Women-Owned Small Business Federal Contract Program, 10030-10058 [2010-3887]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 75, Number 42 (Thursday, March 4, 2010)]
[Proposed Rules]
[Pages 10030-10058]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-3887]



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Part II





Small Business Administration





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13 CFR Parts 121, 127, and 134



Women-Owned Small Business Federal Contract Program; Proposed Rule

Federal Register / Vol. 75, No. 42 / Thursday, March 4, 2010 / 
Proposed Rules

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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 127, and 134

RIN 3245-AG06


Women-Owned Small Business Federal Contract Program

AGENCY: Small Business Administration.

ACTION: Notice of proposed rulemaking; withdrawal of proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA) proposes to amend 
its regulations governing small business contracting procedures. This 
Proposed Rule would amend part 127, that was promulgated in a Final 
Rule on October 1, 2008, and entitled ``The Women-Owned Small Business 
Federal Contract Assistance Procedures,'' RIN 3245-AF40. This Proposed 
Rule would implement procedures authorized by the Small Business Act 
(Act) (Pub. L. 85-536, as amended) to help ensure a level playing field 
on which Women-Owned Small Businesses (WOSBs) can compete for Federal 
contracting opportunities. SBA proposes changes to part 127 that 
include eliminating the requirement for an agency-by-agency 
determination of discrimination, adopting both ``numbers'' and 
``dollars'' measures of underrepresentation, and using the Fiscal Year 
2006 Central Contractor Registration (CCR) database as the data source 
for determining eligible industries under the WOSB Program. This 
Proposed Rule thus identifies the eligible industries under the Program 
as those industries in which WOSBs are underrepresented or 
substantially underrepresented using either the numbers or the dollars 
approach. This Proposed Rule seeks to retain, for the most part, parts 
121 and 134 of the Final Rule published on October 1, 2008, titled 
``The Women-Owned Small Business Federal Contract Assistance 
Procedures,'' RIN 3245-AF40; these portions of the rule govern various 
implementation procedures of the Program, as more fully discussed 
below.
    In addition, SBA is withdrawing its proposed rule entitled ``The 
Women-Owned Small Business Federal Contract Assistance Procedures,'' 
which was published on October 1, 2008, in the Federal Register 
together with a request for comments on two data sets used to determine 
the eligible industries under the WOSB Program.

DATES: 
    Date of Withdrawal: The proposed rule published on October 1, 2008, 
in the Federal Register at 73 FR 57014 is withdrawn as of March 4, 
2010.
    Comment Date: Submit comments on or before May 3, 2010.

ADDRESSES: You may submit comments, identified by 3245-AG06, by any of 
the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail, Hand Delivery/Courier: Dean Koppel, Assistant 
Director, Office of Policy and Research, Office of Government 
Contracting, U.S. Small Business Administration, 409 Third Street, SW., 
Washington, DC 20416.
    All comments will be posted on https://www.regulations.gov. If you 
wish to submit confidential business information (CBI) as defined in 
the User Notice at https://www.regulations.gov, please submit the 
comments to Dean Koppel and highlight the information that you consider 
to be CBI and explain why you believe this information should be held 
confidential. SBA will make a final determination as to whether the 
comments will be published or not.

FOR FURTHER INFORMATION CONTACT: Dean Koppel, Assistant Director, 
Office of Policy and Research, Office of Government Contracting, U.S. 
Small Business Administration, 409 Third Street, SW., Washington, DC 
20416.

SUPPLEMENTARY INFORMATION: 

I. Background

    On December 21, 2000, Congress enacted the Small Business 
Reauthorization Act of 2000, Public Law 106-554. Section 811 of that 
Act addressed the difficulties women-owned businesses have endured in 
competing for Federal procurement contracts by adding a new section 
8(m), 15 U.S.C. 637(m), authorizing Federal contracting officers to 
restrict competition to eligible Women-Owned Small Businesses (WOSBs) 
for Federal contracts in certain industries. The law responds to 
decades of sex discrimination that have inhibited the ability of women 
to form firms and then to compete equally for contracts. By providing 
small, women-owned businesses an opportunity to gain a critical 
foothold in the Federal procurement market, the statute helps WOSBs 
overcome the economic barriers they have faced and helps ensure that 
the Federal government does not perpetuate the effects of economic sex 
discrimination.
    In enacting this statute, Congress acted against a backdrop of 
discrimination against women that has been examined in Congressional 
hearings over many years and which persists to this day, as well as a 
history of largely unsuccessful Federal attempts to remedy that 
discrimination and provide a level playing field for WOSBs to compete 
for Federal contracts. Women-owned firms have been persistently 
underrepresented in Federal procurement contracting. For example, in 
1979, when Executive Order 12138

charged Federal agencies with responsibility for providing 
procurement assistance to women-owned businesses, WOSBs received 
only 0.2% of all Federal procurements.

LaLa Wu and Kate Collier, The National Plan of Action: Then and Now, 
Bella Abzug Leadership Institute, Nov. 2007 (hereinafter referred to as 
National Plan of Action), publicly available at https://www.abzuginstitute.org/NationalPlanofAction_ThenandNow-Final.pdf.\1\ 
In the nine succeeding years (through 1989), the percentage of WOSB 
Federal procurements grew to 1 percent. See id. In later years,
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    \1\ In 1988, the Women's Business Ownership Act, Public Law 100-
588 (Oct. 25, 1988), ``was enacted to assist women in starting, 
managing and growing small businesses.'' Ibid. The National Plan of 
Action reported that ``while this program has assisted thousands of 
women in obtaining business financing and information, it has had 
less success'' at increasing the percentage of the total value of 
all prime contract and subcontract awards going to WOSBs or 
increasing the WOSB share in the economy because WOSBs have not 
experienced a proportional increase in their share of Federal 
contracting dollars. Subsequently, in 1994, section 7106 of the 
Federal Acquisition Streamlining Act (FASA), Public Law 103-355, 
``amended the Small Business Act by establishing a target that was 
aimed at increasing opportunities for women to compete for Federal 
contracts.'' Id. ``FASA, among other things, established a 
government-wide goal for participation by WOSBs in procurement 
contracts of not less than 5 percent of the total value of all prime 
contract and subcontract awards for each fiscal year.'' Ibid. That 
goal has not been reached to date.

[a]lthough the growth rate in the number of women-owned small 
businesses (WOSBs) was almost twice that of all firms between 1997 
and 2002, WOSBs [did] not experience[] a proportional increase in 
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their share of Federal contracting dollars.

See id.

