submit offers for the contract. • Third, the anticipated award price of the contract must not exceed $5 million in the case of manufacturing contracts and $3 million in the case of other contracts. • Fourth, in the estimation of the contracting officer, the contract must be able to be awarded at a fair and reasonable price. • Fifth, each competing concern must be duly certified by a Federal agency, a State government, or an SBA-approved entity as a WOSB, or must certify to the contracting officer and provide adequate documentation that it is a WOSB. The statute imposes penalties for a concern's misrepresentation of its status as a WOSB. • Sixth, paragraph (2)(C) of the Act provides that the contract for which competition is restricted must be for the procurement of goods or services with respect to an industry identified by SBA “pursuant to paragraph (3).” However, the reference to paragraph (3) of the Act appears to be a drafting error that resulted from a floor amendment, and the intent of the provision appears to be to identify eligible contracts as those concerning an industry identified pursuant to paragraph (4). 5 Thus, accounting for the apparent drafting error, the sixth condition for the restriction of Federal procurement contracts to WOSBs is that the contract be for the procurement of goods or services with respect to an industry identified by SBA pursuant to the study mandated by paragraph (4) as one in which WOSBs are underrepresented with respect to Federal procurement contracting. 5 Paragraph (3) as enacted permits SBA to waive the “economically disadvantaged” requirement for industries in which SBA has determined that WOSBs are substantially underrepresented. However, at the time that the WOSB bill was reported out of the House Committee on Small Business, then-paragraph (3) (eventually enacted as paragraph (4)) required the Administrator to conduct a study to identify industries in which WOSBs are underrepresented with respect to Federal procurement contracting. Thus, the House Committee viewed paragraph (2)(C) as requiring that contracts eligible for the 8(m) program be contracts “for the procurement of goods and services in an industry identified by the Administrator of the Small Business Administration as one in which small business concerns owned and controlled by women are historically underrepresented.” H.R. Rep. No. 106-879, at 4 (2000). There is nothing in the legislative history that indicates that Congress intended a different result. In accord with the legislative history, and to give effect to each provision of the statute, SBA has concluded that paragraph (2)(C)'s reference to paragraph (3) is better understood as a reference to paragraph (4). Paragraph (2)(C) authorizes restricted competition with respect to industries “identified” by SBA pursuant to the referenced paragraph. Paragraph (4) uses the term “identify,” calling for SBA to conduct a study to “identify” industries in which WOSBs are underrepresented with respect to Federal procurement contracting. Paragraph (3), in contrast, does not use the term “identify.” Understanding the reference to paragraph (3) as a reference to paragraph (4) also preserves the independent effect of each paragraph in section 8(m), including paragraphs (2)(A) and (3). If, by contrast, paragraph (2)(C) were applied literally, it would generate several anomalies. For example, it would undercut paragraph (2)(A)'s requirement of economic disadvantage (the first condition discussed above), because restricted competition would apply only to industries for which SBA had waived the economic disadvantage requirement. Further, a literal reading of paragraph 2(C) would turn paragraph (3), which is clearly phrased as a waiver provision, into an affirmative condition for restricted competition, authorizing restricted competition only in industries in which WOSBs are “substantially underrepresented.” In addition, the literal application of paragraph (2)(C) would undercut paragraph (4), which requires SBA to conduct a study to identify industries in which WOSBs are “underrepresented” with respect to Federal procurement contracting. If restricted competition were permitted only in industries in which SBA had determined WOSBs to be “substantially underrepresented,” there would be no need for SBA to conduct a study to determine underrepresentation (as opposed to substantial underrepresentation). Based on its understanding of the meaning and intent of section 8(m) read as a whole, SBA interprets the statute to authorize restricted competition for industries in which it has determined WOSBs to be underrepresented or substantially underrepresented in Federal procurements, provided the other conditions of section 8(m) are met. This Proposed Rule is drafted accordingly. III. The RAND Report Shortly after section 8(m) was enacted, and pursuant to the requirement of paragraph (4) of the law, SBA, using its own internal resources, conducted a study to identify the industries in which WOSBs are underrepresented with respect to Federal procurement contracting. SBA initially completed its study in September 2001, and contracted with the National Academy of Sciences (NAS) to review the study before publication. In March of 2005, the National Research Council, which functions under the auspices of the NAS and other National Academies, issued an independent evaluation concluding that SBA's study was flawed and offering various recommendations for a revised study. In response to this evaluation, SBA issued a solicitation in October 2005 seeking a contractor to perform a revised study in accordance with the NAS recommendations. In February 2006, SBA awarded a contract to the Kauffman-RAND Institute for Entrepreneurship Public Policy (RAND) to complete a revised study of the underrepresentation of WOSBs in Federal prime contracts by industry code. The resulting study—the RAND Report—was published in April 2007 and is available to the public at http://www.RAND.org/pubs/technical_reports/TR442. As the RAND Report explains more fully, RAND measured WOSB representation in each industry code through a “disparity ratio,” which is a measure comparing the utilization of WOSBs in Federal contracting in a particular code to their availability for such contracts. The disparity ratio itself is defined as utilization divided by availability. Utilization and availability, in turn, are themselves ratios. The disparity ratio is therefore a ratio of ratios. This disparity ratio provides an estimate of the extent to which WOSBs that are available for Federal contracts in specific industries are actually being utilized to perform such contracts. Consistent with the NAS's recommendation, RAND measured utilization and availability in two ways: in terms of dollars and numbers. When using dollars as the measure, RAND calculated utilization as the ratio of Federal contract dollars awarded to WOSBs in a given industry code to total Federal contract dollars awarded in that industry code. It calculated availability as the ratio of the gross receipts (revenues) of WOSBs in a particular industry code to the gross receipts (revenues) of all firms in that code. 6 When using numbers as the measure, RAND calculated utilization as the ratio of the number of Federal contracts awarded to WOSBs in a particular industry code to the number of Federal contracts awarded overall in that code, and availability as the ratio of the number of WOSBs in a particular industry code to the total number of firms in that code. 6 This is a fairly conservative method of determining availability and may underestimate the availability of WOSBs because discrimination may limit the revenues of WOSBs that nonetheless are ready, willing, and able to perform work on Federal contracts. According to the RAND Report, if the disparity ratio in an industry code is equal to 1.0 when measuring in terms of dollars, that indicates that WOSBs have been awarded contract dollars in the same proportion as their economic representation in the industry; that is, they are awarded contracting dollars in proportion to their share of total business in that industry, and are therefore neither over- nor under-represented. Similarly, if the disparity ratio in an industry code is equal to 1.0 when measuring in terms of numbers, this indicates that WOSBs are awarded contracts (of whatever dollar value) in the same proportion as their numerical representation in the industry. A ratio of less than 1.0 (lower utilization than availability) suggests some degree of underrepresentation with respect to that particular means of measuring disparity (dollars or numbers); a ratio of greater than 1.0 (greater utilization than availability) suggests some measure of overrepresentation with respect to a given metric. Following the NAS report's recommendations, RAND classified an industry as “underrepresented” if its disparity ratio was between 0.5 and 0.8 using either the numbers or dollars approach, and “substantially underrepresented” if its ratio was less than 0.5. It is important to note that RAND states disparity ratios are not in and of themselves measures of discrimination, although they have been used in numerous court cases to infer discrimination. Nonetheless they are a starting point, a way to identify whether there are any differences in outcomes between different types of firms. (RAND Report at 30; see also discussion at 4 and 5). RAND calculated these ratios using a variety of different data sets. For the utilization component of the disparity ratio, RAND used the data from the FY 2005 Federal Procurement Data System/Next Generation (FPDS/NG) procurement database. This was the only data source identified by RAND with respect to the utilization component of the disparity ratio. However, RAND did adjust the FPDS to account for possible miscoding of business size. Specifically, RAND linked the FPDS data to 2004 Dun and Bradstreet (D&B) data using the Data Universal Numbering System (DUNS) to identify the parent companies of local establishments, and then used the DUNS to assess whether a firm was small. However, because the data file was also prone to error, RAND presented results both with and without the DUNS cross-reference. For the availability component of the disparity ratio, RAND used two different databases: The 2002 Survey of Business Owners (SBO) from the five-year Economic Census, and the FY 2006 Central Contractor Registration (CCR) registration database. Using the SBO database, RAND presented results only at the two-digit industry code level, a comparatively generalized level of industry disaggregation. Using the CCR, in contrast, RAND presented results at the two-, three-, and four-digit industry code levels. RAND also presented full sample results and trimmed sample results (eliminating the top and bottom 0.5 percent of the data) for each disparity ratio. RAND did this in order to examine the sensitivity of the disparity ratio to extreme values, such as very large contracts or negative dollar amounts resulting from contract actions based on multi-year contracts or modifications to such contracts to earlier contracts. Using these different data sources and various adjustments, the RAND Report identified twenty-eight different possible approaches to determining the degree of underrepresentation of WOSBs in Federal procurement contracting. The parameters and results of each approach are summarized in the RAND Report at Table 4.6. IV. Regulatory History On June 15, 2006, SBA published in the Federal Register, at 71 FR 34550, a Proposed Rule (RIN 3245-AE65), with request for comments, that proposed to amend its regulations in accordance with section 8(m). The Proposed Rule contained the infrastructure rules necessary for the WOSB Program implementation, but did not identify the eligible industries for the WOSB Program because the RAND Report had not been published at the time of the issuance of that Proposed Rule. The RAND Report was subsequently published on April 27, 2007. Based on SBA's evaluation of the public and inter-agency comments received on the June 15, 2006 Proposed Rule, as well as discussions with the U.S. Department of Justice (DOJ) and the Office of Federal Procurement Policy (OFPP), and further examination of section 8(m), it was determined that the June 15, 2006 Proposed Rule required significant changes that warranted further public comment and consideration. In addition, SBA had the results of the RAND study. Therefore, on December 27, 2007, SBA published a new Proposed Rule, titled Women-Owned Small Business Federal Contract Assistance Procedures, RIN 3245-AF40, at 72 FR 73285, that consolidated the infrastructure rules necessary for the WOSB Program implementation with the RAND study findings, which were used to determine the industries in which WOSBs would be eligible for Federal contracting under the WOSB Program. In determining the eligible industries, the December 2007 Proposed Rule employed the full-sample 4-digit NAICS code dollars approach (using the dollar value of contract awards and the receipts of businesses) to identify the eligible industries under the WOSB Program. This approach identified four industries in which WOSBs were either underrepresented or substantially underrepresented. The comment period for