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Introduction

Recognition of the disadvantages that small businesses may face in competing for U.S. government contracts dates back over 50 years. The Small Business Act of 1953 established the Small Business Administration (SBA) as an independent agency in the executive branch, and subsequent legislation extended the SBA’s counsel and assistance to specific types of small businesses, including firms owned by minorities and other socially and economically disadvantaged individuals and firms owned by women. The Small Business Reauthorization Act of 2000 (P.L. 106-554) added Section 811(m) to Title 15 of the U.S. Code. It contained language to allow contracting officers the discretion to provide preferential contracting opportunities for eligible women-owned small businesses in industries in which they are underrepresented. As a starting point, Section 811(m) required the SBA to determine industries in which women-owned small businesses are “underrepresented” and “substantially underrepresented” in federal contracting and directed the head of any department or agency to provide information that the SBA administrator deemed necessary to conduct the study.

COMMITTEE CHARGE

In response to the mandate of Section 811(m), the SBA Office of Federal Contract Assistance for Women Business Owners (CAWBO) prepared a preliminary draft study of representation of women-owned small businesses in federal contracting. Completed in late 2002, the study analyzed fiscal year 1999 federal contracting data for prime contract actions of



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Analyzing Information on Women-Owned Small Businesses in Federal Contracting 1 Introduction Recognition of the disadvantages that small businesses may face in competing for U.S. government contracts dates back over 50 years. The Small Business Act of 1953 established the Small Business Administration (SBA) as an independent agency in the executive branch, and subsequent legislation extended the SBA’s counsel and assistance to specific types of small businesses, including firms owned by minorities and other socially and economically disadvantaged individuals and firms owned by women. The Small Business Reauthorization Act of 2000 (P.L. 106-554) added Section 811(m) to Title 15 of the U.S. Code. It contained language to allow contracting officers the discretion to provide preferential contracting opportunities for eligible women-owned small businesses in industries in which they are underrepresented. As a starting point, Section 811(m) required the SBA to determine industries in which women-owned small businesses are “underrepresented” and “substantially underrepresented” in federal contracting and directed the head of any department or agency to provide information that the SBA administrator deemed necessary to conduct the study. COMMITTEE CHARGE In response to the mandate of Section 811(m), the SBA Office of Federal Contract Assistance for Women Business Owners (CAWBO) prepared a preliminary draft study of representation of women-owned small businesses in federal contracting. Completed in late 2002, the study analyzed fiscal year 1999 federal contracting data for prime contract actions of

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Analyzing Information on Women-Owned Small Businesses in Federal Contracting $25,000 or more in major industry groups, defined by 2-digit Standard Industrial Classification codes. Prior to finalizing the CAWBO study, the SBA decided to obtain independent expert review of the relevant contracting data and estimation methods. The Committee on National Statistics of the National Academies was asked to conduct the review. The committee established the Steering Committee on Women-Owned Small Businesses to plan a workshop to review existing data and methods for the SBA to use to analyze information on the use of women-owned small businesses in federal contracting. The steering committee members were selected for their expertise in statistical methods and research on disparities and discrimination. The committee did not include representatives of women-owned businesses in order to avoid the appearance of bias or conflict of interest. Discussion topics for the workshop were to include the accuracy, soundness, and reliability of data and analytical methods to ascertain the use of women-owned small businesses in federal contracting; the definition of “underrepresentation” and “substantial underrepresentation” in the SBA draft report; appropriate regression methods (and other methods if necessary) to investigate correlates of gender disparities; the potential usefulness of additional variables in the analysis (e.g., firm size); the appropriate study sample size for further or extended studies; the appropriate amount of historical data for analysis; and methods and analyses that could help the SBA explain any identified industry-specific disparities and be of use in determining any remedial action. At the workshop, held on April 30-May 1, 2004, the steering committee heard from staff of the SBA and the U.S. Department of Defense about small business contracting and discussed definitional issues, estimation methodology, and available data (see Appendix A). The committee also reviewed findings of a recent report of a panel of the Committee on National Statistics on measuring racial discrimination (National Research Council, 2004). Because of limited resources, this report is based primarily on the workshop materials and discussions. OUTLINE OF THE REPORT This report contains six chapters and two appendixes. Chapter 2 discusses the legal framework within which a new women-owned small business contracting set-aside program would operate. Chapter 3 describes the federal contracting process with regard to small businesses. This process needs to be understood in order to develop meaningful models for the many potential causes of gender-based statistical disparities. Contracting at the Department of Defense is used as a case study, because that department has been responsible in recent years for approximately 50 percent of total

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Analyzing Information on Women-Owned Small Businesses in Federal Contracting federal government prime contract awards and 65 percent of total federal contracting expenditures in any given year. Chapter 4 defines concepts of disparity and representation, responding to congressional interest in measures of representation. The chapter considers a range of issues in constructing disparity measures, including the strengths and weaknesses of available data for estimation, and it critiques the SBA preliminary study and other studies. Chapter 5 considers the difficult challenges of inferring the reasons for observed disparities, including the possible role of discriminatory practices or behaviors. Chapter 6 presents the committee’s major conclusion regarding the SBA preliminary study and recommendations for revised disparity ratio estimates, more useful reports on federal contracting, collection of data on subcontracting, and development of a research agenda for women-owned small businesses in federal contracting. Following a section of references, two appendixes provide additional background information. Appendix A includes the workshop agenda and participants, and Appendix B provides biographical sketches of committee members and staff.