Female Business Owners Fault New Rules on U.S. Contracts

By ELIZABETH OLSON

Women who own small businesses — about a third of all small businesses in the United States, in fact — have been pushing for years for a bigger piece of government contracts, which now total $400 billion a year.

But few were happy when the Small Business Administration finally announced new rules in December to ensure that 5 percent of the contracts would go to female-owned businesses.

First, the critics noted, it took seven years for the S.B.A. to develop the rules after Congress ordered the agency to create them in 2000. But perhaps more important to the critics, among them Congressional Democrats and some business groups, the agency listed only four industries — out of 140 — where female-owned businesses could be preferred for contracts.

The best known of those was national security and international affairs; in addition, the list included coating and engraving, furniture and cabinet manufacturing and a motor-vehicles category.

Such a narrow list of industries was contrary to findings that women were underrepresented in 87 percent of all the industries where the government awards contracts, the United States Women’s Chamber of Commerce has argued. The chamber sued in 2004 to force the S.B.A. to follow the Congressional mandate.

“The government says it champions women, but it continues to lock us out,” said Margot Dorfman, chief executive officer of the chamber, who said the S.B.A. had stalled compliance.

The S.B.A., in response, said that writing the rules was a “complex and controversial responsibility” to establish guidelines to set-aside contracts based on gender. “The legislation requires us to establish that women-owned small businesses are underrepresented in an industry in which a set-aside would be created,” said Christine Mangi, the agency’s spokeswoman.

As to the criticism that the S.B.A.’s new rules include too few industries, Ms. Mangi said that the agency planned to revisit the issue “approximately every five years” and “update the affected industry sectors.”

Female-owned businesses, defined as at least 51 percent controlled or owned by females, were awarded 3.4 percent, or about $11 billion, in government contracts in 2006. The failure to hit the 5 percent mark, according to Congressional figures, deprived female owners of roughly $5 billion annually.

Last May, frustrated by the S.B.A.’s inaction, the House of Representatives passed a bill to raise the percentage for contracts for female-owned business owners to 8 percent from 5 percent, and to direct that 30 percent of annual government contracts, not 23 percent as now, be set aside for all small business.

The Senate has yet to act on the bill, which would wipe out the agency’s proposed rules from 2007, which are available in the Federal Register for public comment until the end of February. In the meantime, both the Senate and House small business committees plan hearings — the first will be in the House on Wednesday — to question the S.B.A. about its the rules.

“To suggest that the only women who deserve support are in industries as small as kitchen cabinet manufacturing is downright insulting,” said Nydia M. Velázquez, the New York Democrat who heads the House Small Business Committee.

She introduced the original women’s contracting bill, which was attached to the S.B.A. appropriations legislation and approved in December 2000. It was intended to carry out the goal Congress established in a 1994 law that women receive 5 percent of government contracts.

The 2000 legislation required the S.B.A. to conduct a study to identify industries where businesses owned by women were underrepresented and to set up procedures to verify eligibility for female-owned companies to receive preference.

The agency’s initial study of industries was derailed after a review by the National Academy of Sciences found it flawed. A federal district court judge, ruling in 2005 in the Women’s Chamber of Commerce suit, said the S.B.A. had “sabotaged” the start of the program and asked for a timetable for carrying it out; a hearing in the case is Jan. 28.

Last year, an S.B.A. study found that women received a disproportionately low number of federal contracts in three-quarters or more of the 140 industries, including manufacturing, real estate, health care and waste-management services. The study was conducted by the Kauffman-Rand Institute for Entrepreneurship Public Policy.

Ms. Velázquez also criticized the S.B.A.’s proposal that would limit each contract for businesses owned by women to $3 million (except for $5 million for manufacturing contracts), saying it would benefit “only a tiny fraction of the business women this country.” The S.B.A. said it was simply following dollar limits set by Congress.

Elizabeth Novak, chief executive officer of Environmental Waste Specialists, a three-person company in Chantilly, Va., that packages, transports and disposes of contaminated waste, counts herself among the critics of the proposed rules.

“I get almost no contracts now,” Ms. Novak said. “I’m pulling in $1 million in revenues a year now, but if I just had the opportunity to compete, I could triple that — and give the government a better deal for its dollar.”