Women-Owned Small Business Federal Contract Program, 62258-62293 [2010-25179]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 75, Number 194 (Thursday, October 7, 2010)]
[Rules and Regulations]
[Pages 62258-62293]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-25179]



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Part III





Small Business Administration





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13 CFR Parts 121, 124, 125, et al.



Women-Owned Small Business Federal Contract Program; Final Rule

Federal Register / Vol. 75 , No. 194 / Thursday, October 7, 2010 / 
Rules and Regulations

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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 124, 125, 126, 127, and 134

RIN 3245-AG06


Women-Owned Small Business Federal Contract Program

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: The U.S. Small Business Administration (SBA) is issuing this 
Final Rule to amend its regulations governing small business 
contracting procedures. This Final Rule amends part 127, entitled ``The 
Women-Owned Small Business Federal Contract Assistance Procedures,'' 
and implements procedures authorized by the Small Business Act (Pub. L. 
85-536, as amended) to help ensure a level playing field on which 
Women-Owned Small Businesses can compete for Federal contracting 
opportunities.

DATES: This rule is effective February 4, 2011.

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 added 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) or Economically Disadvantaged Women-Owned 
Small Business (EDWOSBs) for Federal contracts in certain industries. 
The purpose of this authority, referred to as the WOSB Program, is to 
enable contracting officers to identify and establish a sheltered 
market for competition among WOSBs or EDWOSBs 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&).
    Section 8(m) of the Small Business Act (Act) sets forth certain 
criteria for the WOSB Program. Specifically, the Act provides the 
following requirements in order for a contracting officer to restrict 
competition for EDWOSBs or WOSBS under this program:
     An eligible concern must be not less than 51 percent owned 
by one or more women who are ``economically disadvantaged'' (i.e. an 
EDWOSB). However, SBA may waive this requirement of economic 
disadvantage for procurements in industries in which WOSBs are 
``substantially underrepresented.''
     A WOSB is a small business concern owned and controlled by 
women, as defined in section 3(n) of the Act. Section 3(n) of the Act 
defines a women owned business as one that is at least 51 percent owned 
by one or more women and the management and daily business operations 
of the concern is controlled by one or more women. 15 U.S.C. 632(n).
     The contracting officer must have a reasonable expectation 
that, in industries in which WOSBs are underrepresented, two or more 
EDWOSBs will submit offers for the contract or, in industries where 
WOSBs are substantially underrepresented, two or more WOSBs will submit 
offers for the contract.
     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 all other contracts.
     In the estimation of the contracting officer, the contract 
can be awarded at a fair and reasonable price.
     Each competing concern must be duly certified by a Federal 
agency, a State government, or a national certifying entity approved by 
SBA, as an EDWOSB or WOSB, or must certify to the contracting officer 
and provide adequate documentation that it is an EDWOSB or WOSB. The 
statute imposes penalties for a concern's misrepresentation of its 
status.
     The contract must be for the procurement of goods or 
services with respect to an industry identified by SBA pursuant to a 
statutorily mandated study as one in which EDWOSBs are underrepresented 
or substantially underrepresented or WOSBs are substantially 
underrepresented with respect to Federal procurement contracting.
    The SBA has issued several rulemakings concerning this program. 
Most recently, SBA issued a proposed rule on March 4, 2010 (75 FR 
10029) that proposed amending 13 CFR part 127, which had been 
promulgated in a Final Rule on October 1, 2008 (entitled ``The Women-
Owned Small Business Federal Contract Assistance Procedures,'' RIN 
3245-AF40). In particular, the proposed rule: Identified 83 industries 
by four digit North American Industry Classification System (NAICS) 
codes in which WOSBs are underrepresented or substantially 
underrepresented; removed the requirement that each Federal agency must 
certify that it had engaged in discrimination against WOSBs in order 
for the program to apply to that agency; allowed WOSBs and EDWOSBs to 
self-certify their status as long as adequate documents were provided 
to support the certification; allowed WOSBs or EDWOSBs to be certified 
by approved third-party certifiers, including Federal agencies; and 
expanded the eligibility examination process to ensure the eligibility 
of WOSBs or EDWOSBs for the program. The proposed rule also set forth 
the eligibility criteria for the program, as well as the protest and 
appeal process for WOSB and EDWOSB status protests.
    In the proposed rule, SBA stated several times that it was seeking 
comments on any and all aspects of the rule. In particular, though, SBA 
sought comments on the data used to identify the 83 industries, as well 
as the proposed new certification procedures. SBA stated that comments 
were due on May 3, 2010, which provided interested parties 60 days to 
submit these comments. SBA received a total of 998 comments on the 
rule. Many of these comments contained the same or similar remarks and 
virtually all of the comments supported the rule, commended SBA for its 
efforts, and urged the agency to expeditiously promulgate final 
regulations since WOSBs have been waiting eleven years for the program.
    Many of the comments supported the proposed rule on the grounds 
that: Women are underrepresented in Federal contracting; the new 
program will level the playing field for WOSBs; the new program will 
help businesses to grow; and it will be beneficial to the economy. Few 
comments did not support the proposed rule on the grounds that the 
scope was too restrictive in its application to WOSBs, and that they 
opposed gender based set asides, believed that the program creates an 
artificial advantage for a certain group, or that the program was 
merely a token to WOSBs. All comments can be viewed on the Federal 
rulemaking portal at https://www.regulations.gov.
    The comments relating to specific sections of the rule are 
discussed in further detail below.
    In addition, the SBA notes that although this is a final rule, it 
is not effectively immediately. The SBA is in the process of working 
with the Federal Acquisition Regulatory Council to implement this 
program in the Federal Acquisition Regulations (FAR). In addition, the 
SBA is working with the Integrated Acquisition Environment to

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make changes to the various Federal procurement data systems, which 
will be affected by this rule. As a result, the SBA believed it was 
necessary to publish the rule as final, but to also acknowledge that 
there are additional measures that need to be taken to fully implement 
the program.

