Introduction

The Small Business Administration's (SBA's) Women-Owned Small Business (WOSB) contract program is one of several programs authorized to provide greater opportunities for small businesses to win federal contracts. Congress's interest in promoting small business contracting with federal agencies dates back to World War II, when there were concerns that small businesses were being threatened by war-induced shortages of materials and had difficulty obtaining defense contracts or financial assistance.¹

In 1953, Congress passed the Small Business Act (P.L. 83-163), authorizing the SBA. The Small Business Act specifies that it is Congress's declared policy to promote the interests of small businesses as a means to "preserve free competitive enterprise"² and indicated that one way to accomplish this was to award a "fair proportion" of federal contracts and subcontracts to small businesses.³ Since then, Congress has imposed requirements on the federal procurement process to help small businesses participate in federal contracts. This has been accomplished primarily through annual small business procurement goals and various contracting preferences for small businesses—including contract set-asides and sole-source awards for WOSBs.⁴ Following WOSB advocacy efforts, Congress enacted the Federal Acquisition Streamlining Act of 1994 (FASA; P.L. 103-355), requiring the federal government to award at least 5% of prime contract and 5% of subcontract⁵ dollars to WOSBs each fiscal year.⁶ Agencies were later granted the authority to set aside contracts for and make sole-source awards to qualified WOSBs in order to reach the annual procurement goal.⁷

The WOSB program allows federal contracting officers to

• set aside acquisitions exceeding the micro-purchase threshold (currently $10,000) for bidding by WOSBs in industries in which WOSBs are substantially underrepresented and
• set aside contracts for bidding by economically disadvantaged WOSBs (EDWOSBs) in industries in which WOSBs are underrepresented.

This report reviews the origins and evolutions of the WOSB program. While the program was formally authorized by the Small Business Reauthorization Act of 2000 (H.R. 5654) and incorporated by reference in the Consolidated Appropriations Act, 2001 (P.L. 106-554),⁸ the program's foundations were laid by stakeholder advocacy and executive action in the 1970s. After congressional authorization, the program faced implementation delays, which were closely followed by legislated program modifications. The federal government has met the 5% procurement goal for WOSBs twice—in FY2015 and FY2019—since the WOSB procurement goal was established in 1994 and implemented in FY1996.

WOSB federal contract award data suggest that federal procurement officers are using the WOSB program more often than in the past, but the amount of dollars awarded using WOSB preferences accounts for a relatively small portion of contracts awarded to WOSBs. Most of the contracts awarded to WOSBs are awarded in full and open competition with other firms or with another small business preference, such as an 8(a) Business Development or Historically Underutilized Business Zone (HUBZone) program preference. Relatively few federal contracts are awarded through the WOSB program.

The WOSB Program's Origins and Evolution

Since 1978, federal agency heads have been required to establish contracting goals, in consultation with the SBA, that "realistically reflect the potential of small business concerns and small business concerns owned and controlled by socially and economically disadvantaged individuals" to participate in procurement. Each agency is required, at the conclusion of every fiscal year, to report its progress in meeting prime contract and subcontract award goals to the SBA. These reports are submitted to Congress and are made available to the public on the General Services Administration's (GSA's) website. Initially, WOSB goals were not included in these requirements.⁹

On May 18, 1979, President Carter issued Executive Order 12138, which established a national policy to promote women-owned business enterprises.¹⁰ Among other provisions, the executive order required federal agencies "to take appropriate affirmative action in support of women's business enterprise," including promoting procurement opportunities and providing financial assistance and business-related management and training assistance.¹¹

Under authority provided by Executive Order 12138, the SBA added WOSB procurement goals to the list of small business contracting goals it negotiated with federal agencies. At that time, WOSBs received about 0.2% of all federal contracts.¹² By 1988, this percentage had grown, but to only 1% of all federal contracts.¹³

WOSB advocates argued that additional action was needed to help WOSBs win federal contracts because women-owned businesses were subject to "age-old prejudice, discrimination, and exploitation," the "promotion of women's business enterprise is simply not a high priority" for federal agencies, and federal "agency efforts in support of women's business enterprise have been weak and have produced little, if any measurable results."¹⁴ Advocacy efforts led to P.L. 100-533, the Women's Business Ownership Act of 1988.

