The Mysterious Case of the Missing SBA Women-Owned Small Business Certification Program

On December 19, 2014, then-President Obama signed the 2015 National Defense Authorization Act into law.  The 2015 NDAA eliminated the statutory basis for federal agencies to award women-owned small business set-aside contracts to self-certified companies.  In essence, then, the 2015 NDAA effectively eliminated WOSB self-certification.

Flash forward almost four years, and the SBA has not yet implemented a WOSB certification program.  In fact, the SBA hasn’t even proposed rules to implement such a program.  Instead, although the SBA continues to license a few third-party certifiers, the SBA also continues to say that WOSBs “can self-certify directly at by answering questions and uploading documents.”

So where the heck is the mysteriously missing SBA WOSB certification program?  And is it even legal for the SBA to continue allowing WOSB self-certification?

The WOSB Program and Elimination of WOSB Self-Certification 

Let’s hop into our DeLorean, check the flux capacitor, and set the dials for December 2014.

The world was a very different place.  My Chicago Cubs had yet to erase their record-breaking World Series drought, and after a 73-89 season, fans had little reason to think that would change anytime soon.  The Star Wars sequel trilogy was still a year away.  And the population had to make do with the lowly iPhone 6, a far cry from the three new iPhones we have in 2018.  (To be fair, I’m not quite sure of the technical differences between iPhone models, but given the excitement anytime a new model is released, I’m assuming that the 2018 iPhones can do things like bake a perfect souffle).

In 2014, the WOSB program was still in its infancy.  Although Congress authorized a WOSB contracting program in 1994, the SBA’s final rule implementing the program wasn’t published until 2010.  In 2011, WOSB provisions were added to the FAR, and Contracting Officers began issuing set-aside contracts for WOSBs.

When the program began, the underlying statute, the Small Business Act, allowed Contracting Officers to award contracts to either certified or self-certified WOSBs.  The statute, 15 U.S.C. 637(m)(2) read, in relevant part:

(2) Authority to restrict competition
In accordance with this subsection, a contracting officer may restrict competition for any contract for the procurement of goods or services by the Federal Government to small business concerns owned and controlled by women, if—
(B) the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by women will submit offers for the contract; 
(E) each of the concerns–
(i) is 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
(ii) certifies to the contracting officer that it is a small business concern owned and controlled by women and provides adequate documentation, in accordance with standards established by the Administration, to support such certification.

In other words, under the statute that existed when the WOSB program began operating, companies could choose to obtain a formal certification or rely on self-certification.  Although the SBA licensed four non-profits to provide formal certifications, the SBA did not take on WOSB certifications itself.  Understandably, most WOSBs chose to self-certify rather than undertake the time and expense of obtaining a third-party certification.

WOSB self-certification soon came under fire.  NASA’s Office of Inspector General published an audit report in 2013 concluding that seven out of 20 awards the agency made to self-certified WOSBs were potentially improper.  NASA’s OIG didn’t mince words, writing “we believe that the level of false self-certification as a woman-owned business is troubling and may exist Government-wide.”

The GAO followed with a report issued in October 2014.  The GAO concluded that Contracting Officers weren’t using WOSB set-asides, which amounted to less than one percent of contracts awarded to WOSBs.  Among problems with the program, the GAO wrote that Contracting Officer’s found the WOSB self-certification documentation requirements to be “burdensome or complex relative to other SBA programs with set-asides.”  Further, the GAO said, Contracting Officers may lack confidence that self-certified WOSBs are actually eligible, especially given that examinations of self-certified WOSBs “found high rates of ineligibility.”

Perhaps because of these reported problems, Congress eliminated the self-certification option in the 2015 NDAA.  Effective December 19, 2014, and continuing until today, 15 U.S.C. 637(m)(2) reads, in relevant part:

(2)Authority to restrict competition
In accordance with this subsection, a contracting officer may restrict competition for any contract for the procurement of goods or services by the Federal Government to small business concerns owned and controlled by women, if—
(B) the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by women will submit offers for the contract; 
(E) each of the concerns is certified by a Federal agency, a State government, the Administrator, or a national certifying entity approved by the Administrator as a small business concern owned and controlled by women.

As I read it, under the Small Business Act as it has existed since December 2014, a Contracting Officer cannot establish a WOSB set-aside competition unless the Contracting Officer has a reasonable expectation of receiving two or more offers from certified WOSBs.

The SBA Continues Allowing WOSB Self-Certification

In March 2014, the SBA acknowledged that Congress had eliminated WOSB self-certification.  But the SBA indicated that it would continue to allow self-certification until it addressed the statutory change.  In what proved to be the beginning of a troubling pattern, the SBA offered little legal rationale for why it could continue to permit the very thing that Congress had just eliminated.

