Inclusive Business Definitions
Affirmative Action: This is a political term rather than a legal term or business term. In public contracting, it generally refers to any procurement or business development process that attempts to level the playing field for the firms owned by groups that have been historically underutilized. In addition to race- and gender-conscious activities, certain race- and gender-neutral activities may also be considered as affirmative action.
Aspirational Goal: Refers to an agency-wide or state-wide percentage goal of aggregate M/WBE procurement, which may be achieved through either race- and gender-conscious or race- and gender-neutral strategies.
Business Owner Status Certification Programs
- Small Business or SBE. The federal Small Business Administration (SBA) certifies and defines a small business in terms of average annual receipts or number of employees for each industry sector. For example, general building and heavy construction contractors have a size standard of $31 million in average annual receipts. Special trade construction contractors have a size standard of $13 million. For the service industries, the most common size standard is $6.5 million in average annual receipts. Some states have a small business enterprise (SBE) certification, with size standards generally similar to those of the SBA.
- ESB – Emerging Small Business. A few states have a certification for very small businesses. States may use a different acronym. The size limit varies with each state that has this certification.
- SDB – Small, disadvantaged business. This is a certification by the SBA and used throughout federal agency procurement. It is nearly equivalent to the MBE certification used by many states. It is a Small Business with owner net worth and compensation limits, unconditionally owned & controlled by one or more socially & economically disadvantaged individuals who are citizens of the United States. African Americans, Hispanic Americans, Asian Pacific Americans, Subcontinent Asian Americans, and Native Americans are presumed qualify. Other individuals can qualify if they show by a “preponderance of the evidence” that they are disadvantaged.
- 8(a) – This is an SBA certification that is a subset of the SDB firms. In addition to the SDB definition above, businesses must be incorporated for at least two years and demonstrate potential for success. In addition, business owners receiving this certification must pass a “good character” test, e.g., firms may be declined if any of its principals demonstrate any lack of character. Firms certified under 8(a) are privy to certain non-competitive bids not open to other small businesses as well as to particular low-interest loan programs.
- DBE – Disadvantaged Business Enterprise. This includes both minority-owned businesses and women-owned businesses, with a small business standard similar, but not equivalent, to the SBA. This is a certification used by the U.S. Department of Transportation and by extension any state, airport, or transit agency that receives federal highway (FHWA), airport (FAA), or transit (FTA) funds.
- MBE – This is a certification for minority-owned business enterprises used in many states. The definition is usually similar to the federal SDB definition although some states have no size limit.
- WOSB – SBA definition, women-owned small business. It is a Small Business, at least 51% owned by one or more women, and management & daily business operations controlled by one or more women. Unlike SDB, there are no owner wealth or income limits.
- WBE – Several states have a women-owned business enterprise (WBE) certification that is similar to the SBA WOSB certification.
- HUB – The SBA defines HUB Zones as any area with a historically underutilized business community. Practically this is defined as a high unemployment rate or low median income. A HUB certified business is any Small Business that is based in a HUB zone and with at least 35% of employees living in a HUB zone. Some states have used the federal HUB zone in the creation of state programs, such as the EDGE program in Ohio. In Texas and North Carolina HUB has a second meaning: it is used to refer to a historically underutilized business itself rather than to a geographic definition. A HUB certification in those states is similar to an MBE or M/WBE certification in other states.
Good faith effort: The demonstration of effort by bidders responding to bid requests to look for disabled, female, minority, and veteran business enterprises as sub-contractors when bidding public jobs. The firm’s good faith effort is used as an evaluation tool by the jurisdiction during the contract letting process and/or the annual review of contractors and suppliers.
Preference: A bid percentage discount given to certain preferred firms (e.g., M/WBEs, emerging small business, or in-state small business) when considering the bid dollar amount on certain bids or a point bonus given on a bid submitted by certain preferred firms when bids are scored in a point system.
Race- and gender-conscious: This refers to a contracting process where race and gender are considered in the evaluation of bids for the contract. The considerations may include a preference bonus or discount, a set-aside, or the requirement of a good faith effort at including MWBEs as sub-contractors. Federal law directs states or local jurisdictions to use a race- and gender-conscious contracting process when race- and gender-neutral strategies have led to disparities in utilization of certain groups in certain industries.
Race- and gender-neutral: This refers to a contracting process where race and gender are not considered in the evaluation of bids for the contract. Targeted vendor outreach, financing, and business services to MWBEs are generally considered race- and gender-neutral activities. Certification of and tracking procurement to MWBEs are also considered race- and gender-neutral activities.
Set aside: This refers to certain classes of contracts being open for bidding by only a restricted group of bidders. Within federal agencies, certain contracts may be set-aside for only 8(a) certified bidders. Most set-aside contracts at the state level are for small businesses, emerging small businesses, or disabled-veteran-owned businesses.
Supplier diversity: The focus of supplier diversity is both on changing the nature of the purchasing body, e.g., having more diverse suppliers is an asset to the purchaser (product quality and public image of purchaser) as well as on increasing opportunity for a diverse pool of firms who are suppliers and contractors. Affirmative action, on the other hand, is generally framed as having only the latter impact. Some do not consider capacity building activities, such as business development assistance and increasing access to financing, as part of supplier diversity.