Adarand Constructors v. Mineta Appendix to the Brief for the Respondents

    No. 00-730

In tf)£ Court of tlje Umtrb Mutt#

A d ara nd  Constructors, I n c ., p e t it io n e r

V.

N orman Y. M in e t a , S ecreta r y  
of Tra n spo rta tio n , e t  a l .

ON WRIT OF CERTIORARI 
TO THE UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT

APPENDIX TO THE 
BRIEF FOR THE RESPONDENTS

Rosalind A. Knapp 
Acting General Counsel

Paul M. Geier  
Assistant General Counsel 
for Litigation

Peter J. Plocki 
Senior Trial Attorney

Peter s . Smith
Trial Attorney

Edward V.A. Kussy 
Acting Chief Counsel 
Federal Highway 

Administration 
Department o f Transportation 
Washington, D.C. 20590

Theodore B. Olson 
Solicitor General 
Counsel of Record

Ralph Boyd, J r .
Assistant Attorney General

Paul D. Clement 
Deputy Solicitor General

J effrey a . Lamken 
Assistant to the Solicitor 
General

Mark L. Gross 
Teresa Kwong 
Attorneys
Department of Justice 
Washington, D.C. 20580-0001 
(202) 514-2217



TABLE OF CONTENTS

Page
Appendix A: Relevant constitutional provisions...... ..........  la
Appendix B: Relevant provisions of the Transportation

Equity Act for the 21st Century ...................................  2a
Appendix C: Section 8(d) of the Small Business Act, 15

U.S.C. 637(d)...... ............................................................  8a
Appendix D: Relevant Department of Transportation 

Disadvantaged Business Enterprise Regulations,
64 Fed. Reg. 5127-5148 (1999), to be codified at
49 C.F.R. Pt. 2 6 ............................................................ . 18a

Appendix E: Relevant Federal Acquisition Regulations..... 72a
Appendix F: Department of Justice Guidelines for 

Affirmative Action, 61 Fed. Reg. 26,042-26,063
(1996).....................................      101a

Appendix G: Selected Hearings and Reports,
1972-1995 ..............................................   190a

Appendix H: Hearings on the Surface Transportation
Assistance Act of 1982 ....................................... ...... .....  195a

Appendix I: Hearings and Reports in connection with
ISTEA and TEA-21.............. ..... .......... ........................  196a

Appendix J: Department of Transportation, Federal 
Highway Administration, Central Federal Lands 
Highway Division, Colorado FH 60-2(2), West 
Dolores, Proposal and Contract (Proposal of Moun­
tain Gravel & Construction Company)..... ..................... 198a

( 1 )



APPENDIX A

C o n st it u t io n a l  P r o v isio n s

1. The Spending Clause of the United States Consti­
tution, U.S. Const. Art. 1, § 8, Cl. 1, provides:

The Congress shall have Power To lay and collect Taxes, 
Duties, Imposts and Excises, to pay the Debts and provide 
for the common Defense and general Welfare of the United 
States; but all Duties, Imposts and Excises shall be uniform 
throughout the United States.

2. The Fifth Amendment to the United States Consti­
tution, U.S. Const. Amend. V, provides:

No person shall be held to answer for a capital, or other­
wise infamous crime, unless on a presentment or indictment 
of a Grand Jury, except in cases arising in the land or naval 
forces, or in the Militia, when in actual service in time of War 
or public danger; nor shall any person be subject for the 
same offence to be twice put in jeopardy of life or limb; nor 
shall be compelled in any criminal case to be a witness 
against himself, nor be deprived of life, liberty, or property, 
without due process of law; nor shall private property be 
taken for public use, without just compensation.

3. The Fourteenth Amendment to the United States Con­
stitution, U.S. Const. Amend. XIV, provides in pertinent 
part:

SECTION 1. * * * No state shall * * * deny to any 
person within its jurisdiction the equal protection of the 
laws.

*  *  *  *  *

SECTION 5. The Congress shall have power to enforce, by 
appropriate legislation, the provisions of this article.

(1 )



2a

APPENDIX B

The Transportation Equity Act for the 21st Century

The Transportation Equity Act for the 21st Century, Pub. 
L. No. 105-178, Tit. I, § 1101,112 Stat. I l l ,  provides in 
pertinent part:

An Act
To authorize funds for Federal-aid highways, highway 

safety programs, and transit programs, and for other pur­
poses.

June 9,1998 
[H.R. 2400]

Be it enacted by the Senate and House of Representatives 
of the United States o f America in Congress assembled,

* * * * *

TITLE I—FEDERAL AID HIGHWAYS 

Subtitle A—Authorizations and Programs 

SEC. 1101. AUTHORIZATION OF APPROPRIATIONS.

(a) IN GENERAL.—The following sums are authorized to be 
appropriated out of the Highway Trust Fund (other 
than the Mass Transit Account):

* * * * *

(b) DISADVANTAGED BUSINESS ENTERPRISES.—

(1) GENERAL RULE.—Except to the extent tha t the 
Secretary determines otherwise, not less than 10 percent of 
the amounts made available for any program under titles I, 
III, and V of this Act shall be expended with small business



3a

concerns owned and controlled by socially and economically 
disadvantaged individuals.

(2) DEFINITIONS.—In this subsection, the following 
definitions apply:

(A) SMALL BUSINESS CONCERN.—The term  “small 
business concern” has the meaning such term has under 
section 3 of the Small Business Act (15 U.S.C. 632); 
except that such term shall not include any concern or 
group of concerns controlled by the same socially and 
economically disadvantaged individual or individuals 
which has average annual gross receipts over the pre­
ceding 3 fiscal years in excess of $16,600,000, as adjusted 
by the Secretary for inflation.

(B) SOCIALLY AND ECONOMICALLY DISADVANTAGED 
INDIVIDUALS.—The term  “socially and economically 
disadvantaged individuals” has the meaning such term 
has under section 8(d) of the Small Business Act (15 
U.S.C. 637(d)) and relevant subcontracting regulations 
promulgated pursuant thereto; except that women shall 
be presumed to be socially and economically disadvan­
taged individuals for purposes of this subsection.

(3 ) ANNUAL LISTING OF DISADVANTAGED BUSINESS 
ENTERPRISES.—Each State shall annually survey and 
compile a list of the small business concerns referred to in 
paragraph (1) and the location of such concerns in the State 
and notify the Secretary, in 'writing, of the percentage of 
such concerns wThich are controlled by women, by socially 
and economically disadvantaged individuals (other than 
women), and by individuals who are women and are other­
wise socially and economically disadvantaged individuals.

(4) UNIFORM CERTIFICATION.— The Secretary shall 
establish minimum uniform criteria for State governments to



4a

use in certifying whether a concern qualifies for purposes of 
this subsection. Such minimum uniform criteria shall in­
clude, but not be limited to on-site visits, personal inter­
views, licenses, analysis of stock ownership, listing of equip­
ment, analysis of bonding capacity, listing of work com­
pleted, resume of principal owners, financial capacity, and 
type of work preferred.

(5) COMPLIANCE WITH COURT ORDERS.— Nothing in 
this subsection limits the eligibility of an entity or person to 
receive funds made available under titles I, III, and V of this 
Act, if the entity or person is prevented, in whole or in part, 
from complying with paragraph (1) because a Federal court 
issues a final order in which the court finds that the require­
ment of paragraph (1), or the program established under 
paragraph (1), is unconstitutional.

(6) REVIEW BY COMPTROLLER GENERAL.— Not later 
than 3 years after the date of enactment of this Act, the 
Comptroller General of the United States shall conduct a 
review of, and publish and report to Congress findings and 
conclusions on, the impact throughout the United States of 
administering the requirement of paragraph (1), including an 
analysis of—

(A) in the case of small business concerns certified in 
each State under paragraph (4) as owned and controlled by 
socially and economically disadvantaged individuals—

(i) the number of the small business concerns; and

(ii) the participation rates of the small business 
concerns in prime contracts and subcontracts funded 
under titles I, III, and V of this Act;



5a

(B) in the case of small business concerns described in 
subparagraph (A) that receive prime contracts and sub­
contracts funded under titles I, III, and V of this Act—

(i) the number of the small business concerns;

(ii) the annual gross receipts of the small business 
concerns; and

(iii) the net worth of socially and economically dis­
advantaged individuals that own and control the small 
business concerns;

(C) in the case of small business concerns described in 
subparagraph (A) that do not receive prime contracts and 
subcontracts funded under titles I, III, and V of this Act—

(i) the annual gross receipts of the small business 
concerns; and

(ii) the net worth of socially and economically 
disadvantaged individuals that own and control the 
small business concerns;

(D) in the case of business concerns that receive 
prime contracts and subcontracts funded under titles I, 
III, and V of this Act, other than small business concerns 
described in subparagraph (B)—

(i) the annual gross receipts of the business con­
cerns; and

(ii) the net worth of individuals that own and 
control the business concerns;

(E) the rate of graduation from any programs carried 
out to comply with the requirement of paragraph (1) for 
small business concerns owned and controlled by socially 
and economically disadvantaged individuals;



6a

(F) the overall cost of administering the requirement 
of paragraph (1), including administrative costs, certifica­
tion costs, additional construction costs, and litigation 
costs;

(G) any discrimination on the basis of race, color, 
national origin, or sex against small business concerns 
owned and controlled by socially and economically dis­
advantaged individuals;

(H) (i) any other factors limiting the ability of small 
business concerns owned and controlled by socially and 
economically disadvantaged individuals to compete for 
prime contracts and subcontracts funded under titles I, 
III, and V of this Act; and

(ii) the extent to which any of those factors are 
caused, in whole or in part, by discrimination based on 
race, color, national origin, or sex;

(I) any discrimination, on the basis of race, color, na­
tional origin, or sex, against construction companies owned 
and controlled by socially and economically disadvantaged 
individuals in public and private transportation contracting 
and the financial, credit, insurance, and bond markets;

(J) the impact on small business concerns owned and 
controlled by socially and economically disadvantaged indi­
viduals of—

(i) the issuance of a final order described in 
paragraph (5) by a Federal court that suspends a pro­
gram established under paragraph (1); or

(ii) the repeal or suspension of State or local dis­
advantaged business enterprise programs; and



7a

(K) the impact of the requirement of paragraph (1), 
and any program carried out to comply with paragraph (1), 
on competition and the creation of jobs, including the 
creation of jobs for socially and economically disadvan­
taged individuals.



8a

APPENDIX C
Section  8 (d ) of The Small Business A ct

Section 8(d) of the Small Business Act, 15 U.S.C. 637(d) 
(1994 & Supp. V 1999), as amended Pub. L. No. 106-554, 
§ 1(a)(9) [Tit. VI, § 615(b), Tit. VIII, § 803], 114 Stat. 2763, 
2763A-667, 2763A-701 to 2763A-703, provides in pertinent 
part:

(d) Performance of contracts by small business con­
cerns; inclusion o f required contract clause; subcon­
tracting plans; contract eligibility; incentives; breach 
of contract; review; report to Congress

(1) It is the policy of the United States that small busi­
ness concerns, small business concerns owned and controlled 
by veterans, small business concerns owned and controlled 
by service-disabled veterans, qualified HUBZone small 
business concerns, small business concerns owned and 
controlled by socially and economically disadvantaged in­
dividuals, and small business concerns owned and controlled 
by women, shall have the maximum practicable opportunity 
to participate in the performance of contracts let by any 
Federal agency, including contracts and subcontracts for 
subsystems, assemblies, components, and related services 
for major systems. It is further the policy of the United 
States that its prime contractors establish procedures to 
ensure the timely payment of amounts due pursuant to the 
terms of their subcontracts with small business concerns, 
small business concerns owned and controlled by veterans, 
small business concerns owned and controlled by service- 
disabled veterans, qualified HUBZone small business con­
cerns, small business concerns owned and controlled by 
socially and economically disadvantaged individuals, and 
small business concerns owned and controlled by women.



9a

(2) The clause stated in paragraph (3) shall be included in 
all contracts let by any Federal agency except any contract 
which—

(A) does not exceed the simplified acquisition threshold;

(B) including all subcontracts under such contracts will 
be performed entirely outside of any State, territory, or 
possession of the United States, the District of Columbia, 
or the Commonwealth of Puerto Rico; or

(C) is for services which are personal in nature.

(3) The clause required by paragraph (2) shall be as 
follows:

“(A) It is the policy of the United States that small busi­
ness concerns, small business concerns owned and controlled 
by veterans, small business concerns owned and controlled 
by service-disabled veterans, qualified HUBZone small bus­
iness concerns, small business concerns owned and con­
trolled by socially and economically disadvantaged indi­
viduals, and small business concerns owned and controlled 
by women shall have the maximum practicable opportunity 
to participate in the performance of contracts let by any 
Federal agency, including contracts and subcontracts for 
subsystems, assemblies, components, and related services 
for major systems. It is further the policy of the United 
States that its prime contractors establish procedures to 
ensure the timely payment of amounts due pursuant to the 
terms of their subcontracts with small business concerns, 
small business concerns owned and controlled by veterans, 
small business concerns owned and controlled by service- 
disabled veterans, qualified HUBZone small business con­
cerns, small business concerns owned and controlled by 
socially and economically disadvantaged individuals, and 
small business concerns owned and controlled by women.



10a

“(B) The contractor hereby agrees to carry out this po­
licy in the awarding of subcontracts to the fullest extent con­
sistent with the efficient performance of this contract. The 
contractor further agrees to cooperate in any studies or sur­
veys as may be conducted by the United States Small Busi­
ness Administration or the awarding agency of the United 
States as may be necessary to determine the extent of the 
contractor’s compliance with this clause.

“(C) As used in this contract, the term ‘small business 
concern’ shall mean a small business as defined pursuant to 
section 3 of the Small Business Act [15 U.S.C. 632] and rele­
vant regulations promulgated pursuant thereto. The term 
‘small business concern owned and controlled by socially and 
economically disadvantaged individuals’ shall mean a small 
business concern—

“(i) which is at least 51 per centum owned by one or 
more socially and economically disadvantaged individuals; 
or, in the case of any publicly owned business, at least 51 
per centum of the stock of which is owned by one or more 
socially and economically disadvantaged individuals; and

“(ii) whose management and daily business operations 
are controlled by one or more of such individuals.

“The contractor shall presume that socially and eco­
nomically disadvantaged individuals include Black 
Americans, Hispanic Americans, Native Americans, 
Asian Pacific Americans, and other minorities, or any 
other individual found to be disadvantaged by the Ad­
ministration pursuant to section 8(a) of the Small Busi­
ness Act [15 U.S.C. 637(a)],

“(D) The term ‘small business concern owned and con­
trolled by women’ shall mean a small business concern—

“(i) which is at least 51 per centum owned by one or 
more women; or, in the case of any publicly owned busi-



11a

ness, at least 51 per centum of the stock of which is owned 
by one or more women; and

“(ii) whose management and daily business operations 
are controlled by one or more women.