II. Summary of Comments and Agency Response to Comments

A. Eligible industries

a. General Comments on the Eligible Industries
    SBA's proposed rule identified 83 NAICS codes that would be 
eligible for Federal contract assistance under the WOSB Program. Most 
comments received on the proposed rule's identification of the 83 NAICS 
codes were overwhelmingly supportive. In fact, SBA received hundreds of 
comments which supported the identification of 83 NAICS categories. For 
example, many comments stated they are ``extremely pleased'' that all 
83 NAICS categories have been selected. Other comments applauded SBA's 
``efforts to increase women-owned business participation in federal 
contracting.'' Additional comments stated that the ``rule is a 
significant improvement over the rule proposed in 2007.''
    SBA also received dozens of comments that, while supporting the 83 
eligible NAICS codes, sought the inclusion of additional NAICS 
categories. Some of the comments stated that all NAICS categories 
should be eligible, while other comments identified specific additional 
NAICS categories for eligibility.
    The comments which requested eligibility of all NAICS codes 
asserted that SBA's other programs are not limited to certain NAICS 
codes. In addition, some of these comments stated that no court has 
required a study prior to establishing a program that provided 
contracting assistance on the basis of gender and SBA's requirement of 
such a study limits the eligibility of NAICS categories.
    The comments which requested the addition of specific NAICS 
categories based their requests on various viewpoints, including the 
belief that WOSBs in a NAICS code received few contracts or a small 
dollar amount of contracts, or that only a few WOSBs participate in a 
NAICS code, or that WOSBs sought contracts in a NAICS code, but did not 
receive the contract.
    While SBA acknowledges the concerns expressed in these comments 
relating to the need to increase WOSB participation in Federal 
contracting, section 8(m) of the Act sets forth certain statutory 
requirements for this program that specify the manner in which SBA is 
to identify included NAICS categories. In particular, section 8(m) 
instructs SBA to conduct a study to identify industries in which WOSBs 
are underrepresented with respect to Federal procurement contracting. 
See 15 U.S.C. 637(m)(4). Therefore, SBA must identify the program's 
eligible industries based on a study which analyzes WOSBs' 
underrepresentation in a specific industry.
    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, underrepresentation is 
typically referred to as a disparity ratio. A ``disparity ratio'' is a 
measure comparing the utilization of WOSBs in Federal contracting in a 
particular NAICS code to their availability for such contracts in a 
particular NAICS code. A disparity ratio of 1.0 suggests that firms of 
a particular type are awarded contracts in the same proportion as their 
representation in the industry--that is, there is no disparity. A 
disparity ratio of less than 1.0 suggests that the firms are 
underrepresented in Federal contracting, and a ratio greater than 1.0 
suggests that they are overrepresented. 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. One of the recommendations made by the NAS Review was 
to create four disparity ratios of underrepresentation using a 
combination of different databases and different measures. The four 
disparity ratios recommended by the NAS Review were the following: (1) 
Use contract dollars with the Survey of Business Owners (SBO) database; 
(2) use contract dollars with the Central Contractor Registry (CCR) 
database; (3) use number of contracts with the SBO database; and (4) 
use the number of contracts with the CCR database.
    The RAND Report, in accordance with the NAS recommendations, 
created various disparity ratios to identify the NAICS codes which 
showed underrepresentation based on a disparity ratio. Using the RAND 
Report, SBA identified a viable and appropriate methodology of 
identifying industries in which WOSBs are underrepresented or 
substantially underrepresented. SBA did this in accordance with the 
statute.
    Accordingly, in view of the statute's explicit requirements, SBA 
cannot simply deem a NAICS code eligible under the WOSB Program based 
solely on a request set forth in the public comments.
b. Methodology: Dollars and Numbers
    In the proposed rule, SBA identified 83 NAICS categories as 
eligible under the WOSB Program. The RAND Report found these 83 NAICS 
categories to be underrepresented or substantially underrepresented 
using the numbers and dollars approaches. That is, the industry was 
identified as eligible if the industry was underrepresented or 
substantially underrepresented using either the numbers or the dollars 
approach. SBA explained in the proposed rule that, for purposes of 
section 8(m), both the dollars and numbers approaches are viable and 
appropriate means of identifying industries in which WOSBs are 
underrepresented or substantially underrepresented. A previous version 
of the proposed regulations identified only 4 NAICS as eligible because 
it used only the dollars approach and not the number approach to 
identify eligible industries.
    SBA received hundreds of comments which expressed general support 
for the identification of 83 NAICS codes, which relied upon the use of 
both the numbers and dollars approaches. In addition, SBA received 
hundreds of comments which agreed specifically with the use of both the 
dollars and numbers approaches identifying the eligible

