The National Academy of Science pans the SBA's report on women-owned businesses and federal contracting, further stalling procurement program

Late last week, the U.S. Small Business Administration announced that the National Academy of Sciences has completed its study of the SBA's study of women-owned businesses in federal contracting, and found that study sadly wanting.

It's a curious thing because the SBA's press release sounded peculiarly cheerful about this finding that its study was seriously flawed. But that may be because it justifies the ongoing delay in implementing those provisions of Public Law 106-554 that call for the establishment of the Women's Procurement Program. And that, in its turn, will be an apparent justification that may serve them well in the pending lawsuit filed by the U.S. Women's Chamber of Commerce.

This SBA study was supposed to be the first step in implementing the Women's Procurement Program, established back in 2000 as a part of the SBA re-authorization that was tacked onto one of the appropriations bills that year. The point was to establish restricted competition for federal contracts in industries in which women-owned businesses were underrepresented or substantially underrrepresented with respect to federal contracting.

At first glance, this study doesn't look like it should have needed to be rocket science. Whether you want to look at the number of businesses or the share of gross receipts within a given industry, a look at overall market share versus federal procurement market share seems like a pretty simple thing to research.

But the whole thing has been rendered more complicated because this is, after all, the federal government we're talking about. So, in addition to figuring out simple ratios that will indicate underrepresentation, the SBA wanted the NAS to indicate whether its analysis would stand up to judicial scrutiny in the context of current case law with respect to discrimination. And that adds an entirely different set of criteria to the picture.

Basically, the SBA's study was so seriously flawed that I'll confess to being surprised at them. I don't make any claims to being either an academic or a research scientist but the problems with the way the SBA carried out its study are glaringly obvious even to me. I would have thought the SBA would have known better.

In arriving at their disparity ratios, for examples, they attempted to compare the dollar amounts of federal contracts with numbers of women-owned businesses. That is such an exercise in apples-and-oranges that it is difficult to imagine how the SBA draft report could make any pretense to coherence.

Another of the more obvious problems here is that the draft report sought to compare 2002 contracting data with the population of women-owned businesses from the 1997 Survey of Women-Owned Business Enterprises. As the NAS report pointed out, comparing data from different years during a period of explosive growth in women-owned businesses makes little sense.

Then there is the issue of defining a universe of small businesses to measure here. Rather than simply measuring all small businesses, judicial precedence for the justification of set-aside programs requires measures of small businesses that are "ready, willing and able" to bid on and successfully fulfill federal government contracts.

The SBA, in its study, excluded non-employer firms. On the one had, this seems problematic because 75% of all firms with more than $1,000 in gross annual receipts had no paid employees, as did 84% of majority women-owned firms and 67% of equally male-female owned firms. Yet, the capacity of a non-employer to fulfill a federal contract depends on many factors, such as the kind of goods or services being procured and the various mechanisms that microbusinesses commonly use to temporarily expand operations as required.

At the same time, if one looks at gross receipts as a measure of smallness (in trying to decide which small businesses are too small to be included in the universe of possibilities here), a slightly different story emerges. The NAS report alludes to the fact that 20% of all small firms and 33% of majority women-owned firms had gross receipts of less than $5,000 for 1997.

The suggested explanation for that is that those figures represent firms operated by people who do not intend to grow their "business," but that seems to be a rather large assumption to make. There may be any number of non-employers with low dollar volume who might look to federal procurement as their growth strategy of choice if they could figure out how to get a toe in the door.

There is a lot of information out there and an entire industry devoted to helping small businesses into the federal contracting arena. Almost all of them are priced out of range of those low-volume microbusinesses. There is assistance available from the federal government itself but there isn't enough of it and ferreting it out can be quite challenging for the typical time-strapped non- employer.

For that matter, everything about the procurement process in inimical to microbusinesses, from the amount of paperwork involved to the fact that everyone involved in the process assumes that businesses that lack a certain level of annual receipts will be unable to handle the job. Both these factors create a kind of "them that's got shall get" de facto bias against very small businesses in the federal procurement arena. And, since so many women-owned firms are very small, they may have more trouble bidding on and landing those contracts.

Nobody involved seems to have noticed any of this. Or perhaps it is the kind of thing that does not lend itself to statistical analysis. Certainly there seem to be quite a lot of people who assume that the only reason why a small business will not grow is because its owner doesn't want it to.

Often, that is quite true. As often, it is true in terms of organizational size but I don't often hear microbusiness owners say they would turn down the opportunity to substantially increase their revenues.

There has been no official reaction from the community of women-owned businesses and the organizations that represent them, including the U.S. Women's Chamber of Commerce, which has filed suit against the SBA to compel implementation of the Women's Procurement Program. I suspect, however, that there is enough chicken-and-egg material in the NAS report on the SBA report to fuel a fight. The only remaining question is who will the combatants be and what kind of tactics will they use to land their blows.