P.L. 100-533 provided the SBA with statutory authorization to establish WOSB annual procurement goals with federal agencies.¹⁵ While the law did not create a WOSB contracting goal, advocates argued that women received "a mere 1.3% of federal contracting dollars ... in FY1990" despite owning approximately one-third of the nation's businesses at that time.¹⁶ Advocacy efforts led to the enactment of FASA (P.L. 103-355), which established the annual, government-wide WOSB procurement goals of 5% of prime award and 5% of subcontract award dollars.¹⁷

Members of Congress indicated in FASA's conference agreement that they did "not intend to create a new set aside or program of restricted competition for a specific designated group, but rather to establish a target that will result in greater opportunities for women to compete for federal contracts."¹⁸ They added that "given the slow progress to date in reaching the current award levels, the conferees recognize that this goal may take some time to be reached."¹⁹

WOSB Set-Aside Authority

FASA conferees' prediction that it may take time to reach the 5% goal was confirmed. The amount and percentage of federal contracts awarded to WOSBs increased slowly following the establishment of the 5% goal. Frustrated by the relatively slow progress, WOSB advocates began to lobby for additional actions, including agency authority to set aside contracts for WOSBs.²⁰ Advocates noted that other small businesses benefited from contracting preferences such as set-asides. For example, at that time, small disadvantaged businesses (SDBs)²¹ as well as participants in the SBA's 8(a) Business Development program were eligible for both set-asides and sole-source awards, and HUBZone small businesses were (and still are) eligible for contract set-asides, sole-source awards, and a price evaluation adjustment.²²

As a first step toward the enactment of WOSB set-aside authority, P.L. 106-165, the Women's Business Centers Sustainability Act of 1999, required the Government Accountability Office (GAO) to review the federal government's efforts to meet the 5% goal for WOSBs and to identify any measures that could improve the federal government's performance in increasing WOSB contracting opportunities. GAO issued its report on February 16, 2001, noting that

[a]mong the government contracting officials with whom we spoke, there was general agreement on several suggestions for improving the environment for contracting with WOSBs and increasing federal contracting with WOSBs. They suggested creating a contract program targeting WOSBs, focusing and coordinating federal agencies' WOSB outreach activities, promoting contracting with WOSBs through agency incentive and recognition programs, including WOSBs in agency mentor-protégé programs, providing more information to WOSBs about participation in teaming arrangements, and providing expanded contract financing.²³

By the time the GAO report was published, legislation had been enacted (P.L. 106-554) to authorize WOSB set-asides. Federal contracting officers may set aside contracts for WOSBs (including EDWOSBs) exclusively in industries in which WOSBs are substantially underrepresented and may set aside contracts for EDWOSBs exclusively in industries in which WOSBs are underrepresented.²⁴

The Consolidated Appropriations Act, 2001 (P.L. 106-554) also specified that federal contracting officers could not set aside contracts for WOSBs or EDWOSBs unless the anticipated award price of the contract (including options) would not exceed $5 million for manufacturing contracts and $3 million for all other contracts. In 2011, the set-aside award caps were increased to $6.5 million for manufacturing contracts and $4 million for all other contracts to account for inflation.²⁵ In 2013, P.L. 112-239, the National Defense Authorization Act for Fiscal Year 2013, removed the set-aside award value caps.²⁶

WOSB Sole-Source Award Authority

The authority to make sole-source awards to WOSB was not enacted until 2014. The Carl Levin and Howard P. "Buck" McKeon National Defense Authorization Act for Fiscal Year 2015 (NDAA 2015; P.L. 113-291) provided federal agencies with authority to award sole-source²⁷ contracts to WOSBs (including EDWOSBs) if

• the contract is assigned a North American Industry Classification System (NAICS) code²⁸ in which the SBA has determined that WOSBs are substantially underrepresented in federal procurement;
• the contracting officer does not have a reasonable expectation that offers would be received from two or more WOSBs (including EDWOSBs);²⁹ and
• the anticipated total value of the contract, including any options, does not exceed $7 million for manufacturing contracts and $4.5 million for other federal contracts.³⁰

NDAA 2015 also gave federal agencies authority to award sole-source contracts exclusively to EDWOSBs if