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industries under the WOSB Program. For example, one comment stated that 
the use of both the numbers and dollars approaches is a better 
mechanism ``to measure underrepresentation and performance of WOSBs.''
    As explained in the proposed rule, 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.
    SBA determined that both approaches represent legitimate and 
complementary interpretations of the statutory term 
``underrepresentation.'' 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. 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. SBA also stated in the 
proposed rule 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 WOSB Program.
    Based on the reasons set forth herein and in the proposed rule, as 
well as the support SBA received from the public comments on this 
issue, SBA has promulgated the proposed rule as final and will apply 
both the numbers and dollars approach to identify eligible industries.
c. Methodology: Central Contractor Registry (CCR) and Survey of 
Business Owners (SBO) Databases
    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. The proposed rule used the 
CCR database rather than the SBO database to identify the 83 eligible 
industries under the WOSB Program. The proposed rule explained that SBA 
selected the CCR database for various reasons, including the fact that 
the CCR database, as compared with the SBO database as currently 
constituted, is more likely to capture those firms ready, willing and 
able to compete for Federal contracts.
    SBA received hundreds of comments which addressed the CCR and SBO 
databases used in the RAND Report. The overwhelming majority of these 
comments supported the proposed methodology used to identify eligible 
industries under the WOSB Program. Specifically, SBA received dozens of 
comments which supported the use of the CCR database to identify the 
eligible industries. Several of these comments supported the use of CCR 
because it is a more comprehensive and complete database.
    SBA also received several comments that not only supported the use 
of the CCR database, but urged SBA to use the SBO database from the 
RAND Report in addition to the CCR database to identify eligible 
industries. Specifically, these comments stated that SBA should deem as 
underrepresented those industries that appear underrepresented in two 
or more of the four approaches identified in the report issued by the 
National Academy of Sciences (NAS) recommendations.
    Additional comments received by SBA supported the use of only the 
SBO database (and not the CCR) from the RAND Report to identify the 
eligible industries. Some of these comments stated that the use of CCR 
undercuts utilization and perpetuates discrimination because not all 
WOSBs register in CCR due to their belief that there is no meaningful 
competition in Federal procurement for women-owned businesses.
    As explained in the proposed rule, SBA decided not to use the SBO 
database used in the RAND Report and concluded that the CCR database 
used in the RAND report is currently the best available database to use 
to determine the availability component of the disparity ratios because 
of certain limitations in the existing SBO dataset. SBA proposed not to 
use the 2002 SBO database used in the RAND Report for the following 
reasons:
     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 are 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.
     The SBO database in the RAND Report generally considers 
all firms in the economy, and not simply the number of firms that have 
explicitly indicated that they are ready, willing, and able to perform 
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 specifically reflects its willingness to bid 
on a Federal contract. SBA recognized, however, that its reliance on 
the CCR database could understate the availability of women-owned 
firms, since 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 database in the RAND Report 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 database in the RAND Report is generally not 
available for two years after the survey is completed. CCR data, in 
contrast, are updated continuously and made available immediately. 
Thus, in this instance, the SBO data available to RAND at the time of 
the study was less recent than the CCR data. SBA recognized, however, 
that the degree to which data regarding business ownership and economic 
size change from year to year is unclear, and therefore that it was not 
clear how much weight this distinction should carry.
    As detailed in the proposed rule, SBA notes that the Census Bureau 
provided SBA with a data set for the availability component of the 
disparity ratio which came 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''). SBA elected 
not to use this dataset because that data addresses all firms across 
the economy as a whole, and does not select for firms which are ready, 
willing and able to engage in federal procurement contracting. For this 
reason, SBA is of the view that it is not a viable alternative data set 
for accurately measuring disparity.
    After a review of the comments, for these reasons, SBA continues to 
support the use of the CCR for the availability component of the 
disparity ratio to

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identify the eligible industries. In so doing, however, SBA does not 
suggest that use of SBO data would never be appropriate to calculate 
availability.
    While the comments correctly stated that the NAS recommended in 
their report the designation of an industry as eligible under the WOSB 
Program if the industry appears underrepresented in two or more of the 
four approaches, the NAS also recommended estimating disparity ratios 
at a disaggregated level. In other words, the SBO database used in the 
RAND Report provides data only at the two-digit level. In contrast, 
both the CCR and the FPDS/NG provide the capability to use four-digit 
NAICS classifications. Thus, SBA had to reconcile these recommendations 
and, based on the above limitations of the SBO data set from the RAND 
Report, SBA elected to use the four-digit CCR dataset for the 
availability component.
    In response to the comments which stated that not all WOSBs 
register in CCR thus resulting in an undercounting of underutilization, 
SBA notes that courts have looked at the appropriateness of the 
``availability'' component, also known as the ``ready, willing, and 
able'' component, in evaluating the accuracy of disparity studies. See 
e.g., Eng'g Contractors Ass'n of S. Fla., Inc. v. Metro. Dade County, 
122 F.3d 895, 907 (11th Cir. 1997); Concrete Works of Colorado, Inc. v. 
City and County of Denver, 321 F.3d 950, 980 (10th Cir. 2003). The CCR 
and SBO databases are different means of measuring the ``availability'' 
component.
    Although not all firms or WOSBs have registered in CCR, the firms 
in the CCR database have at least 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. Further, the SBO database used in the 
RAND Report generally considers all firms in the economy so 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. SBA recognizes that this is a 
conservative approach to calculating availability, but believes its use 
is appropriate in this instance, particularly in light of the other 
advantages of the CCR database.
    Other comments which SBA received supported the SBO database and 
addressed the fact that the CCR does not allow the disparity ratio to 
include specific amounts earned by that business in that NAICS code and 
thus may lead to over counting of earnings.
    As stated in the proposed rule, this concern does not render 
unreliable the disparity ratios calculated using the dollars component 
of the CCR database. 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 
hand. 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.
    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 restates its total revenues in) three 
distinct NAICS codes, a non-WOSB in the same kind of business is likely 
to register in (and restate its total revenues in) each of 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 duplicative re-reporting of revenue in 
each NAICS code does not raise serious concerns in SBA's view, about 
the reliability of the dollars analysis of the RAND study. For these 
reasons, SBA disagrees with the comments that are concerned with the 
viability of the CCR data because the CCR does not allow the disparity 
ratio to include specific amounts earned by a business in a particular 
NAICS code.
    Lastly, SBA received comments which argued that since only 1.8 
percent of women-owned businesses have receipts larger than $1 million 
the fact that SBO doesn't distinguish between large and small WOSBs 
should not be a determining factor. SBA notes that SBO's failure to 
distinguish between large and small businesses is only one factor SBA 
considered in deciding to use the CCR data. In addition, the existence 
of a few large WOSBs or other businesses would potentially skew the SBO 
data, resulting in an unreliable disparity ratio using the SBO data. 
The effect is unknown but outliers on both the large and small ends of 
the spectrum may affect the reliability of the SBO data used in the 
RAND Report.
    Accordingly, for the reasons stated in the proposed rule, SBA will 
use the CCR database to identify eligible industries.
d. Methodology: FPDS Database
    In the proposed rule, SBA explained that the RAND Report used the 
Fiscal Year (FY) 2005 Federal Procurement Data System/Next Generation 
(FPDS/NG) for the utilization component of the disparity ratio that 
resulted in the identification of 83 eligible NAICS categories.
    SBA received hundreds of comments which supported the use of the 
FPDS database to identify the eligible industries; however, one comment 
expressed concern with this database, stating that contract revenues in 
the database (presumably FPDS) may not reflect actual money earned 
(e.g., multi award contracts) and contract award values do not equate 
to company revenues.
    SBA agrees with the comment that stated a company's revenues do not 
equal contract award values. In the RAND Report, company revenues are 
obtained from the CCR database, while contract award values are 
obtained from the FPDS.
    In addition, while SBA understands the concern with the accuracy of 
the FPDS procurement database, SBA maintains that this database is a 
viable and appropriate means of identifying eligible industries. In 
addition, the FPDS is the best source of information on Federal 
contracts. See RAND Report at 7. Lastly, in some instances where 
relevant data was available, RAND made adjustments to deal with the 
limitations in the FPDS. See id. at 7-9.
    For example, RAND considered the fact that, in some cases, 
individual actions refer to multi-year contracts or are revisions to 
earlier contracts. RAND stated in the Report that this could lead to 
errors in summing to the contract level, such as negative dollar 
amounts or very large contract values. In order to examine the 
sensitivity of the disparity ratios to these outliers, RAND calculated 
``trimmed'' results. The trimmed results reflect calculations where 
RAND trimmed the top and bottom 0.5 percent of contract awards after 
rolling up the data to the contract level. However, RAND found that 
their ``comparisons from FY02 through FY05 also indicate that very 
large contracts and larger negative values are awarded each year, 
suggesting that they are not outliers'' and ``without a compelling 
reason to delete these contracts, we are inclined to put more weight on 
the full-sample