the December 2007 Proposed Rule closed on March 31, 2008. SBA received approximately 1,720 comments on the proposed rule. Of the 1,720 comments received, 1,689 requested withdrawal of the Proposed Rule and/or stated opposition to some portion of the Proposed Rule. Subsequently, on October 1, 2008, SBA published a Final Rule in the Federal Register at 73 FR 56940, RIN 3245-AF40. This Final Rule implemented the infrastructure regulations for the WOSB Program, but did not identify the eligible industries for the WOSB Program. The reason for the approach was that after identifying eligible industries under the program in December 2007, SBA discovered certain limitations in the data RAND used. Therefore, SBA published a Proposed Rule; Request for Comment on October 1, 2008, at 73 FR 57014, which provided for a 30-day public comment period and requested comments on two data sets that SBA could use to determine the eligible industries for the WOSB Program. SBA elected to publish the October 1, 2008, Proposed Rule, rather than a Final Rule, on the identification of the eligible industries to engage in a further review and examination of the RAND study and potential measures of disparity. As a result of this further examination, SBA stated in the Proposed Rule; Request for Comments that it had identified a limitation inherent in the CCR data set when the dollars approach was used. Specifically, SBA explained that vendors input information into CCR relating to the firm's revenues and NAICS codes, which are a method for classifying business establishments. Vendors must supply at least one NAICS code for registration into CCR to be complete, but can supply more than one. Vendors do not input the business's revenues for each NAICS code listed or for each NAICS code in which it does business; rather, vendors input total revenues for the firm. Thus, CCR does not provide information concerning the revenue of a firm in each of the NAICS codes, or industries, it sets forth in its CCR registration. Therefore, when RAND computed the disparity ratio using the CCR dollars approach to determine underrepresentation, each firm's total revenue was counted in every NAICS code associated with the firm. Upon discovering the CCR data set limitation, SBA contacted the United States Census Bureau (Census Bureau) to determine the availability of an alternative data set. The Census Bureau provided SBA with a data set for the availability component of the disparity ratio that consists of data from the 2002 Survey of Business Owners (SBO) collected through the 5-year Economic Census for firms with employees (hereinafter referred to as “Census SBO data”). Although this data set was not used in the RAND report results, it was mentioned in the RAND report as restricted data which would be available to SBA at a more disaggregated NAICS code level than the public SBO data. The Census Bureau report and associated data are available at http://www.sba.gov/idc/groups/public/documents/sba_homepage/census_bureau.pdf. In its October 1, 2008 Proposed Rule; Request for Comment, SBA sought input from the public on this CCR data limitation as well as the Census SBO data set alternative. SBA received 38 comments on that Proposed Rule. The majority of these comments generally opposed the use of the Census SBO data because the disaggregated data set was not available publicly without undergoing a screening process due to statutory restrictions to protect the confidentiality of the data. No comments addressed the substantive findings of the Census data or challenged its accuracy. SBA has reviewed the October 1, 2008 Final Rule and the Proposed Rule, as well as the public comments, and determined that changes to both rules are necessary. After careful review of the comments, SBA has decided to withdraw the October 1, 2008 Proposed Rule for the reasons identified in the currently proposed rule. Consequently, SBA has set forth below a new Proposed Rule for the WOSB Program which includes both the infrastructure regulations and the identification of the eligible industries. SBA has set forth the entire Proposed Rule below, rather than only the portions of part 127 that SBA has decided to amend, in order to afford the public an opportunity to comment on all aspects of the program. SBA has determined that setting forth the entire infrastructure and industries in a Proposed Rule will best serve the public's ability to address any concerns or opinions regarding this WOSB Program. For ease of reference, following is a discussion of the substantive changes that the rule proposes to make to the Final Rule and Proposed Rule published on October 1, 2008 at 73 FR 56940 and 73 FR 57014, respectively. V. Identification of the Eligible Industries 1. Choice of Data sets As stated earlier, the RAND Report, using various combinations of data sources and methods, identified twenty-eight possible approaches to measuring the underrepresentation and substantial underrepresentation of WOSBs in Federal procurement contracting. Twenty of these approaches compare FY 2006 CCR registration data to FY 2005 FPDS/NG procurement data, while eight of the approaches compare the 2002 SBO data from the five-year Economic Census to FYs 2002/2003 FPDS/NG procurement data. SBA proposes not to use the eight approaches that rely on a comparison of the 2002 SBO data to FYs 2002/2003 FPDS/NG procurement data for the following reasons: • The SBO data set generally considers all firms in the economy, and not simply the number of firms that are ready, willing, and able to perform Federal contracts. In contrast, because firms are generally required to register on the CCR database prior to bidding on a Federal contract, a firm's presence in the CCR reflects its willingness to bid on a Federal contract. However, it is possible that a firm's inability to bid on Federal contracts, and therefore its reluctance to register on the CCR could itself result from gender discrimination. • The SBO does not distinguish between WOSBs and women-owned businesses in general, large and small. The CCR, in contrast, contains self-reported information on whether a business is small. And the procedures authorized by section 8(m) are specifically targeted towards only small businesses owned by women. • The SBO is generally not available for two years after the survey is completed. CCR data, in contrast, are updated continuously and made available immediately. It is not clear, however, the degree to which data regarding business ownership and size economic size change from year to year, and therefore not clear how much weight this distinction should carry. In addition, the SBO data in the RAND Report do not disaggregate industry groupings beyond the two-digit NAICS level. In the NAS 2005 report examining SBA's 2002 internal study, NAS criticized SBA's use of the two-digit Major Group Standard Industrial Classification (SIC) industry codes as inadequate. The two-digit Major Group SIC designation corresponds to the current three-digit Subsector NAICS designation. Thus, while NAS criticized SBA's use of two-digit SIC information, the SBO two-digit NAICS data is even less precise than the two-digit SIC data. Both the CCR and the FPDS/NG, in contrast, provide the capability to use four-digit NAICS classifications. SBA solicits comment on its decision, in light of the foregoing considerations, not to use any of RAND's approaches that utilize the SBO data and to focus instead on only those approaches that use the CCR data. A further discussion on the appropriateness of the use of the CCR data is set forth below. Because the NAS criticized SBA's use of the two-digit SIC code and recommended that SBA use industry detail as disaggregated as the data will support, SBA also proposes to eliminate the sixteen approaches that used CCR and FPDS/NG FY 2005 procurement data at the two and three-digit NAICS code level. Of the remaining four approaches, two are based on full sample results, while the other two are based on trimmed sample results (eliminating the top and bottom 0.5 percent of the data). The RAND Report found little benefit to trimming the sample, and placed more weight on the full sample results. Based on RAND's finding, SBA proposes to eliminate the two approaches based on the trimmed-sample results. This leaves two possible approaches, both of which use 2004 CCR and 2005 FPDS/NG procurement data at the four-digit NAICS code level. 2. Numbers and Dollars Approaches After careful analysis of the comments on SBA's 2007 and 2008 Proposed Rules and reconsidering the data and analysis in the RAND Report, SBA has determined that both of the remaining approaches, using numbers and dollars, are viable and appropriate means of identifying industries in which WOSBs are underrepresented or substantially underrepresented for purposes of section 8(m). Both approaches represent legitimate and complementary interpretations of the statutory term “underrepresentation.” SBA likewise believes that applying the section 8(m) program in these industries would reduce the effects of the discrimination affecting women-owned small businesses, consistent with Congress's goals, and that both numbers and dollars approaches are substantially related to the purpose of the Program. As a result, as is explained in more detail below, the Proposed Rule would amend the definitions of underrepresentation and substantial underrepresentation and identify the eligible industries under this Program as those industries in which WOSBs are underrepresented or substantially underrepresented using either the numbers or the dollars approach. SBA recognizes that this approach may enable competition restricted to WOSBs in industries where using only one or the other of the disparity measurement methodologies in the RAND study might not show underrepresentation of WOSBs in that industry. SBA therefore seeks comment on this proposed approach. Section 8(m) instructs SBA to conduct a study to identify industries in which small business concerns owned and controlled by women are underrepresented with respect to Federal procurement contracting. 15 U.S.C. 637(m)(4). The statute does not specify how underrepresentation should be identified, or state that only a single disparity measure can be used to identify underrepresentation. SBA must therefore determine the appropriate methods for identifying WOSB underrepresentation, recognizing that it is not bound to any one disparity measure to achieve that goal. As discussed above, the dollars approach compares the proportion of the dollar value of contracts in a particular NAICS code awarded to WOSBs with the proportion of gross receipts (revenues) in that NAICS code earned by WOSBs. The numbers approach compares the proportion of contracts (calculated in terms of number of contracts) awarded to WOSBs in a particular NAICS code with the number of WOSBs in that particular NAICS code. After reviewing comments and conducting further analysis, SBA concludes that both approaches provide sound and complementary analytical bases for determining the industries in which WOSBs are underrepresented and substantially underrepresented. Specifically, underrepresentation can occur when WOSBs are not being awarded Federal contracting dollars in proportion to their economic representation (measured by their gross receipts) in an industry. This might occur if, for example, WOSBs were awarded contracts in numbers proportional to their numerical representation in an industry, but received much less in Federal contracting dollars than their non-WOSB counterparts. But underrepresentation can also occur where there is disparity in the number of contracts being awarded to WOSBs, even if there is no measured disparity in contract dollars, due to a handful of WOSBs winning large-dollar contracts. Indeed, as the RAND Report results show, during FY 2005, the top WOSB firm was awarded $673 million dollars in contracts, or 6 percent of the value of all Federal prime contracts awarded to WOSBs ($10.5 billion dollars). In addition, the top 10 WOSBs garnered $1.6 billion, or 15 percent of Federal prime contracts going to WOSBs, and the top 25 WOSBs were awarded $2.1 billion, or 20 percent of Federal prime contracts going to WOSBs. Accordingly, the number of contracts, regardless of size, is a valid alternative measure of whether WOSBs have been offered equality of opportunity. It is true that the statutory goal for WOSB participation in government contracting is expressed in terms of dollars. However, upon further analysis, SBA does not believe that this fact counsels against use of a numbers approach for purposes of identifying the industries in which the WOSB Program should operate. The 5 percent participation goal—which appears in a different section of the statute from section 8(m)—is a measure of the total volume of Government-awarded prime contracts and subcontracts that, ideally, will be awarded to WOSBs each year. The goal includes both contracts awarded under the section 8(m) program and contracts awarded in industries deemed ineligible for that program. Section 8(m)'s “underrepresent[ation]” requirement, in contrast, concerns the identification of industries in which the statutorily prescribed contracting assistance to WOSBs should be permitted. There is no basis in the statutory language for determining that “underrepresentation” for purposes of authorizing specific contracting assistance to WOSBs must be measured by the same metric as the total volume of Federal contracts awarded to WOSBs for purposes of an overall participation goal. As discussed above, the numbers approach identifies a valid and important meaning of “underrepresentation” that may exist even in situations where the dollars approach does not identify underrepresentation. SBA recognizes that these different means of measuring and evaluating underrepresentation are tools to identify those industries in which competition restricted to WOSBs will be authorized. Where different analytical methodologies yield different outcomes on the issue of WOSB underrepresentation in a particular industry, SBA must identify a reasonable means for evaluating, reconciling and applying these methodologies in order to serve the statutory goal of improving WOSBs equal access to Federal contracting in those industries where WOSBs are underrepresented. SBA therefore seeks comment on its proposed approaches to identifying underrepresentation. 