“(E) The term ‘small business concern owned and con­
trolled by veterans’ shall mean a small business concern—

“(i) which is at least 51 per centum owned by one or 
more eligible veterans; or, in the case of any publicly 
owned business, at least 51 per centum of the stock of 
which is owned by one or more veterans; and

“(ii) whose management and daily business operations 
are controlled by such veterans. The contractor shall 
treat as veterans all individuals who are veterans within 
the meaning of the term under section 632(q) of this title.
“(F) Contractors acting in good faith may rely on 

written representations by their subcontractors regarding 
their status as either a small business concern, small 
business concern owned and controlled by veterans, small 
business concerns owned and controlled by service-disabled 
veterans, a small business concern owned and controlled by 
socially and economically disadvantaged individuals, or a 
small business concern owned and controlled by women.

“(G) In this contract, the term  ‘qualified HUBZone 
small business concern’ has the meaning given that term in 
section 632(p) of this Title.”

(4)(A) Each solicitation of an offer for a contract to be let 
by a Federal agency which is to be awarded pursuant to the 
negotiated method of procurement and which may exceed 
$1,000,000, in the case of a contract for the construction of 
any public facility, or $500,000, in the case of all other con­
tracts, shall contain a clause notifying potential offering com­
panies of the provisions of this subsection relating to con-



12a

tracts awarded pursuant to the negotiated method of pro­
curement.

(B) Before the award of any contract to be let, or any 
amendment or modification to any contract let, by any 
Federal agency which—

(i) is to be awarded, or was let, pursuant to the nego­
tiated method of procurement,

(ii) is required to include the clause stated in para­
graph (3),

(iii) may exceed $1,000,000 in the case of a contract 
for the construction of any public facility, or $500,000 in 
the case of all other contracts, and

(iv) which offers subcontracting possibilities,

the apparent successful offeror shall negotiate with the pro­
curement authority a subcontracting plan which incorpo­
rates the information prescribed in paragraph (6). The sub­
contracting plan shall be included in and made a material 
part of the contract.

(C) If, within the time limit prescribed in regulations of 
the Federal agency concerned, the apparent successful of­
feror fails to negotiate the subcontracting plan required by 
this paragraph, such offeror shall become ineligible to be 
awarded the contract. Prior compliance of the offeror with 
other such subcontracting plans shall be considered by the 
Federal agency in determining the responsibility of that 
offeror for the award of the contract.

(D) No contract shall be awarded to any offeror unless 
the procurement authority determines that the plan to be 
negotiated by the offeror pursuant to this paragraph pro­
vides the maximum practicable opportunity for small busi­
ness concerns, qualified HUBZone small business concerns, 
small business concerns owned and controlled by veterans,



13a

small business concerns owned and controlled by service- 
disabled veterans, small business concerns owned and 
controlled by socially and economically disadvantaged in­
dividuals, and small business concerns owned and controlled 
by women to participate in the performance of the contract.

(E) Notwithstanding any other provision of law, every 
Federal agency, in order to encourage subcontracting oppor­
tunities for small business concerns, small business concerns 
owned and controlled by veterans, small business concerns 
owned and controlled by service-disabled veterans, qualified 
HUBZone small business concerns, and small business con­
cerns owned and controlled by the socially and economically 
disadvantaged individuals as defined in paragraph (3) of this 
subsection and for small business concerns owned and con­
trolled by women, is hereby authorized to provide such in­
centives as such Federal agency may deem appropriate in 
order to encourage such subcontracting opportunities as may 
be commensurate with the efficient and economical per­
formance of the contract: Provided, That, this subparagraph 
shall apply only to contracts let pursuant to the negotiated 
method of procurement.

(F) (i) Each contract subject to the requirements of this 
paragraph or paragraph (5) shall contain a clause for the pay­
ment of liquidated damages upon a finding that a prime con­
tractor has failed to make a good faith effort to comply with 
the requirem ents imposed on such contractor by this 
subsection.

(ii) The contractor shall be afforded an opportunity to 
demonstrate a good faith effort regarding compliance prior 
to the contracting officer’s final decision regarding the im­
position of damages and the amount thereof. The final deci­
sion of a contracting officer regarding the contractor’s obli­
gation to pay such damages, or the amounts thereof, shall be



14a

subject to the Contract Disputes Act of 1978 (41 U.S.C. 601- 
613).

(iii) Each agency shall ensure that the goals offered by 
the apparent successful bidder or offeror are attainable in 
relation to—

(I) the subcontracting opportunities available to the 
contractor, commensurate with the efficient and 
economical performance of the contract;

(II) the pool of eligible subcontractors available to 
fulfill the subcontracting opportunities; and

(III) the actual performance of such contractor in ful­
filling the subcontracting goals specified in prior plans.

(G) The following factors shall be designated by the 
Federal agency as significant factors for purposes of 
evaluating offers for a bundled contract where the head of 
the agency determines that the contract offers a significant 
opportunity for subcontracting:

(i) A factor that is based on the ra te  provided 
under the subcontracting plan for small business partici­
pation in the performance of the contract.

(ii) For the evaluation of past performance of an 
offeror, a factor that is based on the extent to which the 
offeror attained applicable goals for small business 
participation in the performance of contracts.

(5)(A) Each solicitation of a bid for any contract to be let, 
or any amendment or modification to any contract let, by any 
Federal agency which—

(i) is to be av?arded pursuant to the formal 
advertising method of procurement,

(ii) is required to contain the clause stated in 
paragraph (3) of this subsection,



15a

(iii) may exceed $1,000,000 in the case of a contract 
for the construction of any public facility, or $500,000, in 
the case of all other contracts, and

(iv) offers subcontracting possibilities,

shall contain a clause requiring any bidder who is selected 
to be awarded a contract to submit to the Federal agency 
concerned a subcontracting plan which incorporates the 
information prescribed in paragraph (6).

(B) If, within the time limit prescribed in regulations of 
the Federal agency concerned, the bidder selected to be 
awarded the contract fails to submit the subcontracting plan 
required by this paragraph, such bidder shall become in­
eligible to be awarded the contract. Prior compliance of the 
bidder with other such subcontracting plans shall be con­
sidered by the Federal agency in determining the res­
ponsibility of such bidder for the award of the contract. The 
subcontracting plan of the bidder awarded the contract shall 
be included in and made a material part of the contract.

(6) Each subcontracting plan required under paragraph (4) 
or (5) shall include—

(A) percentage goals for the utilization as sub­
contractors of small business concerns, small business 
concerns owned and controlled by veterans, small busi­
ness concerns owned and controlled by service-disabled 
veterans, qualified HUBZone small business concerns, 
small business concerns owned and controlled by socially 
and economically disadvantaged individuals, and small 
business concerns owned and controlled by women;

(B) the name of an individual within the employ of the 
offeror or bidder who will administer the subcontracting 
program of the offeror or bidder and a description of the 
duties of such individual;



16a

(C) a description of the efforts the offeror or bidder 
will take to assure that small business concerns, small 
business concerns owned and controlled by veterans, 
small business concerns owned and controlled by service- 
disabled veterans, qualified HUBZone small business 
concerns, small business concerns owned and controlled 
by socially and economically disadvantaged individuals, 
and small business concerns owned and controlled by 
women will have an equitable opportunity to compete for 
subcontracts;

(D) assurances that the offeror or bidder will include 
the clause required by paragraph (2) of this subsection in 
all subcontracts which offer fu rther subcontracting 
opportunities, and that the offeror or bidder will require 
all subcontractors (except small business concerns) who 
receive subcontracts in excess of $1,000,000 in the case of 
a contract for the construction of any public facility, or in 
excess of $500,000 in the case of all other contracts, to 
adopt a plan similar to the plan required under paragraph 
(4) or (5);

(E) assurances that the offeror or bidder will submit 
such periodic reports and cooperate in any studies or 
surveys as may be required by the Federal agency or the 
Administration in order to determine the extent of com­
pliance by the offeror or bidder with the subcontracting 
plan; and

(F) a recitation of the types of records the successful 
offeror or bidder will maintain to demonstrate procedures 
which have been adopted to comply w ith the 
requirements and goals set forth in this plan, including 
the establishment of source lists of small business con­
cerns, small business concerns owned and controlled by 
veterans, small business concerns owned and controlled 
by service-disabled veterans, qualified HUBZone small



17a

business concerns, small business concerns owned and 
controlled by socially and economically disadvantaged 
individuals, and small business concerns owned and 
controlled by women; and efforts to identify and award 
subcontracts to such small business concerns.

(7) The provisions of paragraphs (4), (5), and (6) shall not 
apply to offerors or bidders who are small business concerns.

(8) The failure of any contractor or subcontractor to com­
ply in good faith with—

(A) the clause contained in paragraph (3) of this sub­
section, or

(B) any plan required of such contractor pursuant to the 
authority of this subsection to be included in its contract or 
subcontract,

shall be a material breach of such contract or subcontract.



18a

APPENDIX D

Department of Transportation Disadvantaged 
Business Enterprise Regulations

The Department of Transportations Disadvantaged Bus­
iness Enterprise Regulations, 64 Fed. Reg. 5127-5148 (1999), 
to be codified at 49 C.F.R. Pt. 26, provide in pertinent part:

§ 26.1 What are the objectives o f this part?

This part seeks to achieve several objectives:

(a) To ensure nondiscrimination in the award and 
administration of DOT-assisted contracts in the Depart­
ment’s highway, transit, and airport financial assistance pro­
grams;

(b) To create a level playing field on which DBEs can 
compete fairly for DOT-assisted contracts;

(c) To ensure that the Department’s DBE program is 
narrowly tailored in accordance with applicable law;

(d) To ensure that only firms that fully meet this part’s 
eligibility standards are permitted to participate as DBEs;

(e) To help remove barriers to the participation of DBEs 
in DOT-assisted contracts;

(f) To assist the development of firms that can compete 
successfully in the marketplace outside the DBE program; 
and

(g) To provide appropriate flexibility to recipients of 
Federal financial assistance in establishing and providing 
opportunities for DBEs.



19a

§ 26.3 To whom does this p a rt apply?

(a) If you are a recipient of any of the following types of 
funds, this part applies to you:

(1) Federal-aid highway funds authorized under Titles I 
(other than P art B) and V of the Intermodal Surface 
Transportation Efficiency Act of 1991 (ISTEA), Pub. L. 102- 
240, 105 Stat. 1914, or Titles I, III, and V of the Trans­
portation Equity Act for the 21st Century (TEA-21), Pub. L. 
105-178,112 Stat. 107.

(2) Federal transit funds authorized by Titles I, III, V 
and VI of ISTEA, Pub. L. 102-240 or by Federal transit laws 
in Title 49, U.S. Code, or Titles I, III, and V of the TEA-21, 
Pub. L. 105-178.

(3) Airport funds authorized by 49 U.S.C. 47101, et seq.

(b) [Reserved]

(c) If you are letting a contract, and that contract is to be 
performed entirely outside the United States, its territories 
and possessions, Puerto Rico, Guam, or the Northern 
Marianas Islands, this part does not apply to the contract.

(d) If you are letting a contract in which DOT financial 
assistance does not participate, this part does not apply to 
the contract.



20a

§ 26.5 What do the terms used in this part mean?

Contractor means one who participates, through a con­
tract or subcontract (at any tier), in a DOT-assisted highway, 
transit, or airport program.

Department or DOT means the U.S. D epartm ent of 
Transportation, including the Office of the Secretary, the 
Federal Highway Administration (FHWA), the Federal 
Transit Administration (FTA), and the Federal Aviation 
Administration (FAA).

Disadvantaged business enterprise or DBE  means a for- 
profit small business concern—

(1) That is at least 51 percent owned by one or more 
individuals who are both socially and economically disad­
vantaged or, in the case of a corporation, in which 51 percent 
of the stock is owned by one or more such individuals; and

(2) Whose management and daily business operations 
are controlled by one or more of the socially and eco­
nomically disadvantaged individuals who own it.

DOT-assisted contract means any contract between a 
recipient and a contractor (at any tier) funded in whole or in 
part with DOT financial assistance, including letters of credit 
or loan guarantees, except a contract solely for the purchase 
of land.

Good fa ith  efforts means efforts to achieve a DBE goal or 
other requirement of this part which, by their scope, inten­
sity, and appropriateness to the objective, can reasonably be 
expected to fulfill the program requirement.



21a

Personal net worth means the net value of the assets of an 
individual remaining after total liabilities are deducted. An 
individual’s personal net worth does not include: The indi­
vidual’s ownership interest in an applicant or participating 
DBE firm; or the individual’s equity in his or her primary 
place of residence. An individual’s personal net worth 
includes only his or her own share of assets held jointly or as 
community property with the individual’s spouse.

Primary industry classification means the four digit 
Standard Industrial Classification (SIC) code designation 
which best describes the primary business of a firm. The 
SIC code designations are described in the Standard In­
dustry Classification Manual. As the North American Indus­
trial Classification System (NAICS) replaces the SIC 
system, references to SIC codes and the SIC Manual are 
deemed to refer to the NAICS manual and applicable codes. 
The SIC Manual and the NAICS Manual are available 
through the National Technical Information Service (NTIS) 
of the U.S. Department of Commerce (Springfield, VA, 
22261). NTIS also makes materials available through its 
web site (www.ntis.gov/naics).

Race-conscious measure or program is one that is focused 
specifically on assisting only DBEs, including women-owned 
DBEs.

Race-neutral measure or program is one that is, or can be, 
used to assist all small businesses. For the purposes of this 
part, race-neutral includes gender-neutrality.

Recipient is any entity, public or private, to which DOT fi­
nancial assistance is extended, whether directly or through 
another recipient, through the programs of the FAA, 
FHWA, or FTA, or who has applied for such assistance.

http://www.ntis.gov/naics


22a

Secretary means the Secretary of Transportation or 
his/her designee.

Set-aside means a contracting practice restricting eligi­
bility for the competitive award of a contract solely to DBE 
firms.

Sm all Business Adm inistration or SB A  means the 
United States Small Business Administration.

Sm all business concern means, with respect to firms 
seeking to participate as DBEs in DOT-assisted contracts, a 
small business concern as defined pursuant to section 3 of 
the Small Business Act and Small Business Administration 
regulations implementing it (13 CFR part 121) that also does 
not exceed the cap on average annual gross receipts speci­
fied in § 26.65(b).

Socially and economically disadvantaged individual 
means any individual who is a citizen (or lawfully admitted 
permanent resident) of the United States and who is—

(1) Any individual who a recipient finds to be a socially 
and economically disadvantaged individual on a case-by-case 
basis.

