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FEDERAL GOVT. MINORITY CONTRACTING.
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History, legal challenges, set-asides, economics, effectiveness, criticisms, race-neutral vs. race-conscious approaches.... More...
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Paper Abstract:
History, legal challenges, set-asides, economics, effectiveness, criticisms, race-neutral vs. race-conscious approaches.
Paper Introduction:
FEDERAL GOVERNMENT MINORITY CONTRACTING: A CURRENT MANAGEMENT PERSPECTIVE
Introduction
The Minority Business Development Agency (MBDA) was established in 1969 as the only Federal Agency to specifically intended to increase opportunities for minority individuals to participate fully in the free enterprise system through the formation, development and preservation of competitive minority-owned firms (Richardson, 1995, p. 26). To accomplish its mission, MBDA facilitates the delivery of business development assistance through professional public and private business service providers, leverages financial resources to foster partnerships among and between the public and private sectors, and expands market opportunities for minority-owned firms for both publi
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57). Croson ruling, many jurisdictions rushed to doaway with minority preference programs altogether, while some jurisdictionsthat had set-aside programs replaced them with goal-oriented programs(Dimeo, 1992, p. The reasons, according tocritics, are politically-based: government officials do not want to statethat a minority-owned business large enough to go out and compete in anunprotected market (Gooodman & Tuchfarber, 1995, pp. State and local government set-asideprograms and minority business development in the post-Croson era.International Journal of Public Administration, 18(7), 1 11-1 64. While the Section 8(a)program has been beneficial to some minority firms, there is a disparitybetween those firms that have been able to prosper under the program andthose that have not prospered. The "rule of two" set-aside program reserved a prime contract for "small disadvantagedbusinesses" whenever two or more firms are available and qualified tosubmit a proposal if the proposal prices are no more than 1 percent abovemarket price. R., & Tuchfarber, A. Because theSupreme Court sent the case back to lower courts for review (according toits more restrictive guidelines for justifying special consideration forminorities) government contractors are guarded in saying what impact theruling will have on their affirmative action programs. Rice, M. p. A variety of capital assistance programs can supplement or replaceprivate lending sources for minority-owned businesses (Le Noue & Sullivan,1995, p. The Small Business Administration implements the minority-preferenceset-aside contract policy through a program referred to as the "Section8(a) program" (Nowlin, 1992. 348). 1 3).The "rule of two" set-aside contract program was suspended as part of theClinton administration's ongoing review of federal affirmative actionprograms following the Supreme Court's decision in Adarand v. (1992, July). 57).Statistics on how many dollars are being awarded to minority-ownedbusinesses are readily available; however such statistics do not reveal,according to critics of governmental contract preference programs, theimpact those firms are having on improving the quality of life in minoritycommunities. C. 348). References Dimeo, J. Thedecision created a climate of uncertainty over state or local programs thatuse a numerical quota or any other form of racial preference. 56). Richardson, L. 65 ).Outreach includes workshops, seminars, and business forums for smallbusiness owners, as well as on-the-job site training for their unskilledworkers seeking to acquire specialized skills. San Antonio Business Journal, 6(43), 12. A few jurisdictions, such as Washington, DC,however, neither analyzed their programs nor made any alterations to them. Further, 6 percent of those contracts have beenawarded to minority-owned firms in Washington, DC, Maryland, Virginia, andCalifornia. Outreach is "vital forsmall and newly formed firms that may lack the experience or staff to beaware of contracting opportunities. The debate over race-neutral versus race-conscious strategies has beencontentious (Le Noue & Sullivan, 1995, p. American City & County,1 7(8), 54-57. In many cases,preference policies aiding minorities, women, local firms, or Americanproducts force jurisdictions to accept bids that are from five-percent-to-15 percent higher than market levels in order to fulfill programrequirements. Since the inception of the set-aside program in 1987, $5.4billion in prime Department of Defense contracts have been awarded underthe program, of