• the contract is assigned a NAICS code in which the SBA has determined that WOSB concerns are underrepresented in federal procurement;
• the contracting officer does not have a reasonable expectation that offers would be received from two or more EDWOSB concerns; and
• the anticipated total value of the contract, including any options, does not exceed $7 million for manufacturing contracts and $4.5 million for other federal contracts.³¹

Expansion of the WOSB program to include sole-source awards along with WOSB set-asides was meant to help federal agencies award at least 5% of federal contracting dollars to WOSBs. The SBA published a final rule implementing the WOSB program expansion on September 14, 2015 (effective October 14, 2015).³²

The 10-Year Program Implementation Delay

After the WOSB program was authorized, the SBA took nearly 10 years to issue a final rule for the program and put the program into effect four months after that.³³ The SBA attributed the delay primarily to its difficulty in identifying an appropriate methodology to determine "the industries in which WOSBs are underrepresented with respect to federal procurement contracting."³⁴

The SBA completed a draft of the legislatively mandated study of NAICS industrial codes in which WOSBs are underrepresented (and, by inference, substantially underrepresented) in September 2001, using internal resources.³⁵ The SBA then submitted proposed regulations to implement the WOSB program to the Office of Management and Budget (OMB).³⁶ However, the SBA withdrew the regulations on April 24, 2002, before the review was complete "because the SBA Administrator had concerns about the content and constitutionality of its draft industry study and believed that it needed to contract with the National Academy of Science[s] (NAS) to review the draft industry study and recommend any changes the NAS believed were necessary."³⁷ The SBA awarded a contract to NAS in late 2003 to conduct the study.

NAS completed its analysis and issued a report on the SBA's study on March 11, 2005. The report indicated that the SBA asked NAS to conduct the review "because of the history of legal challenges to race- and gender-conscious contracting programs at the federal and local levels."³⁸

NAS concluded that the SBA's study was "problematic in several respects, including that the documentation of data sources and estimation methods is inadequate for evaluation purposes." NAS made several recommendations for a new study, including that the SBA use more current data, different industry classifications, and consistent monetary and numeric utilization measures to provide more complete documentation of data and methods.³⁹ The SBA later characterized NAS's analysis as indicating that the SBA study was "fatally flawed."⁴⁰ In response to that finding, the SBA issued a solicitation in October 2005 seeking a private contractor to perform a revised study. In February 2006, a contract was awarded to the Kaufman-RAND Institute for Entrepreneurship Public Policy (RAND). The RAND study was published in April 2007.⁴¹

The RAND report noted that underrepresentation is typically referred to as a disparity ratio, a measure comparing contracting of WOSBs in a particular NAICS code to their availability for such contracts. A disparity of 1.0 suggests that firms of a particular type are awarded contracts in the same proportion as their representation in that industry (there is no disparity). A disparity ratio less than 1.0 suggests that the firms are underrepresented in federal contracting in that NAICS code. A ratio greater than 1.0 suggests that the firms are overrepresented.⁴²

RAND identified 28 different approaches to determine underrepresentation and substantial underrepresentation of WOSBs in federal procurement, each of which yielded a different result. After examining each approach's benefits and deficiencies, the SBA determined that underrepresentation existed in industries with a disparity ratio⁴³ between 0.5 and 0.8, and that substantial underrepresentation existed in industries with a disparity ratio between 0.0 and 0.5.⁴⁴

The SBA identified 83 four-digit NAICS industry groups in its final rule implementing the WOSB program (October 7, 2010; effective February 4, 2011):

• 45 four-digit NAICS industry groups in which WOSBs were underrepresented, which became eligible for EDWOSB set-asides, and
• 38 four-digit NAICS industry groups in which WOSBs were substantially underrepresented, which became eligible for WOSB (including EDWOSB) set-asides).⁴⁵

Mandated Updates to Eligible Industries

After the identification of eligible industries allowed the program to go into effect in 2011, Congress passed legislation in 2014 that required the SBA to update the list of underrepresented and substantially underrepresented NAICS codes by January 2, 2016, and then conduct a new study and update the NAICS codes every five years thereafter.⁴⁶ The SBA asked the Department of Commerce's Office of the Chief Economist (OCE) for assistance in conducting a new study.

