Lawmakers call for a do-over

SBA’s proposed rule is based on contract data that reveals little gender discrimination

SBA program faces hurdle

A large obstacle potentially lies ahead for the Small Business Administration’s Women’s Procurement Program: court scrutiny.

The new SBA program would push more federal contracts to woman-owned small businesses, which was Congress’ intent. But government programs based on race or gender preference must satisfy judicial standards.

To be constitutional, federal programs that discriminate on the basis of gender in awarding government contracts must pass muster under the equal protection provision of the Fifth Amendment, said Elizabeth Papez, deputy assistant attorney general at the Justice Department. Federal courts require evidence of discrimination in contracting.

“The cases upholding gender-based preference programs under this standard emphasize the importance of the government’s proof of such discrimination,” Papez said. The courts have struck down programs because the government failed to present enough evidence of discrimination.

However, the standard for sufficient evidence is not always clear, Papez said.

Justice’s advice is to get enough solid evidence of discrimination ready for the courts to scrutinize before implementing the SBA program.

A Rand study of disparity ratios, which helped SBA determine the extent to which woman-owned small businesses are discriminated against in federal contracting, noted that “disparity ratios are not in and of themselves measures of discrimination.”

— Matthew Weigelt

Lawmakers couldn’t be clearer about how they feel about the Small Business Administration’s proposed
regulation for creating the Women’s Procurement Program: They hate it.

House Small Business Committee members expressed their disappointment with the agency’s strategy for opening up more federal contracts to woman-owned small businesses last week at a hearing.

The proposed regulation took SBA seven years to develop.

The draft rule, which SBA released Dec. 27, places severe limits on the types of industries that can receive special treatment as woman-owned small businesses.

Based on research conducted by Rand, a think tank, the rule states that woman-owned small businesses eligible to receive set-asides are limited to four industries: kitchen-cabinet manufacturing, motor vehicle sales, engraving and national security.

SBA Administrator Steve Preston said he was surprised by the findings that were the basis for the proposed regulation.

SBA’s rule set off an explosion of anger among lawmakers. Congressional leaders questioned SBA officials about how they measured gender disparity in federal contracting to come up with a proposal that lawmakers labeled insulting and a slap in the face to women.

“SBA publishes a rule that is so poorly constructed and so ill-conceived that it is insulting to the tens of thousand of women business owners,” said Rep. Nydia Velázquez (D-N.Y.), the committee’s chairwoman.

Velázquez added that SBA should scrap the entire rule and start over by creating new program rules that provide more opportunities for woman-owned businesses to enter the federal contracting market.

Woman-owned businesses are widely seen as the fastest growing segment of the business community. Between 1997 and 2002, the number of those businesses grew at twice the pace of all other companies.

However, the amount of federal contracting money going to that segment has not kept pace, according to SBA. In fiscal 2006, agencies sent only 3.4 percent of their contracting dollars to woman-owned small businesses. Their goal is to set aside 5 percent.

Federal data shows that despite some advances, agencies have failed to reach that goal since 1996.

“Unfortunately, I think a lot of what we heard here today was emotional frustration,” Preston said after the hearing.

He added that SBA used a scientific methodology to develop the rule, and the program is not a panacea for agencies to increase the number of contracts and money going to woman-owned firms. Preston said SBA will seriously consider comments, even those that could point the rule in a different direction.

In 2005, SBA turned to Rand to study the disparity of woman business-owners in federal contracting. Rand proposed four ways to make the comparison, two of them based on number of contracts awarded and two based on dollar value of contracts. SBA chose dollar value.

“Dollars are what create value,” Preston said.

Rand found that woman-owned small businesses are underrepresented in more industries when measured in number of contracts instead of contract dollars.

The public has 60 days to comment on the proposed rule. 

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