Are women still 'disadvantaged'?

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The federal government aims at spend 23% of its procurement dollars with small businesses. Private-sector enterprises have their own earmarking programs; here's a look at efforts at seven major companies.

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The saga of set-asides

Preferential contracting - and its controversial offshoot, restricted set-asides - is a policy rife with logistical challenges and loopholes.More

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WASHINGTON (FORTUNE Small Business) -- When she heard that a unit of the U.S. Navy planned to award contracts worth $5.4 million for disposing of hazardous waste in her area, Elizabeth Novak was ready to bid.

Her firm, Environmental Waste Specialists in Chantilly, Va., handled just that sort of dirty job. She was told, however, that bidding was limited to small firms owned by members of federally recognized "set-aside" groups - disabled veterans and those "socially or economically disadvantaged." She wasn't on that list and was turned away last fall.

"Economically, this hurts," she says. "I don't have a place at the table."

Many women thought they'd won that place in December, when the U.S. Small Business Administration, responding to decade-old orders from Congress, announced a set-aside program that would reserve a portion of federal contracts for woman-owned companies. But instead of offering a buffet of opportunities, the SBA limited the program to four relatively narrow - and puzzling - sectors: national security and international affairs; furniture building and kitchen-cabinet making; printing and engraving such items as plates to print money; and sales of motorcycles, boats, and aircraft.

The proposal stunned major women's business organizations. The Women Impacting Public Policy group calculated that only 1,247 of America's 10.4 million female-owned businesses could benefit. Congressional panels held hearings critical of the policy in January, and New York Representative Nydia Velázquez, chair of the House Committee on Small Business, noted that the proposal "shuts out most of the entrepreneurs it was specifically designed to help." Margot Dorfman, executive director of the U.S. Women's Chamber of Commerce, added, "We have no idea how the SBA came up with these four sectors."

The Women's Chamber has long fought to have female entrepreneurs certified for set-asides, and thought it had won. Congress in 1994 declared that at least 5% of U.S. procurement dollars should go to woman-owned small businesses (up from 2.2% in 1998, and 3.4% today). But no agency was tasked with enforcement.

"The SBA's assignment under the 1994 law was to negotiate with all other agencies in the federal government to establish their individual goals," says agency spokeswoman Christine Mangi. "But SBA was not responsible for these agencies meeting their goals."

In other words: Sorry, not my table.

Six years passed before Congress ordered the SBA to study and implement a set-aside program for women - which it did only after the Women's Chamber sued and a federal judge ordered action. Another six years - apparently a popular unit of delay at the SBA - passed before the agency launched a study with the Rand Corp. (RAND) to identify industry sectors where qualified female bidders win a low proportion of contract awards.

When Rand examined the number of contracts awarded to qualified women, it found women underrepresented in 87% of 2,300 business categories. Then Rand looked at the dollar value of contracts and found women underrepresented in only four categories (presumably because a few female-owned firms won big contracts in the others). The SBA decided to emphasize the latter finding and offer set-asides only to women in those four niches.

The SBA will spend the next month reviewing public comments - which have been scorching, and not only from the side favoring more help for women. Considering that women own almost half of all privately held U.S. firms, Robert Zelnick, research fellow at the Hoover Institution, says, "I don't think women make a convincing case" for special treatment. In surveys, many male business owners agree.

While this policy debate rages, the private sector has quietly moved far ahead of the feds in promoting contracts for female business owners. Almost all major U.S. corporations, including most big federal contractors, now tout supplier-diversity efforts focused on women, minorities, and veterans. Wal-Mart's (WMT, Fortune 500) program alone spent $4.2 billion in 2006.

As a practical matter, women entrepreneurs are getting better results by focusing on such private opportunities rather than seeking help from a foot-dragging SBA, whose exertions in any case touch only a tiny proportion of American entrepreneurs - male or female.