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
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).