    Evidence presented to Congress shows that women-owned firms 
continue to be significantly underrepresented in Federal 
contracting.\2\ In 2002, for example, there

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were 6.5 million women-owned firms in the United States, which 
accounted for 28.2 percent of all non-farm businesses in the United 
States. See SBA Office of Advocacy, Women in Business: A Demographic 
Review of Women's Business Ownership, 2007 (available at https://www.sba.gov/advo/research/rs280tot.pdf). Despite this presence, 
however, the share of women-owned small business prime contract awards 
(in dollar terms) was 2.9 percent in FY 2002 and 3.39 percent in FY 
2008. See Federal Procurement Data System/Next Generation (available at 
https://www.fpds.gov/fpdsng_cms/).\3\
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    \2\ This underrepresentation is mirrored by disparities that 
women-owned firms face in the marketplace more generally. See, e.g., 
Opportunities and Challenges for Women Entrepreneurs on the 20th 
Anniversary of the Women's Business Ownership Act: Roundtable Before 
the S. Comm. on Small Business and Entrepreneurship, 110th Cong. 3 
(2008) (available at https://www.access.gpo.gov/congress/Senate/Senate17ch110.html); Expanding Opportunities for Women 
Entrepreneurs: The Future of Women's Small Business Programs: 
Hearing Before the S. Comm. on Small Business and Entrepreneurship, 
110th Cong. 2 (2007) (statement of the Hon. John F. Kerry, Chairman 
and Sen. from Massachusetts) (stating that ``women owned small 
businesses still continue to have markedly lower revenue and fewer 
employees than firms, even comparable ones, owned by men'') 
(available at https://sbc.senate.gov/hearings/20070920.cfm); Women in 
Business: Leveling the Playing Field: Roundtable Before the S. Comm. 
on Small Business and Entrepreneurship, 110th Cong. 8 (2008) 
(available at https://sbc.senate.gov/hearings/20080319.cfm).
    \3\ See also Small Business Administration, FY 2008 Official 
Goaling Report; Small Business Administration (available at https://www.sba.gov/aboutsba/sbaprograms/goals/ (last visited 
February 12, 2010).
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    Substantial academic literature and evidence presented to Congress 
demonstrates that women face discrimination both in the ability to form 
and grow their businesses and in the treatment they receive in 
contracting markets.\4\
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    \4\ See, e.g., Women in Business: Leveling the Playing Field: 
Roundtable Before the S. Comm. on Small Business and 
Entrepreneurship, 110th Cong. 8 (2008) (discussing challenges facing 
women business owners) (available at https://sbc.senate.gov/hearings/20080319.cfm); The Department of Transportation's Disadvantaged 
Business Enterprises Program: Hearing Before the H. Comm. on Transp. 
and Infrastructure, 111th Cong. 299 (2009) (statement of Joann 
Payne, President, Women First National Legislative Committee) 
(describing sex discrimination in business lending) (available at 
https://transportation.house.gov/hearings/hearingdetail.aspx?NewsID=859); Opportunities and Challenges for 
Women Entrepreneurs: Roundtable Before the S. Comm. on Small 
Business and Entrepreneurship, 110th Cong. 25 (2008) (detailing, 
among other things, sex discrimination in lending, and women's 
exclusion from informal business networks that are a crucial source 
of business opportunities) (available at https://sbc.senate.gov/hearings/20080909.cfm); National Economic Research Associates, Inc., 
Race, Sex and Business Enterprise: Evidence from Memphis, Tennessee 
100 (2008) (explaining that discrimination in the labor force 
reduces the future availability of women-owned businesses by 
limiting women's ability to obtain the kinds of employment 
experiences that are most likely to lead to entrepreneurial 
opportunities) (The Minority Business Development Agency: Enhancing 
the Prospects for Success: Hearing Before the H. Subcomm. on 
Commerce, Trade, and Consumer Protection of the H. Comm. on Energy 
and Commerce, 111th Cong. (2009) available at https://energycommerce.house.gov/index.php?option=com_content&view=article&id=1772:the-minority-business-development-agency-enhancing-the-prospects-for-success&catid=129:subcommittee-on-commerce-trade-and-consumer-protection&Itemid=70).
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    The following sections explain the operation of the Program.

II. Section 8(m): The WOSB Program Legislation

    Congress established the WOSB Program as a tool to enable 
contracting officers to identify and establish a sheltered market for 
competition among WOSBs for the provision of goods and services to the 
Federal Government. H.R. Rep. No. 106-879, at 2 (2000) (publicly 
available at https://thomas.loc.gov/cgi-bin/cpquery/T?&report=hr879&dbname=106&). Consistent with these goals, section 8(m) 
of the Act authorizes contracting officers to restrict competition for 
``any contract for the procurement of goods or services by the Federal 
Government'' to WOSBs under certain enumerated circumstances. 15 U.S.C. 
637(m)(2). To be deemed a WOSB for purposes of section 8(m), a firm 
must be a ``small business concern owned and controlled by women.'' As 
defined in section 3(n) of the Act, this means that at least 51 percent 
of the concern must be owned by one or more women, and that the 
management and daily business operations of the concern must be 
controlled by one or more women. 15 U.S.C. 632(n).
    Section 8(m) establishes six criteria that must be satisfied in 
order for a contracting officer to reserve an acquisition for WOSBs:
     First, each eligible concern must be not less than 51 
percent owned by one or more women who are ``economically 
disadvantaged.'' However, SBA may waive this requirement of economic 
disadvantage if it determines that the concern is in an industry in 
which WOSBs are ``substantially underrepresented.''
     Second, the contracting officer must have a reasonable 
expectation that two or more WOSBs will submit offers for the contract.
     Third, the anticipated award price of the contract must 
not exceed $5 million in the case of manufacturing contracts and $3 
million in the case of other contracts.
     Fourth, in the estimation of the contracting officer, the 
contract must be able to be awarded at a fair and reasonable price.
     Fifth, each competing concern must be duly certified by a 
Federal agency, a State government, or an SBA-approved entity as a 
WOSB, or must certify to the contracting officer and provide adequate 
documentation that it is a WOSB. The statute imposes penalties for a 
concern's misrepresentation of its status as a WOSB.
     Sixth, paragraph (2)(C) of the Act provides that the 
contract for which competition is restricted must be for the 
procurement of goods or services with respect to an industry identified 
by SBA ``pursuant to paragraph (3).'' However, the reference to 
paragraph (3) of the Act appears to be a drafting error that resulted 
from a floor amendment, and the intent of the provision appears to be 
to identify eligible contracts as those concerning an industry 
identified pursuant to paragraph (4).\5\ Thus, accounting for the 
apparent drafting error, the sixth condition for the restriction of 
Federal procurement contracts to WOSBs is that the contract be for the 
procurement of goods or