(2) Any individual in the following groups, members of 
which are rebuttably presumed to be socially and eco­
nomically disadvantaged:

(i) “Black Americans,” which includes persons having 
origins in any of the Black racial groups of Africa;

(ii) “Hispanic Americans,” which includes persons of 
Mexican, Puerto Rican, Cuban, Dominican, Central or South 
American, or other Spanish or Portuguese culture or origin, 
regardless of race;



28a

(iii) “Native Americans,” which includes persons who 
are American Indians, Eskimos, Aleuts, or Native 
Hawaiians;

(iv) “Asian-Pacific Americans,” which includes persons 
whose origins are from Japan, China, Taiwan, Korea, Burma 
(Myanmar), Vietnam, Laos, Cambodia (Kampuchea), 
Thailand, Malaysia, Indonesia, the Philippines, Brunei, 
Samoa, Guam, the U.S. Trust Territories of the Pacific 
Islands (Republic of Palau), the Commonwealth of the 
Northern Marianas Islands, Macao, Fiji, Tonga, Kirbati, 
Juvalu, Nauru, Federated States of Micronesia, or Hong 
Kong;

(v) “Subcontinent Asian Americans,” which includes 
persons whose origins are from India, Pakistan, Bangladesh, 
Bhutan, the Maldives Islands, Nepal or Sri Lanka;

(vi) Women;

(vii) Any additional groups whose members are 
designated as socially and economically disadvantaged by 
the SBA, at such time as the SBA designation becomes 
effective.

Tribally-owned concern means any concern at least 51 
percent owned by an Indian tribe as defined in this section.

You refers to a recipient, unless a statement in the text of 
this part or the context requires otherwise (i.e., ‘You must 
do XYZ’ means that recipients must do XYZ).

§ 26.7 What discriminatory actions are forbidden?

(a) You must never exclude any person from partici­
pation in, deny any person the benefits of, or otherwise 
discriminate against anyone in connection with the award



24a

and performance of any contract covered by this part on the 
basis of race, color, sex, or national origin.

(b) In administering your DBE program, you must not, 
directly or through contractual or other arrangements, use 
criteria or methods of administration that have the effect of 
defeating or substantially impairing accomplishment of the 
objectives of the program with respect to individuals of a 
particular race, color, sex, or national origin.

§ 26.13 What assurances must recipients and contrac­
tors make?

(a) Each financial assistance agreement you sign with a 
DOT operating administration (or a primary recipient) must 
include the following assurance:

The recipient shall not discriminate on the basis of race, 
color, national origin, or sex in the award and performance of 
any DOT-assisted contract or in the administration of its 
DBE program or the requirements of 49 CFR part 26. The 
recipient shall take all necessary and reasonable steps under 
49 CFR part 26 to ensure nondiscrimination in the award 
and administration of DOT-assisted contracts. The recipi­
ent’s DBE program, as required by 49 CFR part 26 and as 
approved by DOT, is incorporated by reference in this agree­
ment. Implementation of this program is a legal obligation 
and failure to carry out its terms shall be treated as a vio­
lation of this agreement. Upon notification to the recipient 
of its failure to carry out its approved program, the De­
partment may impose sanctions as provided for under part 
26 and may, in appropriate cases, refer the m atter for en­
forcement under 18 U.S.C. 1001 and/or the Program Fraud 
Civil Remedies Act of 1986 (31 U.S.C. 3801 et seq.).



25a

(b) Each contract you sign with a contractor (and each 
subcontract the prime contractor signs with a subcontractor) 
must include the following assurance:

The contractor, sub recipient or subcontractor shall not 
discriminate on the basis of race, color, national origin, or sex 
in the performance of this contract. The contractor shall 
carry out applicable requirements of 49 CFR part 26 in the 
award and administration of DOT-assisted contracts. Fail­
ure by the contractor to carry out these requirements is a 
material breach of this contract, which may result in the 
termination of this contract or such other remedy as the 
recipient deems appropriate.

§ 26.15 How can recipients apply for exemptions or 
waivers?

(a) You can apply for an exemption from any provision of 
this part. To apply, you must request the exemption in 
writing from the Office of the Secretary of Transportation, 
FHWA, FTA, or FAA. The Secretary will grant the request 
only if it documents special or exceptional circumstances, not 
likely to be generally applicable, and not contemplated in 
connection with the rulemaking that established this part, 
that make your compliance with a specific provision of this 
part impractical. You must agree to take any steps that the 
Department specifies to comply with the intent of the provi­
sion from which an exemption is granted. The Secretary will 
issue a written response to all exemption requests.

(b) You can apply for a waiver of any provision of Sub­
part B or C of this part including, but not limited to, any pro­
visions regarding administrative requirements, overall goals, 
contract goals or good faith efforts. Program waivers are for 
the purpose of authorizing you to operate a DBE program 
that achieves the objectives of this part by means that may



26a

differ from one or more of the requirements of Subpart B or 
C of this part. To receive a program waiver, you must follow 
these procedures:

(1) You must apply through the concerned operating 
administration. The application must include a specific pro­
gram proposal and address how you will meet the criteria of 
paragraph (b)(2) of this section. Before submitting your 
application, you must have had public participation in devel­
oping your proposal, including consultation with the DBE 
community and at least one public hearing. Your application 
must include a summary of the public participation process 
and the information gathered through it.

(2) Your application must show that—

(i) There is a reasonable basis to conclude that you could 
achieve a level of DBE participation consistent with the 
objectives of this part using different or innovative means 
other than those that are provided in subpart B or C of this 
part;

(ii) Conditions in your jurisdiction are appropriate for 
implementing the proposal;

(iii) Your proposal would prevent discrimination against 
any individual or group in access to contracting opportuni­
ties or other benefits of the program; and

(iv) Your proposal is consistent with applicable law and 
program requirements of the concerned operating admini­
stration’s financial assistance program.

(3) The Secretary has the authority to approve your 
application. If the Secretary grants your application, you 
may administer your DBE program as provided in your pro­
posal, subject to the following conditions:



27a

(i) DBE eligibility is determined as provided in subparts 
D and E of this part, and DBE participation is counted as 
provided in § 26.49;

(ii) Your level of DBE participation continues to be con­
sistent with the objectives of this part;

(iii) There is a reasonable limitation on the duration of 
your modified program; and

(iv) Any other conditions the Secretary makes on the 
grant of the waiver.

(4) The Secretary may end a program waiver at any time 
and require you to comply with this part’s provisions. The 
Secretary may also extend the waiver, if he or she deter­
mines that all requirements of paragraphs (b)(2) and (3) of 
this section continue to be met. Any such extension shall be 
for no longer than period originally set for the duration of 
the program.

Subpart B—Administrative Requirements for DBE Pro­
grams for Federally-Assisted Contracting

§ 26.21 Who must have a DBE program?

(a) If you are in one of these categories and let DOT- 
assisted contracts, you must have a DBE program meeting 
the requirements of this part:

(1) All FHWA recipients receiving funds authorized by a 
statute to which this part applies;

(2) FTA recipients that receive $250,000 or more in FTA 
planning, capital, and/or operating assistance in a Federal 
fiscal year;

(3) FAA recipients that receive a grant of $250,000 or 
more for airport planning or development.



28a

(b) (1) You must submit a DBE program conforming to this 
part by August 31, 1999 to the concerned operating admin­
istration (OA). Once the OA has approved your program, 
the approval counts for all of your DOT-assisted programs 
(except th a t goals are reviewed and approved by the 
particular operating administration that provides funding for 
your DOT-assisted contracts).

(2) You do not have to submit regular updates of 
your DBE programs, as long as you remain in compliance. 
However, you must submit significant changes in the pro­
gram for approval.

(c) You are not eligible to receive DOT financial assis­
tance unless DOT has approved your DBE program and you 
are in compliance with it and this part. You must continue to 
carry out your program until all funds from DOT financial 
assistance have been expended.

* * * * *

§ 26.29 What prompt payment m echanism s must 
recipients have?

(a) You must establish, as part of your DBE program, a 
contract clause to require prime contractors to pay subcon­
tractors for satisfactory performance of their contracts no 
later than a specific number of days from receipt of each 
payment you make to the prime contractor. This clause 
must also require the prompt return of retainage payments 
from the prime contractor to the subcontractor within a 
specific number of days after the subcontractor’s work is 
satisfactorily completed.

(1) This clause may provide for appropriate penal ties for 
failure to comply, the terms and conditions of which you set.



29a

(2) This clause may also provide that any delay or post­
ponement of payment among the parties may take place only 
for good cause, with your prior written approval.

(b) You may also establish, as part of your DBE pro­
gram, any of the following additional mechanisms to ensure 
prompt payment:

(1) A contract clause that requires prime contractors to 
include in their subcontracts language providing that prime 
contractors and subcontractors will use appropriate alter­
native dispute resolution mechanisms to resolve payment 
disputes. You may specify the nature of such mechanisms.

(2) A contract clause providing that the prime contractor 
will not be reimbursed for work performed by subcon­
tractors unless and until the prime contractor ensures that 
the subcontractors are promptly paid for the work they have 
performed.

(3) Other mechanisms, consistent with this part and 
applicable state and local law, to ensure that DBEs and other 
contractors are fully and promptly paid.

§ 26.31 W hat requirem ents p e rta in  to  the DBE direc­
tory?

You must maintain and make available to interested per­
sons a directory identifying all firms eligible to participate as 
DBEs in your program. In the listing for each firm, you 
must include its address, phone number, and the types of 
work the firm has been certified to perform as a DBE. You 
must revise your directory at least annually and make up­
dated information available to contractors and the public on 
request.



30a

§ 26.33 What steps must a recipient take to address 
overconcentration of DBEs in certain types o f work?

(a) If  you determine tha t DBE firms are so over­
concentrated in a certain type of work as to unduly burden 
the opportunity of non-DBE firms to participate in this type 
of work, you must devise appropriate measures to address 
this overconcentration.

(b) These measures may include the use of incentives, 
technical assistance, business development programs, 
mentor-protege programs, and other appropriate measures 
designed to assist DBEs in performing work outside of the 
specific field in which you have determined that non-DBEs 
are unduly burdened. You may also consider varying your 
use of contract goals, to the extent consistent with § 26.51, to 
ensure that non-DBEs are not unfairly prevented from com­
peting for subcontracts.

(c) You must obtain the approval of the concerned DOT 
operating administration for your determination of over­
concentration and the measures you devise to address it. 
Once approved, the measures become part of your DBE 
program.

*  *  *  *  *

Subpart C—Goals, Good Faith Efforts, and Counting

§ 26.41 What is the role o f the statutory 10 percent 
goal in this program?

(a) The statutes authorizing this program provide that, 
except to the extent the Secretary determines otherwise, 
not less than 10 percent of the authorized funds are to be 
expended with DBEs.



31a

(b) This 10 percent goal is an aspirational goal at the 
national level, which the Department uses as a tool in 
evaluating and monitoring DBEs’ opportunities to partici­
pate in DOT-assisted contracts.

(c) The national 10 percent goal does not authorize or 
require recipients to set overall or contract goals at the 10 
percent level, or any other particular level, or to take any 
special administrative steps if their goals are above or below 
10 percent.

§ 26.43 Can recipients use set-asides or quotas as 
part of this program?

(a) You are not permitted to use quotas for DBEs on 
DOT-assisted contracts subject to this part.

(b) You may not set-aside contracts for DBEs on DOT- 
assisted contracts subject to this part, except that, in limited 
and extreme circumstances, you may use set-asides when no 
other method could be reasonably expected to redress 
egregious instances of discrimination.

§ 26.45 How do recipients set overall goals?

(a) You must set an overall goal for DBE participation in 
your DOT-assisted contracts.

(b) Your overall goal must be based on demonstrable 
evidence of the availability of ready, willing and able DBEs 
relative to all businesses ready, willing and' able to partici­
pate on your DOT-assisted contracts (hereafter, the “rela­
tive availability of DBEs”)- The goal must reflect your 
determination of the level of DBE participation you would 
expect absent the effects of discrimination. You cannot 
simply rely on either the 10 percent national goal, your pre­
vious overall goal or past DBE participation rates in your



32a

program without reference to the relative availability of 
DBEs in your market.

(c) Step 1. You must begin your goal setting process by 
determining a base figure for the relative availability of 
DBEs. The following are examples of approaches that you 
may take toward determining a base figure. These examples 
are provided as a starting point for your goal setting process. 
Any percentage figure derived from one of these examples 
should be considered a basis from which you begin when 
examining all evidence available in your jurisdiction. These 
examples are not intended as an exhaustive list. Other 
methods or combinations of methods to determine a base fig­
ure may be used, subject to approval by the concerned 
operating administration.

(1) Use DBE Directories and Census Bureau Data. 
Determine the number of ready, willing and able DBEs in 
your m arket from your DBE directory. Using the Census 
Bureau’s County Business Pattern (CBP) data base, deter­
mine the number of all ready, willing and able businesses 
available in your market that perform work in the same SIC 
codes. (Information about the CBP data base may be 
obtained from the Census Bureau at their web site, 
www.census.gov/epcd/cbp/view/cbpview.html.) Divide the 
number of DBEs by the number of all businesses to derive a 
base figure for the relative availability of DBEs in your 
market.

(2) Use a bidders list. Determine the number of DBEs 
that have bid or quoted on your DOT-assisted prime con­
tracts or subcontracts in the previous year. Determine the 
number of all businesses that have bid or quoted on prime or 
subcontracts in the same time period. Divide the number of 
DBE bidders and quoters by the number for all businesses

http://www.census.gov/epcd/cbp/view/cbpview.html


33a

to derive a base figure for the relative availability of DBEs 
in your market.

(3) Use data from  a disparity study. Use a percentage 
figure derived from data in a valid, applicable disparity 
study.

(4) Use the goal o f another DOT recipient. If another 
DOT recipient in the same, or substantially similar, market 
has set an overall goal in compliance with this rule, you may 
use that goal as a base figure for your goal.

(5) Alternative methods. Subject to the approval of the 
DOT operating administration, you may use other methods 
to determine a base figure for your overall goal. Any meth­
odology you choose must be based on demonstrable evidence 
of local market conditions and be designed to ultimately 
attain a goal tha t is rationally related to the relative 
availability of DBEs in your market.

(d) Step 2. Once you have calculated a base figure, you 
must examine all of the evidence available in your juris­
diction to determine what adjustment, if any, is needed to 
the base figure in order to arrive at your overall goal.

(1) There are many types of evidence that must be 
considered when adjusting the base figure. These include:

(i) The current capacity of DBEs to perform work in 
your DOT-assisted contracting program, as measured by the 
volume of work DBEs have performed in recent years;

(ii) Evidence from disparity studies conducted anywhere 
within your jurisdiction, to the extent it is not already ac­
counted for in your base figure; and



34a

(iii) If your base figure is the goal of another recipient, 
you must adjust it for differences in your local market and 
your contracting program.