which $516 million in contracts were awarded under the set-aside program in the first three calendar quarters of 1995. Proponents of race-conscious minority preference policiescontend that such factors are inherently discretionary and discriminatory. San Francisco won a long-running battle with theAssociated General Contractors union over programs that give preference tominorities, women, and local companies. (1995, July-August). In October 1995, the Department of Defense suspended a set-asideprogram primarily for minority-owned firms (DOD suspends, 1995, p. Many of the early programs were race-neutral policies designed to prohibit discrimination of any kind, andeliminate bureaucratic barriers inhibiting the development of businesses byall disadvantaged people. (1995, July). J. Those twoareas, as well as the lack of proven experience, represent the greatesthurdles for new and small businesses" (Le Noue & Sullivan, 1995, p. business America, 116(9), 25-26. Croson Co. 65 ). 55). Critics of set-aside program contend further that, although suchpolicies have opened doors to contracts that were once out of reach to manyminority-owned firms, they do not guarantee success (Dimeo, 1992, p. One of the firstsuccessful programs was developed in 1971 by Atlanta, in part to securebiracial support for the construction of a rapid transit system that wasearlier defeated in a referendum. 348). The discretionthat local jurisdictions previously enjoyed when using racialclassifications for affirmative action or other "benign" purposes, however,has been "dramatically curtailed by the Supreme Court's decision in theCity of Richmond v. Character, credit, and capability are themost frequently expressed measures weighed by a surety in making bondingdecisions. Pena thatrequired "race neutral" government contracting. 348). After the Richmond v. Federal contract policy and management:The Small Business Administration 8(a) program. . J. Therefore,the disparity studies by no means present a complete record or objectiveevaluation of race-neutral programs in public contracting" (Le Noue &Sullivan, 1995, p. Le Noue, G. Race-Neutral Versus Race-Conscious Minority Preference Policy Approaches Because the racial and ethnic characteristics of the nation's urbanareas have changed dramatically over the past 2 years, strategies forincluding new groups in employment, education, and public contractingopportunities are being debated in most states and cities, as well as atthe federal level of government (Le Noue & Sullivan, 1995, p. Croson decision, similar outcomes occurred. The practice, critics charge, allows minority-ownedcompanies to artificially inflate prices. Many jurisdictions, however, can not make similarchanges without amending laws. The Supreme Court held that aCity of Richmond program setting aside 3 percent of all public contractsfor minority businesses violated the 14th Amendment's equal protectionclause. In the San Francisco v. In thatcase, the Supreme Court ruled 6-3 in 1989 that local governments mustjustify the need for set-aside programs. R., & Sullivan, J. 55). Some minority-preference programs have survived court challenges(Dimeo, 1992, p. 649). In the majorityopinion, Justice Sandra Day O'Connor wrote that a remedy using a racialclassification only could be used if there was proof that racialdiscrimination in public contracting existed. Government takes another look atSection 8(a) program. (1992, 13 November). The San Francisco program,however, does not include set-asides. Eventually, the programs were modeled after the race-conscious programcreated by the Public Works Employment Act of 1977, which requires 1 percent of all federal construction contracts go to businesses owned byminorities (Dimeo, 1992, p. Measuring the impact of set-asideprograms on the minority business sector. 652). In the Richmond case,however, the Supreme Court found that the city showed no evidence thatqualified minority contractors have been passed over for city contracts orsubcontracts, either as a group or in any individual case. (1995, 7September). While some of these programs were race-neutral, others wereprimarily race-conscious, and still others were mixtures of policies basedon local politics, problems, and issues. 65 ). Bondingassistance programs by federal agencies such as the Small BusinessAdministration and the Department of Transportation have long existed."Many disparity studies have . Proposed Solutions: Alternatives to Race-Conscious Policies The most frequently suggested race-neutral enhancement strategy forthe promotion of minority-owned businesses is improved outreach to interestmore firms in government contracting (Le Noue & Sullivan, 1995, p. Optimally, Section 8(a) companies phase out the set-asides and"graduate" into the competitive business world. The changing natureof urban affirmative action programs: The search for race-neutralalternatives. 