[[Page 62262]]

results'' as opposed to the trimmed results See id. at 8.
    For the reasons stated above, SBA's Final Rule will use the FPDS 
database as proposed.
e. The Eligible Industry Codes
    For the reasons stated here and in the proposed rule, this Final 
Rule designates 83 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:
    1. 2213--Water, Sewage and Other systems;
    2. 2361--Residential Building Construction;
    3. 2371--Utility System Construction;
    4. 2381--Foundation, Structure, and Building Exterior Contractors;
    5. 2382--Building Equipment Contractors;
    6. 2383--Building Finishing Contractors;
    7. 2389--Other Specialty Trade Contractors;
    8. 3149--Other Textile Product Mills;
    9. 3159--Apparel Accessories and Other Apparel Manufacturing;
    10. 3219--Other Wood Product Manufacturing;
    11. 3222--Converted Paper Product Manufacturing;
    12. 3321;--Forging and Stamping;
    13. 3323--Architectural and Structural Metals Manufacturing;
    14. 3324--Boiler, Tank, and Shipping Container Manufacturing;
    15. 3333--Commercial and Service Industry Machinery Manufacturing;
    16. 3342--Communications Equipment Manufacturing;
    17. 3345--Navigational, Measuring, Electromedical, and Control 
Instruments Manufacturing;
    18. 3346--Manufacturing and Reproducing Magnetic and Optical Media;
    19. 3353--Electrical Equipment Manufacturing;
    20. 3359--Other Electrical Equipment and Component Manufacturing;
    21. 3369--Other Transportation Equipment Manufacturing;
    22. 4842--Specialized Freight Trucking;
    23. 4881--Support Activities for Air Transportation;
    24. 4884--Support Activities for Road Transportation;
    25. 4885--Freight Transportation Arrangement;
    26. 5121--Motion Picture and Video Industries;
    27. 5311--Lessors of Real Estate;
    28. 5413--Architectural, Engineering, and Related Services;
    29. 5414--Specialized Design Services;
    30. 5415--Computer Systems Design and Related Services;
    31. 5416--Management, Scientific, and Technical Consulting 
Services;
    32. 5419--Other Professional, Scientific, and Technical Services;
    33. 5611--Office Administrative Services;
    34. 5612--Facilities Support Services;
    35. 5614--Business Support Services;
    36. 5616--Investigation and Security Services;
    37. 5617--Services to Buildings and Dwellings;
    38. 6116--Other Schools and Instruction;
    39. 6214--Outpatient Care Centers;
    40. 6219--Other Ambulatory Health Care Services;
    41. 7115--Independent Artists, Writers, and Performers;
    42. 7223--Special Food Services;
    43. 8111--Automotive Repair and Maintenance;
    44. 8113--Commercial and Industrial Machinery and Equipment (except 
Automotive and Electronic) Repair and Maintenance; and
    45. 8114--Personal and Household Goods Repair and Maintenance.
    The thirty-eight NAICS codes in which WOSBs are substantially 
underrepresented are:
    1. 2372--Land Subdivision;
    2. 3152--Cut and Sew Apparel Manufacturing;
    3. 3231--Printing and Related Support Activities;
    4. 3259--Other Chemical Product and Preparation Manufacturing;
    5. 3328--Coating, Engraving, Heat Treating, and Allied Activities;
    6. 3329--Other Fabricated Metal Product Manufacturing;
    7. 3371--Household and Institutional Furniture and Kitchen Cabinet 
Manufacturing;
    8. 3372--Office Furniture (including Fixtures) Manufacturing;
    9. 3391--Medical Equipment and Supplies Manufacturing;
    10. 4841--General Freight Trucking;
    11. 4889--Other Support Activities for Transportation;
    12. 4931--Warehousing and Storage;
    13. 5111--Newspaper, Periodical, Book, and Directory Publishers;
    14. 5112--Software Publishers;
    15. 5171--Wired Telecommunications Carriers;
    16. 5172--Wireless Telecommunications Carriers (except Satellite);
    17. 5179--Other Telecommunications;
    18. 5182--Data Processing, Hosting, and Related Services;
    19. 5191--Other Information Services;
    20. 5312--Offices of Real Estate Agents and Brokers;
    21. 5324--Commercial and Industrial Machinery and Equipment Rental 
and Leasing;
    22. 5411--Legal Services;
    23. 5412--Accounting, Tax Preparation, Bookkeeping, and Payroll 
Services;
    24. 5417--Scientific Research and Development Services;
    25. 5418--Advertising, Public Relations, and Related Services;
    26. 5615--Travel Arrangement and Reservation Services;
    27. 5619--Other Support Services;
    28. 5621--Waste Collection;
    29. 5622--Waste Treatment and Disposal;
    30. 6114--Business Schools and Computer and Management Training;
    31. 6115--Technical and Trade Schools;
    32. 6117--Educational Support Services;
    33. 6242--Community Food and Housing, and Emergency and Other 
Relief Services;
    34. 6243--Vocational Rehabilitation Services;
    35. 7211--Traveler Accommodation;
    36. 8112--Electronic and Precision Equipment Repair and 
Maintenance;
    37. 8129--Other Personal Services; and
    38. 8139--Business, Professional, Labor, Political, and Similar 
Organizations.
f. Examples of When Contracting Officers Can Use WOSB Program
    SBA received one comment which urged SBA to provide examples of 
when a contracting officer can apply the WOSB Program to a contract. In 
response to this request, SBA provides the following examples.
     If the requirement is assigned a six digit NAICS code 
under NAICS 5313--Activities Related to Real Estate, the contracting 
officer may not set aside the procurement under the WOSB Program 
because the contract is not for the procurement of goods or services 
with respect to an industry as one in which EDWOSBs are 
underrepresented or substantially underrepresented or WOSBs are 
substantially underrepresented with respect to Federal procurement 
contracting.
     If the requirement is assigned a six digit NAICS code 
under NAICS 8129--Other Personal Services, then, assuming all other 
requirements are met, the contracting officer may set aside the 
procurement under the WOSB Program

