[Federal Register Volume 85, Number 191 (Thursday, October 1, 2020)]
[Notices]
[Pages 62004-62006]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21678]


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SMALL BUSINESS ADMINISTRATION


Notice on Public Content; WOSB NAICS Study

AGENCY: U.S. Small Business Administration.

ACTION:  30-Day notice and request for comments.

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SUMMARY: The National Defense Authorization Act for Fiscal Year 2015 
requires the Small Business Administration (SBA) to produce a study 
every five years regarding the participation of small business concerns 
owned and controlled by women. Public Law 113-291, 128 Stat. 3292 (Dec. 
19, 2014). In accordance with this requirement, SBA is preparing to 
conduct the study. SBA is currently developing the process and 
methodology that will be used to conduct this study and is requesting 
public input and feedback.

DATES: Submit comments on or before November 2, 2020.

FOR FURTHER INFORMATION CONTACT: Nikki Burley, Office of Government 
Contracting and Business Development, 409 3rd Street SW, Washington, DC 
20416; 202-921-3356, [email protected].

SUPPLEMENTARY INFORMATION:

A. Program Background

    The Small Business Act, 15 U.S.C. 637(m), authorizes contracting 
officers to restrict competition for Federal awards to eligible Women-
Owned Small Businesses (WOSBs) and/or Economically-Disadvantaged Women-
Owned Small Businesses (EDWOSBs) in certain circumstances. 
Specifically, a contracting officer may restrict competition, or ``set 
aside'' a competition for EDWOSBs if:
     There is a reasonable expectation that two or more EDWOSBs 
will submit offers in response to the solicitation;
     The contracting officer believes that award can be made at 
a fair and reasonable price; and
     The procurement is for goods or services with respect to 
an industry identified by the SBA's Administrator as underrepresented.
    A contracting officer may restrict competition, or ``set aside'' a 
competition for WOSBs, if:
     There is a reasonable expectation that two or more WOSBs 
will submit offers in response to the solicitation;
     The contracting officer believes that award can be made at 
a fair and reasonable price; and
     The procurement is for goods or services with respect to 
an industry identified by the SBA's Administrator as substantially 
underrepresented.
    In addition, contracting officers are allowed to sole source awards 
to WOSBs and EDWOSBs in cases where the estimated dollar value of the 
award is equal to or less than $6.5 million for manufacturing 
acquisitions and equal to or less than $4 million for service 
acquisitions. FAR Part 19.1506.
    With respect to the identification of industries eligible for a 
set-aside or sole source award under the WOSB Program, the Small 
Business Act requires the SBA Administrator to conduct a study to 
identify those industries in which small business concerns owned and 
controlled by women are underrepresented or substantially 
underrepresented with respect to Federal procurement contracting. 15 
U.S.C. 637(m)(4).

B. Overview of RAND Study of ``The Utilization of WOSB in Federal 
Contracting''

    In February 2006, SBA awarded a contract to the Kauffman-RAND 
Institute for Entrepreneurship Public Policy (RAND) to complete a study 
of the underrepresentation of WOSBs in Federal prime contracts by 
industry code. The resulting study(the RAND Report) was published in 
April 2007 and is available to the public at https://www.rand.org/pubs/technical_reports/TR442.html.
    As the RAND Report explains more fully, RAND measured WOSB 
representation in each industry code through a ``disparity ratio,'' 
which is a measure comparing the utilization of WOSBs in Federal 
contracting in a particular code to their availability for such 
contracts. The disparity ratio itself is defined as utilization divided 
by availability. Utilization and availability are also measured as 
ratios. This disparity ratio provides an estimate of the extent to 
which WOSBs that are available for Federal contracts in specific 
industries are actually being utilized to perform such contracts.
    RAND measured utilization and availability in two ways: in terms of 
dollars and numbers. When using dollars as the measure, RAND calculated 
utilization as the ratio of

[[Page 62005]]