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services with respect to an industry identified by SBA pursuant to the 
study mandated by paragraph (4) as one in which WOSBs are 
underrepresented with respect to Federal procurement contracting.
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    \5\ Paragraph (3) as enacted permits SBA to waive the 
``economically disadvantaged'' requirement for industries in which 
SBA has determined that WOSBs are substantially underrepresented. 
However, at the time that the WOSB bill was reported out of the 
House Committee on Small Business, then-paragraph (3) (eventually 
enacted as paragraph (4)) required the Administrator to conduct a 
study to identify industries in which WOSBs are underrepresented 
with respect to Federal procurement contracting. Thus, the House 
Committee viewed paragraph (2)(C) as requiring that contracts 
eligible for the 8(m) program be contracts ``for the procurement of 
goods and services in an industry identified by the Administrator of 
the Small Business Administration as one in which small business 
concerns owned and controlled by women are historically 
underrepresented.'' H.R. Rep. No. 106-879, at 4 (2000). There is 
nothing in the legislative history that indicates that Congress 
intended a different result.
    In accord with the legislative history, and to give effect to 
each provision of the statute, SBA has concluded that paragraph 
(2)(C)'s reference to paragraph (3) is better understood as a 
reference to paragraph (4). Paragraph (2)(C) authorizes restricted 
competition with respect to industries ``identified'' by SBA 
pursuant to the referenced paragraph. Paragraph (4) uses the term 
``identify,'' calling for SBA to conduct a study to ``identify'' 
industries in which WOSBs are underrepresented with respect to 
Federal procurement contracting. Paragraph (3), in contrast, does 
not use the term ``identify.''
    Understanding the reference to paragraph (3) as a reference to 
paragraph (4) also preserves the independent effect of each 
paragraph in section 8(m), including paragraphs (2)(A) and (3). If, 
by contrast, paragraph (2)(C) were applied literally, it would 
generate several anomalies. For example, it would undercut paragraph 
(2)(A)'s requirement of economic disadvantage (the first condition 
discussed above), because restricted competition would apply only to 
industries for which SBA had waived the economic disadvantage 
requirement. Further, a literal reading of paragraph 2(C) would turn 
paragraph (3), which is clearly phrased as a waiver provision, into 
an affirmative condition for restricted competition, authorizing 
restricted competition only in industries in which WOSBs are 
``substantially underrepresented.'' In addition, the literal 
application of paragraph (2)(C) would undercut paragraph (4), which 
requires SBA to conduct a study to identify industries in which 
WOSBs are ``underrepresented'' with respect to Federal procurement 
contracting. If restricted competition were permitted only in 
industries in which SBA had determined WOSBs to be ``substantially 
underrepresented,'' there would be no need for SBA to conduct a 
study to determine underrepresentation (as opposed to substantial 
underrepresentation).
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    Based on its understanding of the meaning and intent of section 
8(m) read as a whole, SBA interprets the statute to authorize 
restricted competition for industries in which it has determined WOSBs 
to be underrepresented or substantially underrepresented in Federal 
procurements, provided the other conditions of section 8(m) are met. 
This Proposed Rule is drafted accordingly.

III. The RAND Report

    Shortly after section 8(m) was enacted, and pursuant to the 
requirement of paragraph (4) of the law, SBA, using its own internal 
resources, conducted a study to identify the industries in which WOSBs 
are underrepresented with respect to Federal procurement contracting. 
SBA initially completed its study in September 2001, and contracted 
with the National Academy of Sciences (NAS) to review the study before 
publication. In March of 2005, the National Research Council, which 
functions under the auspices of the NAS and other National Academies, 
issued an independent evaluation concluding that SBA's study was flawed 
and offering various recommendations for a revised study. In response 
to this evaluation, SBA issued a solicitation in October 2005 seeking a 
contractor to perform a revised study in accordance with the NAS 
recommendations. In February 2006, SBA awarded a contract to the 
Kauffman-RAND Institute for Entrepreneurship Public Policy (RAND) to 
complete a revised study of the underrepresentation of WOSBs in Federal 
prime contracts by industry code. The resulting study--the RAND 
Report--was published in April 2007 and is available to the public at 
https://www.RAND.org/pubs/technical_reports/TR442.
    As the RAND Report explains more fully, RAND measured WOSB 
representation in each industry code through a ``disparity ratio,'' 
which is a measure comparing the utilization of WOSBs in Federal 
contracting in a particular code to their availability for such 
contracts. The disparity ratio itself is defined as utilization divided 
by availability. Utilization and availability, in turn, are themselves 
ratios. The disparity ratio is therefore a ratio of ratios. This 
disparity ratio provides an estimate of the extent to which WOSBs that 
are available for Federal contracts in specific industries are actually 
being utilized to perform such contracts.
    Consistent with the NAS's recommendation, RAND measured utilization 
and availability in two ways: in terms of dollars and numbers. When 
using dollars as the measure, RAND calculated utilization as the ratio 
of Federal contract dollars awarded to WOSBs in a given industry code 
to total Federal contract dollars awarded in that industry code. It 
calculated availability as the ratio of the gross receipts (revenues) 
of WOSBs in a particular industry code to the gross receipts (revenues) 
of all firms in that code.\6\ When using numbers as the measure, RAND 
calculated utilization as the ratio of the number of Federal contracts 
awarded to WOSBs in a particular industry code to the number of Federal 
contracts awarded overall in that code, and availability as the ratio 
of the number of WOSBs in a particular industry code to the total 
number of firms in that code.
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    \6\ This is a fairly conservative method of determining 
availability and may underestimate the availability of WOSBs because 
discrimination may limit the revenues of WOSBs that nonetheless are 
ready, willing, and able to perform work on Federal contracts.
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    According to the RAND Report, if the disparity ratio in an industry 
code is equal to 1.0 when measuring in terms of dollars, that indicates 
that WOSBs have been awarded contract dollars in the same proportion as 
their economic representation in the industry; that is, they are 
awarded contracting dollars in proportion to their share of total 
business in that industry, and are therefore neither over- nor under-
represented. Similarly, if the disparity ratio in an industry code is 
equal to 1.0 when measuring in terms of numbers, this indicates that 
WOSBs are awarded contracts (of whatever dollar value) in the same 
proportion as their numerical representation in the industry. A ratio 
of less than 1.0 (lower utilization than availability) suggests some 
degree of underrepresentation with respect to that particular means of 
measuring disparity (dollars or numbers); a ratio of greater than 1.0 
(greater utilization than availability) suggests some measure of 
overrepresentation with respect to a given metric. Following the NAS 
report's recommendations, RAND classified an industry as 
``underrepresented'' if its disparity ratio was between 0.5 and 0.8 
using either the numbers or dollars approach, and ``substantially 
underrepresented'' if its ratio was less than 0.5. It is important to 
note that RAND states

disparity ratios are not in and of themselves measures of 
discrimination, although they have been used in numerous court cases 
to infer discrimination. Nonetheless they are a starting point, a 
way to identify whether there are any differences in outcomes 
between different types of firms.

(RAND Report at 30; see also discussion at 4 and 5).

