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SBA effort for women owners stirs outrage

Special to The Times

Frustration with the Small Business Administration has turned to outrage among backers of a long-delayed program that would funnel more federal contracts to small companies owned by women.

Seven years ago, Congress ordered the SBA to draft guidelines so federal agencies could meet the goal of awarding 5% of federal small-business contracts to female owners -- a goal set by law in 1994. Last week, the SBA proposed a rule to implement the program and was criticized by those who said the guideline would be too restrictive.

The new rule would cover just four industries in which the SBA says women-owned small firms don’t get their fair share of federal contract dollars: national security and international affairs; coating, engraving, heat treating and allied activities; furniture and kitchen cabinet manufacturing; and motor vehicle dealers.

The guideline also would limit broad eligibility to small businesses owned or controlled by economically disadvantaged women. Contracts awarded under the program would be limited to $5 million or less for manufacturing jobs and $3 million or less for other jobs.

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Also, each agency would have to conduct an analysis of its procurement history to see if there was sufficient evidence of discrimination in that industry by the agency before it could reserve a contract exclusively for women-owned small firms.

“I am outraged at the blatant disregard for the law as Congress intended it,” said Margot Dorfman, chief executive of the U.S. Women’s Chamber of Commerce in Washington. “The whole goal of this program is to expand opportunities for women-owned firms. This does nothing to expand the opportunities.”

Ceil McCloy, a California small-business owner and federal contractor, agreed.

“I think it’s just outrageous,” the co-owner of Integrated Science Solutions Inc. of Walnut Creek said of the limited industries to be covered. “I mean, really. Furniture manufacturing? Where is most of that done? It’s all offshore, of course.”

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The proposed rule, which is open for public comment for 60 days after its Dec. 27 publication in the Federal Register, is the third by the SBA meant to implement a law passed in December 2000. Two earlier versions of the rule were eventually dropped.

The law -- the Equity in Contracting for Women Act -- was created to improve the track record of the federal government -- the largest purchasing organization in the world -- when it came to awarding a fair share of its roughly $410 billion in annual procurement spending to women-owned businesses.

Congress set a goal of 5% in 1994 but the government has never met that minimum. Women-owned small firms capture about 3.4% of federal small-business contracting dollars. The gap costs them about $5 billion a year, according to the House Small Business Committee.

“These entrepreneurs are being shut out of billions of dollars in federal contracting opportunities, yet their concerns are falling on deaf ears,” Rep. Nydia M. Velazquez (D-N.Y.), who heads the small-business committee and co-sponsored the 2000 bill, said in a statement. “This is extremely disheartening, and it cannot continue.”

She plans a hearing this month to “determine if the agency ignored congressional intent in crafting this program.”

The head of the Senate Committee on Small Business and Entrepreneurship also announced a hearing this month at which the committee’s chairman, Sen. John Kerry (D-Mass.), said he would ask the administration to kill the proposal.

“The Bush administration’s proposed rule is a slap in the face to women business owners,” Kerry said in a statement.

In its release last week, the SBA acknowledged the “limited scope” of the rule. But the agency defended the time it has taken to issue the rule and the measure it chose to determine that women small-business owners were underrepresented in just four formal categories.

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“Supreme Court decisions require legislative findings to justify a gender-based preferences program,” the agency said. “In general, set-asides and other preference programs are subject to a high degree of constitutional scrutiny and require careful study and thorough justification. For this set-aside, Congress delegated the complex and controversial responsibility to SBA -- we believe a first for a federal agency.”

The SBA said it had worked closely with the Justice Department “to consider the constitutional ramifications” of implementing the 2000 law.

The agency also has pointed to the growth in the value of prime federal contract dollars going to women-owned small businesses. That number increased to $10.5 billion in the fiscal year ended Sept. 30, 2005, from $4.6 billion in fiscal 2000. The value of subcontracts, which are where most women-owned small firms start out, grew to $6 billion in fiscal 2003 from $3.6 billion in the prior fiscal year, the latest figures available, the agency said.

SBA spokesman Sean Rushton noted in an e-mail Friday that the original law set the $3-million ceiling for contracts awarded under the program. It also said women-owned small businesses that were not economically disadvantaged were eligible for awards in any of the four industries -- at the discretion of the contracting officer -- if substantial underrepresentation was found. That detail wasn’t included in the original news release.

The SBA’s proposed rule is based on part of an April 2007 study the agency commissioned from Santa Monica-based Rand Corp. that measured underrepresentation in dollar value and the number of contracts awarded to women-owned small businesses. It looked at those numbers for all U.S. employers and for just those employer firms registered in federal databases as potential bidders for federal contracts.

The SBA based its rule on the measurement with a narrower finding of underrepresentation, based on the value of the contract dollars held by women-owned small businesses already registered in the government database. The agency said it chose dollars as the measure in part because federal contract goals were measured in dollars.

Several women business groups questioned that decision.

“The fact that the government is counting dollars -- rather than the actual number of companies -- is just outrageous,” said Barbara Kasoff, the San Francisco-based president of Women in Public Policy, which is headquartered in Washington.

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Federal agencies, which have had trouble reaching the 5% floor for U.S. contracting dollars awarded to women-owned small businesses, would not get a significant boost in their efforts under the new rule, she said.

“Do you think looking at purely a dollar perspective -- that’s going to increase the numbers and percentages? There’s no way it’s going to do that.”

There are 7.7 million women-controlled firms, which are those in which a female owns 51% or more of a company, according to the Center for Women’s Business Research. That’s about one-third of all U.S. firms. Yet their sizes and sales tend to be lower than average. Women-owned firms account for only about 4% of total company revenue, according to the women’s chamber.

Federal contracts can be an important stepping-stone to growth, McCloy said. Her 70-employee firm got its first federal contract -- as a subcontractor to a larger company that held the prime contract -- a year after it started in 1998.

Landing that first contract is important because, if the work is performed well, it allows a small business to provide the proof of past performance that federal agencies value.

“That’s kind of what these set-aside programs allow businesses to do -- to bootstrap their way into federal contracting,” McCloy said.

Still, many women business owners say they are stymied by a lack of support as they seek federal contracts -- a process that McCloy acknowledged could be time-consuming and costly.

That’s all the more reason that women small-business owners need the help of a broader federal contracting program than the current proposed rule would allow, Kasoff said.

“How many ways can they find to lock women out of this process?” she asked. “It’s just totally shocking to me that they would be able to issue such a proposed ruling.”

cyndia.zwahlen@latimes.com


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