Federal contract dollars awarded to WOSBs in a given industry code to 
total Federal contract dollars awarded in that industry code. It 
calculated availability as the ratio of the gross receipts (revenues) 
of WOSBs in a particular industry code to the gross receipts (revenues) 
of all firms in that code. When using numbers as the measure, RAND 
calculated utilization as the ratio of the number of Federal contracts 
awarded to WOSBs in a particular industry code to the number of Federal 
contracts awarded overall in that code, and availability as the ratio 
of the number of WOSBs in a particular industry code to the total 
number of firms in that code.
    According to the RAND Report, if the disparity ratio in an industry 
code is equal to 1.0 when measuring in terms of dollars, that indicates 
that WOSBs have been awarded contract dollars in the same proportion as 
their economic representation in the industry; that is, they are 
awarded contracting dollars in proportion to their share of total 
business in that industry, and are therefore neither over- nor 
underrepresented. Similarly, if the disparity ratio in an industry code 
is equal to 1.0 when measuring in terms of numbers, this indicates that 
WOSBs are awarded contracts (of whatever dollar value) in the same 
proportion as their numerical representation in the industry. A ratio 
of less than 1.0 (lower utilization than availability) suggests some 
degree of underrepresentation with respect to that particular means of 
measuring disparity (dollars or numbers); a ratio of greater than 1.0 
(greater utilization than availability) suggests some measure of 
overrepresentation with respect to a given metric. RAND classified an 
industry as ``underrepresented'' if its disparity ratio was between 0.5 
and 0.8 using either the numbers or dollars approach, and 
``substantially underrepresented'' if its ratio was less than 0.5. It 
is important to note that RAND states disparity ratios are not in and 
of themselves measures of discrimination, although they have been used 
in numerous court cases to infer discrimination. Nonetheless they are a 
starting point, a way to identify whether there are any differences in 
outcomes between different types of firms.
    RAND calculated these ratios using a variety of different data 
sets. For the utilization component of the disparity ratio, RAND used 
the data from the FY 2005 Federal Procurement Data System/Next 
Generation (FPDS/NG) procurement database. This was the only data 
source identified by RAND with respect to the utilization component of 
the disparity ratio. However, RAND did adjust the FPDS to account for 
possible miscoding of business size. Specifically, RAND linked the FPDS 
data to 2004 Dun and Bradstreet (D&B) data using the Data Universal 
Numbering System (DUNS) to identify the parent companies of local 
establishments, and then used the DUNS to assess whether a firm was 
small. However, because the data file was also prone to error, RAND 
presented results both with and without the DUNS cross-reference.
    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. Using the SBO database, RAND 
presented results only at the two-digit industry code level, a 
comparatively generalized level of industry disaggregation. Using the 
CCR, in contrast, RAND presented results at the two-, three-, and four-
digit industry code levels. RAND also presented full sample results and 
trimmed sample results (eliminating the top and bottom 0.5 percent of 
the data) for each disparity ratio. RAND did this in order to examine 
the sensitivity of the disparity ratio to extreme values, such as very 
large contracts or negative dollar amounts resulting from contract 
actions based on multi-year contracts or modifications to such 
contracts to earlier contracts.
    Using these different data sources and various adjustments, the 
RAND Report identified twenty-eight different possible approaches to 
determining the degree of underrepresentation of WOSBs in Federal 
procurement contracting.

C. Overview of the Office Chief Economist Study of the U.S. Department 
of Commerce Assisting SBA To Conduct WOSB NAICS Study

    In 2014, Congress amended the Small Business Act to require SBA to 
submit a report to Congress reflecting the results of a new study by 
January 2, 2016, and then continue to conduct a new study every five 
years. Public Law 113-291 825(c) (Dec. 19, 2014). In response to this 
statutory mandate, SBA asked the Office of the Chief Economist (OCE) of 
the U.S. Department of Commerce for assistance in conducting a new 
study on the WOSB Program, which would analyze data to help SBA 
determine those NAICS codes in which WOSBs are underrepresented and 
substantially underrepresented in Federal contracting. OCE looked at 
whether, holding constant various factors that might influence the 
award of a contract, the odds of winning Federal prime contracts by 
firms that were owned by women were greater or less than the odds of 
winning contracts by otherwise similar businesses.
    In its analysis, OCE controlled for the size and age of the firm; 
its membership in various categories of firms for which the Federal 
government has government-wide prime contracting goals; its legal form 
of organization; its level of government security clearance; and its 
Federal prime contracting past performance ratings. OCE also looked at 
whether women-owned businesses typically have significantly different 
experiences in winning contracts depending on their industry. OCE 
performed this analysis at the four-digit NAICS industry group level. 
OCE included each firm in its sample in an industry analysis if the 
firm had registered as being able to perform work in that industry or 
if the firm had won a contract assigned to that industry. OCE found 
that women-owned businesses were less likely to win Federal contracts 
in 254 of the 304 industries included in the study. In 109 out of the 
304 industries, OCE found that women-owned businesses have 
statistically significant lower odds of winning Federal contracts than 
otherwise similar non-women-owned businesses at the 95% confidence 
level. SBA has determined that the finding by OCE of a statistically 
significant lower likelihood of winning contracts demonstrates that 
WOSBs are substantially underrepresented in these 109 NAICS codes. 
However, of these industries, 17 are in sectors 42 and 44-45, which are 
not applicable to Federal contracts under SBA's regulations. 13 CFR 
121.201.
    Since some industry groups cannot be used to classify Federal 
contracts, SBA has excluded them from the list of industries designated 
as substantially underrepresented. In addition, OCE found that in 145 
out of the 304 industries, the odds of women-owned businesses winning 
contracts were lower than those of otherwise similar non-women- owned 
businesses, but there was not a statistically significant difference 
between the odds of winning for the two groups. Although there was not 
a finding of statistical significance for these industries, 21 of them 
were previously found by the RAND study to be industries in which WOSBs 
are underrepresented or substantially underrepresented. Thus, SBA was 
provided with information showing historical underrepresentation of 
women-owned businesses in these 21 industries, which was consistent 
with

