Women-owned businesses: It requires more than being women-owned

Editor’s Note: Deana A. Labriola is a member of the Business and Technology Practice Groups of Ward and Smith, P.A.

For years, the federal government, several state and local governments, and a number of large companies have offered programs under which certain prime contracting and subcontracting opportunities are set aside for award to disadvantaged businesses. Disadvantaged businesses include, among others, women-owned businesses. The stated intention of these programs is to promote diversity and create opportunities for socially and economically challenged individuals who own businesses by offering additional opportunities to participate in federal, state, local, and corporate contract awards. For the federal government, this equates to a goal that 23 percent of all prime contract award dollars be awarded to small or disadvantaged businesses, with 5 percent being awarded to women-owned businesses. While a process that gives preferential treatment to anyone other than the most qualified bidder may be troubling to some, these programs allow good companies, who otherwise may not have the time or the resources to compete with larger, better funded companies, the opportunity to showcase their goods or services to large-scale buyers.

While these programs often come in the form of simply allowing a certain percentage of contract awards to go to women-owned businesses, some programs allow "bid incentives." For example, the bid of a women-owned business may be up to 5 percent higher than the bid of a non-women-owned business and still be considered the lower bid. The benefits of this are obvious; the women-owned business can win a bid even in instances where it is not the lowest bidder.

What are the Requirements for being Considered a Women-Owned Business?

The requirements for being considered a women-owned business will vary depending on the governmental entity or corporation seeking the contract, but they all have one thing in common: female ownership of 51 percent or more of the stock or other ownership interests in a business is not enough to qualify the business as "women-owned."

The Federal Acquisition Regulation ("FAR"), applicable to federal government contracts, defines a "women-owned small business" as a small business which is at least 51 percent owned by one or more women, and whose management and daily business operations are controlled by one or more women. In other words, if the business is really run or controlled by men, it doesn’t matter who owns it.

The federal government does not require any formal certification that a bidder meets the definition of "women-owned small business," but, if a formal certification is not provided as a part of the bid, the business must self-certify that it meets the definition. A false certification is a serious federal criminal offense.

The requirements for state and local government contracts and for large businesses are generally the same, but many require that a certification of women ownership, control, and operation be obtained from a nationally-recognized certification agency. In many instances, a large business which is the prime contractor for a federal contract will require a formal certification even though the federal government does not. Thus, in order to become a subcontractor on a federal contract, certification will be required.

What are the Standards for Certification?

There are several national certifying bodies. The two largest of these are the Women’s Business Enterprise National Council ("WBENC") and the National Women Business Owners Corporation ("NWBOC"), both of which provide the Women Business Enterprise ("WBE") certification.

In the certification process, ownership by women is just the first step. The woman or group of women who owns the business must be able to establish that she or they control the business, which means, among other things, that a woman:

• Holds the highest officer position in the business;

• Has the ultimate authority in all management decisions of the business;

• Makes decisions with respect to the business’s day-to-day operations; and,

• Has the technical expertise expected in the industry in which the business operates.

The standards for the WBE certification also include the following requirements:

• The ownership by women must be real, substantial, and continuing, going beyond mere majority ownership of the business;

• Women must share in all risks and profits of the business commensurate with their ownership interest; and,

• Women owners must have acquired their ownership interest by a real contribution to capital.

What is the Certification Process?

If a business wishes to be certified as a women-owned small business or as a Women Business Enterprise, then it must submit an application, together with the necessary supporting documentation, to a certification organization. The documentation includes operational information, balance sheets, tax returns, bank signature cards, and similar documents (and, in some cases, the business owner’s personal information), all of which is used to verify ownership, management, and control by the women owners.

The certifying agency also undertakes one or more on-site visits to observe and verify that all the critical management functions are controlled by women. That agency then assesses the operations of the business in light of the guidelines used by the agency, including those set forth above.

If, after all objective and subjective certification standards are reviewed, it is deemed by the certifying agency that a business is a women-owned small business or Women Business Enterprise, the certification will be issued. The certification is relatively inexpensive ($500 or less), but the process is lengthy (perhaps as long as 90 days), and consumes a lot of management time.

Are there Other Alternatives?

Even if a business does not qualify as a women-owned small business or Women Business Enterprise, not all is lost with respect to receiving preferential treatment for contract awards. Depending on the applicable affirmative action program, the business still may qualify as another type of small disadvantaged business with no gender-specific ownership requirement if, for example, each owner’s personal net worth is under $750,000 and at least 51 percent of the business is owned by individuals who qualify as "socially or economically disadvantaged" under the program.

Conclusion

Operating and getting certified as a women-owned small business can open the door of opportunity to small businesses bidding for certain prime contract and subcontract work with federal, state, or local governments and agencies and certain private corporations. Each government and corporation has its own set of rules regarding qualification and certification as a women-owned business. Despite the potentially long certification process, there can be significant advantages and opportunities in getting certified.

© 2008, Ward and Smith, P.A.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.