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Court Voids U.S. Law Requiring Contracts For 'Disadvantaged'

Posted By Guy Timberlake, The American Small Business Coalition, LLC, Thursday, November 06, 2008
November 5, 2008

Court Voids U.S. Law Requiring Contracts For 'Disadvantaged'

By William McQuillen and Tony Capaccio, Bloomberg News

A federal appeals court threw out a law that set a goal of awarding 5 percent of U.S. defense contracts to small businesses controlled by "socially and economically disadvantaged individuals." The ruling might affect billions of dollars in government contracts.

The case was brought in 1998 by Rothe Development Corp., based in San Antonio, Texas, which claimed it offered a lower bid for a government contract that was instead given to a business owned by a minority. In its ruling yesterday, the U.S. Court of Appeals for the Federal Circuit decided the law was unconstitutional.

The law designated black, Asian, Hispanic and! Native Americans as socially disadvantaged individuals, and it required the U.S. to provide assistance to companies owned by such people to reach the 5 percent target. The U.S. would make advance payments to those companies and award contracts up to 10 percent above market cost.

The Defense Department's office for small business programs awarded $15.5 billion in contracts under the law last year, up from $14.7 billion in 2006.

"The department is reviewing the decision in concert with the Department of Justice," Cheryl Irwin, a Defense Department spokeswoman, said in an e-mailed statement.

The law sought to protect small business owners from discrimination. In its ruling, the court said there were no benchmarks to determine whether the 5 percent goal was reasonably related to the capacity of the minority-owned companies to compete for the work.

The case is Rothe Development Corp. v. Department of Defense, 08-1017, U.S. Court of Appeals for the Federa! l Circuit (Washington).



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