The OCE examined the odds of women-owned businesses winning a federal prime contract relative to otherwise similar firms in FY2013 and FY2014 by industry group, controlling for the firm's size and age, legal form of organization, level of government security clearance, past federal prime contracting performance ratings, and membership in various categories of firms having federal government-wide procurement goals. OCE found that women-owned businesses were less likely to win federal contracts in 254 of the 304 industry groups in the study, and women-owned businesses in 109 of the 304 industry groups had statistically significantly lower odds of winning federal contracts than otherwise similar businesses not owned by women, at the 95% confidence level.⁴⁷

On the basis of the OCE study, the SBA increased the number of underrepresented and substantially underrepresented four-digit NAICS codes from 83 to 113, effective March 3, 2016.⁴⁸

Because OMB updates the NAICS every five years, WOSB program eligibility may be affected not just by SBA industry studies but by changes to the NAICS codes themselves. In response to OMB's release of NAICS 2017, which replaced NAICS 2012, the SBA reduced the number of underrepresented and substantially underrepresented four-digit NAICS codes from 113 to 112, effective October 1, 2017.⁴⁹

In FY2020, the SBA contracted with an independent research firm to reassess the underrepresentation of WOSBs.⁵⁰ The firm used a methodology based on disparity ratios, similar to that developed by RAND that was issued in 2007. On the basis of this study, the SBA announced that, as of March 18, 2022,

• WOSBs are substantially underrepresented in 646 six-digit⁵¹ NAICS industry codes (out of 1,023), meaning that federal contracting officers may award set-aside and sole-source contracts to WOSBs (including EDWOSBs) in these 646 industries, and
• WOSBs are underrepresented in 113 six-digit NAICS industry codes (out of 1,023), meaning that federal contracting officers may award set-aside and sole-source contracts exclusively to EDWOSBs in these 113 industries.⁵²

The SBA indicated that through the update, it increased the number of eligible industries by 71%. EDWOSBs became eligible for contracting preferences in 74% of NAICS industries and WOSBs in 63% of them.⁵³ Because the list of eligible industries expanded, the potential number of small women-owned businesses eligible for the program grew.

Evolution of WOSB Program Eligibility

The Consolidated Appropriations Act, 2001 (P.L. 106-554) specified WOSB program eligibility requirements. In addition, the SBA had to develop criteria to define an EDWOSB because the act did not define economic disadvantage.

To participate in the program, the act specified that WOSBs must

• be a small business (as defined by the SBA);
• be at least 51% unconditionally and directly owned and controlled by one or more women who are U.S. citizens;⁵⁴
• have women managing day-to-day operations and making long-term decisions; and
• be certified by a federal agency, a state government, the SBA, or a national certifying entity approved by the SBA or self-certify their eligibility to the federal contracting officer with adequate documentation according to standards established by the SBA.

EDWOSBs must meet all WOSB program requirements and be economically disadvantaged, which, as presently defined by the SBA,⁵⁵ means that they must be

• owned and controlled by one or more women, each with a personal net worth less than $850,000, excluding ownership interest in the concern and equity interest in a primary personal residence;
• owned and controlled by one or more women, each with $400,000 or less in adjusted gross income averaged over the previous three years; and
• owned and controlled by one or more women, each with $6.5 million or less in all assets, excluding assets invested in a qualified IRA or other official retirement account.

The SBA defined economic disadvantage using its experience with the 8(a) program⁵⁶ as a guide (i.e., reviewing the owner's income, personal net worth, and the fair market value of her total assets).⁵⁷

Elimination of Self-Certification

P.L. 113-291, the NDAA 2015, enacted on December 19, 2014, prohibited small businesses from self-certifying WOSB program eligibility as they previously had done.⁵⁸ WOSBs and EDWOSBs had to be either self-certified or third-party certified to participate in the WOSB program until the SBA certification system was established.⁵⁹ NDAA 2015 eliminated self-certifications as a means to ensure that the program's contracts are awarded only to intended, eligible program recipients.⁶⁰

The SBA announced in the Federal Register that it would implement its own certification process for the WOSB program and remove the ability of small businesses to self-certify their eligibility for the WOSB program on October 15, 2020.⁶¹

Under current program requirements, WOSBs and EDWOSBs must apply for certification in order to be eligible for contracting preferences. Firms may either use the SBA's online certification platform, WOSB.Certify.sba.gov, or apply through one of the four certifying organizations known as third-party certifiers.⁶² According to the SBA, it makes a firm certification decision within 90 calendar days after receipt of a complete package, "whenever practicable."⁶³

As of May 30, 2023, certified WOSB and EDWOSB firms are required to undergo an examination every three years to maintain their certification.⁶⁴ WOSBs that do not certify their status remain eligible for contract awards outside of the WOSB program (without contracting preferences), and agencies are permitted to count those awards toward their WOSB procurement goal.⁶⁵

WOSB Program Development and Revision Timeline

The chronology of the WOSB program provided in Table 1 summarizes the legislative and executive actions taken to create and modify the program.

