Federal Minority Contracting Programs At Risk

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Biz contractsWednesday, Nov. 8, is D-Day for submitting public comments to the Federal Register that could determine the fate of federal minority contracting programs.

The U.S. Department of Defense, the General Services Administration and the National Aeronautics Space Agency are proposing to amend regulations pertaining to federal procurement from ?small disadvantaged businesses? ? government speak for minority owned enterprises. The proposed amendments to parts of Title 48 of the Federal Acquisition Regulation, published in the Sept. 9 Federal Register (Volume 76, Number 175), attempt to deal with the impact of a successful challenge to the constitutionality of the Defense Department?s Small Disadvantaged Business Participation Program by Rothe Development Corp. of San Antonio, Texas.

If the changes become final, they essentially would remove the programs. ?The proposed rule notes that the changes may have a significant economic impact on small businesses under the RFA,? Winslow Sargeant, Chief Counsel for Advocacy at the U.S. Small Business Administration, affirmed at a Congressional Black Caucus forum in September.

He was referring to the Regulatory Flexibility Act, which requires federal agencies to review regulations for their impact on small businesses and consider less burdensome alternatives.

The proposed changes have triggered a firestorm among minority owned businesses and their advocates. As reported in the February 2010 issue of The Network Journal, many fear that not only other agencies, but also private institutions might have second thoughts about contracting with minorities.

?Too often, [small minority owned businesses] lack the resources to compete with their larger counterparts, yet without the employment opportunities and economic revitalization they provide, many neighborhoods would find themselves in an even deeper hole. Especially in these economically difficult times, I hope any attempt to eliminate or weaken these programs will keep in mind the need for these programs before any final decisions are made,? said Jesse Jackson Jr. (D-Ill.).
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The most current Census Department figures put the number of businesses owned by minorities at 5.8 million. The American Small Business League estimates that if the rule change is implemented, minority-owned small businesses could lose close to $50 billion in federal contracts annually.

The Rothe case dates back to November 1998, when the company filed suit against the Defense Department and the U.S. Air Force alleging that section 1207 of the National Defense Authorization Act of 1987 violated the right to equal protection under the Due Process Clause of the U.S. Constitution?s Fifth Amendment.

Section 1207 established the Small Disadvantaged Business Participation Program at Defense, NASA and the U.S. Coast Guard to ensure that such businesses could fully participate in the federal contracting process. It authorized contracting officers at the three agencies to apply a price adjustment of up to 10 percent so that SDBs would have a price advantage in a ?full and open? competition. The adjustment would assist the agencies in achieving the goal set by Congress of 5 percent spending with SDBs.

Because Rothe is owned by a white female and does not qualify for the Section 1207 preference, its bid for a defense contract was adjusted upward by 10 percent. A company owned by an Asian-American qualified for the preference, became the new ?lowest? bidder, and was awarded the contract.

On Nov. 4, 2008, after 10 years of repeated appeals by Rothe, the Federal Circuit Court of Appeals court struck down the Defense Department?s SDB program as a violation of the Equal Protection Clause of the Fourteenth Amendment. The U.S. Justice and Defense departments chose not to seek Supreme Court review.

Pressure is mounting on interested parties to meet the deadline to formally oppose changes that would negatively impact federal SDB programs. Written comments may be submitted via the Federal eRulemaking portal at www.regulations.gov by inputting ?’FAR Case 2009-016? under the heading ?Enter Keyword or ID? and selecting ?Search.? Select the link ?Submit a Comment? that corresponds with ?FAR Case 2009-016.? Include your name, company name (if any), and ?FAR Case 2009-016? on your attached document.