3. Appropriateness of Using the CCR Database Comments on the prior Proposed Rules raised concerns about the RAND study's use of revenue data from the CCR database, concerns SBA noted in its withdrawn 2008 Final Rule. One concern centered on the way vendors, i.e., businesses registering for Federal contracts, input data into the CCR. As described above, the CCR database reflects each firm's total revenue in every NAICS code associated with the firm, rather than the amount of revenue associated with the particular NAICS code at issue. SBA noted in its 2007 Proposed Rule that this feature of the CCR data might result in overstating firms' revenues in some or all NAICS codes. At least one commenter, in response to a prior version of the rule, asserted that the CCR data only takes into consideration current Federal contractors, whereas the SBO data could include all WOSB that are ready, willing and able to perform Federal work. A further potential viewpoint is that when using the SBO data set, the RAND Study found underrepresentation in a smaller number of industries, which could imply that women-owned firms were “over-represented” in numerous other industries in terms of the dollars of Federal procurement relative to their size in the economy. Consequently, it might be asserted that using the CCR data will allow set-asides in industries where other credible data (SBO data) show women-owned small businesses are not underrepresented in terms of Federal procurement. Based on further analysis, SBA has concluded that the CCR data set is the best available data to use to determine the availability component of the disparity rations. First, the fact that the CCR database reflects each firm's total revenue in every NAICS code associated with the firm, rather than the amount of revenue associated with the particular NAICS code at issue, does not render unreliable the disparity ratios calculated using the dollars component of the CCR database. 7 As previously discussed, the dollars-based disparity ratios are themselves based on a comparison between two different ratios: the value of the government contracts awarded to WOSBs in a particular industry compared to the value of all government contracts awarded in that industry, on the one hand; and the gross receipts (in the economy at large) of WOSBs registered in the CCR database for that industry compared to the gross receipts for all businesses registered for that industry, on the other. The numerator of this ratio—the value of government contracts awarded to WOSBs and to industries in general within a given industry code—is not calculated using the CCR database. 7 This feature of the CCR database has no effect on disparity ratios calculated according to the numbers method, since that method does not make reference to firms' gross receipts. In addition, with respect to the denominator, SBA believes that it is reasonable to assume that WOSBs and non-WOSBs register in the CCR database and identify industries for which they are available in a similar manner. Thus, if a WOSB in a particular kind of business registers in (and effectively overstates its revenues in) three NAICS codes, a non-WOSB in the same kind of business is likely to register in (and overstate its revenues in) the same three NAICS codes. And because the denominator of the dollars-based disparity ratio is calculated based on a comparison between gross receipts earned by WOSBs and non-WOSBs, rather than the absolute values of those receipts, the potential over-reporting of revenue in each NAICS code does not raise serious concerns about the reliability of the dollars analysis of the RAND study. SBA has also concluded the CCR database appropriately captures those firms ready, willing and able to compete for Federal contracts. The firms in the CCR database have indicated by registering to submit an offer on Federal prime contracts that they are “willing” to perform work on such contracts and have self-identified as firms that are ready and able to perform such work. RAND's review of the data identified no additional means of determining which firms are ready and able to work on these contracts. 8 However, RAND ensured that the firms each had at least one employee as a “proxy for ‘able.’ ” RAND Study at 30. Further, because the SBO data generally considers all firms in the economy, it is possible that it may actually overestimate the number of firms that are ready, willing and able to perform Federal contracts, thus potentially overestimating underrepresentation. 8 For instance, although size may be relevant to the ability to perform certain work, RAND found that small firms successfully competed for Federal contracts, and that it was not possible to identify a natural break point in contract size beyond which small businesses generally could not compete. Although the CCR data account for a firm's willingness to submit an offer and receive a Federal contract without also expressly accounting for firm qualifications or abilities, SBA believes that the CCR data is nevertheless an appropriate measure of firm availability. Although some contracting assistance programs may rely on actual bidder lists as the utilized measure of ready, willing, and able firms, see, e.g., Eng'g Contractors Ass'n of S. Fla., Inc. v. Metro. Dade County, 122 F.3d 895, 912 (11th Cir. 1997), some programs do not, and courts have upheld such programs against challenges. See Concrete Works of Colorado, Inc. v. City and County of Denver, 321 F.3d 950, 983 (10th Cir. 2003) (rejecting argument that underutilization must be measured by examining “only those firms actually bidding on City construction projects”). In Concrete Works, the court noted that even those firms that did submit bids might be unqualified, so that the city would always have to make some assumption about qualifications, and further observed that bidder lists might not capture all firms that are qualified. Id. The court concluded that disparity studies may make assumptions about qualifications “as long as the same assumptions can be made for all firms.” Id.; cf. Adarand Constructors, Inc. v. Slater, 228 F.3d 1147, 1173 (2000) (noting that there was no evidence in the record that “those minority subcontractors who have been utilized have performed inadequately or otherwise demonstrated a lack of necessary qualifications”). The court also noted that a firm's ability to perform contracts is not static: firms can generally perform services by hiring additional employees or using subcontractors. Concrete Works, 321 F.3d at 981. Of course, to the extent that the age and size of a firm may themselves be effectively limited by barriers tied to historical discrimination, using these factors to assess capacity and availability may in some instances extend the effects of past discrimination into this statistical assessment. For the reasons stated above, this Proposed Rule proposes to evaluate underrepresentation and substantial underrepresentation by using the CCR database and applying both the numbers and dollars approaches to identify eligible industries. Using this methodology, the RAND study found one hundred and nine (109) year-2002 NAICS codes in which WOSBs were either underrepresented or substantially underrepresented. Because SBA has received comments on this issue in the past, and there is a more detailed data set available (SBO data), it is interested in hearing from the public about this proposal to utilize the CCR data set, and specifically requests comments on whether the WOSB Program should operate, or whether its operation should require special justification, in sectors where women-owned businesses appear not be underrepresented based on other data. 4. The Eligible Industry Codes NAICS codes are revised every five years (in the years ending in '2' and '7'). RAND used the 2002 NAICS codes in its study. All but three of the 109 2002 NAICS codes identified by RAND correspond with the current 2007 NAICS codes. The three 2002 NAICS codes which do not correspond are: 5161—Internet Publishing and Broadcasting; 5173—Telecommunications Resellers; and 5181—Internet Service Providers and Web Search Portals. However, these three 2002 NAICS codes were made part of other NAICS codes in 2007 that were also designated by RAND as substantially underrepresented—2002 NAICS code 5161 is now part of 2007 NAICS code 5191; 2002 NAICS code 5173 is now a part of 2007 NAICS code 5179; and 2002 NAICS code 5181 is now split between 2007 NAICS codes 5171 and 5179. Because the RAND study found NAICS codes 5191, 5179 and 5171 also to be substantially underrepresented, the change in NAICS code affects only the designation of industries to the extent that there are 106 2007 NAICS codes instead of 109 2002 NAICS codes but does not affect the types of WOSBs eligible under the WOSB Program. However, the WOSB Program will not operate in three of the 106 2007 NAICS codes in sector 92 (2002 and 2007) because those NAICS codes do not apply to the private sector. These NAICS codes are: 9211—Executive, Legislative, and other General Government Support; 9231—Administration of Human Resource Programs; and 9281—National Security and International Affairs. Firms in these NAICS codes are: Federal, state, and local government agencies which administer and oversee government programs and activities that are not performed by private establishments, see 13 CFR 121.201 n. 19, and contracts are not classified with this NAICS code. See 13 CFR 121.402(b). In addition, twenty of the 106 NAICS codes in sectors 42, 44, and 45 (2002 and 2007) are not available for contracting assistance under the Program. These industries codes are: 4231—Motor Vehicle and Motor Vehicle Parts and Supplies Merchant Wholesalers; 4232—Furniture and Home Furnishing Merchant Wholesalers; 4233—Lumber and Other Construction Materials Merchant Wholesalers; 4234—Professional and Commercial Equipment and Supplies Merchant Wholesalers; 4236—Electrical and Electronic Goods Merchant Wholesalers; 4239—Miscellaneous Durable Goods Merchant Wholesalers; 4241—Paper and Paper Product Merchant Wholesalers; 4243—Apparel, Piece Goods, and Notions Merchant Wholesalers; 4246—Chemical and Allied Products Merchant Wholesalers; 4248—Beer, Wine, and Distilled Alcoholic Beverage Merchant Wholesalers; 4249—Miscellaneous Nondurable Goods Merchant Wholesalers; 4412—Other Motor Vehicle Dealers; 4421—Furniture Stores; 4422—Home Furnishings Stores; 4431—Electronics and Appliance Stores; 4461—Health and Personal Care Stores; 4511—Sporting Goods, Hobby, and Musical Instrument Stores; 4532—Office Supplies, Stationery, and Gift Stores; 4541—Electronic Shopping and Mail-Order Houses; and 4543—Direct Selling Establishments. These twenty NAICS codes fall under the 2-digit NAICS code sectors 42, 44 and 45, which cover wholesalers and retailers. Contracts are not classified with these NAICS codes. See 13 CFR 121.402(b). SBA regulations specifically state that sectors 42, 44 and 45 are “not applicable to Government procurement of supplies.” 13 CFR 121.201. These NAICS codes are not available for set-asides because contracting officers must classify any contract for the procurement of supplies under the applicable manufacturing NAICS code (and then the nonmanufacturer rule would apply to any offerors that are nonmanufacturers of the supply). 