    RAND calculated these ratios using a variety of different data 
sets. For the utilization component of the disparity ratio, RAND used 
the data from the FY 2005 Federal Procurement Data System/Next 
Generation (FPDS/NG) procurement database. This was the only data 
source identified by RAND with respect to the utilization component of 
the disparity ratio. However, RAND did adjust the FPDS to account for 
possible miscoding of business size. Specifically, RAND linked the FPDS 
data to 2004 Dun and Bradstreet (D&B) data using the Data Universal 
Numbering System (DUNS) to identify the parent companies of local 
establishments, and then used the DUNS to assess whether a firm was 
small. However, because the data file was also prone to error, RAND 
presented results both with and without the DUNS cross-reference.
    For the availability component of the disparity ratio, RAND used 
two different databases: The 2002 Survey of Business Owners (SBO) from 
the five-year Economic Census, and the FY 2006 Central Contractor 
Registration (CCR) registration database. Using the SBO database, RAND 
presented results only at the two-digit industry code level, a 
comparatively generalized level of industry disaggregation. Using the 
CCR, in contrast, RAND presented results at the two-, three-, and four-
digit industry code levels. RAND also presented full sample results and 
trimmed sample results (eliminating the top and bottom 0.5 percent of 
the data) for each disparity ratio. RAND did this in order to examine 
the sensitivity of the disparity ratio to extreme values, such as very 
large contracts or negative dollar amounts resulting from contract 
actions based on multi-year contracts or modifications to such 
contracts to earlier contracts.
    Using these different data sources and various adjustments, the 
RAND Report identified twenty-eight different possible approaches to 
determining the degree of underrepresentation of WOSBs in Federal 
procurement contracting. The parameters and results of each approach 
are summarized in the RAND Report at Table 4.6.

IV. Regulatory History

    On June 15, 2006, SBA published in the Federal Register, at 71 FR 
34550, a Proposed Rule (RIN 3245-AE65), with

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request for comments, that proposed to amend its regulations in 
accordance with section 8(m). The Proposed Rule contained the 
infrastructure rules necessary for the WOSB Program implementation, but 
did not identify the eligible industries for the WOSB Program because 
the RAND Report had not been published at the time of the issuance of 
that Proposed Rule. The RAND Report was subsequently published on April 
27, 2007. Based on SBA's evaluation of the public and inter-agency 
comments received on the June 15, 2006 Proposed Rule, as well as 
discussions with the U.S. Department of Justice (DOJ) and the Office of 
Federal Procurement Policy (OFPP), and further examination of section 
8(m), it was determined that the June 15, 2006 Proposed Rule required 
significant changes that warranted further public comment and 
consideration. In addition, SBA had the results of the RAND study.
    Therefore, on December 27, 2007, SBA published a new Proposed Rule, 
titled Women-Owned Small Business Federal Contract Assistance 
Procedures, RIN 3245-AF40, at 72 FR 73285, that consolidated the 
infrastructure rules necessary for the WOSB Program implementation with 
the RAND study findings, which were used to determine the industries in 
which WOSBs would be eligible for Federal contracting under the WOSB 
Program.
    In determining the eligible industries, the December 2007 Proposed 
Rule employed the full-sample 4-digit NAICS code dollars approach 
(using the dollar value of contract awards and the receipts of 
businesses) to identify the eligible industries under the WOSB Program. 
This approach identified four industries in which WOSBs were either 
underrepresented or substantially underrepresented. The comment period 
for the December 2007 Proposed Rule closed on March 31, 2008. SBA 
received approximately 1,720 comments on the proposed rule. Of the 
1,720 comments received, 1,689 requested withdrawal of the Proposed 
Rule and/or stated opposition to some portion of the Proposed Rule. 
Subsequently, on October 1, 2008, SBA published a Final Rule in the 
Federal Register at 73 FR 56940, RIN 3245-AF40. This Final Rule 
implemented the infrastructure regulations for the WOSB Program, but 
did not identify the eligible industries for the WOSB Program.
    The reason for the approach was that after identifying eligible 
industries under the program in December 2007, SBA discovered certain 
limitations in the data RAND used. Therefore, SBA published a Proposed 
Rule; Request for Comment on October 1, 2008, at 73 FR 57014, which 
provided for a 30-day public comment period and requested comments on 
two data sets that SBA could use to determine the eligible industries 
for the WOSB Program. SBA elected to publish the October 1, 2008, 
Proposed Rule, rather than a Final Rule, on the identification of the 
eligible industries to engage in a further review and examination of 
the RAND study and potential measures of disparity. As a result of this 
further examination, SBA stated in the Proposed Rule; Request for 
Comments that it had identified a limitation inherent in the CCR data 
set when the dollars approach was used. Specifically, SBA explained 
that vendors input information into CCR relating to the firm's revenues 
and NAICS codes, which are a method for classifying business 
establishments. Vendors must supply at least one NAICS code for 
registration into CCR to be complete, but can supply more than one. 
Vendors do not input the business's revenues for each NAICS code listed 
or for each NAICS code in which it does business; rather, vendors input 
total revenues for the firm. Thus, CCR does not provide information 
concerning the revenue of a firm in each of the NAICS codes, or 
industries, it sets forth in its CCR registration. Therefore, when RAND 
computed the disparity ratio using the CCR dollars approach to 
determine underrepresentation, each firm's total revenue was counted in 
every NAICS code associated with the firm.
    Upon discovering the CCR data set limitation, SBA contacted the 
United States Census Bureau (Census Bureau) to determine the 
availability of an alternative data set. The Census Bureau provided SBA 
with a data set for the availability component of the disparity ratio 
that consists of data from the 2002 Survey of Business Owners (SBO) 
collected through the 5-year Economic Census for firms with employees 
(hereinafter referred to as ``Census SBO data''). Although this data 
set was not used in the RAND report results, it was mentioned in the 
RAND report as restricted data which would be available to SBA at a 
more disaggregated NAICS code level than the public SBO data. The 
Census Bureau report and associated data are available at https://www.sba.gov/idc/groups/public/documents/sba_homepage/census_bureau.pdf.
    In its October 1, 2008 Proposed Rule; Request for Comment, SBA 
sought input from the public on this CCR data limitation as well as the 
Census SBO data set alternative. SBA received 38 comments on that 
Proposed Rule. The majority of these comments generally opposed the use 
of the Census SBO data because the disaggregated data set was not 
available publicly without undergoing a screening process due to 
statutory restrictions to protect the confidentiality of the data. No 
comments addressed the substantive findings of the Census data or 
challenged its accuracy.
    SBA has reviewed the October 1, 2008 Final Rule and the Proposed 
Rule, as well as the public comments, and determined that changes to 
both rules are necessary. After careful review of the comments, SBA has 
decided to withdraw the October 1, 2008 Proposed Rule for the reasons 
identified in the currently proposed rule. Consequently, SBA has set 
forth below a new Proposed Rule for the WOSB Program which includes 
both the infrastructure regulations and the identification of the 
eligible industries. SBA has set forth the entire Proposed Rule below, 
rather than only the portions of part 127 that SBA has decided to 
amend, in order to afford the public an opportunity to comment on all 
aspects of the program. SBA has determined that setting forth the 
entire infrastructure and industries in a Proposed Rule will best serve 
the public's ability to address any concerns or opinions regarding this 
WOSB Program. For ease of reference, following is a discussion of the 
substantive changes that the rule proposes to make to the Final Rule 
and Proposed Rule published on October 1, 2008 at 73 FR 56940 and 73 FR 
57014, respectively.