54). (Dimeo, 1992, p. Henderson, L. Minority Preference Contract Programs Programs to stimulate growth of minority-owned businesses have been inexistence since the late 196 s (Dimeo, 1992, p. From the outset, minority-preference programs have been politicallycontentious (Dimeo, 1992, p. 26). 1115-1116; Dimeo, 1992, p. 1 65-1 66). Programs establishingquotas, goals, or set-asides are typically race-conscious in practicalapplication. 655). 649). Race-conscious minority contract preference programs typically arepromoted on the basis of the findings of so-called "disparity studies" (LeNoue & Sullivan, 1995, p. recommended local changes to address thetwo primary ways in which the bonding process can adversely affect firms:(1) the ability to obtain bonding, and (2) the cost of bonding" (Le Noue &Sullivan, 1995, p. Associatedcase, the Ninth Circuit Court ruled that the city had adequately documentedpast discrimination in the construction industry. (1995, July). FEDERAL GOVERNMENT MINORITY CONTRACTING: A CURRENT MANAGEMENT PERSPECTIVE Introduction The Minority Business Development Agency (MBDA) was established in1969 as the only Federal Agency to specifically intended to increaseopportunities for minority individuals to participate fully in the freeenterprise system through the formation, development and preservation ofcompetitive minority-owned firms (Richardson, 1995, p. Race-conscious programs, by contrast with race-neutral policies,designate beneficiaries belonging only to particular racial or ethnicgroups and often define eligibility in terms of ancestry or culturalidentification (Le Noue & Sullivan, 1995, p. 348). Legislation enacted in 1989 requiresthat Section 8(a) contractors win an increasing share of competitively bidcontracts until, after nine years in the program, they are ready functionwithout support from the program. Approximately one-half of the Section 8(a)-certified companieshave never received a government contract. Regulation and rule changes that could affect purchasing. Public Administration Review, 55(4), 348-356 Nowlin, S. (1995, July). Outreach, however,by itself is not a panacea. DoD suspends minority set aside program. Effectiveness of Minority Preference Contract Programs Elimination of set-aside programs does affect minority contract awards(Theodore, 1995, pp. Race-neutral programs may involve creatingnew laws against discrimination and improving enforcement procedures.Although the anticipation is that minorities more often will be the victimsof discrimination, the laws are worded in race-neutral language to protecteveryone. Another approach might involve the use oftax-exempt industrial bonds to encourage the small firm to eventually enterthe economic mainstream. Criticscontend, however, that the real problem is that the programs createexceptions to the lowest responsible bidder concept that is the backbone ofgovernment spending (Henderson, 1995, pp. Goodman, M. (1995, 24 October). J. Some critics of government contract minority-preference programs claimthat some minority-owned firms take on projects that are larger than theycan handle, and that "graduation" from preference programs is low becauseit is not enforced (Dimeo, 1992, p. International Journal ofPublic Administration, 18(7), 1141-116 . 56). Race neutralprograms in public contracting. To accomplishits mission, MBDA facilitates the delivery of business developmentassistance through professional public and private business serviceproviders, leverages financial resources to foster partnerships among andbetween the public and private sectors, and expands market opportunitiesfor minority-owned firms for both public and private contracting. Subsequent toRichmond v. Such supplemental programs may involve direct loans, loanguarantees, and revolving loans. During the early 198 s, thecourts upheld the most minority-preference programs, but by 1987, set-asideprograms at the state and local levels were being struck down by the courts(Dimeo, 1992, p. Croson" case (Le Noue & Sullivan, 1995, p. Croson, minority contracts in Richmond dropped from 39 percentto two-percent. The Departmentof Defense goal under the program was to award five-percent of allcontracts to such firms. 1 11-1 12). Other critics contend that minority-preference programs haveencouraged some people without management expertise or capital to startbusinesses (Dimeo, 1992, p. C. 55). By 1989, approximately 23 jurisdictions-elements of the federalgovernment, states, cities, counties, and special districts-had minoritypreference programs that also included incentives for women (Dimeo, 1992,p. 55). Inbroad terms, these strategies may be grouped as either (1) race-neutral or(2) race-conscious policies. 