13 CFR 121.402. As a result of the above, this Proposed Rule treats eighty-three NAICS codes as eligible for Federal contracting under the WOSB Program. There are forty-five NAICS codes in which WOSBs are underrepresented and thirty-eight NAICS codes in which WOSBs are substantially underrepresented. The forty-five NAICS codes in which WOSBs are underrepresented are: 2213—Water, Sewage and Other systems; 2361—Residential Building Construction; 2371—Utility System Construction; 2381—Foundation, Structure, and Building Exterior Contractors; 2382—Building Equipment Contractors; 2383—Building Finishing Contractors; 2389—Other Specialty Trade Contractors; 3149—Other Textile Product Mills; 3159—Apparel Accessories and Other Apparel Manufacturing; 3219—Other Wood Product Manufacturing; 3222—Converted Paper Product Manufacturing; 3321; Forging and Stamping; 3323—Architectural and Structural Metals Manufacturing; 3324—Boiler, Tank, and Shipping Container Manufacturing; 3333—Commercial and Service Industry Machinery Manufacturing; 3342—Communications Equipment Manufacturing; 3345—Navigational, Measuring, Electromedical, and Control Instruments Manufacturing; 3346—Manufacturing and Reproducing Magnetic and Optical Media; 3353—Electrical Equipment Manufacturing; 3359—Other Electrical Equipment and Component Manufacturing; 3369—Other Transportation Equipment Manufacturing; 4842—Specialized Freight Trucking; 4881—Support Activities for Air Transportation; 4884—Support Activities for Road Transportation; 4885—Freight Transportation Arrangement; 5121—Motion Picture and Video Industries; 5311—Lessors of Real Estate; 5413—Architectural, Engineering, and Related Services; 5414—Specialized Design Services; 5415—Computer Systems Design and Related Services; 5416—Management, Scientific, and Technical Consulting Services; 5419—Other Professional, Scientific, and Technical Services; 5611—Office Administrative Services; 5612—Facilities Support Services; 5614—Business Support Services; 5616—Investigation and Security Services; 5617—Services to Buildings and Dwellings; 6116—Other Schools and Instruction; 6214—Outpatient Care Centers; 6219—Other Ambulatory Health Care Services; 7115—Independent Artists, Writers, and Performers; 7223—Special Food Services; 8111—Automotive Repair and Maintenance; 8113—Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance; and 8114—Personal and Household Goods Repair and Maintenance. The thirty-eight NAICS codes in which WOSBs are substantially underrepresented are: 2372—Land Subdivision; 3152—Cut and Sew Apparel Manufacturing; 3231—Printing and Related Support Activities; 3259—Other Chemical Product and Preparation Manufacturing; 3328—Coating, Engraving, Heat Treating, and Allied Activities; 3329—Other Fabricated Metal Product Manufacturing; 3371—Household and Institutional Furniture and Kitchen Cabinet Manufacturing; 3372—Office Furniture (including Fixtures) Manufacturing; 3391—Medical Equipment and Supplies Manufacturing; 4841—General Freight Trucking; 4889—Other Support Activities for Transportation; 4931—Warehousing and Storage; 5111—Newspaper, Periodical, Book, and Directory Publishers; 5112—Software Publishers; 5171—Wired Telecommunications Carriers; 5172—Wireless Telecommunications Carriers (except Satellite); 5179—Other Telecommunications; 5182—Data Processing, Hosting, and Related Services; 5191—Other Information Services; 5312—Offices of Real Estate Agents and Brokers; 5324—Commercial and Industrial Machinery and Equipment Rental and Leasing; 5411—Legal Services; 5412—Accounting, Tax Preparation, Bookkeeping, and Payroll Services; 5417—Scientific Research and Development Services; 5418—Advertising, Public Relations, and Related Services; 5615—Travel Arrangement and Reservation Services; 5619—Other Support Services; 5621—Waste Collection; 5622—Waste Treatment and Disposal; 6114—Business Schools and Computer and Management Training; 6115—Technical and Trade Schools; 6117—Educational Support Services; 6242—Community Food and Housing, and Emergency and Other Relief Services; 6243—Vocational Rehabilitation Services; 7211—Traveler Accommodation; 8112—Electronic and Precision Equipment Repair and Maintenance; 8129—Other Personal Services; and 8139—Business, Professional, Labor, Political, and Similar Organizations. VI. Economic Disadvantage SBA proposes to clarify current § 127.203 concerning economically disadvantaged women-owned small businesses (EDWOSBs) to address certain interpretations and policies that have been followed informally by SBA with respect to the 8(a) Business Development (BD) Program and that SBA believes would apply to the WOSB Program as well. This includes certain interpretations and policies SBA recently set forth in a rule proposing to amend the 8(a) BD regulations. See 74 FR 55694 (Oct. 28, 2009). For example, this Proposed Rule specifically states that SBA does not take community property laws into account when determining economic disadvantage if the woman has no ownership interest. This means that property that is legally in the name of the husband would be considered wholly the husband's, whether or not the couple lived in a community property state. Since community property laws are usually applied when a couple separates, and since spouses in community property states generally have the freedom to keep their property separate while they are married, SBA proposes to treat property owned solely by one spouse as that spouse's property for economic disadvantage determinations. However, if both spouses own the property, SBA would attribute a half interest in such property to the woman claiming economic disadvantage, unless there is evidence to show that the interest in such property is greater or lesser. This policy also results in equal treatment for applicants in community and non-community property states. In addition, and along the same lines, SBA proposes to provide that it may consider a spouse's financial situation in determining an individual's access to capital and credit. SBA has also proposed exempting funds in Individual Retirement Accounts (IRAs) and other official retirement accounts from the calculation of net worth, provided that the funds cannot currently be withdrawn from the account prior to retirement age without a significant penalty. While such funds can be useful to an applicant seeking credit, SBA believes that retirement accounts are not assets to be currently enjoyed; rather, they are held for purposes of ensuring future income when an individual is no longer working. SBA believes it is unfair to count those assets as current assets. The basis for this proposal stems from SBA's experience with the 8(a) BD Program, where it has found that including IRAs and other retirement accounts in the calculation of an individual's net worth does not serve to disqualify wealthy individuals. Instead, such an exclusion has worked to make middle and lower income individuals ineligible to the extent they have invested prudently in accounts to ensure income at a time in their lives when they are no longer working. SBA is cognizant of the potential for abuse of this proposed provision, with individuals attempting to hide current assets in funds labeled “retirement accounts.” SBA does not believe such attempts to remove certain assets from an individual's economic disadvantage determination would be appropriate. Therefore, this Proposed Rule states that in order for funds not to be counted in an economic disadvantage determination, the funds cannot be currently withdrawn from the account without a significant penalty. A significant penalty would be one equal or similar to the additional income tax on early distributions under section 72(t) of the Internal Revenue Code. In order for SBA to determine whether funds invested in a specific account labeled a “retirement account” may be excluded from a woman's net worth calculation, the woman must provide to SBA information about the terms and conditions of the account. SBA is interested in hearing from the public about this proposal, and specifically requests comments on how best to exclude legitimate retirement accounts without affording others a mechanism to circumvent the economic disadvantage criterion. SBA has also proposed exempting income from a corporation taxed under Subchapter S of Chapter 1 of the Internal Revenue Code (S corporation) from the calculation of both income and net worth to the extent such income is reinvested in the firm or used to pay taxes arising from the normal course of operations of an S corporation. Although the income of an S corporation flows through and is taxed to individual shareholders in accordance with their interest in the S corporation for Federal tax purposes, SBA will take such income into account for economic disadvantage purposes only if it is not reinvested in the business or used to pay the taxes. This proposal would result in equal treatment of corporate income for corporations taxed under Subchapter C of Chapter 1 of the Internal Revenue Code (C corporations) and S corporations. In cases where that income is reinvested in the firm or used to pay taxes arising from the normal course of operations of the S corporation and not retained by the woman, SBA believes it should be treated the same as C corporation income for purposes of determining economic disadvantage. In order to be excluded, the owner of the S corporation would be required to clearly demonstrate that the S corporation distribution was used to pay taxes or was reinvested back into the S corporation within 12 months of the distribution of income. Conversely, the woman owner of an S corporation could not subtract S corporation losses from the income paid by the S corporation to her or from her total income from whatever source. S corporation losses, like C corporation losses, are losses incurred by the company, not by the individual, and based upon the legal structure of the corporation and the protections afforded the principals through this structure, the individual is not personally liable for the debts representing any of those liabilities. Thus, it is inappropriate to consider these personal losses and women should not be able to use them to reduce their personal incomes for purposes of the economic disadvantage. SBA also proposes to provide that it would presume that a woman is not economically disadvantaged if her yearly income averaged over the past two years exceeds $200,000. SBA considered incorporating into the regulation the present policy for the 8(a) BD Program that a woman is not economically disadvantaged if her adjusted gross income exceeds that for the top two percent of all wage earners according to IRS statistics. Under that approach for the 8(a) BD Program, SBA compares the income of the individual claiming disadvantage to the most currently available, final IRS income tax statistics. In some cases, SBA may be comparing IRS statistics relating to one tax year to an individual's income from a succeeding tax year because final IRS statistics are not available for that succeeding tax year. Although that policy has been upheld by SBA's Office of Hearings and Appeals (OHA) and the Federal courts (see SRS Technologies v. United States, 894 F. Supp. 8 (D.D.C. 1995); Matter of Pride Technologies, Inc., SBA No. 557 (1996) SBA No. MSB-557) for the 8(a) BD Program, SBA believes that a straight line numerical figure is more understandable, easier to implement, and avoids any appearance of unfair treatment when statistics for one tax year are compared to an income level for another tax year. Therefore, SBA is proposing for the WOSB Program an income level of $200,000 because that figure closely approximates the income level corresponding to the top two percent of all wage earners, which has been upheld as a reasonable indicator of a lack of economic disadvantage. Although a $200,000 income may seem unduly high as a benchmark, we note that this amount is being used only to presume, without more information, that the woman is not economically disadvantaged. SBA may consider incomes lower than $200,000 as indicative of lack of economic disadvantage. However, it would not presume lack of economic disadvantage in that case. It may also consider income in connection with other factors when determining a woman's access to capital. SBA specifically requests comments on both the straight line approach proposed and the current comparison of income levels to the IRS statistics. This proposed regulation would permit applicants to rebut the presumption of lack of economic disadvantage upon a showing that the income is not indicative of lack of economic disadvantage. For example, the presumption could be rebutted by a showing that the income was unusual (inheritance) and is unlikely to occur again. The presumption could also be rebutted, for example, by showing that the earnings were winnings that are offset by related losses as in the case of winnings and losses from gambling resulting in a net gain far less than the actual gambling income received. SBA may still consider any unusual earnings or windfalls as part of its review of total assets. Thus, although an inheritance of $5 million, for example, may be unusual income and excluded from SBA's determination of economic disadvantage based on income, it would not be excluded from SBA's determination of economic disadvantage based on total assets. In such a case, a $5 million inheritance would render the woman not economically disadvantaged based on total assets. This rule also proposes to establish an objective standard by which a woman may not qualify as economically disadvantaged based on her total assets. With respect to the 8(a) BD Program, SBA's findings that an individual was not economically disadvantaged with total asset levels of $4.1 million and $4.6 million have been upheld as reasonable. See Matter of Pride Technologies, SBA No. 557 (1996), and SRS Technologies v. U.S., 843 F. Supp. 740 (D.D.C. 1994). Alternatively, and again with respect to the 8(a) BD Program, SBA's finding that an individual was not economically disadvantaged with total assets of $1.26 million was overturned. See Matter of Tower Communications, SBA No. 587 (1997). This rule proposes to eliminate any confusion as to what level of total assets qualifies as economic disadvantage for EDWOSB purposes as has occurred in the 8(a) BD Program. Under this Proposed Rule, a woman generally would not be considered economically disadvantaged if the fair market value of all her assets exceeds $3 million. While this Proposed Rule would exclude retirement accounts from a woman's net worth in determining economic disadvantage, it would not exclude such amounts from her total assets in determining economic disadvantage on that basis. VII. Certification The Act sets forth the certification criteria for the WOSB Program. Specifically, the Act states that a WOSB or EDWOSB must: (1) Be certified by a Federal agency, a State government, or a national certifying entity approved by the Administrator, as a small business concern owned and controlled by women; or, (2) certify to the contracting officer that it is a small business concern owned and controlled by women and provide adequate documentation, in accordance with standards established by SBA, to support such certification. The legislative history for this statutory provision explains that certification by a Federal agency, State government or national certifying entity should be acceptable if it tracks the statutory and regulatory definition of WOSB and EDWOSB. H.R. Rep. No. 106-879, at 4 (2000). Consequently, to identify approved third-party certifiers, SBA will review those entities that certify WOSBs and designate those with certification criteria meeting the requirements of this program at a later date. In addition, the legislative history explains that the Committee expects the contracting officers will accept self-certification so long as the documentation provided along with the response to the solicitation enables the contracting officer to determine that the WOSB or EDWOSB meets the requirements of the program. Id. As a result of the statutory provision, and the supporting legislative history, SBA has proposed a rule that will require WOSBs and EDWOSBs to first certify their status in the Online Representations and Certifications Application (ORCA) at https://orca.bpn.gov, and then provide the contracting officer with certain documents verifying their status. SBA believes that the statute and supporting legislative history permit several means for providing the requisite documents to the contracting officer. Therefore, SBA is proposing to establish a repository (WOSB Program Repository) for the documents where WOSBs and EDWOSBs that certify in ORCA would submit the documents. The documents would be stored in a secure, web-based environment that would be accessible to WOSB and EDWOSB applicants, contracting community and SBA. This idea is analogous to a system already utilized in the government. CCR is a web-enabled government-wide application that collects, validates, stores, and disseminates business information about the Federal government's trading partners in support of the contract award, grants, and the electronic payment processes. See Federal Agency Registration FAQs, publicly available at https://www.bpn.gov/FAR/docs/FAQ.pdf. Although CCR is used to electronically share secure and encrypted data with the Federal agencies' finance offices to facilitate paperless payments through electronic funds transfer, and does not necessarily serve as a repository for documents, the concept would be similar. WOSBs and EDWOSBs that certify in ORCA would be required to submit documents verifying their status to the repository at the time of initial self-certification in ORCA and then every year thereafter, and in addition if there is a change in such information that would necessitate the submission of supplemental or new information. The contracting officer would be able to access the documents prior to contract award to review the submitted documents. This proposal would mean that WOSBs and EDWOSBs would not have to submit documents each time they receive a WOSB or EDWOSB contract. SBA also proposes that WOSBs or EDWOSBs will submit certain documents at the time of self certification in ORCA and then must submit additional documents in the event of a protest or program examination. SBA intends for those additional documents to be placed into the document repository, as well. With respect to the specific documents that must be submitted at the time of initial certification (and updated anytime after) the Proposed Regulation sets forth several documents that will assist in verifying ownership and control. For those WOSBs and EDWOSBs that have not received an approved third-party certification, SBA reviewed the requirements and standards established for a similar program, the 8(a) BD Program, in determining which documents must be provided. In the 8(a) BD Program, the applicant must complete a standard form and provide SBA with appropriate documents to support and verify the statements made in the application. Using the 8(a) BD Program application process as a guide, and in accordance with the proposed eligibility criteria for the WOSB Program, SBA has proposed that a WOSB or EDWOSB, which has not received a third-party certification from an approved certifier, provide the following documents to the repository: • WOSBs or EDWOSBs that are corporations would need to submit their articles of incorporation, stock certificates (both sides), stock ledger, shareholders' agreements, by-laws and amendments. • WOSBs or EDWOSBs that are LLCs must submit their articles of organization (also referred to as the certificate of organization or articles of formation) and any amendments and operating agreement with any amendments. • WOSBs or EDWOSBs that are partnerships must submit an original and amended partnership agreement. In addition, all WOSBs and EDWOSBs must submit evidence of gender and U.S. citizenship for women (women) owners(s), such as a copy of a birth certificate, naturalization papers or passport. EDWOSBs would also need to submit a Form 413, Personal Financial Statement, for at least each woman claiming economic disadvantage. Further, all EDWOSBs or WOSBs must also provide a copy of the joint venture agreement, if applicable. SBA anticipates that the repository will also house copies of the third party certifications. With respect to those WOSBs or EDWOSBs that have received an approved third-party certification, this Proposed Rule requires that the WOSB or EDWOSB must provide a copy of the certification to the repository at the time of certification in ORCA. If the WOSB or EDWOSB has a third-party certification as a DOT Disadvantaged Business Enterprise (DBE), it must submit a copy of the DBE certification at the time of certification in ORCA showing that it received such certification because it is owned and controlled by women. In addition, the WOSB or EDWOSB must provide a statement identifying the woman or women upon whom eligibility was based and documents, such as birth certificates or passports, evidencing that the woman or women are citizens of the United States as defined by 13 CFR 127.102. SBA believes that it is not necessary for these concerns to submit any other documents to verify eligibility, at that time, since such documents have already been submitted to and reviewed by a third party. SBA intends that the WOSB Program Repository preclude modification or retrieval of any document submitted; however, documents can be supplemented in a separate submission. This would allow the system to be a historical site for each change in documentation. This historical data may be useful in determining whether, over a period of time, the data is consistent rather than contradictory. Until SBA is able to establish a repository, or if the system is otherwise unavailable, then SBA is proposing that the WOSB or EDWOSBs submit the documents directly to the contracting officer prior to each WOSB or EDWOSB award. The contracting officer must retain these documents in the contract file so that SBA may later review the file for purposes of a status protest or eligibility examination. However, the WOSB or EDWOSB will also be required to post the documents to the WOSB Program Repository within thirty (30) days of the repository becoming available. The Proposed Rule also explains the consequences for failure to provide the required documents and the contracting officer's duties in those situations. If the apparent successful WOSB or EDWOSB fails to provide any of the required documents, the contracting officer cannot make a WOSB or EDWOSB award to that concern and must file a protest with SBA. In addition, if the contracting officer believes that the apparent successful offeror does not meet the requirements of the program, the contracting officer must file a protest with SBA concerning the status of the concern. In addition to the documents, SBA proposes that the WOSB or EDWOSB represent that it meets all of the eligibility of the program. Therefore, SBA is proposing that the WOSB represent the information in Table 1, Proposed WOSB Representations in ORCA, to ORCA. Proposed WOSB Representations in ORCA (i) It is certified as a WOSB by a certifying entity approved by SBA, the certifying entity has not issued a decision currently in effect finding that the concern does not qualify as a WOSB, and there have been no changes in its circumstances affecting its eligibility since its certification. ☐ Yes ☐ No ☐ N/A (ii) It is certified as a as a U.S. Department of Transportation (DOT) Disadvantaged Business Enterprise (DBE) because it is owned and controlled by one or more women who are citizens of the United States, as defined in 13 CFR § 127.102. ☐ Yes ☐ No ☐ N/A (iii) It is certified by the U.S. Small Business Administration as an 8(a) BD Program Participant due to the owner(s) status as an economically disadvantaged woman (or women). ☐ Yes ☐ No ☐ N/A (iv) If a corporation, the stock ledger and stock certificates evidence that at least 51 percent of each class of voting stock outstanding and 51 percent of the aggregate of all stock outstanding is unconditionally and directly owned by one or more women. In determining unconditional ownership of the concern, any unexercised stock options or similar agreements held by a woman will be disregarded. However, any unexercised stock option or other agreement, including the right to convert non-voting stock or debentures into voting stock, held by any other individual or entity will be treated as having been exercised. ☐ Yes ☐ No ☐ N/A (v) If a partnership, the partnership agreement evidences that at least 51 percent of each class of partnership interest is unconditionally and directly owned by one or more women. ☐ Yes ☐ No ☐ N/A (vi) If a limited liability company, the articles of organization and any amendments, and operating agreement and amendments, evidence that at least 51 percent of each class of member interest is unconditionally and directly owned by one or more women. ☐ Yes ☐ No ☐ N/A (vii) The birth certificates, naturalization papers, or passports for owners who are women show that the company is at least 51% owned and controlled by women who are U.S. citizens. ☐ Yes ☐ No (viii) The ownership by women is not subject to any conditions, executory agreements, voting trusts, or other arrangements that cause or potentially cause ownership benefits to go to another. ☐ Yes ☐ No (ix) The 51 percent ownership by women is not through another business entity (including employee stock ownership plan) that is, in turn, owned and controlled by one or more women. ☐ Yes ☐ No (x) The 51 percent ownership by women is held through a trust, the trust is revocable, and the woman is the grantor, a trustee, and the sole current beneficiary of the trust. ☐ Yes ☐ No ☐ N/A (xi) The management and daily business operations of the concern are controlled by one or more women. Control means that both the long-term decision making and the day-to-day management and administration of the business operations are conducted by one or more women. ☐ Yes ☐ No (xii) A woman holds the highest officer position in the concern and her resume evidences that she has the managerial experience of the extent and complexity needed to run the concern. ☐ Yes ☐ No (xiii) The woman manager does not have the technical expertise or possess the required license for the business but has ultimate managerial and supervisory control over those who possess the required licenses or technical expertise. ☐ Yes ☐ No ☐ N/A (xiv) The woman who holds the highest officer position of the concern manages it on a full-time basis and devotes full-time to the business concern during the normal working hours of business concerns in the same or similar line of business. ☐ Yes ☐ No (xv) The woman who holds the highest officer position does not engage in outside employment that prevents her from devoting sufficient time and attention to the daily affairs of the concern to control its management and daily business operations. ☐ Yes ☐ No (xvi) If a corporation, the articles of incorporation and any amendments, articles of conversion, by-laws and amendments, shareholder meeting minutes showing director elections, shareholder meeting minutes showing officer elections, organizational