(2) You may also consider available evidence from 
related fields that affect the opportunities for DBEs to form, 
grow and compete. These include, but are not limited to:

(i) Statistical disparities in the ability of DBEs to get 
the financing, bonding and insurance required to participate 
in your program;

(ii) Data on employment, self-employment, education, 
training and union apprenticeship programs, to the extent 
you can relate it to the opportunities for DBEs to perform in 
your program.

(3) If you attempt to make an adjustment to your base 
figure to account for the continuing effects of past discrimi­
nation (often called the “but for” factor) or the effects of an 
ongoing DBE program, the adjustment must be based on 
demonstrable evidence that is logically and directly related 
to the effect for which the adjustment is sought.

(e) Once you have determined a percentage figure in 
accordance with paragraphs (c) and (d) of this section, you 
should express your overall goal as follows:

(1) If you are an FHWA recipient, as a percentage of all 
Federal-aid highway funds you will expend in FHWA-as- 
sisted contracts in the forthcoming fiscal year;

(2) If you are an FT A or FAA recipient, as a percentage 
of all FTA or FAA funds (exclusive of FTA funds to be used 
for the purchase of transit vehicles) that you will expend in 
FTA or FAA-assisted contracts in the forthcoming fiscal 
year. In appropriate cases, the FTA or FAA Administrator 
may permit you to express your overall goal as a percentage



35a

of funds for a particular grant or project or group of grants 
and/or projects.

(f)(1) If you set overall goals on a fiscal year basis, you 
must submit them to the applicable DOT operating admini­
stration for review on August 1 of each year, unless the 
Administrator of the concerned operating administration 
establishes a different submission date.

(2) If you are an FTA or FAA recipient and set your 
overall goal on a project or grant basis, you must submit the 
goal for review at a time determined by the FTA or FAA 
Administrator.

(3) You must include with your overall goal submission a 
description of the methodology you used to establish the 
goal, including your base figure and the evidence with which 
it was calculated, and the adjustments you made to the base 
figure and the evidence relied on for the adjustments. You 
should also include a summary listing of the relevant avail­
able evidence in your jurisdiction and, where applicable, an 
explanation of why you did not use that evidence to adjust 
your base figure. You must also include your projection of 
the portions of the overall goal you expect to meet through 
race-neutral and race-conscious measures, respectively (see 
§ 26.51(c)).

(4) You are not required to obtain prior operating ad­
ministration concurrence with the your overall goal. How­
ever, if the operating administration’s review suggests that 
your overall goal has not been correctly calculated, or that 
your method for calculating goals is inadequate, the oper­
ating administration may, after consulting with you, adjust 
your overall goal or require that you do so. The adjusted 
overall goal is binding on you.



36a

(5) If you need additional time to collect data or take 
other steps to develop an approach to setting overall goals, 
you may request the approval of the concerned operating 
administration for an interim goal and/or goal-setting mecha­
nism. Such a mechanism must:

(i) Reflect the relative availability of DBEs in your local 
market to the maximum extent feasible given the data avail­
able to you; and

(ii) Avoid imposing undue burdens on non-DBEs.

(g) In establishing an overall goal, you must provide for 
public participation. This public participation must include:

(1) Consultation with minority, women’s and general 
contractor groups, community organizations, and other offi­
cials or organizations which could be expected to have in­
formation concerning the availability of disadvantaged and 
non-disadvantaged businesses, the effects of discrimination 
on opportunities for DBEs, and your efforts to establish a 
level playing field for the participation of DBEs.

(2) A published notice announcing your proposed overall 
goal, informing the public that the proposed goal and its 
rationale are available for inspection during normal business 
hours at your principal office for 30 days following the date 
of the notice, and informing the public that you and the 
Department will accept comments on the goals for 45 days 
from the date of the notice. The notice must include ad­
dresses to which comments may be sent, and you must pub­
lish it in general circulation media and available minority- 
focused media and trade association publications.

(h) Your overall goals must provide for participation by 
all certified DBEs and must not be subdivided into group- 
specific goals.



37a

§ 26.47 Can recipients be penalized for failing to  m eet 
overall goals?

(a) You cannot be penalized, or treated by the Depart­
ment as being in noncompliance with this rale, because your 
DBE participation falls short of your overall goal, unless you 
have failed to administer your program in good faith.

(b) If you do not have an approved DBE program or 
overall goal, or if you fail to implement your program in good 
faith, you are in noncompliance with this part.

§ 26.51 What means do recipients use to  m eet overall 
goals?

(a) You must meet the maximum feasible portion of your 
overall goal by using race-neutral means of facilitating DBE 
participation. Race-neutral DBE participation includes any 
time a DBE wins a prime contract through customary com­
petitive procurement procedures, is awarded a subcontract 
on a prime contract that does not carry a DBE goal, or even 
if there is a DBE goal, wins a subcontract from a prime 
contractor that did not consider its DBE status in making 
the award (e.g., a prime contractor that uses a strict low bid 
system to award subcontracts).

(b) Race-neutral means include, but are not limited to, 
the following:

(1) Arranging solicitations, times for the presentation of 
bids, quantities, specifications, and delivery schedules in 
ways that facilitate DBE, and other small businesses, par­
ticipation (e.g., unbundling large contracts to make them 
more accessible to small businesses, requiring or encourag­
ing prime contractors to subcontract portions of work that 
they might otherwise perform with their own forces);



38a

(2) Providing assistance in overcoming limitations such 
as inability to obtain bonding or financing (e.g., by such 
means as simplifying the bonding process, reducing bonding 
requirements, eliminating the impact of surety costs from 
bids, and providing services to help DBEs, and other small 
businesses, obtain bonding and financing);

(3) Providing technical assistance and other services;

(4) Carrying out information and communications pro­
grams on contracting procedures and specific contract op­
portunities (e.g., ensuring the inclusion of DBEs, and other 
small businesses, on recipient mailing lists for bidders; en­
suring the dissemination to bidders on prime contracts of 
lists of potential subcontractors; provision of information in 
languages other than English, where appropriate);

(5) Implementing a supportive services program to de­
velop and improve immediate and long-term business man­
agement, record keeping, and financial and accounting capa­
bility for DBEs and other small businesses;

(6) Providing services to help DBEs, and other small 
businesses, improve long-term development, increase op­
portunities to participate in a variety of kinds of work, han­
dle increasingly significant projects, and achieve eventual 
self-sufficiency;

(7) Establishing a program to assist new, start-up firms, 
particularly in fields in which DBE participation has histori­
cally been low;

(8) Ensuring distribution of your DBE directory, 
through print and electronic means, to the widest feasible 
universe of potential prime contractors; and



39a

(9) Assisting DBEs, and other small businesses, to de­
velop their capability to utilize emerging technology and con­
duct business through electronic media.

(c) Each time you submit your overall goal for review by 
the concerned operating administration, you must also sub­
mit your projection of the portion of the goal that you expect 
to meet through race-neutral means and your basis for that 
projection. This projection is subject to approval by the 
concerned operating administration, in conjunction with its 
review of your overall goal.

(d) You must establish contract goals to meet any por­
tion of your overall goal you do not project being able to 
meet using race-neutral means.

(e) The following provisions apply to the use of contract 
goals:

(1) You may use contract goals only on those DOT-as- 
sisted contracts that have subcontracting possibilities.

(2) You are not required to set a contract goal on every 
DOT-assisted contract. You are not required to set each 
contract goal at the same percentage level as the overall 
goal. The goal for a specific contract may be higher or lower 
than that percentage level of the overall goal, depending on 
such factors as the type of work involved, the location of the 
work, and the availability of DBEs for the work of the parti­
cular contract. However, over the period covered by your 
overall goal, you must set contract goals so that they will 
cumulatively result in meeting any portion of your overall 
goal you do not project being able to meet through the use of 
race-neutral means.

(3) Operating administration approval of each contract 
goal is not necessarily required. However, operating admini-



40a

strations may review and approve or disapprove any con­
tract goal you establish.

(4) Your contract goals must provide for participation by 
all certified DBEs and must not be subdivided into group- 
specific goals.

(f) To ensure that your DBE program continues to be 
narrowly tailored to overcome the effects of discrimination, 
you must adjust your use of contract goals as follows:

(1) If your approved projection under paragraph (c) of 
this section estimates that you can meet your entire overall 
goal for a given year through race-neutral means, you must 
implement your program without setting contract goals 
during that year.

Example to Paragraph (f)(1): Your overall goal for Year 
I is 12 percent. You estimate that you can obtain 12 percent 
or more DBE participation through the use of race-neutral 
measures, without any use of contract goals. In this case, 
you do not set any contract goals for the contracts that will 
be performed in Year I.

(2) If, during the course of any year in which you are 
using contract goals, you determine that you will exceed 
your overall goal, you must reduce or eliminate the use of 
contract goals to the extent necessary to ensure that the use 
of contract goals does not result in exceeding the overall 
goal. If you determine that you will fall short of your overall 
goal, then you must make appropriate modifications in your 
use of race-neutral and/or race-conscious measures to allow 
you to meet the overall goal.

Example to Paragraph (f)(2): In Year II, your overall 
goal is 12 percent. You have estimated that you can obtain 5 
percent DBE participation through use of race-neutral



41a

measures. You therefore plan to obtain the remaining 7 per­
cent participation through use of DBE goals. By September, 
you have already obtained 11 percent DBE participation for 
the year. For contracts let during the remainder of the year, 
you use contract goals only to the extent necessary to obtain 
an additional one percent DBE participation. However, if 
you determine in September that your participation for the 
year is likely to be only 8 percent total, then you would in­
crease your use of race-neutral and/or race-conscious means 
during the remainder of the year in order to achieve your 
overall goal.

(3) If the DBE participation you have obtained by race- 
neutral means alone meets or exceeds your overall goals for 
two consecutive years, you are not required to make a pro­
jection of the amount of your goal you can meet using such 
means in the next year. You do not set contract goals on any 
contracts in the next year. You continue using only race- 
neutral means to meet your overall goals unless and until 
you do not meet your overall goal for a year.

Example to Paragraph (f)(3): Your overall goal for Year 
I and Year II is 10 percent. The DBE participation you 
obtain through race-neutral measures alone is 10 percent or 
more in each year. (For this purpose, it does not matter 
whether you obtained additional DBE participation through 
using contract goals in these years.) In Year III and follow­
ing years, you do not need to make a projection under para­
graph (c) of this section of the portion of your overall goal 
you expect to meet using race-neutral means. You simply 
use race-neutral means to achieve your overall goals. How­
ever, if in Year VI your DBE participation falls short of your 
overall goal, then you must make a paragraph (c) projection 
for Year VII and, if necessary, resume use of contract goals 
in that year.



42a

(4) If you obtain DBE participation that exceeds your 
overall goal in two consecutive years through the use of 
contract goals (i.e., not through the use of race-neutral 
means alone), you must reduce your use of contract goals 
proportionately in the following year.

Example to Paragraph (f)(i): In Years I and II, your 
overall goal is 12 percent, and you obtain 14 and 16 percent 
DBE participation, respectively. You have exceeded your 
goals over the two-year period by an average of 25 percent. 
In Year III, your overall goal is again 12 percent, and your 
paragraph (c) projection estimates that you will obtain 4 per­
cent DBE participation through race-neutral means and 8 
percent through contract goals. You then reduce the con­
tract goal projection by 25 percent (i.e., from 8 to 6 percent) 
and set contract goals accordingly during the year. If in 
Year III you obtain 11 percent participation, you do not use 
this contract goal adjustment mechanism for Year IV, be­
cause there have not been two consecutive years of ex­
ceeding overall goals.

(g) In any year in which you project meeting part of your 
goal through race-neutral means and the remainder through 
contract goals, you must maintain data separately on DBE 
achievements in those contracts with and without contract 
goals, respectively. You must report this data to the con­
cerned operating administration as provided in § 26.11.

§ 26.53 What are the good faith efforts procedures 
recipients follow in situations where there are contract 
goals?

(a) When you have established a DBE contract goal, you 
must award the contract only to a bidder/offeror who 
makes good faith efforts to meet it. You must determine



43a

that a bidder/offeror has made good faith efforts if the 
bidder/offeror does either of the following things:

(1) Documents that it has obtained enough DBE partici­
pation to meet the goal; or

(2) Documents that it made adequate good faith efforts 
to meet the goal, even though it did not succeed in obtaining 
enough DBE participation to do so. If the bidder/offeror 
does document adequate good faith efforts, you must not 
deny a-ward of the contract on the basis that the bidder/ 
offeror failed to meet the goal. See Appendix A of this part 
for guidance in determining the adequacy of a bidder/ 
offeror’s good faith efforts.

(b) In your solicitations for DOT-assisted contracts for 
which a contract goal has been established, you must require 
the following:

(1) Award of the contract will be conditioned on meeting 
the requirements of this section;

(2) All bidders/offerors will be required to submit the 
following information to the recipient, at the time provided 
in paragraph (b)(3) of this section:

(i) The names and addresses of DBE firms that will par­
ticipate in the contract;

(ii) A description of the work that each DBE will per­
form;

(iii) The dollar amount of the participation of each DBE 
firm participating;

(iv) W ritten documentation of the bidder/offeror’s com­
mitment to use a DBE subcontractor whose participation it 
submits to meet a contract goal;



44a

(v) Written confirmation from the DBE that it is partici­
pating in the contract as provided in the prime contractor’s 
commitment; and

(vi) If the contract goal is not met, evidence of good faith 
efforts (see Appendix A of this part); and

(3) At your discretion, the bidder/offeror must pre­
sent the information required by paragraph (b)(2) of this 
section—

(i) Under sealed bid procedures, as a m atter of respon­
siveness, or with initial proposals, under contract negotiation 
procedures; or

(ii) At any time before you commit yourself to the per­
formance of the contract by the bidder/offeror, as a m atter of 
responsibility.

(c) You must make sure all information is complete and 
accurate and adequately documents the bidder/offeror’s good 
faith efforts before committing yourself to the performance 
of the contract by the bidder /offeror.

(d) If you determine that the apparent successful bidder/ 
offeror has failed to meet the requirements of paragraph (a) 
of this section, you must, before awarding the contract, 
provide the bidder/offeror an opportunity for administrative 
reconsideration.

(1) As part of this reconsideration, the bidder/offeror 
must have the opportunity to provide written documentation 
or argument concerning the issue of whether it met the goal 
or made adequate good faith efforts to do so.

(2) Your decision on reconsideration must be made by an 
official who did not take part in the original determination



45a

that the bldder/offeror failed to meet the goal or make ade­
quate good faith efforts to do so.