V. Identification of the Eligible Industries

1. Choice of Data sets

    As stated earlier, the RAND Report, using various combinations of 
data sources and methods, identified twenty-eight possible approaches 
to measuring the underrepresentation and substantial 
underrepresentation of WOSBs in Federal procurement contracting. Twenty 
of these approaches compare FY 2006 CCR registration data to FY 2005 
FPDS/NG procurement data, while eight of the approaches compare the 
2002 SBO data from the five-year Economic Census to FYs 2002/2003 FPDS/
NG procurement data.
    SBA proposes not to use the eight approaches that rely on a 
comparison of the 2002 SBO data to FYs 2002/2003 FPDS/NG procurement 
data for the following reasons:
     The SBO data set generally considers all firms in the 
economy, and not simply the number of firms that are ready, willing, 
and able to perform

[[Page 10034]]

Federal contracts. In contrast, because firms are generally required to 
register on the CCR database prior to bidding on a Federal contract, a 
firm's presence in the CCR reflects its willingness to bid on a Federal 
contract. However, it is possible that a firm's inability to bid on 
Federal contracts, and therefore its reluctance to register on the CCR 
could itself result from gender discrimination.
     The SBO does not distinguish between WOSBs and women-owned 
businesses in general, large and small. The CCR, in contrast, contains 
self-reported information on whether a business is small. And the 
procedures authorized by section 8(m) are specifically targeted towards 
only small businesses owned by women.
     The SBO is generally not available for two years after the 
survey is completed. CCR data, in contrast, are updated continuously 
and made available immediately. It is not clear, however, the degree to 
which data regarding business ownership and size economic size change 
from year to year, and therefore not clear how much weight this 
distinction should carry.
    In addition, the SBO data in the RAND Report do not disaggregate 
industry groupings beyond the two-digit NAICS level. In the NAS 2005 
report examining SBA's 2002 internal study, NAS criticized SBA's use of 
the two-digit Major Group Standard Industrial Classification (SIC) 
industry codes as inadequate. The two-digit Major Group SIC designation 
corresponds to the current three-digit Subsector NAICS designation. 
Thus, while NAS criticized SBA's use of two-digit SIC information, the 
SBO two-digit NAICS data is even less precise than the two-digit SIC 
data. Both the CCR and the FPDS/NG, in contrast, provide the capability 
to use four-digit NAICS classifications.
    SBA solicits comment on its decision, in light of the foregoing 
considerations, not to use any of RAND's approaches that utilize the 
SBO data and to focus instead on only those approaches that use the CCR 
data. A further discussion on the appropriateness of the use of the CCR 
data is set forth below.
    Because the NAS criticized SBA's use of the two-digit SIC code and 
recommended that SBA use industry detail as disaggregated as the data 
will support, SBA also proposes to eliminate the sixteen approaches 
that used CCR and FPDS/NG FY 2005 procurement data at the two and 
three-digit NAICS code level.
    Of the remaining four approaches, two are based on full sample 
results, while the other two are based on trimmed sample results 
(eliminating the top and bottom 0.5 percent of the data). The RAND 
Report found little benefit to trimming the sample, and placed more 
weight on the full sample results. Based on RAND's finding, SBA 
proposes to eliminate the two approaches based on the trimmed-sample 
results.
    This leaves two possible approaches, both of which use 2004 CCR and 
2005 FPDS/NG procurement data at the four-digit NAICS code level.

 2. Numbers and Dollars Approaches

    After careful analysis of the comments on SBA's 2007 and 2008 
Proposed Rules and reconsidering the data and analysis in the RAND 
Report, SBA has determined that both of the remaining approaches, using 
numbers and dollars, are viable and appropriate means of identifying 
industries in which WOSBs are underrepresented or substantially 
underrepresented for purposes of section 8(m). Both approaches 
represent legitimate and complementary interpretations of the statutory 
term ``underrepresentation.'' SBA likewise believes that applying the 
section 8(m) program in these industries would reduce the effects of 
the discrimination affecting women-owned small businesses, consistent 
with Congress's goals, and that both numbers and dollars approaches are 
substantially related to the purpose of the Program. As a result, as is 
explained in more detail below, the Proposed Rule would amend the 
definitions of underrepresentation and substantial underrepresentation 
and identify the eligible industries under this Program as those 
industries in which WOSBs are underrepresented or substantially 
underrepresented using either the numbers or the dollars approach. SBA 
recognizes that this approach may enable competition restricted to 
WOSBs in industries where using only one or the other of the disparity 
measurement methodologies in the RAND study might not show 
underrepresentation of WOSBs in that industry. SBA therefore seeks 
comment on this proposed approach.
    Section 8(m) instructs SBA to

conduct a study to identify industries in which small business 
concerns owned and controlled by women are underrepresented with 
respect to Federal procurement contracting.

15 U.S.C. 637(m)(4). The statute does not specify how 
underrepresentation should be identified, or state that only a single 
disparity measure can be used to identify underrepresentation. SBA must 
therefore determine the appropriate methods for identifying WOSB 
underrepresentation, recognizing that it is not bound to any one 
disparity measure to achieve that goal. As discussed above, the dollars 
approach compares the proportion of the dollar value of contracts in a 
particular NAICS code awarded to WOSBs with the proportion of gross 
receipts (revenues) in that NAICS code earned by WOSBs. The numbers 
approach compares the proportion of contracts (calculated in terms of 
number of contracts) awarded to WOSBs in a particular NAICS code with 
the number of WOSBs in that particular NAICS code.
    After reviewing comments and conducting further analysis, SBA 
concludes that both approaches provide sound and complementary 
analytical bases for determining the industries in which WOSBs are 
underrepresented and substantially underrepresented.
    Specifically, underrepresentation can occur when WOSBs are not 
being awarded Federal contracting dollars in proportion to their 
economic representation (measured by their gross receipts) in an 
industry. This might occur if, for example, WOSBs were awarded 
contracts in numbers proportional to their numerical representation in 
an industry, but received much less in Federal contracting dollars than 
their non-WOSB counterparts. But underrepresentation can also occur 
where there is disparity in the number of contracts being awarded to 
WOSBs, even if there is no measured disparity in contract dollars, due 
to a handful of WOSBs winning large-dollar contracts. Indeed, as the 
RAND Report results show, during FY 2005, the top WOSB firm was awarded 
$673 million dollars in contracts, or 6 percent of the value of all 
Federal prime contracts awarded to WOSBs ($10.5 billion dollars). In 
addition, the top 10 WOSBs garnered $1.6 billion, or 15 percent of 
Federal prime contracts going to WOSBs, and the top 25 WOSBs were 
awarded $2.1 billion, or 20 percent of Federal prime contracts going to 
WOSBs. Accordingly, the number of contracts, regardless of size, is a 
valid alternative measure of whether WOSBs have been offered equality 
of opportunity.
    It is true that the statutory goal for WOSB participation in 
government contracting is expressed in terms of dollars. However, upon 
further analysis, SBA does not believe that this fact counsels against 
use of a numbers approach for purposes of identifying the industries in 
which the WOSB Program should operate. The 5 percent participation 
goal--which appears in a different section of the statute from section 
8(m)--is a measure of the total volume of Government-awarded prime 
contracts and subcontracts that, ideally, will be awarded to WOSBs each 
year.