meeting minutes, all issued stock certificates, stock ledger, buy-sell agreements, stock transfer agreements, voting agreements, and documents relating to stock options, including the right to convert non-voting stock or debentures into voting stock evidence that one or more women control the Board of Directors of the concern. Women are considered to control the Board of Directors when either: (1) one or more women own at least 51 percent of all voting stock of the concern, are on the Board of Directors and have the percentage of voting stock necessary to overcome any super majority voting requirements; or (2) women comprise the majority of voting directors through actual numbers or, where permitted by state law, through weighted voting. ☐ Yes ☐ No ☐ N/A (xvii) If a partnership, the partnership agreement evidences that one or more women serve as general partners, with control over all partnership decisions. ☐ Yes ☐ No ☐ N/A (xviii) If a limited liability company, the articles of organization and any amendments, and operating agreement and amendments evidence that one or more women serve as management members, with control over all decisions of the limited liability company. ☐ Yes ☐ No ☐ N/A (xix) No males or other entity exercise actual control or have the power to control the concern. ☐ Yes ☐ No (xx) SBA, in connection with an examination or protest, has not issued a decision currently in effect finding that this company does not qualify as a WOSB. ☐ Yes ☐ No (xxi) All required documents verifying eligibility for a WOSB requirement have been submitted to the WOSB Program Repository, including any supplemental documents if there have been changes since the last representation. ☐ Yes ☐ No In addition, the EDWOSB must represent the information in Table 2, Proposed EDWOSB Representations in ORCA, to ORCA. Proposed EDWOSB Representations in ORCA (i) It is certified as an EDWOSB by a certifying entity approved by SBA, the certifying entity has not issued a decision currently in effect finding that the concern does not qualify as a EDWOSB, and there have been no changes in its circumstances affecting its eligibility since its certification. ☐ Yes ☐ No ☐ N/A (ii) It is certified as a as a U.S. Department of Transportation (DOT) Disadvantaged Business Enterprise (DBE) because it is owned and controlled by one or more women who are citizens of the United States, as defined in 13 CFR § 127.102. ☐ Yes ☐ No ☐ N/A (iii) It is certified by the U.S. Small Business Administration as an 8(a) BD Program Participant due to the owner(s) status as an economically disadvantaged woman (or women). ☐ Yes ☐ No ☐ N/A (iv) If a corporation, the stock ledger and stock certificates evidence that at least 51 percent of each class of voting stock outstanding and 51 percent of the aggregate of all stock outstanding is unconditionally and directly owned by one or more women who are economically disadvantaged. In determining unconditional ownership of the concern, any unexercised stock options or similar agreements held by an economically disadvantaged woman will be disregarded. However, any unexercised stock option or other agreement, including the right to convert non-voting stock or debentures into voting stock, held by any other individual or entity will be treated as having been exercised. ☐ Yes ☐ No ☐ N/A (v) If a partnership, the partnership agreement evidences that at least 51 percent of each class of partnership interest is unconditionally and directly owned by one or more economically disadvantaged women. ☐ Yes ☐ No ☐ N/A (vi) If a limited liability company, the articles of organization and any amendments, and operating agreement and amendments, evidence that at least 51 percent of each class of member interest is unconditionally and directly owned by one or more economically disadvantaged women. ☐ Yes ☐ No ☐ N/A (vii) The birth certificates, naturalization papers, or passports show that the company is at least 51% owned and controlled by economically disadvantaged women who are U.S. citizens. ☐ Yes ☐ No (viii) The ownership by economically disadvantaged women is not subject to any conditions, executory agreements, voting trusts, or other arrangements that cause or potentially cause ownership benefits to go to another. ☐ Yes ☐ No (ix) The 51 percent ownership by economically disadvantaged women is not through another business entity (including employee stock ownership plan) that is, in turn, owned and controlled by one or more economically disadvantaged women. ☐ Yes ☐ No (x) The 51 percent ownership by economically disadvantaged women is held through a trust, the trust is revocable, and the economically disadvantaged woman is the grantor, a trustee, and the sole current beneficiary of the trust. ☐ Yes ☐ No ☐ N/A (xi) The management and daily business operations of the concern are controlled by one or more economically disadvantaged women. Control means that both the long-term decision making and the day-to-day management and administration of the business operations are conducted by one or more economically disadvantaged women. ☐ Yes ☐ No (xii) An economically disadvantaged woman holds the highest officer position in the concern and her resume evidences that she has the managerial experience of the extent and complexity needed to run the concern. ☐ Yes ☐ No (xiii) The economically disadvantaged woman manager does not have the technical expertise or possess the required license for the business but has ultimate managerial and supervisory control over those who possess the required licenses or technical expertise. ☐ Yes ☐ No ☐ N/A (xiv) The economically disadvantaged woman who holds the highest officer position of the concern manages it on a full-time basis and devotes full-time to the business concern during the normal working hours of business concerns in the same or similar line of business. ☐ Yes ☐ No (xv) The economically disadvantaged woman who holds the highest officer position does not engage in outside employment that prevents her from devoting sufficient time and attention to the daily affairs of the concern to control its management and daily business operations. ☐ Yes ☐ No (xvi) If a corporation, the articles of incorporation and any amendments, articles of conversion, by-laws and amendments, shareholder meeting minutes showing director elections, shareholder meeting minutes showing officer elections, organizational meeting minutes, all issued stock certificates, stock ledger, buy-sell agreements, stock transfer agreements, voting agreements, and documents relating to stock options, including the right to convert non-voting stock or debentures into voting stock evidence that one or more economically disadvantaged women control the Board of Directors of the concern. Economically disadvantaged women are considered to control the Board of Directors when either: (1) one or more economically disadvantaged women own at least 51 percent of all voting stock of the concern, are on the Board of Directors and have the percentage of voting stock necessary to overcome any super majority voting requirements; or (2) economically disadvantaged women comprise the majority of voting directors through actual numbers or, where permitted by state law, through weighted voting. ☐ Yes ☐ No ☐ N/A (xvii) If a partnership, the partnership agreement evidences that one or more economically disadvantaged women serve as general partners, with control over all partnership decisions. ☐ Yes ☐ No ☐ N/A (xviii) If a limited liability company, the articles of organization and any amendments, and operating agreement and amendments evidence that one or more economically disadvantaged women serve as management members, with control over all decisions of the limited liability company. ☐ Yes ☐ No ☐ N/A (xix) No males or other entity exercise actual control or have the power to control the concern. ☐ Yes ☐ No (xx) The economically disadvantaged woman or women upon whom eligibility is based can demonstrate that their ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business (not considering community property laws when determining economic disadvantage when the woman has no ownership interest in the property). ☐ Yes ☐ No (xxi) The economically disadvantaged woman upon whom eligibility is based has read the SBA's regulations defining economic disadvantage and can demonstrate that her personal net worth is less than $750,000, excluding her ownership interest in the concern and her equity interest in her primary personal residence. ☐ Yes ☐ No (xxii) The personal financial condition of the woman claiming economic disadvantage, including her personal income for the past two years (including bonuses, and the value of company stock given in lieu of cash), her personal net worth and the fair market value of all of her assets, whether encumbered or not, evidences that she is economically disadvantaged. ☐ Yes ☐ No (xxiii) The adjusted gross income of the woman claiming economic disadvantage averaged over the two years preceding the certification does not exceed $200,000. ☐ Yes ☐ No (xxiv) The adjusted gross income of the woman claiming economic disadvantage averaged over the two years preceding the certification exceeds $200,000; however, the woman can show that this income level was unusual and not likely to occur in the future, that losses commensurate with and directly related to the earnings were suffered, or that the income is not indicative of lack of economic disadvantage. ☐ Yes ☐ No ☐ N/A (xxv) The fair market value of all the assets (including her primary residence and the value of the business concern but excluding funds invested in an Individual Retirement Account or other official retirement account that are unavailable until retirement age without a significant penalty) of the woman claiming economic disadvantage does not exceed $3 million. ☐ Yes ☐ No (xxvi) The woman claiming economic disadvantage has not transferred any assets within two years of the date of the certification. ☐ Yes ☐ No (xxvii) The woman claiming economic disadvantage has transferred assets within two years of the date of the certification. However, the transferred assets were: (1) to or on behalf of an immediate family member for that individual's education, medical expenses, or some other form of essential support; or (2) to an immediate family member in recognition of a special occasion, such as a birthday, graduation, anniversary, or retirement. ☐ Yes ☐ No ☐ N/A (xxviii) SBA, in connection with an examination or protest, has not issued a decision currently in effect finding that this company does not qualify as a EDWOSB. ☐ Yes ☐ No (xxix) All required documents verifying eligibility for the EDWOSB requirement have been submitted to the WOSB Program Repository, including any supplemental documents if there have been changes since the last representation. ☐ Yes ☐ No SBA is specifically requesting comments on all of these approaches to certification, or other alternatives that would meet the statutory requirements and ensure that only eligible small businesses receive WOSB or EDWOSB contracts. VIII. Eligibility Examinations SBA also proposes amending current § 127.400 concerning eligibility examinations. The rule currently states that SBA will conduct an examination to determine eligibility at the time of the examination. However, the Act states that the Administrator shall establish procedures for verification of the accuracy of any certifications and those procedures may provide for program examinations, including random examinations. 