A Targeted Approach to Avoid Legal Challenges

Congressional efforts to promote WOSB set-asides were complicated by Supreme Court decisions regarding contracting preferences for minority contractors. In one case, City of Richmond v. J.A. Croson Co. (1989), the Court found unconstitutional a municipal ordinance that required the city's prime contractors to award at least 30% of the value of each contract to minority subcontractors. In a later case, Adarand Constructors, Inc. v. Peña (1995), the Court found that all racial classifications, whether imposed by federal, state, or local authorities, are subject to "strict scrutiny." Strict scrutiny is a standard of judicial review that requires the government to prove it has a compelling interest for its actions and that it has "narrowly tailored" them to the problem at hand.⁶⁶ Following the Adarand decision, the federal government reexamined how it implemented certain procurement preference programs.⁶⁷

When developing the WOSB set-aside program, its designers were aware that the program could be subject to a heightened standard of judicial review given the Supreme Court's rulings. In the House report accompanying H.R. 4897, the Equity in Contracting for Women Act of 2000 (incorporated into H.R. 5654, the Small Business Reauthorization Act of 2000), some WOSB advocates argued that a set-aside program was needed because of the lack of progress in meeting the 5% procurement goal for WOSBs and that the program offered a narrowly tailored solution because it limited WOSB set-asides to industries in which WOSBs are underrepresented in obtaining federal contracts.⁶⁸

Program Outcomes

The federal government has had difficulty meeting its WOSB procurement goals. The 5% prime contracting goal was achieved in two fiscal years (FY2015 and FY2019) since its creation, although the subcontracting goal has been met in each of the last five fiscal years (see Table 2).⁶⁹ In contrast, the government has typically met prime contracting goals for small businesses in general, for SDBs, and for service-disabled veteran-owned small businesses. Table 2 shows the shares of prime and subcontract dollars awarded to WOSBs for the past five fiscal years.

Figure 1 shows the share of prime contract dollars awarded to WOSBs since FY1995, the year prior to the implementation of the WOSB procurement goals. The figure shows a gradual increase in the share of WOSB award dollars over time, from less than 2% to nearer the 5% goal.

Figure 1. Percentage of Contract Dollars Awarded to WOSBs FY1995 to FY2023

Sources: SBA, "Government-wide Small Business Procurement Scorecard [FY2019-FY2023]," at https://www.sba.gov/document/support-small-business-procurement-scorecard-overview; U.S. General Services Administration (GSA), "Data Bank: Small Business Goaling Report [FY2005-FY2018]" at https://sam.gov/reports/awards/static; U.S. Congress, House Committee on Small Business, Subcommittee on Regulatory Reform and Oversight, SBA's Procurement Assistance Programs, hearing, 109th Cong., 2nd sess., March 30, 2006, serial no. 109-45 (Washington, DC: GPO, 2006), p. 31 [FY2001-FY2004]; U.S. Congress, House Committee on Small Business, Subcommittee on Contracting and Technology, Subcommittee Hearing on Federal Government Efforts in Contracting with Women-Owned Businesses, hearing, 110th Cong., 1st sess., March 21, 2007, serial no. 110-9 (Washington, DC: GPO, 2007), pp. 4, 46 [FY2000]; White House, The State of Small Business: A Report of the President [1996-2000]. Notes: Percentages reflect the WOSB share of "small business eligible" contracts. The red line indicates the award goal.

