The Inspector General of the Small Business Administration issued a report last week that of 56 sole source contracts awarded to self-certified women owned small businesses (WOSB), 50 were not awarded in compliance with applicable regulations. The IG went on to find that "the firms that received those contracts did not comply with the program’s self-certification requirements." Thus, there was "no assurance" that the companies were eligible to receive the awards.

Previously, all WOSB firms had to do to pursue set aside contracts was essentially to check a box to indicate they were woman-owned. The National Defense Authorization Act of 2015 expanded opportunities for WOSB entities; however, it required the Small Business SBA to implement a certification requirement. Presently, WOSBs still can self-certify; however, they are now required to upload documentation about their ownership.

Every so often I'm asked about proposed small business arrangements that make my head spin. Sadly, the most egregious examples have involved a cynical attempt to game the WOSB classification. Consider the case where a large company wondered whether it could team up with a WOSB to pursue a sole source award. Oh, by the way, the WOSB is owned by our PM's wife. He'll put together the proposal for her. And, oh by the way, he'll still be working for us. C'mon, really?

Consider another case. A prospective client approaches me to seek guidance in pursuing contracts as a self-certified WOSB. I go to the company's offices and discover that the woman who "owns" the company is the mother of the guy who runs the show. I ask "so mom... you're in control here - what do you do?" She answers, "well, I come in on Fridays to sign checks." Again, c'mon, really?

On both occasions, I sternly counseled my clients that the arrangements they were considering were suspect at best. If a competitor got wind of what you were doing, they might file a protest with the SBA. That's exactly what happened in Yard Masters, Inc., SBA No. WOSB-109 (Oct. 11, 2017). There, the Army awarded a WOSB-set aside contract for yard maintenance services on a competitive basis to Yard Masters. Its proposal had been signed by a gentlemen who, as it turned out, had co-owned the company with his wife on a 50-50 basis, but with him in full control of the business. Shortly before submitting the proposal, the husband "sold" a one percent share of the company to his wife for $100 in cash so that she would be the majority owner. Following the transaction, the husband was designated COO of the company with the title President. Following the award of the contract, a competitor who knew of the company filed an SBA  protest. I won't belabor this with a detailed explanation of the case other than to say that Yard Masters lost.

And, a protest is not the worst that could happen. A whistleblower, federal prosecutors, or both could set their sights on your company under the False Claims Act, which imposes criminal and civil penalties against parties found to have submitted false claims to the Government. For example, an aerospace company and its President agreed to pay $20 million in civil penalties in a case where they admitted that the company had falsely certified that it was woman-owned when, in fact, the company was "owned" by two women via a trust that was controlled by their husbands who, together, controlled the company.

As the IG report clearly demonstrates, questionable self-certified WOSB arrangements can and do go undiscovered. Whether self-certification is permitted or not, my advice is the same: if you claim status as a woman-owned business, then be woman-owned and woman-controlled. Period.