15 U.S.C. 637(m)(5). It is clear that the examinations are to serve as a mechanism against fraud, waste and abuse in the program. Thus, SBA believes that the purpose of such examinations is broader, and that examinations should be used to verify eligibility at any time, including when an EDWOSB or WOSB certifies it is such a concern in ORCA, CCR, or at the time of offer or award of a contract. Therefore, SBA has amended this rule to explain that eligibility examinations will be used to verify eligibility at those times, as well. In addition, this Proposed Rule states that SBA will conduct such examinations, as a way to combat fraud and abuse of the program. Further, as permitted by statute, SBA may adopt one or more various approaches from time to time and as appropriate by the circumstances when determining which WOSBs or EDWOSBs to examine. This may include the utilization of robust random sampling, as well as higher levels of random examinations of WOSBS or EDWOSBs that have received the most contracts or most contract dollars during any applicable period. Further, SBA may decide to conduct examinations when it has received credible information that certain WOSBS or EDWOSBs do not meet the eligibility criteria of the WOSB Program. As part of these examinations, the WOSB or EDWOSB must submit documents to verify its eligibility. Specifically, this Proposed Rule requires WOSBs and EDWOSBs to submit documents to verify eligibility, including those submitted under proposed § 127.300(c), as well as copies of proposals or bids submitted in response to an EDWOSB or WOSB solicitation. In addition, EDWOSBs will be required to submit the two most recent personal income tax returns (including all schedules and W-2 forms) for the women claiming economic disadvantage and their spouses and SBA Form 4506-T, Request for Tax Transcript Form. In some cases, SBA may be able to obtain those documents from the third-party certifier or the contracting officer's contract file. However, because the examination may look at eligibility at the time of certification in ORCA, this Proposed Rule requires that WOSBs or EDWOSBs retain documents demonstrating satisfaction of the eligibility requirements for six (6) years from date of self-certification. SBA believes that WOSBs and EDWOSBs already retain this information in the ordinary course of business and that it does not impose a burden on these businesses. IX. Agency-by-Agency Determination This Proposed Rule seeks to strike from the 2008 Final Rule the requirement at § 127.501 for an agency-by-agency determination of discrimination. Specifically, in response to SBA's June 15, 2006 Proposed Rule, commenters voiced concerns over the requirement in proposed § 127.501(b) that the procuring agency conduct its own additional analysis of its procurement history and make a determination whether the agency itself had discriminated against WOSBs in the relevant industry. The comments state that this requirement would frustrate Congressional intent by applying an erroneous and overly restrictive standard of constitutional scrutiny. The comments also state that the disparity study analysis conducted by RAND is sufficient to satisfy the intermediate scrutiny standard that applies to the WOSB Program and that the agency determination of discrimination requirement exceeds what would be required even under the strict scrutiny standard applicable to classifications based on race and national origin. The comments further state that the requirement would inappropriately limit the industries in which WOSBs were recognized as underrepresented or substantially underrepresented. Lastly, the comments state that this requirement would substantially burden the procuring agencies and that the procuring agencies would avoid fulfilling the goals of the program to avoid self-incrimination and litigation. Based on these comments and further analysis, SBA agrees that an agency-by-agency analysis is not required. First, the equal protection requirements of the Fifth Amendment establish that programs that use gender as a factor in distributing benefits to individuals must further important governmental objectives and employ means that are substantially related to the achievement of those objectives. See United States v. Virginia, 518 U.S. 515, 533 (1996). In applying this standard to the WOSB Program, the government has an important objective: to redress the effects of past discrimination against women in contracting and to ensure that the effects of that discrimination do not serve to limit WOSBs' opportunities to participate in Federal contracting opportunities. (See City of Richmond v. Croson Co., 488 U.S. at 492, “It is beyond dispute that any public entity, state or federal, has a compelling interest in assuring that public dollars, drawn from the tax contributions of all citizens, do not serve to finance the evil of private prejudice.”) This objective—to overcome the effects of past sex discrimination and to ensure that the effects of such discrimination are not extended into its own procurement activity—is sufficiently “important” to sustain the WOSB Program. See Califano v. Webster, 430 U.S. 313, 318 (1977). More specifically, the Court has repeatedly upheld as an important government objective the reduction of disparities in condition or treatment between men and women caused by the long history of discrimination against women. See Califano, 430 U.S. at 317; Miss. Univ. for Women v. Hogan, 458 U.S. 718, 728 (1982); Schlesinger v. Ballard, 419 U.S. 498 (1975); Kahn v. Shevin, 416 U.S. 351 (1974). Moreover, the benefits provided through the WOSB program are not a result of “archaic and overbroad generalizations” about women, Schlesinger, 219 U.S. at 508, or of “the role-typing society has long imposed” upon women, Stanton v. Stanton, 421 U.S. 7, 15 (1975). Instead, they are a targeted means to redress the discrimination to which women have long been subjected and which has prevented them from competing equally for Federal contracts. The means chosen by Congress to implement the WOSB Program ensure that the Program is substantially related to its goals. Congress expressly limited application of the WOSB Program only to industries in which women are substantially underrepresented or underrepresented in contracting. The RAND Report, as is more fully explained above, is a detailed analysis of WOSBs which identifies the disparity ratio of WOSBs in Federal prime contracting by 4-digit NAICS code. This Proposed Rule is limited to the eligible industries identified in the RAND study, and SBA in the future may conduct new studies or update existing studies as appropriate. In addition, SBA agrees with commenters that an agency-by-agency determination is not required for the WOSB Program to be substantially related to an important government objective or to be properly implemented. The Supreme Court has rejected the contention that government may adopt a race-conscious contracting program only “to eradicate the effects of its own prior discrimination,” and this conclusion also applies to gender-conscious contracting programs. Croson, 488 U.S. at 486. Accordingly, this Proposed Rule seeks to strike from the Final Rule at § 127.501 the requirement for an agency-by-agency determination of discrimination. X. Contract File This Proposed Rule requires contracting officers to document the contract file with results of market research and the fact that the NAICS code assigned to the contract is for an industry that SBA has designated as a substantially underrepresented industry with respect to WOSBs. SBA is considering adding the following additional language to § 127.503(e): In addition, the contracting officer must document the contract file showing that the apparent successful offeror's ORCA certifications and associated representations were reviewed. SBA is requesting comments on this proposal. XI. Joint Venture Requirements SBA has also proposed amendments to the current joint venture regulation, permitting EDWOSB or WOSB joint ventures for EDWOSB or WOSB contracts. The rule currently provides that the EDWOSB or WOSB must perform a significant portion of the contract. SBA has proposed clarifying this requirement by requiring that not less than 51 percent of the net profits earned by the joint venture must be distributed to the EDWOSB or WOSB. SBA also proposes clarifying that the joint venture agreement must be in writing and set forth the following provisions: the purpose of the joint venture, that an EDWOSB or WOSB must be the managing venturer, that an employee of the managing venturer must be the project manager responsible for the performance of the contract, and the responsibilities of the parties with regard to contract performance, sources of labor, and negotiation of the EDWOSB or WOSB contract. XII. Request for Comments SBA seeks comments on all aspects of this Proposed Rule. This includes comments relating to the eligible industries, and especially the use of the CCR data set and SBA's concerns with the use of the SBO data set. This also includes comments relating to the certification procedures, including the certification requirements, representations in ORCA, and submission of documents to the document repository. Compliance With Executive Orders 12866, 12988, 13132, the Paperwork Reduction Act (44 U.S.C., Chapter 35) and the Regulatory Flexibility Act (5 U.S.C. 601-612) Executive Order 12866 OMB has determined that this rule is a “significant” regulatory action under Executive Order 12866. The Regulatory Impact Analysis is set forth below. Regulatory Impact Analysis 1. Necessity of Regulation This regulatory action implements section 8(m) of the Act, which was enacted as part of section 811 of the Small Business Reauthorization Act of 2000, Public Law 106-554. Section 8(m) authorizes the creation of the contracting assistance mechanism described in this regulation. Under this regulation, contracting officers will be allowed to restrict competition to EDWOSBs in industries in which SBA has determined that WOSBs are underrepresented or substantially underrepresented and to WOSBs in industries in which SBA has determined that WOSBs are substantially underrepresented and waived the economically disadvantaged requirement. This Proposed Rule will establish the requirements and procedures necessary to administer these restricted competitions. 2. Alternative Approaches to Proposed Rule In developing this Proposed Rule, SBA considered the costs and benefits of alternatives for certification of small business concerns that claim EDWOSB or WOSB status, particularly the alternatives provided by section 8(m) of the Act. Specifically, section 8(m)(2)(F) provides that in order to qualify as a WOSB or EDWOSB, a concern must either be certified by a Federal agency, a State government, or a national certifying entity approved by the Administrator, or, alternatively, must certify to the contracting officer that it is a small business concern owned and controlled by women and provide supporting documents. In light of this provision, SBA considered performing the certifications by requiring each concern to submit a formal application to SBA for a determination of its status. That approach, however, is not required or intended by the statute or legislative history. In addition, SBA considered utilizing third-party certifiers. For the reasons set forth in the preamble, SBA has decided to propose the use of such third-party certifiers. SBA believes that the proposed process would be the most beneficial and cost-effective approach for the small business concerns because they will not have to submit formal applications to SBA to become eligible for restricted competition for WOSB and EDWOSB procurements. In this Proposed Rule, SBA has proposed the use of an ORCA certification and document submission process, which is similar to the one that is used in other existing SBA set-aside programs. For example, SBA's program for small businesses permits those concerns to self-represent their size when submitting offers on Federal contracts. The set-aside program for small businesses has worked well for decades. SBA believes that the certification process proposed in this rule is credible because it supported by robust protest procedures as well as eligibility examinations. In addition, the business concern must provide documents verifying its eligibility. SBA did consider another option with respect to the submission of documents to the contracting officer. As discussed in the preamble above, the Act states that a WOSB or EDWOSB can certify to the contracting officer that it is such an entity and must provide supporting documents to the contracting officer verifying its eligibility. This Proposed Rule requires the WOSB or EDWOSB to submit certain documents to the contracting officer via an electronic repository at the time of initial certification in ORCA and then every year after that. In addition, WOSBs and EDWOSBs must also provide updated documents anytime there is a change that necessitates supplementing the original document submission. In the alternative, if the repository is not available, the WOSB or EDWOSB must submit those documents directly to the contracting officer prior to the award of a WOSB or EDWOSB contract. SBA did consider having the EDWOSB or WOSB provide all necessary documents to the contracting officer at the time of award in order to verify eligibility of the awardee ( e.g., tax returns, resumes). However, SBA believes this may be a burden on both the small business and contracting community and therefore did not propose this alternative. SBA is still exploring the feasibility of all of these approaches and has requested comments from the public on all of them and any other the public may have. SBA also considered alternative data sets and measures of disparity. SBA proposes to use the CCR database and both numbers and dollars approaches for the reasons set forth in the preamble but solicits comments on this approach. 