(3) The bidder/offeror must have the opportunity to 
meet in person with your reconsideration official to discuss 
the issue of whether it met the goal or made adequate good 
faith efforts to do so.

(4) You must send the bidder/offeror a written decision 
on reconsideration, explaining the basis for finding that the 
bidder did or did not meet the goal or make adequate good 
faith efforts to do so.

(5) The result of the reconsideration process is not ad­
ministratively appealable to the Department of Transporta­
tion.

(e) In a “design-build” or “turnkey” contracting situa­
tion, in which the recipient lets a master contract to a con­
tractor, who in turn lets subsequent subcontracts for the 
work of the project, a recipient may establish a goal for the 
project. The master contractor then establishes contract 
goals, as appropriate, for the subcontracts it lets. Recipients 
must maintain oversight of the master contractor’s activities 
to ensure that they are conducted consistent with the re­
quirements of this part.

(f) (1) You must require that a prime contractor not te r­
minate for convenience a DBE subcontractor listed in re­
sponse to paragraph (b)(2) of this section (or an approved 
substitute DBE firm) and then perform the work of the ter­
minated subcontract with its own forces or those of an 
affiliate, without your prior written consent.

(2) When a DBE subcontractor is terminated, or fails to 
complete its work on the contract for any reason, you must 
require the prime contractor to make good faith efforts to



46a

find another DBE subcontractor to substitute for the ori­
ginal DBE. These good faith efforts shall be directed at 
finding another DBE to perform at least the same amount of 
work under the contract as the DBE that was terminated, to 
the extent needed to meet the contract goal you established 
for the procurement.

(3) You must include in each prime contract a provision 
for appropriate administrative remedies that you will invoke 
if the prime contractor fails to comply with the requirements 
of this section.

(g) You must apply the requirements of this section to 
DBE bidders/offerors for prime contracts. In determining 
whether a DBE bidder/offeror for a prime contract has met a 
contract goal, you count the work the DBE has committed to 
performing with its own forces as well as the work that it 
has committed to be performed by DBE subcontractors and 
DBE suppliers.

Subpart D—Certification Standards

§ 26.61 How are burdens o f proof allocated in the 
certification process?

(a) In determining whether to certify a firm as eligible to 
participate as a DBE, you must apply the standards of this 
subpart.

(b) The firm seeking certification has the burden of de­
monstrating to you, by a preponderance of the evidence, that 
it meets the requirements of this subpart concerning group 
membership or individual disadvantage, business size, own­
ership, and control.



47a

(c) You must rebuttably presume that members of the 
designated groups identified in § 26.67(a) are socially and 
economically disadvantaged. This means that they do not 
have the burden of proving to you that they are socially and 
economically disadvantaged. However, applicants have the 
obligation to provide you information concerning their eco­
nomic disadvantage (see § 26.67).

(d) Individuals who are not presumed to be socially and 
economically disadvantaged, and individuals concerning 
whom the presumption of disadvantage has been rebutted, 
have the burden of proving to you, by a preponderance of the 
evidence, that they are socially and economically disad­
vantaged. (See Appendix E of this part.)

(e) You must make determinations concerning whether 
individuals and firms have met their burden of demonstrat­
ing group membership, ownership, control, and social and 
economic disadvantage (where disadvantage must be demon­
strated on an individual basis) by considering all the facts in 
the record, viewed as a whole.

§ 26.63 W hat ru les govern group m em bership d e te r­
minations?

(a) If you have reason to question whether an individual 
is a member of a group that is presumed to be socially and 
economically disadvantaged, you must require the individual 
to demonstrate, by a preponderance of the evidence, that he 
or she is a member of the group.

(b) In making such a determination, you must consider 
whether the person has held himself out to be a member of 
the group over a long period of time prior to application for 
certification and whether the person is regarded as a mem­
ber of the group by the relevant community. You may re-



48a

quire the applicant to produce appropriate documentation of 
group membership.

(1) If you determine that an individual claiming to be a 
member of a group presumed to be disadvantaged is not a 
member of a designated disadvantaged group, the individual 
must demonstrate social and economic disadvantage on an 
individual basis.

(2) Your decisions concerning membership in a desig­
nated group are subject to the certification appeals pro­
cedure of § 26.89.

§ 26.65 What rules govern business size d eter­
minations?

(a) To be an eligible DBE, a firm (including its affiliates) 
must be an existing small business, as defined by Small Bus­
iness Administration (SBA) standards. You must apply 
current SBA business size standard(s) found in 13 CFR part 
121 appropriate to the type(s) of work the firm seeks to 
perform in DOT-assisted contracts.

(b) Even if it meets the requirements of paragraph (a) of 
this section, a firm is not an eligible DBE in any Federal 
fiscal year if the firm (including its affiliates) has had aver­
age annual gross receipts, as defined by SBA regulations 
(see 13 CFR 121.402), over the firm’s previous three fiscal 
years, in excess of $16.6 million. The Secretary adjusts this 
amount for inflation from time to time.

§ 26.67 What rules determine social and economic 
disadvantage?

(a) Presumption of disadvantage. (1) You must rebut­
tably presume that citizens of the United States (or lawfully 
admitted permanent residents) who are women, Black 
Americans, Hispanic Americans, Native Americans, Asian-



49a

Pacific Americans, Subcontinent Asian Americans, or other 
minorities found to be disadvantaged by the SBA, are so­
cially and economically disadvantaged individuals. You must 
require applicants to submit a signed, notarized certification 
that each presumptively disadvantaged owner is, in fact, 
socially and economically disadvantaged.

(2)(i) You must require each individual owner of a firm 
applying to participate as a DBE whose ownership and con­
trol are relied upon for DBE certification to submit a signed, 
notarized statement of personal net worth, with appropriate 
supporting documentation.

(ii) In determining net worth, you must exclude an indi­
vidual’s ownership interest in the applicant firm and the 
individual’s equity in his or her primary residence (except 
any portion of such equity that is attributable to excessive 
withdrawals from the applicant firm). A contingent liability 
does not reduce an individual’s net worth. The personal net 
worth of an individual claiming to be an Alaska Native will 
include assets and income from sources other than an Alaska 
Native Corporation and exclude any of the following which 
the individual receives from any Alaska Native Corporation: 
cash (including cash dividends on stock received from an 
ANC) to the extent that it does not, in the aggregate, exceed 
$2,000 per individual per annum; stock (including stock 
issued or distributed by an ANC as a dividend or dis­
tribution on stock); a partnership interest; land or an interest 
in land (including land or an interest in land received from an 
ANC as a dividend or distribution on stock); and an interest 
in a settlement trust.

(b) Rebuttal o f presumption of disadvantage. (1) If the 
statement of personal net worth that an individual submits 
under paragraph (a)(2) of this section shows that the in­
dividual’s personal net worth exceeds $750,000, the indi-



50a

vidual’s presumption of economic disadvantage is rebutted. 
You are not required to have a proceeding under paragraph 
(b)(2) of this section in order to rebut the presumption of 
economic disadvantage in this case.

(2) If you have a reasonable basis to believe that an in­
dividual who is a member of one of the designated groups is 
not, in fact, socially and/or economically disadvantaged you 
may, at any time, start a proceeding to determine whether 
the presumption should be regarded as rebutted with re­
spect to that individual. Your proceeding must follow the 
procedures of § 26.87.

(3) In such a proceeding, you have the burden of demon­
strating, by a preponderance of the evidence, that the in­
dividual is not socially and economically disadvantaged. You 
may require the individual to produce information relevant 
to the determination of his or her disadvantage.

(4) When an individual’s presumption of social and/or 
economic disadvantage has been rebutted, his or her owner­
ship and control of the firm in question cannot be used for 
purposes of DBE eligibility under this subpart unless and 
until he or she makes an individual showing of social and/or 
economic disadvantage. If the basis for rebutting the pre­
sumption is a determination that the individual’s personal 
net worth exceeds $750,000, the individual is no longer eli­
gible for participation in the program and cannot regain 
eligibility by making an individual showing of disadvantage.

(c) 8(a) and SDB Firms. If a firm applying for certifi­
cation has a current, valid certification from or recognized by 
the SBA under the 8(a) or small and disadvantaged business 
(SDB) program (except an SDB certification based on the 
firm’s self-certification as an SDB), you may accept the 
firm’s 8(a) or SDB certification in lieu of conducting your



51a

own certification proceeding, just as you may accept the 
certification of another DOT recipient for this purpose. You 
are not required to do so, however.

(d) Individual determinations o f social and economic 
disadvantage. Firms owned and controlled by individuals 
who are not presumed to be socially and economically dis­
advantaged (including individuals whose presumed disad­
vantage has been rebutted) may apply for DBE certification. 
You must make a ease-by-case determination of whether 
each individual whose ownership and control are relied upon 
for DBE certification is socially and economically 
disadvantaged. In such a proceeding, the applicant firm has 
the burden of demonstrating to you, by a preponderance of 
the evidence, that the individuals who own and control it are 
socially and economically disadvantaged. An individual 
whose personal net worth exceeds $750,000 shall not be 
deemed to be economically disadvantaged. In making these 
determinations, use the guidance found in Appendix E of 
this part. You must require that applicants provide suffi­
cient information to permit determinations under the guid­
ance of Appendix E of this part.

*  *  *  *  *

Subpart E—Certification Procedures

§ 26.81 What are  the requirem ents for Unified C erti­
fication Programs?

(a) You and all other DOT recipients in your state must 
participate in a Unified Certification Program (UCP).

* * * * *

(b) The UCP shall make all certification decisions on 
behalf of all DOT recipients in the state with respect to 
participation in the DOT DBE Program.



52a

§ 26.83 What procedures do recipients follow in mak­
ing certification decisions?

(a) You must ensure that only firms certified as eligible 
DBEs under this section participate as DBEs in your 
program.

(b) You must determine the eligibility of firms as DBEs 
consistent with the standards of subpart D of this part. 
When a UCP is formed, the UCP must meet all the require­
ments of subpart D of this part and this subpart that recip­
ients are required to meet.

(c) You must take all the following steps in determining 
whether a DBE firm meets the standards of subpart D of 
this part:

(1) Perform an on-site visit to the offices of the firm. 
You must interview the principal officers of the firm and re­
view their resumes and/or work histories. You must also 
perform an on-site visit to job sites if there are such sites on 
which the firm is working at the time of the eligibility in­
vestigation in your jurisdiction or local area. You may rely 
upon the site visit report of any other recipient with respect 
to a firm applying for certification;

(2) If the firm is a corporation, analyze the ownership of 
stock in the firm;

(3) Analyze the bonding and financial capacity of the 
firm;

(4) Determine the work history of the firm, including 
contracts it has received and work it has completed;



53a

(5) Obtain a statement from the firm of the type of work 
it prefers to perform as part of the DBE program and its 
preferred locations for performing the work, if any;

(6) Obtain or compile a list of the equipment owned by or 
available to the firm and the licenses the firm and its key 
personnel possess to perform the work it seeks to do as part 
of the DBE program;

(7) Require potential DBEs to complete and submit an 
appropriate application form,

(i) Uniform form. [Reserved]

(ii) You must make sure that the applicant attests to the 
accuracy and truthfulness of the information on the appli­
cation form. This shall be done either in the form of an affi­
davit sworn to by the applicant before a person who is 
authorized by state law to administer oaths or in the form of 
an unsworn declaration executed under penalty of perjury of 
the laws of the United States.

(iii) You must review all information on the form prior to 
making a decision about the eligibility of the firm.

* * * * *

(h) Once you have certified a DBE, it shall remain 
certified for a period of at least three years unless and until 
its certification has been removed through the procedures of 
§ 26.87. You may not require DBEs to reapply for certifi­
cation as a condition of continuing to participate in the pro­
gram during this three-year period, unless the factual basis 
on which the certification was made changes.

(i) If you are a DBE, you must inform the recipient or 
UCP in writing of any change in circumstances affecting 
your ability to meet size, disadvantaged status, ownership,



54a

or control requirements of this part or any material change 
in the information provided in your application form.

(1) Changes in management responsibility among mem­
bers of a limited liability company are covered by this 
requirement.

(2) You must attach supporting documentation describ­
ing in detail the nature of such changes.

(3) The notice must take the form of an affidavit sworn 
to by the applicant before a person who is authorized by 
state law to administer oaths or of an unsworn declaration 
executed under penalty of perjury of the laws of the United 
States. You must provide the written notification within 30 
days of the occurrence of the change. If you fail to make 
timely notification of such a change, you will be deemed to 
have failed to cooperate under § 26.109(c).

(j) If you are a DBE, you must provide to the recipient, 
every year on the anniversary of the date of your certifi­
cation, an affidavit sworn to by the firm’s owners before a 
person who is authorized by state law to administer oaths or 
an unsworn declaration executed under penalty of perjury of 
the laws of the United States. This affidavit must affirm 
that there have been no changes in the firm’s circumstances 
affecting its ability to meet size, disadvantaged status, own­
ership, or control requirements of this part or any material 
changes in the information provided in its application form, 
except for changes about which you have notified the re­
cipient under paragraph (i) of this section. The affidavit shall 
specifically affirm that your firm continues to meet SBA 
business size criteria and the overall gross receipts cap of 
this part, documenting this affirmation with supporting doc­
umentation of your firm’s size and gross receipts. If you



55a

fail to provide this affidavit in a timely manner, you will be 
deemed to have failed to cooperate under § 26.109(c).

(k) If you are a recipient, you must make decisions on 
applications for certification within 90 days of receiving from 
the applicant firm all information required under this part. 
You may extend this time period once, for no more than an 
additional 60 days, upon w ritten  notice to the firm, 
explaining fully and specifically the reasons for the exten­
sion. You may establish a different time frame in your DBE 
program, upon a showing that this time frame is not feasible, 
and subject to the approval of the concerned operating ad­
ministration. Your failure to make a decision by the appli­
cable deadline under this paragraph is deemed a construc­
tive denial of the application, on the basis of which the firm 
may appeal to DOT under § 26.89.

§ 26.85 What ru les govern recip ien ts’ denials o f in itia l 
requests for certification?

(a) When you deny a request by a firm, which is not cur­
rently certified with you, to be certified as a DBE, you must 
provide the firm a written explanation of the reasons for the 
denial, specifically referencing the evidence in the record 
that supports each reason for the denial. All documents and 
other information on which the denial is based must be made 
available to the applicant, on request.

(b) When a firm is denied certification, you must estab­
lish a time period of no more than twelve months that must 
elapse before the firm may reapply to the recipient for 
certification. You may provide, in your DBE program, sub­
ject to approval by the concerned operating administration, a 
shorter waiting period for reapplication. The time period for 
reapplication begins to run on the date the explanation



56a

required by paragraph (a) of this section is received by the 
firm.

(c) When you make an administratively final denial of 
certification concerning a firm, the firm may appeal the de­
nial to the Department under § 26.89.

