FAR Overhaul Eliminates WOSB Subcontracting Self-Certification

With little fanfare, the Revolutionary FAR Overhaul has eliminated a subcontractor's ability to self-certify as a woman-owned small business under an “other-than-small” prime contractor’s small business subcontracting plan. Moving forward, as agencies adopt the RFO version of FAR Part 19, primes only will be able  to count certified WOSBs toward their subcontracting goals.

Some readers may be scratching their heads, asking, “didn’t the SBA elimiante WOSB self-certification five years ago?” Yes and no.

In 2020, in response to a Congressional requirement, the SBA issued a final rule requiring a company to be certified by either the SBA or an approved third-party certifier to be eligible for WOSB or economically disadvantaged WOSB set-aside or sole source prime contracts. The FAR Council later amended FAR Part 19 to reflect the new prime contract certification requirement.

Importantly, however, following these changes both the SBA’s regulations and the FAR only required certification for WOSB and EDWOSB set-aside and sole source prime contracts. Companies were permitted to continue to self-certify as WOSBs at the subcontract level. Additionally, prime contract awards to self-certified WOSBs under other vehicles, like small business set-aside contracts, continued to count toward the government’s five percent WOSB goal. (And still do today, although pending legislation may change that).

From my vantage point, WOSB self-certification has always been rather problematic. In studies performed before certification was mandated at the prime contract level, the SBA found that more than 40 percent of self-certified WOSBs weren’t actually eligible for that status. A separate audit conducted by NASA’s Office of Inspector General found that 35 percent of self-certified WOSBs in the OIG’s sample appeared not to qualify.

Figures like these tend to cause some people to jump up and down, tearing out their hair and bellowing the F-word. No, not that F-word; GovCon Roundup is a family-friendly place where even the youngest and most innocent of children can come learn about the FAR’s nuances without the need for earmuffs. No, I’m talking about another F-word, namely, “fraud!”

Yes, some of the self-certified companies in the SBA and NASA studies may have been engaged in nefarious fraud. In my experience working with hundreds of companies on matters involving SBA’s socioeconomic programs, however, I found that blatant, intentional fraud is much less common than a simple lack of understanding and due diligence.

Some people, for example, hear the words “woman-owned” and incorrectly assume that as long as a woman holds majority ownership, the company is a WOSB. These people may go on to self-certify without verifying that the company meets the other eligibility requirements, particularly the strict requirements for unconditional control.

Regardless of whether we’re talking about negligence or the F-word, the fact is that audits have shown that a significant percentage of self-certified WOSBs don’t actually qualify. This, of course, suggests that a significant percentage of self-certified WOSB subcontractors probably shouldn't count toward their primes’ subcontracting goals.

The RFO version of FAR Part 19 tackles this problem in the simplest way possible—by quietly wiping out the ability to count self-certified companies toward a prime contractor’s WOSB subcontracting goals. RFO FAR 19.302-2(a)(1) says:

In order to be eligible as a subcontractor under a subcontracting plan, a concern is required to represent itself as a small business or small disadvantaged business or be certified by SBA as a veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, or woman-owned small business.

As the revised regulation states, in order to be eligible under a subcontracting plan, a WOSB must be certified. Other parts of RFO FAR 19.302-2 reiterate that a prime contractor may only accept a subcontractor’s self-certification of its small business and/or SDB status.

While the new rule is simple on its face, it does leave me with two nagging questions.

First, what about WOSBs with third-party certifications? Unlike the 8(a), HUBZone and SDVOSB/VOSB programs, the SBA allows WOSBs to choose between an in-house certification and a certification provided by one of four SBA-approved third-party certifiers. I assume that these certifications should count for subcontracting purposes, but the language “certified by SBA” does give me a little pause.

Second, what about the SBA’s regulations? The new WOSB subcontracting certification  requirement appears to conflict with 13 C.F.R. 125.3(b)(4), which says:

[E]xcept for HUBZone and SDVO small business subcontractors, a prime contractor may rely on the socioeconomic self-certification of a subcontractor provided the prime contractor does not have a reason to doubt the subcontractor's self-certification.”

Until this conflict is resolved, there may  be some lingering doubt about the effectiveness of the certification requirement, particularly given that conflicts between the FAR and SBA regulations regarding small business matters are often resolved in favor of the SBA’s regulations. I expect that the SBA ultimately will amend its regulations to match the revised FAR. In the meantime, though, I wouldn't be surprised to see some self-certified WOSBs calling their government contracts counsel in hopes of getting a legal opinion that their self-certification is still valid thanks to the regulatory conflict--while separately pursuing a certification as quickly as possible.

WOSB self-certification has had a troubled history and by eliminating self-certification under “other than small” primes’ subcontracting plans, RFO FAR Part 19 puts one more nail in the self-certification coffin. I’m hopeful that this change will ultimately increase trust in the WOSB program and mean that more subcontracting dollars flow to eligible WOSBs.

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Boring but important disclaimers: The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation. The opinions expressed in this article are solely those of the author.