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By: Melissa Chapaska & Mariah Turner
According to the U.S. Small Business Administration, the “federal government’s goal is to award at least 5% of all federal contracting dollars to women-owned small businesses each year.” Five percent of total federal contracts equates to $27 billion. The federal government also requires its other contractors to use women-owned businesses (WBEs). Additionally, there are tax advantages available to private companies who contract with WBE companies. According to the Hackett Group, companies who work with a WBE-certified business increase profits by 130% and decreased operating costs by 20%. Despite all of the incentives to become a certified WBE, only 4.6% of all firms in the U.S. are WBEs.
This disparity between incentives and results may be because for many women-owned businesses, breaking into the firmly established “boys’ club” for lucrative public and private contracts is a daunting task. While local, state, and federal government contract set-asides and evolving corporate diversity policies help to level the playing field for women-owned businesses, these programs often require an active WBE certification. While the WBE certification process can be intimidating, certification can open the door to extensive benefits and lucrative contracting opportunities. In this article, we will help to demystify the process by exploring the options, procedures, and benefits of WBE-certification.
Eligibility
The first step to applying for a WBE-certification is determining whether the business is eligible for certification. For a business to demonstrate that it is truly a WBE and not a façade for a male-owned business, the business must (1) be at least 51% owned and controlled by one or more women who are US citizens or permanent residents; (2) be formed, and have a principal place of business, in the US or its territories; and (3) prove that the management and daily operation of the business is controlled by a woman with industry expertise. In short, it is not enough that a business merely be majority female owned – the business’s daily operations must be woman-controlled.
Self-Certification vs. Third-Party Certification
The next step in obtaining WBE certification is determining what type of certification is required. While some businesses and government agencies looking to contract with WBE companies allow for a business to “self-certify” as a WBE by providing evidence of female ownership and control of the business, others will only recognize a certification issued by an authorized state agency or third-party WBE certifier.
When applying for a WBE certification, there are many benefits that come from using a third-party certifier.[1] There are four organizations approved by the U.S. Small Business Association (SBA) to provide third-party certification: El Paso Hispanic Chamber of Commerce, National Women Business Owners Corporation, US Women’s Chamber of Commerce, and Women’s Business Enterprise National Council. Unlike self-certification, third-party certifications tend to be accepted on a broader scale. This provides more opportunities, formal and informal, to pursue business deals and expand the WBE’s network. Along with networking, third-party certified WBEs will be able to gain recognition[2] and promote their businesses, both of which are instrumental to increasing the chances of winning contracts. Another important benefit of using third-party certifiers is the community of support provided to the WBE, which in some cases includes mentoring, training, event participation, and advocacy.
Applying Through a Third-Party Certifier
Although applying through a third-party certifier seems straight forward, the devil is in the details. These applications require extensive documentation evidencing the involvement and experience of its majority women owners, such as resumes and professional references, in addition to other disclosures, including business management contracts and financial statements. Failure to provide any of the required documentation may result in the denial of a WBE. If denied, the applicant must wait six months to reapply or go through an appeal process. Likewise, it is imperative that a prospective WBE not only provide all required documentation – it must also ensure that all information and documentation accurately represent the actual management and operations of the business. For example, while a business may be women-owned, if a male member holds the highest-ranking title or is responsible for the management of the business, then the business will not be considered women-controlled and will be ineligible for a WBE certification. All information submitted via the application process is confirmed through an extensive review process by the third-party certifier, including an on-site visit and interview of the applicant.
Recertification
Once approved, the WBE certified business needs to mark its calendar. While the WBE certification is valid for one year, failure to reapply 90 days before the expiration of the certification may result an inability to recertify the business. Although not as comprehensive as the original application, updated documentation is required. If a WBE certified business does not recertify in a timely manner, then the business will lose its certification and be forced to resubmit via the extensive initial application process outlined above. Even though most third-party certifiers send a courtesy reminder email, this is not required and the responsibility to timely recertify is solely on the shoulders of the WBE.
Securing experienced legal counsel is an effective tool for avoiding potential traps inherent in the WBE process. Seasoned legal counsel can assist prospective WBE applications throughout the process, including by confirming that the business is eligible for certification, assisting the business with gathering the documentation and information needed to apply for certification, providing guidance to the company on post-certification compliance, and ensuring the business meets the deadline for reapplication.
[1] Each third-party certifier does not necessarily provide the same benefits as another third-party certifier. All benefits are generalized.
[2] Most third-party certifiers provide recognition opportunities through awards.