24).Justice Department guidelines to agencies for the review state that federalaffirmative action programs should be based on evidence of actualdiscrimination in a particular sector rather than on broad historicdisadvantage or discrimination (Rice, 1995, pp. A. Under the Section 8(a) program,federal contracts are set-aside for minority-owned businesses, givingcertified firms a four-year period during which they may bid on set-asidecontracts and a five-year period during which they must bid on fewer andfewer of the set aside contracts. 54). International Journal of Public Administration, 18(7), 1 65-1 97. At all levels of government, a fewminority-preference programs have been tainted by corruption. . To be certifiedas minority-owned, a business has to be at least 51-percent owned byclassified minorities. The General Accounting Office found that 4 percent of all contract dollars have been concentrated on a group of 5 minority contractors. InPhiladelphia, minority contracting went from 25 percent to two-percent, andin Tucson from 28 percent to zero. Legal Challenges to Minority Preference Contract Programs The first successful challenge to a major minority-preference programwas City of Richmond v. Placing advertisements in minoritypublications is one way to keep these firms informed, especially on smallercontracts which often are not otherwise advertised by the government" (LeNoue 7 Sullivan, 1995, p. Race-conscious advocates tend to arguethat the race-conscious approach is the only just response to pastdiscrimination and the only effective means to achieve equality over theshort term. Outreach is a popular strategy because itis inexpensive and because "it is palatable to both minority and majoritybusiness owners as well as government administrators. . Minorities are classified as Blacks,Hispanics, Asians, Native Americans, Eskimos and Aleuts. Decisions on a firm's bondability are based on awide variety of factors, including the firm's financial health, managementexperience, workload, and history of paying subcontractors. Minority contracting. Race-neutral proponentsbelieve these programs are more compatible with the American tradition ofindividual rights and current civil rights laws, while producing a morestable society over the long term. (1995, September). The most helpful outreach programs aretypically those leading to capital and bonding assistance . 12). L. Bonding is required in public contracting to assure the governmentthat the contractor can satisfactorily complete the project (Le Noue &Sullivan, 1995, p. Purchasing, 119(3), 24-25. Further, General Accounting Officestudies indicate the Small Business Administration has fostered thedevelopment of more minority-owned maintenance firms than society needs. As an example, many minority-owned businesses employ three orfour family members but produce profits of only $3 , to $4 , annually. Most governmental jurisdictions in the past have used combinations ofrace-neutral and race-conscious policies in the development of minority-preference programs (Le Noue & Sullivan, 1995, p. Theodore, N. 54). 54). The Changing Environment of Minority Preference Contracting Federal contracting rules requiring set-asides and other provisionsfavoring minority-owned businesses are under government-wide review alongwith other affirmative action programs in the wake of the Supreme Court'sJune decision upholding an appeal by a white contractor who lost a highwayconstruction contract to an Hispanic firm (Regulation, 1995, p. In other cities that dropped set-aside programs in thewake of the Richmond v. At the heart of this Supreme Court decision is the "strictscrutiny" standard used to review state and local laws that create contractpreferences for minorities. That standard had been used for many years toinvalidate laws and practices that favored whites. 655). (1995, July). Another race-neutral strategy is to reduce barriers that new orotherwise disadvantaged competitors face in specific areas of activity.Again, while the anticipation is that minorities will benefit most fromsuch policies, the programs are written to include all persons defined byincome, residence, age, or other race-neutral categories. International Journal of PublicAdministration, 18(7), 1115-1142. DefenseDaily, 189(16), 1 3-1 5. . 1141-1142). Minority Business DevelopmentAgency helps minority-owned firms overcome export hurdles and compete inthe international marketplace. Such studies are commissioned largely toprovide a factual basis for the continuation of race-conscious programs inpublic contracting, often through set-asides or goal-based preferences.Consequently, "race-neutral programs have not enjoyed a high priority inthese studies and sometimes appear to have been purposefully denigrated tojustify initiation or continuation of race-conscious programs. F.
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