Meanwhile, the SBA Office of Inspector General began urging the SBA to quickly respond to the 2015 NDAA.  In a study published in May 2015, the SBA’s Office of Inspector General concluded that 15 of the 34 WOSB and EDWOSB awards it had analyzed were improper.  In another report released in November 2015, the SBA OIG wrote that the SBA’s implementation of WOSB sole source authority (which was also permitted by the 2015 NDAA), without “implementing the contemporaneously required certification program, is inconsistent with SBA’s statutory authority and exposes the program to abuse.”

On December 18, 2015–nearly one year to the day after the 2015 NDAA was signed into law–the SBA published a notice in the Federal Register.  But instead of explaining how the SBA intended to address the new certification requirement (something the agency had 12 months to ponder), the SBA simply sought the public’s input about how it ought to proceed.

In March 2016, the SBA launched its website.  In a statement accompanying the launch of the new website, the SBA said that WOSB self-certification documents could be uploaded to “certify,” and that “self-certification is still permitted” while the SBA develops criteria for WOSB certification.

Since 2016, the SBA has stayed pretty quiet when it comes to WOSB certification.  But watchdogs have continued to push for SBA to implement the WOSB certification program.  In June 2017, the GAO issued a report saying that, as a result of the SBA’s foot-dragging, “potentially ineligible businesses may continue to incorrectly certify themselves as WOSBs, increasing the risk that they may receive contracts for which they are not eligible.”  In June 2018, the SBA OIG again pushed the SBA to act on WOSB certification, in a report indicating that many WOSB and EDWOSB sole source awards were improper.

Meanwhile, the Government missed its 5% WOSB  contracting goal in Fiscal Years 2016 and 2017, but the SBA awarded the Government “A” grades anyway.  My modest proposal to replace this sort of grade inflation with agency participation trophies has, rather shockingly, failed to gain traction.

So here it is, November 2018.  In December, it looks like we’ll all be able to pop some champagne corks and celebrate the fourth anniversary of Congress’s elimination of WOSB self-certification.  (Apparently, the traditional gift for a fourth anniversary is linen or silk, although a more modern list suggests the ever-so-romantic gift of electrical appliances).  By way of historical comparison, America’s involvement in the Second World War, from Pearl Harbor to V-J Day, lasted three years and eight months.

So, almost four years in, where on earth is the long-awaited WOSB certification program?  And, while it’s worth wondering exactly how many more anniversaries will actually pass before the SBA acts (the “modern list” suggests “pen and pencil sets” as a seven-year gift), I am wondering something else: is WOSB self-certification even legal?

The Legal Problem with WOSB Self-Certification

So, yeah, about that legality issue.  To my knowledge, the SBA has never formally set forth its legal basis for continuing to allow WOSB self-certification.  The closest I’ve seen was the SBA’s initial statement in March 2015, which basically amounted to, “well, Congress didn’t say we couldn’t!”

But is that right?  What evidence does the SBA require, aside from Congress’s deletion of the statutory authority itself?  Isn’t the fact that the statute used to allow self-certification, and then Congress eliminated it, pretty persuasive when it comes to ascertaining Congress’s position?

From a legal perspective, I think the SBA’s continued allowance of WOSB self-certification is shaky, at best, at least when it comes to WOSB set-aside contracts.  Two well-established lines of legal authority lead me to this conclusion.

First, when a statute conflicts with a regulation, the statute governs.  As the Supreme Court put it in a 2014 case, “an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.”  This rule, of course, is essential to the functioning of our democracy.  If an agency–an unelected body–could simply ignore or effectively rewrite statutory authority, it would have the power to thwart the laws adopted by Congress and the President.

Second, as the Supreme Court said in another case, “absent a clear direction by Congress to the contrary [a statute] takes effect on the date of its enactment.”  This rule, too, is essential to a well-run democracy.  Otherwise, an unelected agency could refuse to implement Congressional directives indefinitely, again thwarting the laws adopted by our elected officials.

Applying these principles to the WOSB Program, I struggle to see how the SBA believes that Contracting Officers can issue WOSB set-asides based on self-certification.

The SBA’s regulations may allow self-certification for WOSB set-aside contracts, but the underlying statute doesn’t, and the conflict between the two must be resolved in favor of the Small Business Act.  And while it may have been a good idea for Congress to allow the SBA a reasonable period of time (say a year or 18 months) to implement a WOSB certification program, the 2015 NDAA was silent when it comes to any future effective date.  The SBA seems to think Congress’s silence means, “hey, guys, if you could maybe, um, get around to a WOSB certification program in, say, um, five-to-ten years, that’d be great.”  But as the Supreme Court has held, Congressional silence indicates that the statute is effective immediately.