[[Page 62263]]

to all eligible WOSBs because the industry is one in which WOSBs are 
substantially underrepresented.
     If the requirement is assigned a six digit NAICS code 
under NAICS 5614--Business Support Services, then, assuming all other 
requirements are met, the contracting officer may set aside the 
procurement under the WOSB Program to all eligible EDWOSBs because the 
industry is one in which WOSBs are underrepresented.
    Furthermore, as required by the Small Business Regulatory 
Enforcement Act (SBREFA) (Pub. L. 110-28, section 212), SBA will 
publish a small entity compliance guide to assist small businesses with 
the WOSB Contract Program. The guide will be posted, at the time the 
rule is published, on the SBA Web site (https://www.sba.gov) and 
distributed to known industry contacts. The guide will be in easily 
understood language as to what is required to participate in the new 
program.
g. Updates to the RAND Report
    Hundreds of the comments SBA received that supported the 
identification of the 83 eligible NAICS categories also stated that the 
RAND Report data is outdated and should be updated. In particular, the 
comments suggested the creation of a regular timeline for updates to 
the RAND Report, with some comments specifically recommending updating 
the RAND Report every five years.
    Most of these comments also suggested that SBA find additional data 
sources for the disparity ratios calculated in the RAND Report and 
perform additional data analysis to the data. In particular, one 
comment stated that it ``generally supports the methodology but SBA has 
not sufficiently examined the market where several large companies are 
dominant and controlling over 95 percent of the market share in NAICS 
codes 3119, 3121 and 325412.'' The comments also suggested that SBA 
gather bid data, all data on WOSBs in Federal contracting, data from 
state governments and third-party certifiers, as well as any other data 
sources that allow for a more complete picture of availability.
    Another comment suggested that SBA include in its calculation the 
potential availability of WOSBs had there been no discrimination. The 
comments also stated that additional data will provide a ```gold 
standard' by which to judge whether our companies or programs are 
successful.'' Another comment suggested that a ``special committee'' 
should be appointed to review government purchases on an objective 
basis, without having knowledge of the demographics of the bidding 
companies' ownership.
    The CCR data used in the RAND Report are from October 2006. One of 
the cited benefits of the CCR database is that it is updated 
continuously and made available promptly. Therefore, it provides SBA 
the flexibility needed to access this data and readily update the 
eligible industries. The SBO data from the five-year Economic Census is 
from 2002. The next SBO was taken in 2007, and the results are not yet 
available.
    SBA understands the concerns presented in these comments. The data 
relied upon in the RAND Report is determinative of the resulting 
disparity ratios. Obtaining the most accurate and timely data possible 
is of paramount importance to SBA. SBA is committed to making an on-
going effort to obtain accurate and timely data to use in the 
anticipated updates to the list of eligible industries. In addition, 
SBA is considering available options in obtaining new and better data 
sources that are viable and appropriate means of measuring disparity of 
WOSBs in Federal contracting. Rather than limiting itself to a 
particular timetable for updating the eligible industries, SBA believes 
it is more prudent to update the study and list of eligible industries 
as accurate and timely data become available to SBA for analysis and 
the analysis is completed.
    SBA also received comments which stated that, in examining data 
about underrepresentation, ``fronts'' may be skewing calculations, and 
therefore, SBA should dedicate resources to site visits to ensure 
accurate calculations.
    The SBA believes that its regulations, which permit protests and 
robust eligibility examinations, will not only aid in preventing fraud, 
waste and abuse in the WOSB program, but as ``fronts'' are weeded out 
of the WOSB Program and denied contract opportunities under the program 
through the protests and eligibility examinations, the accuracy of the 
WOSB data in CCR and FPDS will improve. In addition, under SBA's 
eligibility examinations, SBA reserves the right to conduct a site 
visit without prior notification to the concern. SBA will conduct such 
examinations of WOSBs as a way to combat fraud and abuse of the WOSB 
Program.
h. Appeal Right
    SBA received several comments which suggested that businesses 
should have the right to appeal if their NAICS code was not identified 
as an eligible industry for Federal contracting under the WOSB Program.
    Section 8(m) of the Act sets forth certain criteria for the WOSB 
Program. Specifically, the Act provides that the contract being set 
aside must be for the procurement of goods or services with respect to 
an industry identified by SBA pursuant to a study. Therefore, Congress 
expressly limited application of the WOSB Program to the industries 
identified by SBA pursuant to a study.
    SBA contracted with RAND to complete a study in order to fulfill 
this statutory obligation. As explained in the proposed rule, 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. SBA had to identify a reasonable means 
for evaluating, reconciling and applying these methodologies. As 
detailed in the proposed rule, SBA determined that the methodology 
using the CCR and FPDS databases, along with both the dollars and 
numbers approaches, is a viable and appropriate means of identifying 
industries in which WOSBs are underrepresented or substantially 
underrepresented.
    Because SBA is required to identify the industries pursuant to a 
study, SBA disagrees with the comments received on this issue and will 
not implement an appeal process for the NAICS categories found 
ineligible for Federal contracting under the WOSB Program. However, SBA 
is committed to reevaluating the list of eligible industries as viable 
and appropriate data become available to analyze and SBA will provide 
for the eligibility of additional or fewer industries in accordance 
with the requirements of the congressional mandate and where indicated 
by analysis of the viable and appropriate data.
i. Agency-by-Agency Requirement
    In the proposed rule, SBA explained it was eliminating the 
requirement for an agency-by-agency determination of discrimination. 
SBA received dozens of comments which supported this proposal. SBA did 
receive a few comments that disagreed with the removal of this 
requirement because the commentators believed the RAND Report is flawed 
and therefore the agency-by-agency requirement is necessary.
    As stated in the proposed rule, SBA believes the methodology used 
to identify the 83 eligible industries is a viable and appropriate 
means of identifying industries in which WOSBs are underrepresented or 
substantially underrepresented. Based on this assessment, SBA believes 
that the RAND Report is sufficient to satisfy the