[[Page 62006]]

the OCE finding that women-owned businesses are less likely to win 
contracts. As a result, SBA found that it possessed sufficient data to 
determine that WOSBs are underrepresented in these 21 industries. SBA 
also believed that this decision fulfills the intent of the Small 
Business Act, which demonstrates the intent that the designations of 
eligible industries be based on at least five years of data. The full 
OCE study is available on SBA's website at www.sba.gov/wosb.

D. Solicitation of Public Comments

    As both the RAND and OCE studies indicate, there is no single 
solution to determine underrepresentation, with each study methodology 
choice having its own benefits and shortcomings. As discussed above, 
the previous studies made choices regarding certain measures. Through 
this request, SBA seeks input from stakeholders on the areas below.
    1. For the past two studies SBA has looked at the value of 
contracts as part of determining the utilization ratio. One issue 
raised by this approach is that this may be reflecting very few 
contracts awards (meaning awards to a few companies) which may not be 
representative of the actual competitive balance in the industry. SBA 
is seeking input on whether a hybrid approach should be used accounting 
for both value of contracts and number of contracts in a given 
industry. SBA is also considering using higher level NAICS (meaning 
fewer digits) for low volume industries.
    2. SBA is also seeking input on how best to define women-owned 
businesses that are ready, willing, and able. Past studies have used 
SAM registration as a measure for ready, willing, and able. However, it 
may be that there are women-owned firms that are ready, willing, and 
able to perform government contracts that are not registered in SAM. 
Another option would be to look at women-owned small businesses in the 
US generally rather than limiting it to sam.gov registered businesses. 
SBA would like public comment input if it should continue to use the 
ready, willing, and able that was used in the previous studies, use 
general women-owned businesses in the US, or is there another method 
that SBA should consider.
    Another issue with the ready, willing, and able determination is 
the possible overestimate of the number of WOSBs in a given NAICS 
because of the ability of firms to self-select NAICS in sam.gov without 
regard for capability. It may be possible to perform a sensitivity 
analysis to try to identify if there is a problem with overestimates 
and to correct the analysis accordingly. SBA would like public input on 
whether this possible overestimate is a problem, and, if so, is SBA's 
proposed solution useful.
    3. SBA is seeking comments on the appropriate thresholds for 
underrepresented versus substantially underrepresented. Currently, the 
threshold for underrepresented is <1 and the threshold for 
substantially underrepresented is <.5. Another factor SBA would like 
the public to consider is what should the thresholds be if they are 
changed? In addition, SBA is also considering utilizing different 
thresholds for low-volume NAICS. Should it be the same for all 
industries?
    4. The past two studies have each had issues with low-volume 
industries. This occurs when there are either low-dollar value or low 
volume of contracts in a given industry. The result is that minor 
changes in in either category can have extreme effects on the outcome. 
SBA is considering the use of power analysis calculations to determine 
which industries have a sufficient number of firms to detect a small 
effect size for the difference between the use of WOSBs and that of 
other businesses. SBA is also considering determining the level of 
industry concentration using a Normalized Herfindahl Index. In 
addition, SBA may also consider measuring disparity metrics 
independently by fiscal year and using pooled data over multiple years. 
This could reduce the number of low-volume NAICS, but could be 
considered less reliable if there is significant variance in disparity 
metrics over time. SBA would like public input on whether it should 
make changes to the treatment of low-volume NAICS and whether or not 
the proposed methods are a good way to taking into account low-volume 
NAICS.

Barbara Carson,
Deputy Associate Administrator, Office of Government Contracting and 
Business Development.
[FR Doc. 2020-21678 Filed 9-30-20; 8:45 am]
BILLING CODE 8026-03-P