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Ruling on minority contracts worries contracting officials [Federal Times]

Posted By Guy Timberlake, The American Small Business Coalition, LLC, Wednesday, November 19, 2008
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.

“There 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.”

On 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.

Rosman 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 Washington, D.C.

The 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, he said.

The Rothe 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.

Tell us what you think. E-mail Elise Castelli.

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