§ 26.87 What procedures does a recipient use to re­
move a DBE’s eligibility?

(a) Ineligibility complaints. (1) Any person may file 
with you a w ritten complaint alleging tha t a currently- 
certified firm is ineligible and specifying the alleged reasons 
why the firm is ineligible. You are not required to accept a 
general allegation that a firm is ineligible or an anonymous 
complaint. The complaint may include any information 
or arguments supporting the complainant’s assertion that 
the firm is ineligible and should not continue to be certified. 
Confidentiality of complainants’ identities must be protected 
as provided in § 26.109(b).

(2) You must review your records concerning the firm, 
any material provided by the firm and the complainant, and 
other available information. You may request additional in­
formation from the firm or conduct any other investigation 
that you deem necessary.

(3) If you determine, based on this review, that there is 
reasonable cause to believe that the firm is ineligible, you 
must provide written notice to the firm that you propose to 
find the firm ineligible, setting forth the reasons for the 
proposed determination. If you determine tha t such rea­
sonable cause does not exist, you must notify the complain­
ant and the firm in writing of this determination and the rea­
sons for it. All statements of reasons for findings on the 
issue of reasonable cause must specifically reference the evi­
dence in the record on which each reason is based.



57a

(b) Recipient-initiated, proceedings. If, based on notifica­
tion by the firm of a change in its circumstances or other 
information that comes to your attention, you determine that 
there is reasonable cause to believe that a currently certified 
firm is ineligible, you must provide written notice to the firm 
that you propose to find the firm ineligible, setting forth the 
reasons for the proposed determination. The statement of 
reasons for the finding of reasonable cause must specifically 
reference the evidence in the record on which each reason is 
based.

(c) DOT directive to initiate proceeding. (1) If the con­
cerned operating administration determines that information 
in your certification records, or other information available 
to the concerned operating administration, provides reason­
able cause to believe that a firm you certified does not meet 
the eligibility criteria of this part, the concerned operating 
administration may direct you to initiate a proceeding to 
remove the firm’s certification.

(2) The concerned operating administration must pro­
vide you and the firm a notice setting forth the reasons for 
the directive, including any relevant documentation or other 
information.

(3) You must immediately commence and prosecute a 
proceeding to remove eligibility as provided by paragraph 
(b) of this section.

(d) Hearing. When you notify a firm that there is rea­
sonable cause to remove its eligibility, as provided in para­
graph (a), (b), or (c) of this section, you must give the firm an 
opportunity for an informal hearing, at which the firm may 
respond to the reasons for the proposal to remove its eligi­
bility in person and provide information and arguments con­
cerning why it should remain certified.



58a

(1) In such a proceeding, you bear the burden of proving, 
by a preponderance of the evidence, that the firm does not 
meet the certification standards of this part.

(2) You must maintain a complete record of the hearing, 
by any means acceptable under state law for the retention of 
a verbatim record of an administrative hearing. If there is 
an appeal to DOT under § 26.89, you must provide a tran­
script of the hearing to DOT and, on request, to the firm. 
You must retain the original record of the hearing. You may 
charge the firm only for the cost of copying the record.

(3) The firm may elect to present information and argu­
ments in writing, without going to a hearing. In such a 
situation, you bear the same burden of proving, by a pre­
ponderance of the evidence, that the firm does not meet the 
certification standards, as you would during a hearing.

(e) Separation of functions. You must ensure that the 
decision in a proceeding to remove a firm’s eligibility is made 
by an office and personnel that did not take part in actions 
leading to or seeking to implement the proposal to remove 
the firm’s eligibility and are not subject, with respect to the 
matter, to direction from the office or personnel who did take 
part in these actions.

(1) Your method of implementing this requirement must 
be made part of your DBE program.

(2) The decisionmaker must be an individual who is 
knowledgeable about the certification requirements of your 
DBE program and this part.

(3) Before a UCP is operational in its state, a small 
airport or small transit authority (i.e., an airport or transit 
authority serving an area with less than 250,000 population)



59a

is required to meet this requirement only to the extent 
feasible.

(f) Grounds for decision. You must not base a decision 
to remove eligibility on a reinterpretation or changed opin­
ion of information available to the recipient at the time of its 
certification of the firm. You may base such a decision only 
on one or more of the following:

(1) Changes in the firm’s circumstances since the certifi­
cation of the firm by the recipient that render the firm un­
able to meet the eligibility standards of this part;

(2) Information or evidence not available to you at the 
time the firm was certified;

(3) Information that was concealed or misrepresented by 
the firm in previous certification actions by a recipient;

(4) A change in the certification standards or require­
ments of the Department since you certified the firm; or

(5) A documented finding that your determination to 
certify the firm was factually erroneous.

(g) Notice o f decision. Following your decision, you must 
provide the firm w ritten notice of the decision and the 
reasons for it, including specific references to the evidence in 
the record that supports each reason for the decision. The 
notice must inform the firm of the consequences of your de­
cision and of the availability of an appeal to the Department 
of Transportation under § 26.89. You must send copies of the 
notice to the complainant in an ineligibility complaint or the 
concerned operating administration that had directed you to 
initiate the proceeding.



60a

(h) Status o f firm  during proceeding. (1) A firm remains 
an eligible DBE during the pendancy of your proceeding to 
remove its eligibility.

(2) The firm does not become ineligible until the issuance 
of the notice provided for in paragraph (g) of this section.

(i) Effects o f removal o f eligibility. When you remove a 
firm’s eligibility, you must take the following action:

(1) When a prime contractor has made a commitment to 
using the ineligible firm, or you have made a commitment to 
using a DBE prime contractor, but a subcontract or contract 
has not been executed before you issue the decertification 
notice provided for in paragraph (g) of this section, the ineli­
gible firm does not count toward the contract goal or overall 
goal. You must direct the prime contractor to meet the con­
tract goal with an eligible DBE firm or demonstrate to you 
that it has made a good faith effort to do so.

(2) If a prime contractor has executed a subcontract with 
the firm before you have notified the firm of its ineligibility, 
the prime contractor may continue to use the firm on the 
contract and may continue to receive credit toward its DBE 
goal for the firm’s work. In this case, or in a case where you 
have let a prime contract to the DBE that was later ruled 
ineligible, the portion of the ineligible firm’s performance of 
the contract remaining after you issued the notice of its 
ineligibility shall not count toward your overall goal, but may 
count toward the contract goal.

(3) Exception: If the DBE’s ineligibility is caused solely 
by its having exceeded the size standard during the perfor­
mance of the contract, you may continue to count its partici­
pation on that contract toward overall and contract goals.



61a

(j) Availability o f appeal. When you make an adminis­
tratively final removal of a firm’s eligibility under this sec­
tion, the firm may appeal the removal to the Department 
under § 26.89.

§ 26.89 W hat is the  process for certification  appeals 
to  the D epartm ent of Transportation?

(a) (1) If you are a firm which is denied certification or 
whose eligibility is removed by a recipient, you may make an 
administrative appeal to the Department.

(2) If you are a complainant in an ineligibility complaint to 
a recipient (including the concerned operating administra­
tion in the circumstances provided in § 26.87(c)), you may 
appeal to the Department if the recipient does not find rea­
sonable cause to propose removing the firm’s eligibility or, 
following a removal of eligibility proceeding, determines that 
the firm is eligible.

(3) Send appeals to the following address: Department 
of Transportation, Office of Civil Rights, 400 7th Street, SW, 
Room 2401, Washington, DC 20590.

(b) Pending the Department’s decision in the matter, the 
recipient’s decision remains in effect. The Department does 
not stay the effect of the recipient’s decision while it is con­
sidering an appeal.

(c) If you want to file an appeal, you must send a letter 
to the Department within 90 days of the date of the recip­
ient’s final decision, including information and arguments 
concerning why the recipient’s decision should be reversed. 
The Department may accept an appeal filed later than 90 
days after the date of the decision if the Department deter­
mines that there was good cause for the late filing of the 
appeal.



62a

(1) If you are an appellant who is a firm which has been 
denied certification, whose certification has been removed, 
whose owner is determined not to be a member of a desig­
nated disadvantaged group, or concerning whose owner the 
presumption of disadvantage has been rebutted, your letter 
must state  the name and address of any other recipient 
which currently certifies the firm, which has rejected an ap­
plication for certification from the firm or removed the firm’s 
eligibility within one year prior to the date of the appeal, or 
before which an application for certification or a removal of 
eligibility is pending. Failure to provide this information 
may be deemed a failure to cooperate under § 26.109(c).

(2) If you are an appellant other than one described in 
paragraph (c)(1) of this section, the Department will request, 
and the firm whose certification has been questioned shall 
promptly provide, the information called for in paragraph
(c)(1) of this section. Failure to provide this information may 
be deemed a failure to cooperate under § 26.109(c).

(d) When it receives an appeal, the Department requests 
a copy of the recipient’s complete administrative record in 
the matter. If you are the recipient, you must provide the 
administrative record, including a hearing transcript, within 
20 days of the Department’s request. The Department may 
extend this time period on the basis of a recipient’s showing 
of good cause. To facilitate the Department’s review of a re­
cipient’s decision, you must ensure that such administrative 
records are well organized, indexed, and paginated. Records 
tha t do not comport with these requirem ents are not 
acceptable and will be returned to you to be corrected imme­
diately. If an appeal is brought concerning one recipient’s 
certification decision concerning a firm, and that recipient 
relied on the decision and/or administrative record of 
another recipient, this requirement applies to both recipients 
involved.



63a

(e) The Department makes its decision based solely on 
the entire administrative record. The Department does not 
make a de novo review of the matter and does not conduct a 
hearing. The Department may supplement the administra­
tive record by adding relevant information made available 
by the DOT Office of Inspector General; Federal, state, or 
local law enforcement authorities; officials of a DOT operat­
ing administration or other appropriate DOT office; a recipi­
ent; or a firm or other private party.

(f) As a recipient, when you provide supplementary in­
formation to the Department, you shall also make this in­
formation available to the firm and any third-party com­
plainant involved, consistent with Federal or applicable state 
laws concerning freedom of information and privacy. The 
Department makes available, on request by the firm and any 
third-party complainant involved, any supplementary infor­
mation it receives from any source.

(1) The Department affirms your decision unless it de­
termines, based on the entire administrative record, that 
your decision is unsupported by substantial evidence or in­
consistent with the substantive or procedural provisions of 
this part concerning certification.

(2) If the Department determines, after reviewing the 
entire administrative record, that your decision was unsup­
ported by substantial evidence or inconsistent with the sub­
stantive or procedural provisions of this part concerning 
certification, the Department reverses your decision and di­
rects you to certify the firm or remove its eligibility, as ap­
propriate. . You must take the action directed by the Depart­
ment’s decision immediately upon receiving written notice of 
it.



64a

(3) The Department is not required to reverse your de­
cision if the Department determines that a procedural error 
did not result in fundamental unfairness to the appellant or 
substantially prejudice the opportunity of the appellant to 
present its case.

(4) If it appears that the record is incomplete or unclear 
with respect to matters likely to have a significant impact on 
the outcome of the case,: the Department may remand the 
record to you with instructions seeking clarification or aug­
mentation of the record before making a finding. The De­
partment may also remand a case to you for further proceed­
ings consistent with Department instructions concerning the 
proper application of the provisions of this part.

(5) The Department does not uphold your decision based 
on grounds not specified in your decision.

(6) The Department’s decision is based on the status and 
circumstances of the firm as of the date of the decision being 
appealed.

(7) The Department provides written notice of its deci­
sion to you, the firm, and the complainant in an ineligibility 
complaint. A copy of the notice is also sent to any other re­
cipient whose administrative record or decision has been 
involved in the proceeding (see paragraph (d) of this section). 
The notice includes the reasons for the Departm ent’s de­
cision, including specific references to the evidence in the 
record that supports each reason for the decision.

(8) The Department’s policy is to make its decision with­
in 180 days of receiving the complete administrative record. 
If the Department does not make its decision within this 
period, the Department provides written notice to concerned 
parties, including a statement of the reason for the delay and 
a date by which the appeal decision will be made.



65a

(g) All decisions under this section are administratively 
final, and are not subject to petitions for reconsideration.

§ 26.91 W hat actions do rec ip ien ts  tak e  following 
DOT certification appeal decisions?

(a) If you are the recipient from whose action an appeal 
under § 26.89 is taken, the decision is binding. I t is not 
binding on other recipients.

(b) If you are a recipient to which a DOT determination 
under § 26.89 is applicable, you must take the following 
action:

(1) If the Department determines that you erroneously 
certified a firm, you must remove the firm’s eligibility on re­
ceipt of the determination, without further proceedings on 
your part. Effective on the date of your receipt of the De­
partment’s determination, the consequences of a removal of 
eligibility set forth in § 26.87(i) take effect.

(2) If the Department determines that you erroneously 
failed to find reasonable cause to remove the firm’s eligi­
bility, you must expeditiously commence a proceeding to 
determine whether the firm’s eligibility should be removed, 
as provided in § 26.87.

(3) If the Department determines that you erroneously 
declined to certify or removed the eligibility of the firm, you 
must certify the firm, effective on the date of your receipt of 
the written notice of Department’s determination.

(4) If the Department determines that you erroneously 
determined that the presumption of social and economic dis­
advantage either should or should not be deemed rebutted, 
you must take appropriate corrective action as determined 
by the Department.



66a

(5) If the Department affirms your determination, no 
further action is necessary.

(c) Where DOT has upheld your denial of certification to 
or removal of eligibility from a firm, or directed the removal 
of a firm’s eligibility, other recipients with whom the firm is 
certified may commence a proceeding to remove the firm’s 
eligibility under § 26.87. Such recipients must not remove 
the firm’s eligibility absent such a proceeding. Where DOT 
has reversed your denial of certification to or removal of 
eligibility from a firm, other recipients must take the DOT 
action into account in any certification action involving the 
firm. However, other recipients are not required to certify 
the firm based on the DOT decision.

>Jc =4c

§ 26.107 What enforcement actions apply to firms 
participating in the DBE program?

(a) If you are a firm that does not meet the eligibility 
criteria of subpart D of this part and that attempts to partici­
pate in a DOT-assisted program as a DBE on the basis of 
false, fraudulent, or deceitful statements or representations 
or under circumstances indicating a serious lack of business 
integrity or honesty, the Department may initiate suspen­
sion or debarment proceedings against you under 49 CFR 
part 29.

(b) If you are a firm that, in order to meet DBE contract 
goals or other DBE program requirements, uses or attempts 
to use, on the basis of false, fraudulent or deceitful state­
ments or representations or under circumstances indicating 
a serious lack of business integrity or honesty, another firm 
that does not meet the eligibility criteria of subpart D of this 
part, the Department may initiate suspension or debarment 
proceedings against you under 49 CFR part 29.



