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Thursday, October 7, 2010 Part III Small Business Administration jlentini on DSKJ8SOYB1PROD with RULES3 13 CFR Parts 121, 124, 125, et al. Women-Owned Small Business Federal Contract Program; Final Rule VerDate Mar2010 15:36 Oct 06, 2010 Jkt 223001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\07OCR3.SGM 07OCR3 62258 Federal Register / Vol. 75, No. 194 / Thursday, October 7, 2010 / Rules and Regulations women who are ‘‘economically disadvantaged’’ (i.e. an EDWOSB). 13 CFR Parts 121, 124, 125, 126, 127, However, SBA may waive this and 134 requirement of economic disadvantage for procurements in industries in which RIN 3245–AG06 WOSBs are ‘‘substantially underrepresented.’’ Women-Owned Small Business • A WOSB is a small business Federal Contract Program concern owned and controlled by AGENCY: Small Business Administration. women, as defined in section 3(n) of the ACTION: Final rule. Act. Section 3(n) of the Act defines a women owned business as one that is at SUMMARY: The U.S. Small Business least 51 percent owned by one or more Administration (SBA) is issuing this women and the management and daily Final Rule to amend its regulations business operations of the concern is governing small business contracting controlled by one or more women. 15 procedures. This Final Rule amends U.S.C. 632(n). part 127, entitled ‘‘The Women-Owned • The contracting officer must have a Small Business Federal Contract reasonable expectation that, in Assistance Procedures,’’ and implements industries in which WOSBs are procedures authorized by the Small underrepresented, two or more Business Act (Pub. L. 85–536, as EDWOSBs will submit offers for the amended) to help ensure a level playing contract or, in industries where WOSBs field on which Women-Owned Small are substantially underrepresented, two Businesses can compete for Federal or more WOSBs will submit offers for contracting opportunities. the contract. DATES: This rule is effective February 4, • The anticipated award price of the 2011. contract must not exceed $5 million in FOR FURTHER INFORMATION CONTACT: the case of manufacturing contracts and Dean Koppel, Assistant Director, Office $3 million in the case of all other of Policy and Research, Office of contracts. • In the estimation of the contracting Government Contracting, U.S. Small officer, the contract can be awarded at Business Administration, 409 Third a fair and reasonable price. Street, SW., Washington, DC 20416. • Each competing concern must be SUPPLEMENTARY INFORMATION: duly certified by a Federal agency, a I. Background State government, or a national certifying entity approved by SBA, as an On December 21, 2000, Congress EDWOSB or WOSB, or must certify to enacted the Small Business Reauthorization Act of 2000, Public Law the contracting officer and provide adequate documentation that it is an 106–554. Section 811 of that Act added EDWOSB or WOSB. The statute imposes a new section 8(m), 15 U.S.C. 637(m), penalties for a concern’s authorizing Federal contracting officers misrepresentation of its status. to restrict competition to eligible • The contract must be for the Women-Owned Small Businesses procurement of goods or services with (WOSBs) or Economically respect to an industry identified by SBA Disadvantaged Women-Owned Small pursuant to a statutorily mandated Business (EDWOSBs) for Federal study as one in which EDWOSBs are contracts in certain industries. The underrepresented or substantially purpose of this authority, referred to as underrepresented or WOSBs are the WOSB Program, is to enable substantially underrepresented with contracting officers to identify and respect to Federal procurement establish a sheltered market for contracting. competition among WOSBs or The SBA has issued several EDWOSBs for the provision of goods and services to the Federal Government. rulemakings concerning this program. Most recently, SBA issued a proposed H.R. Rep. No. 106–879, at 2 (2000) rule on March 4, 2010 (75 FR 10029) (publicly available at http:// that proposed amending 13 CFR part thomas.loc.gov/cgi-bin/cpquery/ 127, which had been promulgated in a T?