[[Page 10035]]

The goal includes both contracts awarded under the section 8(m) program 
and contracts awarded in industries deemed ineligible for that program. 
Section 8(m)'s ``underrepresent[ation]'' requirement, in contrast, 
concerns the identification of industries in which the statutorily 
prescribed contracting assistance to WOSBs should be permitted. There 
is no basis in the statutory language for determining that 
``underrepresentation'' for purposes of authorizing specific 
contracting assistance to WOSBs must be measured by the same metric as 
the total volume of Federal contracts awarded to WOSBs for purposes of 
an overall participation goal. As discussed above, the numbers approach 
identifies a valid and important meaning of ``underrepresentation'' 
that may exist even in situations where the dollars approach does not 
identify underrepresentation.
    SBA recognizes that these different means of measuring and 
evaluating underrepresentation are tools to identify those industries 
in which competition restricted to WOSBs will be authorized. Where 
different analytical methodologies yield different outcomes on the 
issue of WOSB underrepresentation in a particular industry, SBA must 
identify a reasonable means for evaluating, reconciling and applying 
these methodologies in order to serve the statutory goal of improving 
WOSBs equal access to Federal contracting in those industries where 
WOSBs are underrepresented. SBA therefore seeks comment on its proposed 
approaches to identifying underrepresentation.

 3. Appropriateness of Using the CCR Database

    Comments on the prior Proposed Rules raised concerns about the RAND 
study's use of revenue data from the CCR database, concerns SBA noted 
in its withdrawn 2008 Final Rule. One concern centered on the way 
vendors, i.e., businesses registering for Federal contracts, input data 
into the CCR. As described above, the CCR database reflects each firm's 
total revenue in every NAICS code associated with the firm, rather than 
the amount of revenue associated with the particular NAICS code at 
issue. SBA noted in its 2007 Proposed Rule that this feature of the CCR 
data might result in overstating firms' revenues in some or all NAICS 
codes.
    At least one commenter, in response to a prior version of the rule, 
asserted that the CCR data only takes into consideration current 
Federal contractors, whereas the SBO data could include all WOSB that 
are ready, willing and able to perform Federal work. A further 
potential viewpoint is that when using the SBO data set, the RAND Study 
found underrepresentation in a smaller number of industries, which 
could imply that women-owned firms were ``over-represented'' in 
numerous other industries in terms of the dollars of Federal 
procurement relative to their size in the economy. Consequently, it 
might be asserted that using the CCR data will allow set-asides in 
industries where other credible data (SBO data) show women-owned small 
businesses are not underrepresented in terms of Federal procurement.
    Based on further analysis, SBA has concluded that the CCR data set 
is the best available data to use to determine the availability 
component of the disparity rations. First, the fact that the CCR 
database reflects each firm's total revenue in every NAICS code 
associated with the firm, rather than the amount of revenue associated 
with the particular NAICS code at issue, does not render unreliable the 
disparity ratios calculated using the dollars component of the CCR 
database.\7\ As previously discussed, the dollars-based disparity 
ratios are themselves based on a comparison between two different 
ratios: the value of the government contracts awarded to WOSBs in a 
particular industry compared to the value of all government contracts 
awarded in that industry, on the one hand; and the gross receipts (in 
the economy at large) of WOSBs registered in the CCR database for that 
industry compared to the gross receipts for all businesses registered 
for that industry, on the other. The numerator of this ratio--the value 
of government contracts awarded to WOSBs and to industries in general 
within a given industry code--is not calculated using the CCR database.
---------------------------------------------------------------------------

    \7\ This feature of the CCR database has no effect on disparity 
ratios calculated according to the numbers method, since that method 
does not make reference to firms' gross receipts.
---------------------------------------------------------------------------

    In addition, with respect to the denominator, SBA believes that it 
is reasonable to assume that WOSBs and non-WOSBs register in the CCR 
database and identify industries for which they are available in a 
similar manner. Thus, if a WOSB in a particular kind of business 
registers in (and effectively overstates its revenues in) three NAICS 
codes, a non-WOSB in the same kind of business is likely to register in 
(and overstate its revenues in) the same three NAICS codes. And because 
the denominator of the dollars-based disparity ratio is calculated 
based on a comparison between gross receipts earned by WOSBs and non-
WOSBs, rather than the absolute values of those receipts, the potential 
over-reporting of revenue in each NAICS code does not raise serious 
concerns about the reliability of the dollars analysis of the RAND 
study.
    SBA has also concluded the CCR database appropriately captures 
those firms ready, willing and able to compete for Federal contracts. 
The firms in the CCR database have indicated by registering to submit 
an offer on Federal prime contracts that they are ``willing'' to 
perform work on such contracts and have self-identified as firms that 
are ready and able to perform such work. RAND's review of the data 
identified no additional means of determining which firms are ready and 
able to work on these contracts.\8\ However, RAND ensured that the 
firms each had at least one employee as a ``proxy for `able.' '' RAND 
Study at 30. Further, because the SBO data generally considers all 
firms in the economy, it is possible that it may actually overestimate 
the number of firms that are ready, willing and able to perform Federal 
contracts, thus potentially overestimating underrepresentation.
---------------------------------------------------------------------------

    \8\ For instance, although size may be relevant to the ability 
to perform certain work, RAND found that small firms successfully 
competed for Federal contracts, and that it was not possible to 
identify a natural break point in contract size beyond which small 
businesses generally could not compete.
---------------------------------------------------------------------------

    Although the CCR data account for a firm's willingness to submit an 
offer and receive a Federal contract without also expressly accounting 
for firm qualifications or abilities, SBA believes that the CCR data is 
nevertheless an appropriate measure of firm availability. Although some 
contracting assistance programs may rely on actual bidder lists as the 
utilized measure of ready, willing, and able firms, see, e.g., Eng'g 
Contractors Ass'n of S. Fla., Inc. v. Metro. Dade County, 122 F.3d 895, 
912 (11th Cir. 1997), some programs do not, and courts have upheld such 
programs against challenges. See Concrete Works of Colorado, Inc. v. 
City and County of Denver, 321 F.3d 950, 983 (10th Cir. 2003) 
(rejecting argument that underutilization must be measured by examining 
``only those firms actually bidding on City construction projects''). 
In Concrete Works, the court noted that even those firms that did 
submit bids might be unqualified, so that the city would always have to 
make some assumption about qualifications, and further observed that 
bidder lists might not capture all firms that are qualified. Id. The 
court concluded that disparity studies may make assumptions about 
qualifications ``as long as the same