67a

(c) In a suspension or debarment proceeding brought 
under paragraph (a) or (b) of this section, the concerned op­
erating administration may consider the fact that a pur­
ported DBE has been certified by a recipient. Such certifica­
tion does not preclude the Department from determining 
that the purported DBE, or another firm that has used or 
attempted to use it to meet DBE goals, should be suspended 
or debarred.

(d) The Department may take enforcement action under 
49 CFR Part 31, Program Fraud and Civil Remedies, against 
any participant in the DBE program whose conduct is 
subject to such action under 49 CFR part 31.

(e) The Department may refer to the Department of 
Justice, for prosecution under 18 U.S.C. 1001 or other appli­
cable provisions of law, any person who makes a false or 
fraudulent statement in connection with participation of a 
DBE in any DOT-assisted program or otherwise violates 
applicable Federal statutes.

*  5j£ *  *  *

Appendix E to  P a rt 26—Individual D eterm inations of 
Social and Economic Disadvantage

The following guidance is adapted, with minor modifica­
tions, from SBA regulations concerning social and economic 
disadvantage determinations (see 13 CFR 124.103(c) and 
124.104).



68a

Social Disadvantage

I. Socially disadvantaged individuals are those who have 
been subjected to racial or ethnic prejudice or cultural bias 
within American society because of their identities as mem­
bers of groups and without regard to their individual qual­
ities. Social disadvantage must stem from circumstances 
beyond their control. Evidence of individual social disadvan­
tage must include the following elements:

(A) At least one objective distinguishing feature that 
has contributed to social disadvantage, such as race, ethnic 
origin, gender, disability, long-term residence in an environ­
ment isolated from the mainstream of American society, or 
other similar causes not common to individuals who are not 
socially disadvantaged;

(B) Personal experiences of substantial and chronic social 
disadvantage in American society, not in other countries; 
and

(C) Negative impact on entry into or advancement in the 
business world because of the disadvantage. Recipients will 
consider any relevant evidence in assessing this element. In 
every case, however, recipients will consider education, em­
ployment and business history, where applicable, to see if 
the totality of circumstances shows disadvantage in entering 
into or advancing in the business world.

(1) Education. Recipients will consider such factors as 
denial of equal access to institutions of higher education and 
vocational training, exclusion from social and professional 
association with students or teachers, denial of educational 
honors rightfully earned, and social patterns or pressures 
which discouraged the individual from pursuing a profes­
sional or business education.



69a

(2) Employment. Keeipients will consider such factors 
as unequal treatment in hiring, promotions and other aspects 
of professional advancement, pay and fringe benefits, and 
other terms and conditions of employment; retaliatory or dis­
criminatory behavior by an employer or labor union; and 
social patterns or pressures which have channeled the in­
dividual into non-professional or non-business fields.

(3) Business history. The recipient will consider such 
factors as unequal access to credit or capital, acquisition of 
credit or capital under commercially unfavorable circum­
stances, unequal treatment in opportunities for government 
contracts or other work, unequal treatm ent by potential 
customers and business associates, and exclusion from bus­
iness or professional organizations.

II. With respect to paragraph I.(A) of this appendix, the 
Department notes that people with disabilities have dispro­
portionately low incomes and high rates of unemployment. 
Many physical and attitudinal barriers remain to their full 
participation in education, employment, and business oppor­
tunities available to the general public. The Americans with 
Disabilities Act (ADA) was passed in recognition of the 
discrimination faced by people with disabilities. It is plau­
sible that many individuals with disabilities—especially per­
sons with severe disabilities (e.g., significant mobility, vision, 
or hearing impairments)—may be socially and economically 
disadvantaged.

III. Under the laws concerning social and economic dis­
advantage, people with disabilities are not a group presumed 
to be disadvantaged. Nevertheless, recipients should look 
carefully at individual showings of disadvantage by individu­
als with disabilities, making a case-by-case judgment about 
whether such an individual meets the criteria of this ap­
pendix. As public entities subject to Title II of the ADA,



70a

recipients must also ensure their DBE programs are accessi­
ble to individuals with disabilities. For example, physical 
barriers or the lack of application and information materials 
in accessible formats cannot be permitted to thwart the ac­
cess of potential applicants to the certification process or 
other services made available to DBEs and applicants.

Economic Disadvantage

(A) General. Economically disadvantaged individuals are 
socially disadvantaged individuals whose ability to compete 
in the free enterprise system has been impaired due to 
diminished capital and credit opportunities as compared to 
others in the same or similar line of business who are not 
socially disadvantaged.

(B) Submission o f narrative and financial information.

(1) Each individual claiming economic disadvantage 
must describe the conditions which are the basis for the 
claim in a narrative statement, and must submit personal 
financial information.

(2) When married, an individual claiming economic dis­
advantage also must submit separate financial information 
for his or her spouse, unless the individual and the spouse 
are legally separated.

(C) Factors to be considered. In considering diminished 
capital and credit opportunities, recipients will examine 
factors relating to the personal financial condition of any 
individual claiming disadvantaged status, including personal 
income for the past two years (including bonuses and the 
value of company stock given in lieu of cash), personal net 
worth, and the fair market value of all assets, whether en­
cumbered or not. Recipients will also consider the financial 
condition of the applicant compared to the financial profiles



71a

of small businesses in the same primary industry classifi­
cation, or, if not available, in similar lines of business, which 
are not owned and controlled by socially and economically 
disadvantaged individuals in evaluating the individual’s ac­
cess to credit and capital. The financial profiles that recipi­
ents will compare include total assets, net sales, pre-tax 
profit, sales/working capital ratio, and net worth.

(D) Transfers within two years.

(1) Except as set forth in paragraph (D)(2) of this appen­
dix, recipients will attribute to an individual claiming disad­
vantaged status any assets which that individual has trans­
ferred to an immediate family member, or to a trust, a bene­
ficiary of which is an immediate family member, for less than 
fair market value, within two years prior to a concern’s ap­
plication for participation in the DBE program, unless the 
individual claiming disadvantaged status can demonstrate 
that the transfer is to or on behalf of an immediate family 
member for that individual’s education, medical expenses, or 
some other form of essential support.

(2) Recipients will not attribute to an individual claiming 
disadvantaged status any assets transferred by that indivi­
dual to an immediate family member that are consistent with 
the customary recognition of special occasions, such as birth­
days, graduations, anniversaries, and retirements.

(3) In determining an individual’s access to capital and 
credit, recipients may consider any assets that the individual 
transferred  within such two-year period described by 
paragraph (D)(1) of this appendix that are not considered in 
evaluating the individual’s assets and net worth (e.g., 
transfers to charities).



72a

APPENDIX E

Federal Acquisition Regulations, 48 C.F.R. Pt. 19
1. Section 19.201 of Volume 48 of the Code of Federal 

Regulations, as amended 65 Fed. Reg. 60,542, 60,544 (2000), 
provides:
§ 19.201 General policy.

(a) I t is the policy of the Government to provide maxi­
mum practicable opportunities in its acquisitions to small 
business, veteran-owned small business, service-disabled 
veteran-owned small business, HUBZone small business, 
small disadvantaged business, and women-owned small 
business concerns. Such concerns must also have the maxi­
mum practicable opportunity to participate as subcontrac­
tors in the contracts awarded by any executive agency, con­
sistent with efficient contract performance. The Small 
Business Administration (SBA) counsels and assists small 
business concerns and assists contracting personnel to en­
sure that a fair proportion of contracts for supplies and 
services is placed with small business.

(b) The Department of Commerce will determine on an 
annual basis, by North American Industry Classification 
System (NAICS) Industry Subsector, and region, if any, the 
authorized small disadvantaged business (SDB) procurement 
mechanisms and applicable factors (percentages). The De­
partment of Commerce determination shall only affect solici­
tations that are issued on or after the effective date of the 
determination. The effective date of the Department of 
Commerce determination shall be no less than 60 days after 
its publication date. The Department of Commerce deter­
mination shall not affect ongoing acquisitions. The SDB 
procurement mechanisms are a price evaluation adjustment 
for SDB concerns (see Subpart 19.11), an evaluation factor or



73a

subfactor for participation of SDB concerns (see 19,1202), 
and monetary subcontracting incentive clauses for SDB 
concerns (see 19.1203). The Department of Commerce deter­
mination shall also include the applicable factors, by NAICS 
Industry Subsector, to be used in the price evaluation ad­
justm ent for SDB concerns (see 19.1104). The General 
Services Administration shall post the Department of Com­
merce determination at http://www.arnet.gov/References/ 
sdbadjustments.htm. The authorized procurement mecha­
nisms shall be applied consistently with the policies and 
procedures in this subpart. The agencies shall apply the 
procurement mechanisms determined by the Department 
of Commerce. The Department of Commerce, in making 
its determination, is not limited to the SDB procurement 
mechanisms identified in this section where the Department 
of Commerce has found substantial and persuasive evidence 
of—

(1) A persistent and significant underutilization of 
minority firms in a particular industry, attributable to past 
or present discrimination; and

(2) A demonstrated incapacity to alleviate the problem by 
using those mechanisms.

(c) Heads of contracting activities are responsible for 
effectively implementing the small business programs within 
their activities, including achieving program goals. They are 
to ensure that contracting and technical personnel maintain 
knowledge of small business program requirements and take 
all reasonable action to increase participation in-their activi­
ties’ contracting processes by these businesses.

(d) The Small Business Act requires each agency with 
contracting authority to establish an Office of Small and Dis­
advantaged Business Utilization (see section (k) of the Small 
Business Act). Management of the office shall be the respon-

http://www.arnet.gov/References/


74a

sibility of an officer or employee of the agency who shall, in 
carrying out the purposes of the Act—

(1) Be known as the Director of Small and Disadvan­
taged Business Utilization;

(2) Be appointed by the agency head;

(3) Be responsible to and report directly to the agency 
head or the deputy to the agency head;

(4) Be responsible for the agency carrying out the 
functions and duties in sections 8, 15, and 31 of the Small 
Business Act.

(5) Work with the SBA procurement center rep re ­
sentative to—

(i) Identify proposed solicitations that involve bundling;

(ii) Facilitate small business participation as contractors 
including small business contract teams, where appropriate; 
and

(iii) Facilitate small business participation as subcontrac­
tors and suppliers where participation by small business 
concerns as contractors is unlikely;

(6) Assist small business concerns in obtaining payments 
under their contracts, late payment, interest penalties, or 
information on contractual payment provisions;

(7) Have supervisory authority over agency personnel to 
the extent that their functions and duties relate to sections 8, 
15, and 31 of the Small Business Act.

(8) Assign a small business technical advisor to each 
contracting activity within the agency to which the SBA has 
assigned a representative (see 19.402)—



75a

(i) Who shall be a full-time employee of the contracting 
activity, well qualified, technically trained, and familiar with 
the supplies or services contracted for by the activity; and

(ii) Whose principal duty is to assist the SBA’s assigned 
representative in performing functions and duties relating to 
sections 8,15, and 31 of the Small Business Act;

(9) Cooperate and consult on a regular basis with the 
SBA in carrying out the agency’s functions and duties in 
sections 8,15, and 31 of the Small Business Act;

(10) Make recommendations in accordance with agency 
procedures as to whether a particular acquisition should be 
awarded under subpart 19.5 as a small business set-aside, 
under subpart 19.8 as a Section 8(a) award, or under subpart 
19.13 as a HUBZone set-aside.

(e) Small Business Specialists must be appointed and act 
in accordance with agency regulations.

(f) (1) Each agency shall designate, at levels it determines 
appropriate, personnel responsible for determining whether, 
in order to achieve the contracting agency’s goal for SDB 
concerns, the use of the SDB mechanism in Subpart 19.11 
has resulted in an undue burden on non-SDB firms in one of 
the Industry subsectors and regions identified by Depart­
ment of Commerce following paragraph (b) of this section, or 
is otherwise inappropriate. Determinations under this sub­
part are for the purpose of determining future acquisitions 
and shall not affect ongoing acquisitions. Requests for a 
determination, including supporting rationale, may be sub­
mitted to the agency designee. If the agency designee 
makes an affirmative determination that the SDB mecha­
nism has an undue burden or is otherwise inappropriate, the 
determination shall be forwarded through agency channels 
to the OFPP, which shall review the determination in con-



76a

sultation with the Department of Commerce and the Small 
Business Administration. At a minimum, the following in­
formation should be included in any submittal:

(1) A determination of undue burden or other inap­
propriate effect, including proposed corrective action.

(ii) The Industry subsector affected.
(iii) Supporting information to justify the determination, 

including, but not limited to, dollars and percentages of 
contracts awarded by the contracting activity under the 
affected Industry subsector for the previous two fiscal years 
and current fiscal year to date for—

(A) Total awards;
(B) Total awards to SDB concerns;
(C) Awards to SDB concerns awarded contracts under 

the SDB price evaluation adjustment where the SDB 
concerns would not otherwise have been the successful 
offeror;

(D) Number of successful and unsuccessful SDB offerors; 
and

(E) Number of successful and unsuccessful non-SDB 
offerors.

(iv) A discussion of the pertinent findings, including any 
peculiarities related to the industry, regions or demo­
graphics.

(v) A discussion of other efforts the agency has under­
taken to ensure equal opportunity for SDBs in contracting 
with the agency.

(2) After consultation with OFPP, or if the agency does 
not receive a response from OFPP within 90 days after 
notice is provided to OFPP, the contracting agency may 
limit the use of the SDB mechanism in Subpart 19.11 until



77a

the Department of Commerce determines the updated price 
evaluation adjustment, as required by this section. This 
limitation shall not apply to solicitations that already have 
been synopsized.

2. Section 19.202-1 of Volume 48 of the Code of Federal 
Regulations provides:

§ 19.201-1 Encouraging small business participation 
in acquisitions.

Small business concerns shall be afforded an equitable 
opportunity to compete for all contracts that they can per­
form to the extent consistent with the Government’s inter­
est. When applicable, the contracting officer shall take the 
following actions:

(a) Divide proposed acquisitions of supplies and services 
(except construction) into reasonably small lots (not less 
than economic production runs) to perm it offers on 
quantities less than the total requirement.

(b) Plan acquisitions such that, if practicable, more than 
one small business concern may perform the work, if the 
work exceeds the amount for which a surety may be 
guaranteed by SBA against loss under 15 U.S.C. 694b.

(c) Ensure that delivery schedules are established on a 
realistic basis that will encourage small business par­
ticipation to the extent consistent with the actual re ­
quirements of the Government.

(d) Encourage prime contractors to subcontract with 
small business concerns (see subpart 19.7).