[[Page 62264]]

intermediate scrutiny standard that applies to the WOSB Program.
    The equal protection requirements of the Fifth Amendment to the 
United States Constitution establish that programs that use gender as a 
factor in distributing benefits to individuals must meet the 
intermediate scrutiny standard. This standard requires the program to 
further important governmental objectives and employ means that are 
substantially related to the achievement of those objectives. See 
United States v. Virginia, 518 U.S. 515, 533 (1996). In applying this 
standard to the WOSB Program, the government has a sufficiently 
important objective: To redress the effects of past discrimination 
against women in contracting and to ensure that the effects of that 
discrimination do not serve to limit WOSBs' opportunities to 
participate in Federal contracting opportunities. See City of Richmond 
v. Croson Co., 488 U.S. at 492; Califano v. Webster, 430 U.S. 313, 318 
(1977). More specifically, the Court has repeatedly upheld as an 
important government objective the reduction of disparities in 
condition or treatment between men and women caused by the long history 
of discrimination against women. See Califano, 430 U.S. at 317; Miss. 
Univ. for Women v. Hogan, 458 U.S. 718, 728 (1982); Schlesinger v. 
Ballard, 419 U.S. 498 (1975); Kahn v. Shevin, 416 U.S. 351 (1974).
    Moreover, the means chosen by Congress to implement the WOSB 
Program ensure that the Program is substantially related to its goals. 
Congress expressly limited application of the WOSB Program only to 
industries in which women are substantially underrepresented or 
underrepresented in contracting. The RAND Report is a detailed analysis 
of WOSBs which identifies the disparity ratio of WOSBs in Federal prime 
contracting by 4-digit NAICS code and is a sufficient basis for 
implementing the rule. The Supreme Court has rejected the contention 
that government may adopt a race-conscious contracting program only 
``to eradicate the effects of its own prior discrimination,'' and this 
conclusion also applies to gender-conscious contracting programs. 
Croson, 488 U.S. at 486.
    Accordingly, based on the comments that supported the proposed rule 
and for the reasons set forth in the proposed rule, SBA will not 
require the procuring agency to make a finding of discrimination prior 
to setting aside a contract in one of the eligible NAICS categories as 
currently required in 13 CFR 127.501(b).

B. Ownership and Control

    The SBA received several comments which were concerned with the 
ownership and control of an EDWOSB or WOSB. In the proposed rule, Sec.  
127.201 addressed ownership and states that the EDWOSB/WOSB must be 
unconditionally and directly owned at least 51 percent by women. The 
ownership could not be subject to any conditions, executory agreements, 
voting trusts, or other arrangements that cause or potentially cause 
ownership benefits to go to another. Several comments supported the 
regulation, and one comment specifically agreed that a WOSB should not 
be 51 percent owned and controlled by another business entity even if 
that business entity is owned and controlled by women. However, one 
comment recommended that SBA increase ownership by women to 67 percent, 
or at least something higher than 51 percent, because this commenter 
has witnessed husbands running companies that are 51 percent owned by 
the wife. SBA notes that the 51 percent ownership and control 
requirement is statutory and cannot be changed in the regulations. In 
addition, SBA believes that the regulations set forth sufficient 
requirements that the woman control the business, and also sufficient 
checks to ensure that only truly eligible businesses receive the 
benefits of the WOSB Program.
    Another comment agreed that there should be unconditional and 
direct ownership that is unencumbered by conditions or agreements and 
believed that if there are instances of a pledge or encumbrance of 
stock, SBA should ensure such pledges or encumbrances follow normal 
commercial practices. The final regulation specifically explains that 
the ownership must be direct (13 CFR 127.201). Further, the final 
regulation explains that the pledge or encumbrance of stock or other 
ownership interest as collateral does not affect the unconditional 
nature of the ownership if the terms of the agreement follow normal 
commercial practices and the owner retains control absent violations of 
the terms. SBA believes this Final Rule provides flexibility to the 
WOSB while at the same time ensuring that the business is owned and 
controlled by women.
    The proposed regulation also addressed unexercised stock options 
with respect to ownership of a corporation. One comment agreed with the 
proposed regulation that any unexercised stock options held by a woman 
will be disregarded while the unexercised stock options held by any 
other individual or entity will be treated as having been exercised. 
SBA notes that this final regulation is consistent with SBA's other 
contracting program regulations addressing the treatment of unexercised 
stock options.
    One comment recommended that SBA establish a minimum amount of time 
that the business has to be owned by women in order to be eligible for 
the WOSB Program and another comment questioned why SBA does not 
require the WOSB to have a minimum amount of experience. SBA does not 
believe these requirements are necessary in light of the fact they are 
not required by statute and could be detrimental to start[dash]up 
companies. In addition, imposing these requirements may only perpetuate 
discriminatory barriers. Further, there are many industries and 
contracts in which age and size are irrelevant to ability to perform.
    The SBA also received several comments which supported the portion 
of the proposed rule which addressed control of the EDWOSB/WOSB. 
Specifically, Sec.  127.202 of the Final Rule explains that the 
management and daily business operations of the concern must be 
controlled by one or more women. At least two comments supported the 
requirement that one or more women must make the long term decisions 
and have the day-to-day management of the company to ensure that the 
spouse or another person is not really running the company.
    One comment also supported the proposed rule that the women owners 
cannot have outside employment if it prevents them from devoting 
sufficient time and attention to the daily operations and management of 
the company. However, one comment believed that the rule was too 
stringent concerning the limitation on outside employment. According to 
this comment, many small business owners have two jobs in the first few 
years of starting a company and it may take years for the business to 
grow. The comment stated that this requirement is not consistent with 
the Service-Disabled Veteran-Owned Small Business, HUBZone or 8(a) 
Business Development (BD) Programs.
    The final regulation states that the woman who holds the highest 
officer position of the concern must manage it on a full-time basis and 
devote full-time to the business concern during the normal working 
hours of business concerns in the same or similar line of business. The 
final regulation also states that the woman who holds the highest 
officer position may not engage in outside employment that prevents her 
from devoting sufficient time and attention to the daily affairs of the

