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Justification for Certification

Thinking Bigger Guide 2014-15

Post Categories: Thinking Bigger Guide 2014-15

In the world of federal contracting, there are several certifications available to small businesses. These certifications can open the doors of opportunity and level the playing field.

The opportunity is significant. The federal government spends about $400 billion on average, and by law, agencies have a goal of spending 23 percent of their procurement dollars with small businesses.

The government has smaller procurement goals that are part of that 23 percent. It aims to spend …

  • 5 percent of its procurement dollars with Woman-Owned Businesses
  • 5 percent with Small Disadvantaged Businesses (which includes the SBA 8(a) program)
  • 3 percent with Service-Disabled Veteran-Owned Small Businesses
  • 3 percent with HUBZone Businesses

To meet these individual socioeconomic goals, federal agencies may use set-asides (projects that only certain groups may compete for) or sole-source procurements. Small businesses, though, must have the appropriate certifications in order to compete for these opportunities.

The following are the most common certifications recognized by the government.

SMALL BUSINESS (SB) To compete on small business set-asides, a business must self-represent as an SB in the federal vendor registry, the System for Award Management (SAM). The SB designation is based on average annual receipts over a three-year period or average number of employees over 12 months.

How can a business tell if it’s “small” enough? Each industry has a code in the North American Industry Classification System (NAICS), and each NAICS code comes with a correlating standard for what’s considered a small business for that field. If its average sales or number of employees falls under the established size standard, a business will be considered small.

When registering in SAM, a business will identify at least one primary NAICS, but will most likely have several. Because size standards vary by NAICS, it is possible for a business to be small in one NAICS category, and large in another.

WOMEN-OWNED BUSINESS To qualify, a company must be 51 percent owned and controlled by a woman or women. It can self-represent as a woman-owned business in SAM. However, in order to bid on set-aside procurements, another certification step must be taken.

The SBA offers a woman-owned small business certification (WOSB) and an economically disadvantaged woman-owned small business certification (EDWOSB) that apply to 83 industries.

Businesses interested in becoming WOSB- or EDWOSB-certified must complete paperwork proving ownership and must upload a series of documents to an online SBA repository. Once this is done, the business can add this self-certification to SAM and can bid on set-aside projects.

SMALL DISADVANTAGED BUSINESS (SDB) Businesses can self-represent as an SDB in SAM if the company is small, and is at least 51 percent owned and controlled by a socially and economically disadvantaged person or persons. It’s important to note that simply checking the boxes in SAM does not provide the company with the opportunity to win sole-source contracts or to compete on any set-aside opportunities. Rather, an SDB must be 8(a) certified.

SBA’s 8(a) program is a nine-year business development program. It was created to help small disadvantaged businesses compete in the federal marketplace. Among eligibility requirements, a business must be at least 51 percent owned and controlled by a socially and economically disadvantaged U.S. citizen; small in size status; it must be at least 2 years old; and it must have the potential for success.

Certain minority groups are presumed to be socially disadvantaged. If a business does not fall into one of those categories, it must provide a narrative and evidence demonstrating the social disadvantage requirement. According to SBA, socially disadvantaged individuals are “those who have been subjected to racial or ethnic prejudice or cultural bias within American society” and their disadvantage “must stem from circumstances beyond their control.”

The 8(a) applicants also must show they are economically disadvantaged. Per SBA definition, these are individuals who are “socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities.”

Economic disadvantage is proved by writing a narrative and providing documents that show assets do not exceed $4 million; personal income is under $250,000 (averaged over three years); and net worth is under $250,000. Certain exemptions apply to these calculations. For example, home equity and business equity are excluded when calculating net worth for 8(a) purposes.

The 8(a) certification process also requires a business to provide detailed company and personal information, including financial statements and tax returns. Once certified, the 8(a) company has access to sole-source contracts, set-asides and mentoring resources.

SERVICE-DISABLED VETERAN-OWNED SMALL BUSINESS (SDVOSB) SDVOSB certification gives federal agencies the authority to set-aside opportunities exclusively for this group and to acquire sole-source contracts if certain conditions are met.

Currently, SDVOSBs and veteran-owned small businesses (VOSBs) can self-represent their status in SAM if they meet the 51 percent owned and controlled requirement. However, this self-representation only qualifies the SDVOSB to compete on sole-source or set-aside procurements with agencies outside the VA. To compete on opportunities from the Veterans First Contracting Program from the Department of Veteran Affairs, SDVOSBs as well as VOSBs must be verified through an online application. The Center for Veteran’s Enterprise is responsible for verifying a company meets the stated requirements. This verification allows the VA to meet its agency’s unique procurement goals for SDVOSB and VOSBs. As with other certification programs, extensive personal and company information must be provided to prove ownership and control.

HISTORICALLY UNDERUTILIZED BUSINESS ZONE (HUBZone) The HUBZone program provides federal contracting opportunities to small businesses in underutilized business zones. The goal is to encourage economic development and employment opportunities in those areas.

To qualify for certification, a business must be small; be at least 51 percent owned by a U.S. citizen or citizens; and keep its principal office inside a HUBZone. At least 35 percent of its employees must live in a HUBZone.

The certification process requires a company to fill out the initial application online and mail in several company documents, including tax returns. Once HUBZone certified, a company is eligible to compete on HUBZone set-aside contracts and is eligible for sole-source awards. A 10 percent pricing evaluation preference may also be granted on full and open competitions. HUBZone is a three-year certification and renewable if the company still meets the conditions.

In summary, federal certifications help small businesses sell to the federal government or its prime contractors. State and local government certifications will vary, although they all tend to require a substantial effort to complete the necessary pile of paperwork. Fortunately, there are a variety of no-cost resources to assist businesses in the application process.

Finally, and most importantly, a certification does not guarantee a federal contract. In order to compete and win, every company must show a history of quality work and solid past performance.