Although contracting preferences such as set-asides provide a tool for agencies seeking to award contracts to qualified WOSBs, awards made through WOSB-specific preferences constitute a relatively small share of WOSB awards. Table 3 shows that larger shares of WOSB awards were made through a general small business preference or in open, unrestricted competition. Some contracts awarded to WOSBs may also be made through a different kind of contracting preference (e.g., an SDB preference or a service-disabled veteran-owned small business preference), though data limitations prevent presentation of that information in the table. In previous years, GAO found that "[s]et-asides under the WOSB program to date have had a minimal effect on overall contracting obligations to WOSBs and attainment of WOSB contracting goals."⁷⁰

Larger agencies typically fund more contracts and award more dollars to WOSBs than other agencies do. The Department of Defense, Department of Health and Human Services, and Department of Homeland Security were the top three WOSB prime contract award agencies in terms of dollars awarded in FY2023. They were not the top agencies in terms of the percentage of prime contract dollars awarded to WOSBs. The Department of Agriculture awarded both a relatively large amount of dollars and a relatively high percentage of contract dollars to WOSBs. Table 4 shows the 10 agencies that awarded the most prime contract dollars to WOSBs in FY2023.

According to GAO, the same agencies have collectively awarded the most contracts to WOSBs for several years. GAO found that from the third quarter of FY2011 through the third quarter of FY2018, six federal agencies accounted for nearly 83% of the contract amount awarded under the WOSB program: Department of Defense (48.6%), Department of Homeland Security (12.4%), Department of Commerce (8.0%), Department of Agriculture (6.3%), Department of Health and Human Services (4.0%), and GSA (4.0%). All other federal agencies accounted for 16.8%.⁷¹

To gain insight into WOSB program use across agencies and barriers faced by contracting officers when making WOSB contract awards, Congress may be interested in qualitative assessments of contracting officer understanding and comfort with the WOSB program. Congress may also be interested in assessments of program outcomes beyond goal attainment and program utilization, such as the number of WOSB entrants into the federal market and the extent to which WOSBs become successful contractors and subcontractors.

Concluding Observations

The WOSB program is one of several contracting programs that Congress has approved to provide greater opportunities for small businesses to win federal contracts. Its legislative history is relatively complicated when compared to most other contracting programs, primarily due to the industry-based eligibility criteria and the distinction between WOSBs and EDWOSBs. These program features, and the SBA's difficulty in defining them, led to program implementation delays and may also help explain the government's ongoing struggle to reach the statutory WOSB procurement goal for prime contract awards.

While industry-specific eligibility criteria were designed to protect the WOSB program from legal challenges, the details and complexity of these criteria, and the mandated updates to them, may discourage both agency and firm participation in the program. The implementation of the SBA WOSB certification process could assist contracting officers in identifying eligible WOSBs and thus increase agency program utilization—WOSBs may have historically received a small proportion of prime contracting dollars through WOSB preferences because agencies were concerned about granting preferences to ineligible, albeit self-certified, firms. However, certification requirements could also hinder eligible firms from seeking certification, which would reduce firms' program utilization; agencies may then continue to make WOSB awards at levels beneath the WOSB procurement goal.

Some WOSB advocates have suggested that the WOSB program should be amended to (1) eliminate the distinction and disparate treatment of WOSBs and EDWOSBs and/or (2) allow set-asides and sole-source awards to WOSBs (including EDWOSBs) in all NAICS industry codes regardless of WOSB representation, as is the case for other small business preference programs.⁷² Both legislative options could lead to an increase in the amount of contracts awarded to WOSBs. In the first instance, WOSBs in both underrepresented and substantially underrepresented NAICS codes would be eligible for set-asides and sole-source awards, instead of just those in substantially underrepresented NAICS codes. In the latter instance, WOSBs and EDWOSBs would be eligible for set-asides and sole-source awards in all NAICS codes. However, either program change could raise the prospect of legal challenges.

While Congress may be interested in how agencies can make progress toward WOSB procurement goals, it may also consider whether the WOSB goal and program still reflect the aims of the government as a buyer. The government is not currently pursuing a WOSB goal that corresponds to the share of women-owned firms, which is higher than 5%.⁷³ It is also not pursuing a goal related to WOSB underrepresentation among contractors. Congress may be interested in authoritative studies on policies oriented toward, for example, increasing WOSB market share in industries in which WOSBs are underrepresented or in which WOSBs face discrimination by buyers, including federal agencies. Some scholars have concluded that "in terms of broad policy intent and intended outcomes not much has changed since 1988."⁷⁴