Watchdog Finds Flaws in Certification Process for Women-Owned Small Businesses

The Small Business Administration must improve its execution of the law requiring it to steer certain types of contracts to women-owned small businesses, the agency’s watchdog found.

A review of a major portion of sole-source federal contracts in 2016 and early 2017 awarded to self-certified women-owned companies showed that 50 out of 56--worth as much as $52 million—did not follow regulations, according to an inspector general’s report released last week.

“Federal agencies’ contracting officers did not comply with the program requirements,” the report said. “Furthermore, the firms that received those contracts did not comply with the program’s self-certification requirement,” the result being “no assurance that these contracts were awarded to firms that were eligible to receive sole-source awards under the program.”

Contractors seeking government work under the Women-Owned Small Business Federal Contracting Program (which serves general women-owned firms and economically disadvantaged women-owned small businesses) got a boost under the 2015 National Defense Authorization Act. But that act also required that firms be certified by a federal agency, a state government, the SBA administrator, or a national certifying entity approved by the administrator.

A 2015 Government Accountability Office report found that SBA did not have adequate procedures to oversee third-party certifiers or reasonable assurance that only eligible women-owned businesses were obtaining the set-asides.

The agency has since approved four third-party administrators to help with certification—the  El Paso Hispanic Chamber of Commerce, the National Women Business Owners Corporation, the U.S. Women’s Chamber of Commerce and the Women’s Business Enterprise National Council.

But when the agency’s final rule took effect for sole-source contracts in October 2015, IG Hannibal “Mike” Ware wrote, “it did not implement a certification process.”

Women-owned businesses have long been allowed to “self-certify” their availability for contract set-asides by going online at SBA’s website and uploading key corporate documents. But fraud has been “rampant,” Washington attorney Kelly Kroll of Morris, Manning, & Martin told Government Executive.  “You used to check a box saying ‘I’m a woman,’ but there was a lot of abuse. A man would give his wife 51 percent ownership of a company, but she would sit at home all day. You have to really be in charge,” added Kroll, who represents many women-owned firms. Fraud cases also raise the number of bid protests by competitors.

“The stopgap process the SBA has put in place is not going to cut it,” Kroll said. “It needs to get the regulations in place.”

Currently, self-certifying at the SBA portal remains an option, said Lourdes Martin-Rosa, president and CEO of the Miami-based contractor Government Business Solutions, speaking in Washington on Tuesday at an American Express “Summit for Success” conference on contracting. She noted that the third parties charge anywhere from $250 to $1,000, one reason she and the more sophisticated company owners go directly to the SBA portal. “Don’t apply for certification until you’re ready to scale up,” she told the gathered small business contractors. It should be considered the first step in an opportunity akin to buying a health club membership—“you have to go to the gym to get healthy and fit.”

The SBA IG recommended that the agency move to formalize its certification process and improve the program’s integrity through more frequent eligibility reviews (including debarment of violators), addressing incomplete data and errors, and coordinating with the Office of Federal Procurement Policy and General Services Administration to strengthen information in the government’s centralized contractor databases.

The agency agreed with the substance but not on the timetable. It said it will need at least another year to fully implement a rigorous certification process that goes beyond the current self-certification.