[[Page 10036]]

assumptions can be made for all firms.'' Id.; cf. Adarand Constructors, 
Inc. v. Slater, 228 F.3d 1147, 1173 (2000) (noting that there was no 
evidence in the record that ``those minority subcontractors who have 
been utilized have performed inadequately or otherwise demonstrated a 
lack of necessary qualifications''). The court also noted that a firm's 
ability to perform contracts is not static: firms can generally perform 
services by hiring additional employees or using subcontractors. 
Concrete Works, 321 F.3d at 981. Of course, to the extent that the age 
and size of a firm may themselves be effectively limited by barriers 
tied to historical discrimination, using these factors to assess 
capacity and availability may in some instances extend the effects of 
past discrimination into this statistical assessment.
    For the reasons stated above, this Proposed Rule proposes to 
evaluate underrepresentation and substantial underrepresentation by 
using the CCR database and applying both the numbers and dollars 
approaches to identify eligible industries. Using this methodology, the 
RAND study found one hundred and nine (109) year-2002 NAICS codes in 
which WOSBs were either underrepresented or substantially 
underrepresented.
    Because SBA has received comments on this issue in the past, and 
there is a more detailed data set available (SBO data), it is 
interested in hearing from the public about this proposal to utilize 
the CCR data set, and specifically requests comments on whether the 
WOSB Program should operate, or whether its operation should require 
special justification, in sectors where women-owned businesses appear 
not be underrepresented based on other data.

4. The Eligible Industry Codes

    NAICS codes are revised every five years (in the years ending in 
'2' and '7'). RAND used the 2002 NAICS codes in its study. All but 
three of the 109 2002 NAICS codes identified by RAND correspond with 
the current 2007 NAICS codes. The three 2002 NAICS codes which do not 
correspond are: 5161--Internet Publishing and Broadcasting; 5173--
Telecommunications Resellers; and 5181--Internet Service Providers and 
Web Search Portals. However, these three 2002 NAICS codes were made 
part of other NAICS codes in 2007 that were also designated by RAND as 
substantially underrepresented--2002 NAICS code 5161 is now part of 
2007 NAICS code 5191; 2002 NAICS code 5173 is now a part of 2007 NAICS 
code 5179; and 2002 NAICS code 5181 is now split between 2007 NAICS 
codes 5171 and 5179. Because the RAND study found NAICS codes 5191, 
5179 and 5171 also to be substantially underrepresented, the change in 
NAICS code affects only the designation of industries to the extent 
that there are 106 2007 NAICS codes instead of 109 2002 NAICS codes but 
does not affect the types of WOSBs eligible under the WOSB Program.
    However, the WOSB Program will not operate in three of the 106 2007 
NAICS codes in sector 92 (2002 and 2007) because those NAICS codes do 
not apply to the private sector. These NAICS codes are: 9211--
Executive, Legislative, and other General Government Support; 9231--
Administration of Human Resource Programs; and 9281--National Security 
and International Affairs. Firms in these NAICS codes are:

    Federal, state, and local government agencies which administer 
and oversee government programs and activities that are not 
performed by private establishments,

see 13 CFR 121.201 n. 19, and contracts are not classified with this 
NAICS code. See 13 CFR 121.402(b).
    In addition, twenty of the 106 NAICS codes in sectors 42, 44, and 
45 (2002 and 2007) are not available for contracting assistance under 
the Program. These industries codes are: 4231--Motor Vehicle and Motor 
Vehicle Parts and Supplies Merchant Wholesalers; 4232--Furniture and 
Home Furnishing Merchant Wholesalers; 4233--Lumber and Other 
Construction Materials Merchant Wholesalers; 4234--Professional and 
Commercial Equipment and Supplies Merchant Wholesalers; 4236--
Electrical and Electronic Goods Merchant Wholesalers; 4239--
Miscellaneous Durable Goods Merchant Wholesalers; 4241--Paper and Paper 
Product Merchant Wholesalers; 4243--Apparel, Piece Goods, and Notions 
Merchant Wholesalers; 4246--Chemical and Allied Products Merchant 
Wholesalers; 4248--Beer, Wine, and Distilled Alcoholic Beverage 
Merchant Wholesalers; 4249--Miscellaneous Nondurable Goods Merchant 
Wholesalers; 4412--Other Motor Vehicle Dealers; 4421--Furniture Stores; 
4422--Home Furnishings Stores; 4431--Electronics and Appliance Stores; 
4461--Health and Personal Care Stores; 4511--Sporting Goods, Hobby, and 
Musical Instrument Stores; 4532--Office Supplies, Stationery, and Gift 
Stores; 4541--Electronic Shopping and Mail-Order Houses; and 4543--
Direct Selling Establishments.
    These twenty NAICS codes fall under the 2-digit NAICS code sectors 
42, 44 and 45, which cover wholesalers and retailers. Contracts are not 
classified with these NAICS codes. See 13 CFR 121.402(b). SBA 
regulations specifically state that sectors 42, 44 and 45 are ``not 
applicable to Government procurement of supplies.'' 13 CFR 121.201. 
These NAICS codes are not available for set-asides because contracting 
officers must classify any contract for the procurement of supplies 
under the applicable manufacturing NAICS code (and then the 
nonmanufacturer rule would apply to any offerors that are 
nonmanufacturers of the supply). 13 CFR 121.402.
    As a result of the above, this Proposed Rule treats eighty-three 
NAICS codes as eligible for Federal contracting under the WOSB Program. 
There are forty-five NAICS codes in which WOSBs are underrepresented 
and thirty-eight NAICS codes in which WOSBs are substantially 
underrepresented.
    The forty-five NAICS codes in which WOSBs are underrepresented are: 
2213--Water, Sewage and Other systems; 2361--Residential Building 
Construction; 2371--Utility System Construction; 2381--Foundation, 
Structure, and Building Exterior Contractors; 2382--Building Equipment 
Contractors; 2383--Building Finishing Contractors; 2389--Other 
Specialty Trade Contractors; 3149--Other Textile Product Mills; 3159--
Apparel Accessories and Other Apparel Manufacturing; 3219--Other Wood 
Product Manufacturing; 3222--Converted Paper Product Manufacturing; 
3321; Forging and Stamping; 3323--Architectural and Structural Metals 
Manufacturing; 3324--Boiler, Tank, and Shipping Container 
Manufacturing; 3333--Commercial and Service Industry Machinery 
Manufacturing; 3342--Communications Equipment Manufacturing; 3345--
Navigational, Measuring, Electromedical, and Control Instruments 
Manufacturing; 3346--Manufacturing and Reproducing Magnetic and Optical 
Media; 3353--Electrical Equipment Manufacturing; 3359--Other Electrical 
Equipment and Component Manufacturing; 3369--Other Transportation 
Equipment Manufacturing; 4842--Specialized Freight Trucking; 4881--
Support Activities for Air Transportation; 4884--Support Activities for 
Road Transportation; 4885--Freight Transportation Arrangement; 5121--
Motion Picture and Video Industries; 5311--Lessors of Real Estate; 
5413--Architectural, Engineering, and Related Services; 5414--
Specialized Design

