WOSB Businesses Require Certification

Many small businesses especially here in Washington, D.C. are government contractors. They seek the services of a small business attorney to navigate the difficult landscape of government contracting. One significant lever to allow these small businesses to compete in the government contracting arena is to qualify for one of the contracting assistance programs, such as the program for service disabled veterans, HubZone, 8(a) business development program and women owned small business program, all administered through the Small Business Administration.

Advantages to qualifying for contract assistance program

stockbroker © 123RF.com

There are several advantages if your small business qualifies for one of these certifications. One major advantage for small business government contractors is that the government can award you a sole source contract for that designation. Sole source contracting is not that frequent.

Much more common is what are known as government set-asides. If the government has set aside a particular procurement for that designation, only those companies that are qualified for that program can compete for that procurement.

Possibly the most significant advantage is that the government agency can meet its targets by awarding a contract to a company within that designation. The government currently has set targets for each of these assistance programs. For example, a government department may set a target of awarding 5% of all government contracts to women owned small businesses. Each agency takes these targets very seriously. A government agency can meet its targets by awarding a contract to you, if you qualify for one of the designations.

Prime contractors also have subcontracting targets for small businesses. Those businesses that meet the requirements of one of the contracting assistance programs will be much more attractive to a prime contractor for subcontracting opportunities.

Related article: Government Contracting: Teaming Agreements

The government contracting market may be a hard nut to crack, but if you qualify for one of these assistance programs, you will definitely get a much more receptive ear when you market your product or services to a government agency or prime contractor.

Government regulations complex

To qualify for one these programs may be more challenging that it seems at first blush especially after wading through the morass of federal government regulations. In this article, the focus is on women owned small businesses (WOSB), but the regulations regarding the other assistance programs are similarly technical.

Even though the title suggests that a WOSB simply needs to be owned by a woman, the regulations specify that to qualify as a WOSB, the business needs to be “owned and controlled” by one or more women.

Owned by women

Ownership in the government’s eyes means owned “unconditionally and directly” by a majority of women. This is an easy bar to meet if your small business is formed as a corporation and all of the shares are in the hands of women; or if the business is formed as a limited liability company, all of the ownership interests are in the hands of women.

If there is more than one class of voting stock, then each class of voting stock for a corporation, and each class of membership interests for a LLC must be owned by one or more women. A business with a voting trust or executory agreements will be subject to further scrutiny to determine who owns the business.

WOSB must be controlled by women

The business must be “controlled” by one or more women. If your corporation has an all women board overseeing all women executive officers, then you can readily meet this requirement. But reality is usually not so clear cut. There usually are many nuances that diverge from this clean model.

The regulations make it clear that the “management and daily operations” must be controlled by one or more women. The highest officer in the company must be a woman. Ultimate managerial and supervisory control must reside with a woman. The government interprets these provisions strictly. If a man has a veto right over certain decisions, then the business may not qualify as a WOSB.

For example, if the operating agreement of the LLC contains certain categories of decisions requiring unanimous consent of the members, then if one of the members is a man, then each of those decisions must be analyzed to determine if the man can block an operational decision. If the man in effect has veto rights over certain fundamental decisions of the organization, the company may not quality as a WOSB.

Similarly, the government requires that the woman in charge devotes full time to the business during the normal working hours of the industry in which the business operates. Usually outside employment is not compatible with management and control of the business. If the business is a LLC, the women must control all of the decisions of the LLC. And if the business is a corporation, one or more women must control the board of directors.

Men are not completely excluded, but they may not exercise actual control over the business or have the power to control the business. For example, if an operating agreement requires 80% of the membership interest in a LLC to approve to a member’s compensation, or to spend more than $10,000 or to borrow any money on behalf of the LLC, then even if 51% of the LLC were owned by a woman, the woman would not be deemed to control the company.

No more self-certification, but…

The rules and regulations regarding WOSBs are complex, and some may say, obtuse. They are subject to varying interpretations. Whether because the regulations are not entirely clear, or because business owners have intentionally skirted the rules, there was considerable abuse to qualify a small business as a WOSB. Up until last year, business owners were allowed to certify their business as a WOSB. No longer, although there is an exception.

As of October 15, 2020, if you want to compete for set-asides or sole source government contracts as a WOSB, then you must apply to the government on the SBA website or obtain a third-party certification from an approved vendor. The government will no longer allow businesses to certify themselves as WOSBs, if you want to be eligible for a set-aside or sole source government contract.

Nevertheless, if you simply want to be included in the targets of the government procurement or within the targets of a prime contractor as a WOSB, then you are still allowed to self-certify and hold yourself out as a WOSB, provided, of course, that you qualify for the program.

Having the certification of a women owned small business can be a critical lever for success. But the rules can be challenging regarding what it means to be owned and controlled by women. Those small businesses who are interested in learning more about how to qualify may want to consult with a government contractor attorney.