Ruling on minority contracts worries contracting officials
November 19, 2008
A recent federal court ruling that found a minority-owned small
business contracting program at the Pentagon unconstitutional is
causing some contracting officials to wonder if all federal contracting
set-aside programs might be at risk.
is a lot of concern right now from the business community as a whole
and the small business community in particular,” said Guy Timberlake,
chief executive officer of the American Small Business Coalition. “It
is a negative precedent.”
Nov. 4, the U.S. Court of Appeals for the Federal Circuit ruled that
the Defense Department could not operate its minority-owned small
business program unless that program was intended to correct past
discrimination against minority-owned businesses in its contracting
program. Ruling on the case of Rothe Development Corp. vs. Defense Department,
the court said there was no evidence of past discrimination and
declared the program unconstitutional because it discriminated against
white business owners.
“The concern is that could make it easier to challenge all set aside [contracting] programs,” Timberlake said.
The ruling could serve as a precedent in another case challenging the
Small Business Administration’s 8(a) program. That case, Dynalantic v. Defense, is pending before the U.S. District Court for the District of Columbia.
Michael Rosman, general counsel for the Center for Individual Rights,
which is representing Dynalantic in the suit, said the Rothe
ruling indicates “the courts aren’t going to accept very thin
justifications for race-conscious programs.” That means it will be a
challenge for agencies to meet their mandated socioeconomic goals if
the decision is upheld, he said.
believes nonrace based programs, such as HUBZone or the service
disabled veteran program could benefit from the court ruling. The
HUBZone gives preferences to businesses in poverty-stricken areas. The
service disabled veterans program gives preferences to veterans who
were disabled in combat.
SBA did not return calls seeking comment on how the Rothe ruling
might affect its other small business programs. However, earlier this
year it issued a rule for the new Women’s Procurement Program that
required agencies to make discrimination determinations for various
industry sectors before forging contracts using the preference for
women-owned small businesses.
The extent to which the Rothe ruling
affects SBA’s other socioeconomic programs remains to be seen, said
Jack Horan, a contracts attorney with McKenna, Long and Aldridge in
Defense program and the 8(a) program are set up under different
statutes, and Congress used different evidence and standards for
discrimination in establishing them.
“Right now the case is limited to a particular DoD statute,” Horan said.
It will be up to courts to decide if the finding of inadequate evidence in the Rothe
case will hold true in the case against the 8(a) program, as Congress
may have used different studies to decide where discrimination existed,
case can be appealed to the Supreme Court. Both the Justice Department
and the Defense Department have said the case is being reviewed and no
decisions have been made regarding appeal to the Supreme Court.