[[Page 10037]]

Services; 5415--Computer Systems Design and Related Services; 5416--
Management, Scientific, and Technical Consulting Services; 5419--Other 
Professional, Scientific, and Technical Services; 5611--Office 
Administrative Services; 5612--Facilities Support Services; 5614--
Business Support Services; 5616--Investigation and Security Services; 
5617--Services to Buildings and Dwellings; 6116--Other Schools and 
Instruction; 6214--Outpatient Care Centers; 6219--Other Ambulatory 
Health Care Services; 7115--Independent Artists, Writers, and 
Performers; 7223--Special Food Services; 8111--Automotive Repair and 
Maintenance; 8113--Commercial and Industrial Machinery and Equipment 
(except Automotive and Electronic) Repair and Maintenance; and 8114--
Personal and Household Goods Repair and Maintenance.
    The thirty-eight NAICS codes in which WOSBs are substantially 
underrepresented are: 2372--Land Subdivision; 3152--Cut and Sew Apparel 
Manufacturing; 3231--Printing and Related Support Activities; 3259--
Other Chemical Product and Preparation Manufacturing; 3328--Coating, 
Engraving, Heat Treating, and Allied Activities; 3329--Other Fabricated 
Metal Product Manufacturing; 3371--Household and Institutional 
Furniture and Kitchen Cabinet Manufacturing; 3372--Office Furniture 
(including Fixtures) Manufacturing; 3391--Medical Equipment and 
Supplies Manufacturing; 4841--General Freight Trucking; 4889--Other 
Support Activities for Transportation; 4931--Warehousing and Storage; 
5111--Newspaper, Periodical, Book, and Directory Publishers; 5112--
Software Publishers; 5171--Wired Telecommunications Carriers; 5172--
Wireless Telecommunications Carriers (except Satellite); 5179--Other 
Telecommunications; 5182--Data Processing, Hosting, and Related 
Services; 5191--Other Information Services; 5312--Offices of Real 
Estate Agents and Brokers; 5324--Commercial and Industrial Machinery 
and Equipment Rental and Leasing; 5411--Legal Services; 5412--
Accounting, Tax Preparation, Bookkeeping, and Payroll Services; 5417--
Scientific Research and Development Services; 5418--Advertising, Public 
Relations, and Related Services; 5615--Travel Arrangement and 
Reservation Services; 5619--Other Support Services; 5621--Waste 
Collection; 5622--Waste Treatment and Disposal; 6114--Business Schools 
and Computer and Management Training; 6115--Technical and Trade 
Schools; 6117--Educational Support Services; 6242--Community Food and 
Housing, and Emergency and Other Relief Services; 6243--Vocational 
Rehabilitation Services; 7211--Traveler Accommodation; 8112--Electronic 
and Precision Equipment Repair and Maintenance; 8129--Other Personal 
Services; and 8139--Business, Professional, Labor, Political, and 
Similar Organizations.

VI. Economic Disadvantage

    SBA proposes to clarify current Sec.  127.203 concerning 
economically disadvantaged women-owned small businesses (EDWOSBs) to 
address certain interpretations and policies that have been followed 
informally by SBA with respect to the 8(a) Business Development (BD) 
Program and that SBA believes would apply to the WOSB Program as well. 
This includes certain interpretations and policies SBA recently set 
forth in a rule proposing to amend the 8(a) BD regulations. See 74 FR 
55694 (Oct. 28, 2009). For example, this Proposed Rule specifically 
states that SBA does not take community property laws into account when 
determining economic disadvantage if the woman has no ownership 
interest. This means that property that is legally in the name of the 
husband would be considered wholly the husband's, whether or not the 
couple lived in a community property state. Since community property 
laws are usually applied when a couple separates, and since spouses in 
community property states generally have the freedom to keep their 
property separate while they are married, SBA proposes to treat 
property owned solely by one spouse as that spouse's property for 
economic disadvantage determinations. However, if both spouses own the 
property, SBA would attribute a half interest in such property to the 
woman claiming economic disadvantage, unless there is evidence to show 
that the interest in such property is greater or lesser.
    This policy also results in equal treatment for applicants in 
community and non-community property states. In addition, and along the 
same lines, SBA proposes to provide that it may consider a spouse's 
financial situation in determining an individual's access to capital 
and credit.
    SBA has also proposed exempting funds in Individual Retirement 
Accounts (IRAs) and other official retirement accounts from the 
calculation of net worth, provided that the funds cannot currently be 
withdrawn from the account prior to retirement age without a 
significant penalty. While such funds can be useful to an applicant 
seeking credit, SBA believes that retirement accounts are not assets to 
be currently enjoyed; rather, they are held for purposes of ensuring 
future income when an individual is no longer working. SBA believes it 
is unfair to count those assets as current assets. The basis for this 
proposal stems from SBA's experience with the 8(a) BD Program, where it 
has found that including IRAs and other retirement accounts in the 
calculation of an individual's net worth does not serve to disqualify 
wealthy individuals. Instead, such an exclusion has worked to make 
middle and lower income individuals ineligible to the extent they have 
invested prudently in accounts to ensure income at a time in their 
lives when they are no longer working.
    SBA is cognizant of the potential for abuse of this proposed 
provision, with individuals attempting to hide current assets in funds 
labeled ``retirement accounts.'' SBA does not believe such attempts to 
remove certain assets from an individual's economic disadvantage 
determination would be appropriate. Therefore, this Proposed Rule 
states that in order for funds not to be counted in an economic 
disadvantage determination, the funds cannot be currently withdrawn 
from the account without a significant penalty. A significant penalty 
would be one equal or similar to the additional income tax on early 
distributions under section 72(t) of the Internal Revenue Code. In 
order for SBA to determine whether funds invested in a specific account 
labeled a ``retirement account'' may be excluded from a woman's net 
worth calculation, the woman must provide to SBA information about the 
terms and conditions of the account. SBA is interested in hearing from 
the public about this proposal, and specifically requests comments on 
how best to exclude legitimate retirement accounts without affording 
others a mechanism to circumvent the economic disadvantage criterion.
    SBA has also proposed exempting income from a corporation taxed 
under Subchapter S of Chapter 1 of the Internal Revenue Code (S 
corporation) from the calculation of both income and net worth to the 
extent such income is reinvested in the firm or used to pay taxes 
arising from the normal course of operations of an S corporation. 
Although the income of an S corporation flows through and is taxed to 
individual shareholders in accordance with their interest in the S 
corporation for Federal tax purposes, SBA will take such income into 
account for economic disadvantage purposes

[[Page 10038]]

only if it is not reinvested in the business or used to pay the taxes. 
This proposal would result in equal tr