&report=hr879&dbname=106&). Final Rule on October 1, 2008 (entitled Section 8(m) of the Small Business ‘‘The Women-Owned Small Business Act (Act) sets forth certain criteria for Federal Contract Assistance the WOSB Program. Specifically, the Act provides the following requirements Procedures,’’ RIN 3245–AF40). In particular, the proposed rule: Identified in order for a contracting officer to 83 industries by four digit North restrict competition for EDWOSBs or American Industry Classification WOSBS under this program: • An eligible concern must be not less System (NAICS) codes in which WOSBs are underrepresented or substantially than 51 percent owned by one or more jlentini on DSKJ8SOYB1PROD with RULES3 SMALL BUSINESS ADMINISTRATION VerDate Mar2010 17:38 Oct 06, 2010 Jkt 223001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 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 selfcertify 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 http://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 E:\FR\FM\07OCR3.SGM 07OCR3 Federal Register / Vol. 75, No. 194 / Thursday, October 7, 2010 / Rules and Regulations 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 jlentini on DSKJ8SOYB1PROD with RULES3 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, VerDate Mar2010 15:36 Oct 06, 2010 Jkt 223001 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 http://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 PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 62259 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 E:\FR\FM\07OCR3.SGM 07OCR3 62260 Federal Register / Vol. 75, No. 194 / Thursday, October 7, 2010 / Rules and Regulations jlentini on DSKJ8SOYB1PROD with RULES3 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 VerDate Mar2010 15:36 Oct 06, 2010 Jkt 223001 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 twodigit Major Group SIC designation corresponds to the current three-digit Subsector NAICS designation. Thus, while NAS criticized SBA’s use of twodigit SIC information, the SBO two-digit NAICS data are even less precise than PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 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 E:\FR\FM\07OCR3.SGM 07OCR3 jlentini on DSKJ8SOYB1PROD with RULES3 Federal Register / Vol. 75, No. 194 / Thursday, October 7, 2010 / Rules and Regulations 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. VerDate Mar2010 15:36 Oct 06, 2010 Jkt 223001 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 nonWOSB 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 rereporting 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 PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 62261 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 E:\FR\FM\07OCR3.SGM 07OCR3 62262 Federal Register / Vol. 75, No. 194 / Thursday, October 7, 2010 / Rules and Regulations 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. jlentini on DSKJ8SOYB1PROD with RULES3 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; VerDate Mar2010 15:36 Oct 06, 2010 Jkt 223001 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; PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 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 E:\FR\FM\07OCR3.SGM 07OCR3 Federal Register / Vol. 75, No. 194 / Thursday, October 7, 2010 / Rules and Regulations jlentini on DSKJ8SOYB1PROD with RULES3 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 (http://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 thirdparty 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 VerDate Mar2010 15:36 Oct 06, 2010 Jkt 223001 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. PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 62263 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 E:\FR\FM\07OCR3.SGM 07OCR3 jlentini on DSKJ8SOYB1PROD with RULES3 62264 Federal Register / Vol. 75, No. 194 / Thursday, October 7, 2010 / Rules and Regulations 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). VerDate Mar2010 15:36 Oct 06, 2010 Jkt 223001 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, § 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 PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 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-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, § 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 E:\FR\FM\07OCR3.SGM 07OCR3 Federal Register / Vol. 75, No. 194 / Thursday, October 7, 2010 / Rules and Regulations jlentini on DSKJ8SOYB1PROD with RULES3 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 fulltime 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 VerDate Mar2010 15:36 Oct 06, 2010 Jkt 223001 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 § 127.203. One comment believed that the proposed rule was inconsistent with the regulations concerning economic disadvantage in the 8(a) BD Program PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 62265 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 E:\FR\FM\07OCR3.SGM 07OCR3 jlentini on DSKJ8SOYB1PROD with RULES3 62266 Federal Register / Vol. 75, No. 194 / Thursday, October 7, 2010 / Rules and Regulations 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 http://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 http://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. VerDate Mar2010 15:36 Oct 06, 2010 Jkt 223001 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 PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 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