[[Page 62265]]

concern to control its management and daily business operations. 
Therefore, the final regulation does not necessarily limit outside 
employment. It permits outside employment as long as it does not 
prevent the business owner from managing the EDWOSB or WOSB. Although 
such limitations may not be expressly set forth in the SDVO or 8(a) BD 
regulations, the same policy is applied to those programs because 
essentially, if an individual upon whom eligibility is based is 
devoting full-time to one business, it is difficult to prove that same 
individual is devoting full-time to the SDVO or 8(a) business and 
meeting the eligibility criteria for those programs.
    One comment noted that it supported the rule that the women 
business owners do not necessarily have to have the technical expertise 
or possess the required license while another comment requested that 
SBA reconsider this regulation and preclude ``nonprofessionals'' or 
unlicensed individuals from owning professional businesses. Another 
comment believed that SBA should have more stringent rules to ensure 
WOSBs are actually 51 percent owned by women that are active in the 
daily management of the business.
    The Final Rule provides that although the women manager need not 
have the technical expertise or license required, she must nonetheless 
demonstrate that she has the ultimate managerial and supervisory 
control over those possessing the required licenses or technical 
expertise. This is consistent with the 8(a) BD regulations concerning 
control and SBA believes it provides flexibility to the company while 
still ensuring that the woman controls the company. In addition, SBA 
will be monitoring EDWOSBs and WOSBs via eligibility examinations and 
protests and appeals to ensure that the women owners are actively 
engaged in the daily management of the business.

C. Economic Disadvantage

    As discussed above, the statute states that a contracting officer 
may set aside a requirement for EDWOSBs in industries that are 
underrepresented or substantially underrepresented. SBA may waive the 
requirement that the WOSB be economically disadvantaged and permit a 
contracting officer to set aside a requirement for WOSBs in industries 
that are substantially underrepresented. The Final Rule implements 
these statutory provisions and sets forth the criteria for determining 
economic disadvantage.
    One comment specifically supported the waiver of the economic 
disadvantage requirement if the industry is substantially 
underrepresented. However, SBA received several comments which opposed 
any economic disadvantage component to the WOSB Program and one comment 
specifically opposed any preference provided to EDWOSBs. Some comments 
noted that there were no similar economic disadvantage requirements for 
the HUBZone or SDVO Programs and one comment stated that if there are 
economic disadvantage requirements, then those meeting the requirements 
should receive the same benefits afforded to 8(a) BD Program 
Participants. SBA also received some comments which requested the 
removal of the distinction between substantially underrepresented and 
underrepresented industries.
    Although SBA understands the concerns expressed by these comments, 
the agency is bound by the requirements set forth in the statute for 
the WOSB Program. As such, SBA cannot eliminate the economic 
disadvantage component of the WOSB Program or afford WOSBs or EDWOSBs 
the same benefits afforded 8(a) BD Program Participants since the 
statute provides different benefits for each program. For the same 
reason, it cannot eliminate the distinction between substantially 
underrepresented and underrepresented industries.
    However, upon further review, SBA agrees that there should not be a 
priority for EDWOSBs for contracts assigned a NAICS code in an industry 
that has SBA determined is substantially underrepresented. The Small 
Business Act provides the Administrator authority to waive the economic 
disadvantage requirement in industries where women are substantially 
underrepresented. 15 U.S.C. 637(m)(3). With these regulations, the 
Administrator is waiving this requirement in those industries. 
Therefore, in industries where WOSBs are substantially 
underrepresented, as identified in this rule, the contracting officer 
may set aside the requirement for WOSBs without first determining 
whether the rule of two for EDWOSBs can be met. The regulation has been 
amended accordingly. We note that because an EDWOSB is by definition a 
WOSB, EDWOSBs can obviously submit offers for a procurement set-aside 
for WOSBs.
    The SBA also received over 160 comments addressing the specific 
economic disadvantage criteria set forth in the proposed rule in Sec.  
127.203. One comment believed that the proposed rule was inconsistent 
with the regulations concerning economic disadvantage in the 8(a) BD 
Program while another comment expressed concern with using the 8(a) BD 
criteria because they are two different programs and it is not clear 
there are sufficient WOSBs in the 8(a) BD Program to support use of the 
same economic disadvantage criteria.
    Along those same lines, one comment supported SBA's efforts to 
simplify the economic disadvantage analysis while another comment 
recommended that SBA simplify the economic disadvantage criteria 
further by simply stating that a woman is economically disadvantaged if 
the fair market value of all her assets is less than $6 million, 
excluding her retirement, any loans to her company and any inheritance. 
Some comments opposed any requirements concerning total assets when 
determining economic disadvantage.
    In the proposed rule, SBA explained that when drafting the WOSB 
Program rule, it relied on certain interpretations and policies that 
have been followed by SBA with respect to the 8(a) BD Program that SBA 
believes should be applied to the WOSB Program as well. This included 
certain interpretations and policies SBA had set forth in a rule 
proposing to amend the 8(a) BD regulations, 74 FR 55694 (Oct. 28, 
2009), that SBA withdrew on March 4, 2010. SBA believes that the 8(a) 
BD Program has decades of experience in reviewing cases based on 
economic disadvantage and has created a body of law and policy that 
encompasses this experience. SBA believes it would be fair and prudent 
to use this experience and body of law when determining economic 
disadvantage for the WOSB Program.
    The SBA's experience with the 8(a) BD Program is that it must 
review income, personal net worth and the fair market value of the 
total assets of the woman because any other test would not demonstrate 
economic disadvantage. For example, it could be that a woman with low 
net worth has a large income or large assets, which should be pertinent 
to a claim of economic disadvantage. Therefore, SBA has not changed the 
proposed rule in this respect and continues to follow the policy and 
regulations for economic disadvantage for the 8(a) BD Program.
    One comment stated that failure to get a line of credit should be 
an indicator of economic disadvantage. SBA agrees and believes that the 
objective criteria set forth in the rule are indicators of economic 
disadvantage and demonstrate that a woman's ability to compete in the 
free enterprise system has been impaired due to diminished capital and 
credit opportunities as compared to others in the same or similar line 
of

