Start Date for SBA Certification Pushed Back Six Months

A new program requiring minority-owned subcontractors on federal jobs to prove their status to the Small Business Administration has been postponed in the wake of criticism that it was under-publicized and may conflict with existing law.

The planned Jan. 1 date for the new regulations will be pushed to June 30, in part due to 11th-hour urging from the chairmen of the Senate and House Small Business Committees, giving a six-month reprieve to tens of thousands of anxious minority business owners across the country.

Fewer than 400 businesses have applied for the federal government’s first-ever certification program, out of an estimated 40,000 eligible firms nationwide, according to Terri Dickerson, associate administrator of the SBA’s office of small, disadvantaged business certification. The looming start date had caused confusion among many eligible businesses, which could lose a competitive edge in federal subcontracting if they don’t participate. Many others are unaware of the new regulations.

The program’s originally scheduled start date also had sparked concern among prime contractors who, once the regulations go into effect, will be able to count only certified firms toward crucial minority subcontracting goals. The small number of firms to be certified so far meant that prime contractors were sure to fall short of their goals.

Several big companies had appealed to Congress for more time as they mailed urgent alerts to minority vendors. And the Aerospace Industries Assn. warned the office of the White House counsel in a Dec. 7 letter that the Jan. 1 implementation date “is certain to reduce drastically the percentage of subcontracting work performed by [minority-owned businesses] for AIA members,” which include all the aerospace giants.

“This gives us a little more time to go out and properly inform our people,” said William J. Birkhofer, vice president of federal programs for St. Louis-based engineering firm Sverdrup Corp., who had called for an extension. “Obviously we’re very pleased. . . . We think the SBA has taken some steps here that will avoid a lot of confusion and frustration.”

Although fewer than 400 firms have applied, 5,600 businesses have been certified--the vast majority of them grandfathered in because their status had already been scrutinized under a different program. SBA officials estimate that they will eventually certify 36,000 businesses, but other federal agencies place the number of eligible firms much higher--above 100,000. It is unknown how many are in Southern California, but the region is home to the country’s largest concentration of small, disadvantaged businesses--particularly Latino- and Asian-owned.

The SBA will hold a training session on the new regulations at the Los Angeles Hyatt Regency on Jan. 13-14, and sessions will continue around the country through May.

SBA officials had stressed that program’s effective date is not a deadline, since minority firms can apply for certification after that. SBA spokesman D.J. Caulfield likened it to getting a driver’s license, which is not mandatory, but necessary in order to drive.

But minority-owned businesses, and the prime contractors they work for, saw the matter with more urgency. Although firms can continue to pursue mainstream businesses after the program goes into effect, they will be counted toward minority subcontracting goals only if they are certified.

“We don’t think that either the [minority-owned business] community or the large prime contractor community or perhaps even the federal agencies fully understand the ramifications of this,” Birkhofer said.

For decades, businesses contracting or subcontracting with federal agencies could self-certify as minority-owned by checking a box on a form. But new regulations designed to eliminate fraud and reshape affirmative action have changed that.

Under the new regulations, the SBA becomes the gatekeeper, requiring proof that companies are owned and controlled by someone who meets the government’s definition of economic and social disadvantage.

The SBA’s Dickerson urged businesses to apply as soon as possible, despite the delay in the program’s start date. The delay--to be published in the Federal Register on Dec. 28--came in response to concerns from large prime contractors and small business alike, she said.

“There have been conversations between [the White House], the Department of Justice and the SBA for several weeks,” she said. “We’re responding to the procurement community’s request to just have more time to notify their subcontractors. A lot of people said it would just make life a lot easier.”

The SBA began accepting applications in August, but the Los Angeles district office received its application forms just two months ago and has sent out about 200. Forms also are available on the Internet at https://www.sba.gov/sdb, but some small-business owners said they were unable to download them. Others are so confused about the requirements that they thought they had applied even though they hadn’t.

Roxanne Zavala, president and chief executive of Gardena-based Anoroc Precision Sheet Metal Inc., which subcontracts with defense contractors, sent one form electronically, but didn’t realize she had to send other paperwork such as tax forms in support of her application.

“It’s very confusing as to how complete or incomplete my status is,” she said. “‘Hopefully, there’s some kind of electronic record that at least I made an attempt.”

Zavala said that if the program had gone into effect in less than two weeks, she could have lost out to a subcontractor who already was certified. “I don’t want to be cut off,” she said. “I’m actually looking to expand my market, not limit myself. I want to take advantage of this opportunity before the whole [affirmative action] door closes on us.”

The new regulations have largely done away with set-asides for minority-owned businesses, while creating other incentives. For example, small, disadvantaged businesses that contract directly with the government became eligible Oct. 1 for price preferences, but only if they are certified and are in industries where disadvantaged firms are underrepresented.

For subcontractors, there are no preferences per se, but those who are certified will be more attractive to prime contractors. Federal agencies have mandatory minority contracting goals they must meet--goals they pass on to big prime contractors such as TRW Inc., Boeing Co. and Sverdrup. In the age of contract bundling and mega-mergers, subcontracting has become a key area of opportunity for small, disadvantaged businesses, which now have less of a shot at direct federal contracts.

“In this field, where competition is so keen, any advantage can mean the difference between winning and not winning,” said Ralph Thomas, associate administrator for Small and Disadvantaged Business Utilization at NASA, which sent a recent alert on the matter. “I cannot see a prime contractor taking a business risk with someone who is not certified. What would be the point? Go with someone you can count, especially when the counting counts.”

Some minority business owners welcome certification as a means to weed out front companies that have gone undetected and unpunished under self-certification. But others say the SBA’s program is flawed because it does not include mandatory visits to applicant businesses or adequate mechanisms to investigate and punish fronts that slip through the cracks.

Others, including the Aerospace Industries Assn., say the whole process of certification will be burdensome to small, minority-owned firms. They question the legality of the new regulation, saying it does not supersede the 1978 law that allowed for self-certification.

“My ultimate goal is to destroy this thing, knock it down and put a nail in its heart,” said Hank Wilfong, president of the Los Angeles-based National Assn. for Small Disadvantaged Businesses. “It’s in violation of the law.”