Long Awaited Changes to WOSB/EDWOSB Regulations Expected This Summer

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Big news for women-owned businesses! It’s certainly been a long time coming, but self-certification for women-owned small businesses is finally on its way out. For those of you unfamiliar with this issue, here’s a little background.

When the Small Business Administration (SBA) created the Women-Owned Small Business program in 2011, the regulations allowed women owned small businesses (WOSBs) and economically disadvantaged women owned small business (EDWOSB) to self-certify for participation in the program.  Compare this to the SBA’s 8(a) program, for example, which does not allow self-certification and instead requires a company to go through a rigorous application process.  During that application process, the SBA ensures that all of the eligibility criteria are, in fact, satisfied.  Because the WOSB/EDWOSB program allowed women to self-certify without going through an arduous application process, many women-owned businesses did just that.  Others chose to use third-party certifiers.  (Though not required, third-party certification offers the added benefit of conferring eligibility under certain state-run women-owned business programs.)

Over time, criticism of WOSB self-certification mounted.  Various reports from the GAO and other governmental watchdogs noted high levels of fraud, and industry insiders began lobbying for change.  Legitimate WOSBs wanted a more robust review process, to eliminate fraudulent “front” companies from the program.  In response, Congress passed the 2015 NDAA, which eliminated self-certification for WOSBs and EDWOSBs.  The NDAA directed the SBA to modify its regulations, abolish self-certification, and create an application process to vet potential participants.  A year later, the SBA published a notice, indicating that it did plan on drafting the regulations Congress ordered . . . but no regulations were forthcoming.  In 2016, the SBA set up a new online portal – certify.sba.gov – through which WOSB status could be managed.  But, again, no actual changes to the regulation were proposed, let alone completed.  A 2107 GAO report found that “[a]s a result of inadequate monitoring and controls, such as not implementing a full certification program, potentially ineligible businesses may continue to incorrectly certify themselves as WOSBs.”  Still…crickets from the SBA. 

Finally, in May of last year – a month after yet another critical GAO report – SBA issued a proposed rule concerning the revision of 13 CFR 127 and the elimination of self-certification.  However, many of the details still remained sketchy.  When would the changes occur?  Would all of the currently-certified WOSBs immediately have to apply, and at the same time?  Wouldn’t that create a massive logjam?  Would there be a grace period for currently-certified WOSBs or would companies lose their certification while they waited for applications to be approved?  Would companies who had gone through the more rigorous third-party application system be given any preference over those who had merely self-certified?  The SBA’s proposed rule left many of these questions open, seeking comments and guidance from the industry.  Well, at long last, some of these questions have been answered!

The SBA recently published an update on its website, along with some helpful FAQ, and a handy chart outlining certification options pre- and post-rule. The key takeaways?

  • The SBA expects the revised regulations to be published on June 30, 2020, and go into effect a month later.
  • Self-certification will no longer be allowed. A company’s (re)certification options and obligations will vary depending on whether it is seeking certification for the first time, or is already currently certified.  For currently-certified companies, it will further depend on how the current certification was obtained (self-certification v. third party certification), and if the company has any active WOSB/EDWOSB set-aside contracts.
  • Once the new rule goes into effect, companies seeking certification for the first time must certify through either an approved third-party certifier, or through SBA’s free online certification program at certify.sba.gov.
  • Evidence of certification through Department of Transportation’s Disadvantaged Business Enterprise program (DBE), the Department of Veteran Affairs’ Center for Verification and Evaluation (CVE), or 8(a), together with evidence that the applicant meets the additional eligibility requirements of a WOSB or EDWOSB, will be accepted by SBA for WOSB/EDWOSB certification.
  • Currently certified WOSB/EDWOSBs who obtained their certification through third-party certifiers will be considered certified as of the effective date of the new rule. These companies must re-certify, but not until three years after the date of their most recent re-certification as a third-party certified firm.   
  • Currently self-certified WOSB/EDWOSBs with active WOSB/EDWOSB set-aside contracts will be considered a WOSB/EDWOSB throughout the life of the contract. (However, note that, for contracts with durations of more than five years (including options), a firm must get certified by SBA or an approved third-party certifier prior to the end of the fifth year of the contract).
  • Currently self-certified WOSB/EDWOSBs with no active contracts have to jump through some different hoops, depending on whether or not they have recently survived a status protest or investigation. A company that has gone through a status protest/ investigation (and been deemed an eligible WOSB/EDWOSB) within two years prior to the effective date of the rule will be considered an eligible WOSB/EDOWSB as of the effective date.  Its certification anniversary will be three years from the date it received the positive eligibility ruling in the status protest/investigation.  It must re-certify within 30 days of its certification anniversary, and will undergo a full document review and recertification at the end of year three. 
  • It appears that currently self-certified WOSB/EDWOSBs with no active WOSB/EDWOSB set aside contracts that have not received positive status protest or investigation determinations within the two years preceding the effective date of the rule will have to go through the certification process like new applicants.

Is your head spinning yet?  No wonder!  The various options and obligations for WOSBs in different circumstances certainly have the potential to confuse even the most sophisticated contractor.  The SBA has provided additional resources, and will be providing updates, at sba.gov/wosbready.  

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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