3. What Are the Potential Benefits and Costs of This Regulatory Action? This rule directs benefits to EDWOSBs and WOSBs at a cost to concerns ineligible for the program. In addition, this rule may result in new administrative costs of managing a Federal contracting assistance program. However, SBA believes that these costs are significantly outweighed by the benefits to be gained by reducing the inefficiencies caused by discriminatory barriers that currently impede WOSBs' full participation in the Federal contracting market. Any concern about an increase in product or service cost is balanced by the requirement in the statute and Proposed Rule that any contract award under the WOSB Program be made at a fair and reasonable price. Further, there will not be any additional cost associated with the length of the procurement since the process will not be any longer, and could in some instances be shorter, than would be the case in the absence of the WOSB program. Finally, the creation and development of WOSBs could well, over time, result in enhanced bidding for Federal contracts, ultimately resulting in lower costs of contracts for the Federal government. This rule aims to aid EDWOSBs and WOSBs by enabling contracting officers to restrict competition to EDWOSBs in industries in which SBA has determined that WOSBs are underrepresented and substantially underrepresented and to WOSBs in industries in which SBA has determined that WOSBs are substantially underrepresented where certain threshold determinations are made by an agency. It is difficult to estimate the total number of potential beneficiaries that will be eligible for Federal small business assistance as a result of this Proposed Rule. Utilizing the RAND FPDS/NG data set for the total number of WOSBs (identified by Dun and Bradstreet DUNS number) that received obligated funds from awards, contracts, orders and modifications to existing contracts for FY 2005, approximately 12,000 WOSBs were identified as recipients of Federal contracts in the 83 NAICS codes that would be eligible under the WOSB Program. It is expected that the number of awards to EDWOSBs and WOSBs will increase within these NAICS codes should an agency restrict competition to those groups in accordance with the procedures in this Proposed Rule. To the extent that additional firms become active in government programs, additional administrative costs to the Federal government may arise due to additional bidders for Federal small business procurement programs, additional firms seeking SBA guaranteed lending programs, and additional firms eligible for enrollment in SBA's Dynamic Small Business Search data base. Among businesses in this group seeking SBA assistance, there will be some additional costs associated with compliance and verification associated with certification of small business status and protests of small business status. However, these activities are likely to generate minimal incremental costs since mechanisms are currently in place to handle these administrative requirements. In addition, as more EDWOSBs and WOSBs enter into the Federal arena, competition will likely increase, lowering the cost of the program and ultimately, we hope, eliminating underrepresentation within the industries covered by this Proposed Rule and the industry's participation in the program. In the long run, small business opportunities—and the amount of competition in the Federal procurement market as a whole—will be enhanced by the experience WOSBs gain in Federal contracting through participation in this Program. While WOSBs gain this experience, moreover, this Rule ensures that any contract award to them will be based on a fair and reasonable price to the government. Indeed, the current barriers that inhibit WOSBs' ability to compete equally for contracts and subcontracts impose upon the government increased costs due to lessened competition; these costs are likely to be reduced as more WOSBs become economically successful and competition for contracts and subcontracts therefore increases. This regulatory action promotes the government's objectives. One of SBA's goals is to help individual small businesses succeed through fair and equitable access to capital and credit, government contracts, and management and technical assistance. Implementation of this Proposed Rule ensures that the intended beneficiaries have access to small business programs designed to assist them. This Proposed Rule does not interfere with State, local, and tribal governments in the exercise of their government functions. In a few instances, in fact, State and local governments have voluntarily adopted SBA's regulations for their programs; those state and local governments that do so here will save resources that otherwise would be consumed by the need to establish their own administrative standards and processes. This regulatory action will also enable the Federal government to avoid extending the effects of discrimination against women through the government's own contracting processes. As explained in Section I, Background, of the preamble, the Federal government has an obligation to ensure that it is not implementing contracting procedures that permit the effects of sex discrimination to continue to impede the ability of WOSBs to participate in Federal contracting. As stated in Croson, these remedial programs not only help businesses overcome the effects of discrimination, but ensure that the public's tax dollars are not spent in a discriminatory manner. This program, by creating a sheltered market for a very small percentage of Federal contracts, thus advances the Federal government's commitment to ensuring equal opportunity in its contracting processes. Executive Order 12988 This action meets applicable standards set forth in Sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. This action does not have retroactive or preemptive effect. Executive Order 13132 This rule does not have federalism implications as defined in the Executive Order. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. Paperwork Reduction Act (PRA) For purposes of the Paperwork Reduction Act, 44 U.S.C. Chapter 35, SBA has determined that this Proposed Rule imposes new reporting and recordkeeping requirements. The certification process described in Subpart C, §§ 127.300 to 127.302, is an information collection. The proposed self-certification process requires a concern seeking to benefit from Federal contracting opportunities designated for WOSBs or EDWOSBs to verify its status by using the existing electronic contracting system ( i.e., ORCA). The WOSB or EDWOSB will have to represent in ORCA that it meets each eligibility requirement of the program. In addition, the WOSB or EDWOSB will be required to submit certain documents verifying eligibility at the time of certification in ORCA (and every year after). SBA proposes that these documents be submitted to a document repository, or until the repository is established, the contracting office upon notice of a proposed award. Further, the protest and eligibility examination procedures will require the submission of documents from those parties subject to a protest and eligibility examination. To reduce the burden on the WOSBs or EDWOSBs, the same documents submitted at the time of certification will be used for the protests and eligibility examinations, except that for protests and eligibility examinations, SBA will also request copies of proposals submitted in response to a WOSB or EDWOSB solicitation and certain other documents and information to verify the status of an EDWOSB. Finally this proposed rule also requires the WOSBs or EDWOSBs to retain copies of the documents submitted for a period of six (6) years. SBA believes, however, that any additional burden imposed by this recordkeeping requirement would be de minimus since the firms would maintain the information in their general course of business. SBA has submitted this information collection to OMB for review. Title and Description of Information Collection: Women-Owned Small Business Federal Contract Assistance Program Purpose: The information collected is modeled on two currently approved information collections: SBA Form 1010, OMB Control 3245-0331, SBA's Application for 8(a) Business Development, and SBA Form 413, OMB Control 3245-0188, SBA's Application for Personal Financial Statement, which are used to collect personal and business information on the businesses and owners applying to this program. The information requested for this program includes information verifying the WOSB/EDWOSB status of the business concern, including tax returns, personal statements, and business documents. OMB Control Number: New collection. Description of and Estimated Number of Respondents: This information will be collected from the small business concerns that are not already certified by an approved third party certifier and therefore must self-certify and verify their status by submitting certain required documents to a document repository at the time of ORCA certification. This same information must also be collected by the third party certifier when making its certification determination. As noted above, utilizing the RAND FPDS data set for the total number of WOSBs (identified by Dun and Bradstreet DUNS number) that received obligated funds from awards, contracts, orders and modifications to existing contracts for FY 2005, approximately 12,000 WOSBs were identified as recipients of Federal contracts in the 83 NAICS codes that would be eligible under the WOSB Program. Estimated Number of Responses: In FY 2005, there were 12,000 WOSBs that were identified as recipients of Federal contracts in the 83 NAICS codes that would be eligible under the WOSB Program. Thus, SBA estimates that there will be 12,000 responses. In addition, SBA intends to conduct eligibility examinations and protests and appeals. The total estimated number of responses is 12,200. Estimated Response Time: 2 hours. Total Estimated Annual Hour Burden: 24,400 hours. Please send comments by the closing date for comment for this Proposed Rule to SBA Desk Officer, Office of Management and Budget, Office of Information and Regulatory Affairs, 725 17th Street, NW., Washington, DC 20503 and to Dean Koppel, Assistant Director, Office of Government Contracting, U.S. Small Business Administration, 409 Third Street, SW., Washington, DC 20416. Regulatory Flexibility Act SBA has determined that this Proposed Rule establishing a set-aside mechanism for WOSBs may have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act (RFA), 5 U.S.C. 601, et seq. Accordingly, SBA has prepared an Initial Regulatory Flexibility Analysis (IRFA) addressing the impact of this Rule in accordance with section 603, title 5, of the United States Code. The IRFA examines the objectives and legal basis for this Proposed Rule; the kind and number of small entities that may be affected; the projected recordkeeping, reporting, and other requirements; whether there are any Federal rules that may duplicate, overlap, or conflict with this Proposed Rule; and whether there are any significant alternatives to this Proposed Rule. 1. What Are the Reasons for, and Objectives of, This Proposed Rule? SBA is establishing procedures whereby Federal procuring agencies may use restricted competition in industries where WOSBs are substantially underrepresented, or, in some cases, underrepresented in Federal procurement and when certain other conditions are met. The purpose of this Proposed Rule is to create an initial framework and infrastructure for implementing these new procedures, thereby providing a tool for Federal agencies to ensure that WOSBs have an equal opportunity to participate in Federal contracting. The objectives of this Proposed Rule are to overcome the effects of sex discrimination on women's opportunities to participate equally in Federal contracting, to ensure a level playing field on which women-owned small businesses have a fair opportunity to compete for Federal contracts, and to ensure that the WOSB Program is substantially related to the Congressional goals in accordance with applicable law. 2. What Is the Legal Basis for This Proposed Rule? SBA is proposing this regulation pursuant to section 8(m) of the Small Business Act, 15 U.S.C. 637(m), which authorizes the creation and implementation of a new mechanism for Federal contracting with WOSBs. 3. What Is SBA's Description and Estimate of the Number of Small Entities to Which the Rule Will Apply? The RFA directs agencies to provide a description, and where feasible, an estimate of the number of small business concerns that may be affected by the rule. This Proposed Rule will ultimately establish in the FAR a new procurement mechanism to benefit WOSBs. Therefore, WOSBs that compete for Federal contracts are the specific group of small business concerns most directly affected by this rule. The rule may also affect other small businesses to the extent that small businesses not owned and controlled by women may be excluded from competing for certain Federal contracting opportunities. SBA searched CCR's DSBS and determined that there were approximately 76,000 WOSBs listed. However, it is not likely that all of these firms will be affected by this rule because not all of these firms likely do business in one of the 83 four-digit NAICS codes identified as underrepresented or substantially underrepresented by the Proposed Rule. SBA attempted to approximate the number of WOSBs in the 83 industries, but there is no simple method of determining how many firms actually participated in these NAICS codes. SBA did review the DSBS to determine that, as of June 30, 2009, there were approximately 230,005 WOSBs identified in the 83 industries that will be eligible for contract assistance under the WOSB Program. However, this approach counted a WOSB multiple times if it listed itself in more than one NAICS code, and therefore likely overstates the number of WOSBs that will be affected by this rule. Therefore, the best estimate of the maximum number of currently registered WOSBs that could be affected by this rule is approximately 76,000. However, there may be more WOSBs affected if ad [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2010-3887. Public record. Not legal advice.