[[Page 62266]]

business. This means that failure to get a line of credit because the 
business is owned by a woman, while male owned businesses can readily 
obtain such credit, is encompassed in the objective criteria set forth 
in the rule.
    Numerous comments stated that the overall economic disadvantage 
figures are too low and should be updated for inflation, adjusted per 
the Consumer Price Index, or adjusted for geographical reasons. Other 
comments noted that business owners must have a certain amount of 
assets to obtain bonding and show stability of the company. For these 
reasons, the comments stated that it would be difficult to meet the 
personal net worth or income requirements set forth in the proposed 
rule.
    SBA also received a few comments which stated that it should use 
specific guidelines based on median regional incomes like Internal 
Revenue Service Publication 1542 (publicly available at https://www.irs.gov/formspubs), which details per diem rates based on local 
expense averages, peg location and inflation. SBA received numerous 
comments which argued that it should not use a two year adjusted gross 
income when determining economic disadvantage because it is unfair to S 
corporations, sole proprietorships, and partnerships which are 
corporate structures used by a vast majority of small businesses and it 
would be more reliable to use the personal net worth guidelines set by 
the U.S. Department of Transportation, (publicly available at https://osdbuweb.dot.gov/DBEProgram), as long as the threshold was increased, 
and personal residences, retained earnings, and retirement assets are 
excluded.
    Similarly, several comments opposed the $200,000 income cap because 
it limits a woman's ability to secure financing (line of credit) and 
bonding. Several comments believed that the salary should vary 
depending on the type of business and location of the firm. One comment 
noted that SBA should consider specifically what $200,000 means to 
other industries and consider other factors. Another comment 
recommended the income be raised to $400,000.
    SBA notes that when determining what dollar thresholds to propose, 
it sought to create an objective standard by which a woman may or may 
not qualify as economically disadvantaged and reviewed information 
available as it relates to the 8(a) BD Program. The SBA believed that a 
straight line numerical figure would be more understandable, easier to 
implement, and avoid any appearance of unfair treatment.
    When determining the threshold for fair market value of total 
assets, SBA reviewed SBA Office of Hearings and Appeals (OHA) decisions 
on the matter. For example, OHA upheld as reasonable a determination 
that an individual was not economically disadvantaged with total asset 
levels of $4.1 million and $4.6 million. See Matter of Pride 
Technologies, SBA No. 557 (1996), and SRS Technologies v. U.S., 843 F. 
Supp. 740 (D.D.C. 1994). Alternatively, and again with respect to the 
8(a) BD Program, SBA's finding that an individual was not economically 
disadvantaged with total assets of $1.26 million was overturned. See 
Matter of Tower Communications, SBA No. 587 (1997).
    Upon further review, however, SBA agrees that the thresholds for 
fair market value of the total assets are too low and therefore in the 
Final Rule, states that an individual will not be considered 
economically disadvantaged if the fair market value of all her assets 
(with no reduction for the dollar amount of any liens or mortgages that 
may exist against such assets) exceeds $6 million. Unlike the net worth 
analysis, SBA does not exclude the value of the business concern in 
determining economic disadvantage in the total asset analysis, nor does 
SBA exclude the fair market value of the primary residence. Therefore, 
SBA believes it would be reasonable to increase that threshold.
    In addition, SBA agrees with the comments and believes that the 
threshold set forth in the proposed rule for income should be 
increased. SBA had proposed to provide that it would presume that a 
woman is not economically disadvantaged if her yearly income averaged 
over the past three years exceeds $200,000. SBA proposed an income 
level of $200,000 because that figure closely approximates the income 
level corresponding to the top two percent of all wage earners, which 
has been upheld as a reasonable indicator of a lack of economic 
disadvantage. SBA believed that to some, the $200,000 income would seem 
unduly high as a benchmark, but noted that exceeding this amount is 
being used only to presume, without more information, that the woman is 
not economically disadvantaged.
    In all cases, SBA's determination of economic disadvantage is based 
on the totality of the circumstances, not merely income. Nonetheless, 
income is a relevant factor, and those whose income is above a certain 
threshold should not, in most circumstances, be considered to be 
economically disadvantaged.
    Since the time SBA issued the proposed rule, the IRS has issued 
statistical data on U.S. wage earners that show that the vast majority 
of individuals have an adjusted gross income of less than $350,000 and 
that the top 2% of wage earners had an adjusted gross income of 
$261,000 or more. SBA believes it would be reasonable to raise the 
threshold to this $350,000 amount to align it with the new IRS 
statistical data. Further, increasing the personal income threshold to 
$350,000 will accomplish two important goals. First, it will allow the 
EDWOSB to attract and retain higher skilled employees, since the woman 
owners/manager must be the highest compensated individual in the 
business concern. Second, many EDWOSBs will be actual or potential 
participants in the SBA's 8(a) Business Development Program as well as 
Department of Transpo