While it may not have made headlines, when the NDAA was passed in December 2014 it included a provision in the bill which allows women-owned small businesses (WOSBs) to be awarded sole-source contracts. Many would consider the progress in contracting with WOSBs to be disappointing in the few years since the bill passed. But the change should ultimately help the government continue to move closer to achieving its annual goal of awarding 5% of total contract dollars to WOSBs. As contracting with WOSBs does increase, the scrutiny over the program, along with size and certification protests, are bound to increase as well. This makes it as important as ever, whether you are currently certified as a WOSB or seeking to be, to think about whether your certification is accurate, and you are in fact eligible to participate in the program.

First and foremost, in order to be eligible for the program, you must be a small business. While affiliation rules and various other regulations can make that a complicated topic, we are only going to focus on the requirements specifically for the WOSB program. We also won’t discuss the requirements that are specific to economically-disadvantaged women-owned small businesses. For many organizations, it will be easy to determine if most of the criteria to certify as a WOSB are met. However, there can be subjectivity involved in certain requirements. For example, consider the following requirements to be part of the WOSB program:

– The Company must be owned and controlled by women
– A woman must hold the highest officer position and has the managerial experience needed to run the organization
– The Company must be in an industry in which women are underrepresented
– The women in the above criteria must be U.S. citizens

The third and fourth items are simple and straight-forward. In regards to item #3, the SBA has developed a list of NAISC codes in which WOSBs are underrepresented. The list can be found online, and you will want to check to see if your NAISC code is included in the list of codes eligible for federal contracting under the program.

When looking at item #1, you need to evaluate every aspect of the ownership and operations of the organization to make an accurate assessment. For example, if you are a corporation, a woman must hold at least 51% of each class of voting stock and 51% of the aggregate stock outstanding. You might only have one class of stock outstanding, and a woman may own 51% of the outstanding shares. This would indicate the organization is controlled by women. However, if the other 49% is owned by a male and there are unexercised stock options that, if exercised, would result in the male owning more than 49%, then there is not unconditional control by women. In this case the entity, with its current ownership structure, would not be eligible for the program. The issue of control is often the most complicated area. If we continue to look at a corporation, in order to participate in the program the Board of Directors must be controlled by women. This can be easily accomplished, but control is not as simple as just having a women-controlled Board. It also means that the long-term and day-to-day operations are managed and controlled by women.

In a July 2014 hearing, the Office of Hearings and Appeals weighed in on many of the items discussed above. A protest was filed alleging that Company ABC, a financial and management consulting firm, was not a WOSB. Company ABC is 100% owned by a woman, who also serves as the President of the company. The allegations included the following:

– The President lacked the managerial experience needed to run the company
– The Board consisted of two directors, one female (the President) and one male (the President’s husband), and this resulted in a female not having undue control
– The husband of the President exercised undue control over the company, as he was the primary point of contact for the company

It should first be noted that the protest was denied. However, the allegations provide important insight into aspects of an organization that could make the company ineligible for the program.

The basis of the first allegation was that the President had a Bachelor of Arts in film and a Master of Science in Adult and Continuing education, and therefore does not have the managerial experience necessary to run a financial and management consulting company. If the President had this educational background and had been say a teacher their entire career, they likely would not qualify for the program, as this background would not indicate the required level of managerial experience. However, in this case the President had over 20 years of experience in management positions. While that management experience was mostly in the film industry, the fact that it was in a different industry did not preclude the court from determining she possessed the necessary management skills. This is an important point to note, as it emphasizes that the regulations state there is no requirement for the women controlling the organization to have technical expertise.

The second allegation shows the complexity involved in determining control. While the Board did not consist of more voting female members than male, the court determined that because the President had the power to remove any director at any time, she had ultimate control. The Court further explained that the bylaws of the company stated that the President has “general supervision, direction and control of the business and the officers of the corporation”. If the husband truly ran the day-to-day operations or the long-term strategic decision-making, the company’s eligibility would likely be in question. But allegations as simple as the third item above, referencing the husband as the point of contact, do not prove a lack of control. In many instances, a primary point of contact will be an employee that heads the business development function of the organization. The fact that the President was not in charge of business development was not deemed to mean that she did not have control of the company or lacked the necessary managerial experience to run the organization.

As mentioned before, as the WOSB program grows, in our opinion it is likely that these types of protests will become more prevalent. That makes the analysis to determine whether you are eligible, as well as the initial certification process, extremely important. You don’t want to put your organization in a position where you are susceptible to losing your eligibility, as the consequences can be quite severe. This article only provides a brief overview of a few criteria for the WOSB program. The SBA has developed comprehensive guides and resources to assist you in the certification process, and there are various companies and law firms that can also provide assistance when needed.

We want to close with one quick note on the certification process for those who are nearing that stage. There are two ways a company can certify as a woman-owned small business; through a self-certification process or by going through a third-party certification from one of SBA’s approved organizations. The SBA does not recommend one method as being preferable, and while a third-party certification might sound “safer”, receiving a third-party certification does not mean you are not subject to bid protests. However, the third-party certification may make you more comfortable in knowing that you at least have had a qualified third-party evaluating whether they believe you are eligible for the program or not.