The Small Business Act says that a Contracting Officer can’t issue a WOSB set-aside solicitation unless the Contracting Officer has a reasonable expectation of receiving two or more offers from certified WOSBs.  The Small Business Act doesn’t say that companies can’t continue self-certifying as WOSBs for other purposes, such as for purposes of the Government’s five percent goal.  In fact, the paragraph of the statute defining the term “small business concern owned and controlled by women,” 15 U.S.C. 637(D), doesn’t mention certification.  So it may well be that the Government can continue to accept WOSB self-certifications outside the universe of set-aside contracts.

But WOSB set-asides are the centerpiece of the WOSB Program, and the Government’s main vehicle to attempt to achieve its five percent goal.  So if the statute prohibits set-aside contracts for self-certified WOSBs, why is the SBA still allowing them?

For nearly four years, I’ve been waiting for a legal decision to be issued helping to resolve the issue, but it’s been crickets.  Perhaps anyone who thought of filing a protest challenging the legality of self-certification figured that the protest would go to the SBA, which would undoubtedly toe the party line.  In fairness, that’s likely what would happen if, after award of a WOSB set-aside contract, an unsuccessful offeror tried to file a WOSB status protest challenging the awardee.

I have a different idea.

If I wanted an impartial judicial or administrative decision to force the SBA’s hand, here’s how I’d go about it.  I would wait until an agency issued a WOSB set-aside solicitation.  Then, on behalf of a non-WOSB, I would file a pre-award protest with the GAO or Court of Federal Claims challenging the terms of the solicitation.

I would argue that the Contracting Officer, pursuant to the Small Business Act, could only issue such a set-aside if the Contracting Officer had a reasonable expectation of receiving two or more offers from certified WOSBs.  Because SAM and the SBA’s Dynamic Small Business Search system don’t distinguish between certified and self-certified WOSBs, the only way that the Contracting Officer could glean such information would be through a sources sought, RFI, or similar request.  (I’d make sure, of course, that no such request had been issued for the procurement in question).

There’s no way to tell how such a protest would be decided, of course, but if I were a betting man, I’d wager that the Court or GAO would sustain it.  By doing so, legal precedent would be established, the word would quickly get out, and the SBA would–I imagine–feel compelled to quickly implement the WOSB certification program to fix the problem.

The Practical Problem with WOSB Self-Certification 

By now, you may be thinking, “Wait!  You’d temporarily torpedo all WOSB set-asides just to force the issue with the SBA?  You’re crazy!”

I may be a few fries short of a Happy Meal, as they say, but I don’t think this particular idea is crazy.  As I see it, WOSB self-certification just doesn’t work well.  It’s basically a failure.  You don’t have to look any farther than the SBA’s own small business report cards showing that the Government has been unable to even achieve its lowly 5% goal over the past couple fiscal years.

In my view, WOSB self-certification doesn’t work because Contracting Officers don’t trust it.  And why should they?  After all, report after report has been issued showing that many self-certified WOSBs aren’t eligible.

Further, as the GAO pointed out in its 2014 report, Contracting Officers find the WOSB self-certification document requirements–which are unique to the WOSB Program–to be burdensome and complex compared to other socioeconomic programs.  It’s little wonder that Contracting Officers prefer certifications they can trust, with fewer paperwork requirements.

I’ve long felt that adopting a WOSB certification program may cause a temporary dip in WOSB contract awards, but will ultimately significantly increase the use of WOSB set-asides.  Once Contracting Officers can trust WOSB certifications, and once the unique self-certification document requirements are eliminated, I believe that Contracting Officers will begin issuing many more WOSB set-asides.

With the Government stuck at a measly 4.7% WOSB “achievement” in Fiscal Year 2017, there’s little to lose.  But even if the overall numbers go down, a WOSB certification program will help ensure that WOSB dollars go to legitimate WOSBs.  As someone who works daily with legitimate WOSB owners, it’s very frustrating to think about the opportunities these companies have lost to illegitimate competitors.

The Road Ahead

For the last couple Decembers, I’ve given a “Federal Contracting Year in Review” webinar in partnership with the fine folks at Govology.  (Another one’s coming on December 13, 2018, so register today!)  Each year, I’ve ended with some predictions of major changes to expect in the new year, and each year, I’ve predicted that the SBA will finally unveil its proposal for a WOSB certification program.

This year, my Magic 8-ball says “Don’t count on it.”  Truth be told, I have no clue when SBA will finally address the 2015 NDAA’s mandate regarding WOSB certification.  I’ll keep my eyes peeled, and hope to blog about a formal SBA proposal in 2019.  But I’m going to hedge my bets and put an elegant “pen and pencil” set in my Amazon cart, too, just in case the wait continues for a few more anniversaries.

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