(e) (1) Provide a copy of the proposed acquisition package 
to the SBA procurement center representative at least 30 
days prior to the issuance of the solicitation if—



78a

(1) The proposed acquisition is for supplies or services 
currently being provided by a small business and the 
proposed acquisition is of a quantity or estimated dollar 
value, the magnitude of which makes it unlikely that small 
businesses can compete for the prime contract;

(ii) The proposed acquisition is for construction and seeks 
to package or consolidate discrete construction projects and 
the magnitude of this consolidation makes it unlikely that 
small businesses can compete for the prime contract; or

(iii) The proposed acquisition is for a bundled re ­
quirement. (See 10.001(c)(2)(i) for mandatory 30-day notice 
requirement to incumbent small business concerns.)

(2) The contracting officer also must provide a statement 
explaining why the—

(i) Proposed acquisition cannot be divided into reasonably 
small lots (not less than economic production runs) to permit 
offers on quantities less than the total requirement;

(ii) Delivery schedules cannot be established on a realistic 
basis that will encourage small business participation to the 
extent consistent with the actual requirements of the Gov­
ernment;

(iii) Proposed acquisition cannot be structured so as to 
make it likely that small businesses can compete for the 
prime contract;

(iv) Consolidated construction project cannot be acquired 
as separate discrete projects; or

(v) Bundling is necessary and justified.

(3) The 30-day notification process shall occur concur­
rently with other processing steps required prior to the 
issuance of the solicitation.



79a

(4) If the contracting officer rejects the SB A procure­
ment center representative’s recommendation, made in 
accordance with 19.402(c)(2), the contracting officer shall 
document the basis for the rejection and notify the SBA 
procurement center representative in accordance with 
19.505.

3. Section 19.202-2 of Volume 48 of the Code of Federal 
Regulations, as amended 65 Fed. Reg. 60,542, 60,544 (2000), 
provides:

§ 19.202-2 Locating small business sources.

The contracting officer must, to the extent practicable, 
encourage maximum participation by small business, 
veteran-owned small business, service-disabled veteran- 
owned small business, HUBZone small business, small 
disadvantaged business, and women-owned small business 
concerns in acquisitions by taking the following actions:

(a) Include on mailing lists all established and potential 
small business sources, including those located in labor 
surplus areas and HUBZones, if the concerns have 
submitted acceptable applications or appear from other 
representations to be qualified small business concerns.

(b) Before issuing solicitations, make every reasonable 
effort to find additional small business concerns, unless lists 
are already excessively long and only some of the concerns 
on the list will be solicited. This effort should include con­
tacting the agency SBA procurement center representative, 
or if there is none, the SBA.

(c) Publicize solicitations and contract awards through 
the Governmentwide point of entry (see subparts 5.2 and 
5.3).



80a

4. Section 19.702 of Volume 48 of the Code of Federal 
Regulations, as amended 65 Fed. Reg. 60,542, 60,545 (2000), 
provides:

§ 19.702 Statutory requirements.

Any contractor receiving a contract for more than the 
simplified acquisition threshold must agree in the contract 
that small business, veteran-owned small business, service- 
disabled veteran-owned small business, HUBZone small 
business, small disadvantaged business, and women-owned 
small business concerns will have the maximum practicable 
opportunity to participate in contract performance con­
sistent with its efficient performance. It is further the policy 
of the United States that its prime contractors establish 
procedures to ensure the timely payment of amounts due 
pursuant to the terms of their subcontracts with small 
business, veteran-owned small business, service-disabled 
veteran-owned small business, HUBZone small business, 
small disadvantaged business, and women-owned small 
business concerns.

(a) Except as stated in paragraph (b) of this section, 
Section 8(d) of the Small Business Act (15 U.S.C. 637(d)) 
imposes the following requirem ents regarding subcon­
tracting with small businesses and small business subcon­
tracting plans:

(1) In negotiated acquisitions, each solicitation of offers to 
perform a contract or contract modification, that individually 
is expected to exceed $500,000 ($1,000,000 for construction) 
and that has subcontracting possibilities, shall require the 
apparently successful offeror to submit an acceptable 
subcontracting plan. If the apparently successful offeror 
fails to negotiate a subcontracting plan acceptable to the 
contracting officer within the time limit prescribed by the 
contracting officer, the offeror will be ineligible for award.



81a

(2) In sealed bidding acquisitions, each invitation for bids 
to perform a contract or contract modification, that in­
dividually is expected to exceed $500,000 ($1,000,000 for 
construction) and that has subcontracting possibilities, shall 
require the bidder selected for award to submit a sub­
contracting plan. If the selected bidder fails to submit a plan 
within the time limit prescribed by the contracting officer, 
the bidder •null be ineligible for award.

(b) Subcontracting plans (see subparagraphs (a)(1) and (2) 
above) are not required—

(1) From small business concerns;
(2) For personal services contracts;
(3) For contracts or contract modifications that will be 

performed entirely outside of any State, territory , or 
possession of the United States, the District of Columbia, 
and the Commonwealth of Puerto Rico; or

(4) For modifications to contracts within the general 
scope of the contract that do not contain the clause at 
52.219-8, Utilization of Small Business Concerns (or equi­
valent prior clauses; e.g., contracts awarded before the 
enactment of Public Law 95-507).

(c) As stated in 15 U.S.C. 637(d)(8), any contractor or sub­
contractor failing to comply in good faith with the require­
ments of the subcontracting plan is in material breach of its 
contract. Further, 15 U.S.C. 637(d)(4)(F) directs that a 
contractor’s failure to make a good faith effort to comply 
with the requirements of the subcontracting plan shall result 
in the imposition of liquidated damages.

(d) As authorized by 15 U.S.C. 637(d)(ll), certain costs in­
curred by a mentor firm in providing developmental assis­
tance to a Protege firm under the Department of Defense 
Pilot Mentor-Protege Program, may be credited as subcon­
tract awards to a small disadvantaged business for the pur-



82a

pose of determining whether the mentor firm attains a small 
disadvantaged business goal under any subcontracting plan 
entered into with any executive agency. However, the 
mentor-protege agreement must have been approved by 
the—

Office of Small and Disadvantaged Business Utilization,
Office of the Under Secretary of Defense (Acquisition,
Technology and Logistics), 1777 N. Kent Street, Suite 9100,
Arlington, VA 22209

before developmental assistance costs may be credited 
against subcontracting goals. A list of approved agreements 
may be obtained at http://www.acq.osd.mil/sadbu/mentor 
_protege/ or by calling 1-800-553-1858.

5. Section 19.704 of Volume 48 of the Code of Federal 
Regulations, as amended 65 Fed. Reg. 60,542, 60,545 (2000), 
provides:

§ 19.704 Subcontracting plan requirements.

(a) Each subcontracting plan required under 19.702(a) 
(1) and (2) must include—

(1) Separate percentage goals for using small business, 
veteran-owned small business, HUBZone small business, 
small disadvantaged business, and women-owned small 
business concerns as subcontractors. Service-disabled 
veteran-owned small business concerns meet the definition 
of veteran-owned small business concerns, and offerors may 
include them within the subcontracting plan goal for 
veteran-owned small business concerns. A separate goal for 
service-disabled veteran-owned small business concerns is 
not required;

(2) A statement of the total dollars planned to be sub­
contracted and a statement of the total dollars planned to be 
subcontracted to small business, veteran-owned small

http://www.acq.osd.mil/sadbu/mentor


83a

business, HUBZone small business, small disadvantaged 
business, and women-owned small business concerns;

(3) A description of the principal types of supplies and 
services to be subcontracted and an identification of types 
planned for subcontracting to small business, veteran-owned 
small business, HUBZone small business, small disadvan­
taged business, and women-owned small business concerns;

(4) A description of the method used to develop the 
subcontracting goals;

(5) A description of the method used to identify potential 
sources for solicitation purposes;

(6) A statement as to whether or not the offeror included 
indirect costs in establishing subcontracting goals, and a 
description of the method used to determ ine the 
proportionate share of indirect costs to be incurred with 
small business, veteran-owned small business, HUBZone 
small business, small disadvantaged business, and women- 
owned small business concerns;

(7) The name of an individual employed by the offeror 
who will administer the offeror’s subcontracting program, 
and a description of the duties of the individual;

(8) A description of the efforts the offeror will make to 
ensure that small business, veteran-owned small business, 
HUBZone small business, small disadvantaged business, and 
women-owned small business concerns have an equitable 
opportunity to compete for subcontracts;

(9) Assurances that the offeror will include the clause at 
52.219-8, Utilization of Small Business Concerns (see 
19.708(a)), in all subcontracts that offer further subcontract­
ing opportunities, and that the offeror will require all sub­
contractors (except small business concerns) that receive 
subcontracts in excess of $500,000 ($1,000,000 for construc­
tion) to adopt a plan that complies with the requirements of



84a

the clause at 52.219-9, Small Business Subcontracting Plan 
(see 19.708(b));

(10) Assurances that the offeror will—

(i) Cooperate in any studies or surveys as may be 
required;

(11) Submit periodic reports so that the Government can 
determine the extent of compliance by the offeror with the 
subcontracting plan;

(iii) Submit Standard Form (SF) 294, Subcontracting 
Report for Individual Contracts, and SF 295, Summary 
Subcontract Report, following the instructions on the forms 
or as provided in agency regulations; and

(iv) Ensure that its subcontractors agree to submit SF 
294 and SF 295; and

(11) A description of the types of records tha t will be 
maintained concerning procedures adopted to comply with 
the requirements and goals in the plan, including establish­
ing source lists; and a description of the offeror’s efforts 
to locate small business, veteran-owned small business, 
HUBZone small business, small disadvantaged business, and 
women-owned small business concerns and to award sub­
contracts to them.

(b) Contractors may establish, on a plant or division-wide 
basis, a master plan (see 19.701) that contains all the ele­
ments required by the clause at 52.219-9, Small Business 
Subcontracting Plan, except goals. Master plans shall be 
effective for a 3-year period after approval by the con­
tracting officer; however, it is incumbent upon contractors to 
maintain and update m aster plans. Changes required to 
update master plans are not effective until approved by the 
contracting officer. A master plan, when incorporated in an 
individual plan, shall apply to that contract throughout the 
life of the contract.



85a

(c) For multiyear contracts or contracts containing op­
tions, the cumulative value of the basic contract and all 
options is considered in determining whether a subcontrac­
ting plan is necessary (see 19.705-2(a)). If a plan is necessary 
and the offeror is submitting an individual contract plan, the 
plan shall contain all the elements required by paragraph (a) 
of this section and shall contain separate statem ents and 
goals for the basic contract and for each option.

(d) A commercial plan (as defined in 19.701) is the pre­
ferred type of subcontracting plan for contractors furnishing 
commercial items. The contractor shall—

(1) Submit the commercial plan to either the first con­
tracting officer awarding a contract subject to the plan 
during the contractor’s fiscal year, or, if the contractor has 
ongoing contracts with commercial plans, to the contracting 
officer responsible for the contract with the latest com­
pletion date. The contracting officer shall negotiate the 
commercial plan for the Government. The approved com­
mercial plan shall remain in effect during the contractor’s 
fiscal year for all Government contracts in effect during that 
period; and

(2) Submit a new commercial plan, 30 working days 
before the end of the fiscal year, to the contracting officer 
responsible for the uncompleted Government contract with 
the latest completion date. The contractor must provide to 
each contracting officer responsible for an ongoing contract 
subject to the plan, the identity of the contracting officer 
that will be negotiating the new plan. When the new 
commercial plan is approved, the contractor shall provide a 
copy of the approved plan to each contracting officer re­
sponsible for an ongoing contract that is subject to the plan.



86a

6. Section 19.705-7 of Volume 48 of the Code of Federal 
Regulations, as amended 65 Fed. Reg. 60,542, 60,545 (2000), 
provides:

19.705-7 Liquidated damages.

(a) Maximum practicable utilization of small business, 
veteran-owned small business (including service-disabled 
veteran-owned small business), HUBZone small business, 
small disadvantaged business, and women-owned small 
business concerns as subcontractors in Government con­
tracts is a m atter of national interest with both social and 
economic benefits. When a contractor fails to make a good 
faith effort to comply with a subcontracting plan, these ob­
jectives are not achieved, and 15 U.S.C. 687(d)(4)(F) directs 
that liquidated damages shall be paid by the contractor.

(b) The amount of damages attributable to the con­
tractor’s failure to comply shall be an amount equal to the 
actual dollar amount by which the contractor failed to 
achieve each subcontracting goal.

(c) If, at completion of the basic contract or any option, or 
in the case of a commercial plan, at the close of the fiscal year 
for which the plan is applicable, a contractor has failed to 
meet its subcontracting goals, the contracting officer shall 
review all available information for an indication that the 
contractor has not made a good faith effort to comply with 
the plan. If no such indication is found, the contracting 
officer shall document the file accordingly. If the contracting 
officer decides in accordance with paragraph (d) of this sub­
section that the contractor failed to make a good faith effort 
to comply with its subcontracting plan, the contracting of­
ficer shall give the contractor written notice specifying the 
failure, advising the contractor of the possibility that the 
contractor may have to pay to the Government liquidated 
damages, and providing a period of 15 working days (or



87a

longer period as necessary) within which to respond. The 
notice shall give the contractor an opportunity to demon­
strate what good faith efforts have been made before the 
contracting officer issues the final decision, and shall further 
state that failure of the contractor to respond may be taken 
as an admission that no valid explanation exists.

(d) In determining whether a contractor failed to make a 
good faith effort to comply with its subcontracting plan, a 
contracting officer must look to the totality of the con­
tractor’s actions, consistent with the information and assur­
ances provided in its plan. The fact that the contractor failed 
to meet its subcontracting goals does not, in and of itself, 
constitute a failure to make a good faith effort. For example, 
notwithstanding a contractor’s diligent effort to identify and 
solicit offers from small business, veteran-owned small 
business (including service-disabled veteran-owned small 
business), HUBZone small business, small disadvantaged 
business, and women-owned small business concerns, factors 
such as unavailability of anticipated sources or unreasonable 
prices may frustrate achievement of the contractor’s goals. 
However, when considered in the context of the contractor’s 
total effort in accordance with its plan, the following, though 
not all inclusive, may be considered as indicators of a failure 
to make a good faith effort: a failure to attempt to identify, 
contact, solicit, or consider for contract award small bus­
iness, veteran-owned small business (including service- 
disabled veteran-owned small business), HUBZone small 
business, small disadvantaged business, or women-owned 
small business concerns; a failure to designate and maintain 
a company official to administer the subcontracting program 
and monitor and enforce compliance with the plan; a failure 
to submit Standard Form (SF) 294, Subcontracting Report 
for Individual Contracts, or SF 295, Summary Subcontract 
Report, in accordance with the instructions on the forms or



88a

as provided in agency regulations; a failure to maintain rec­
ords or otherwise demonstrate procedures adopted to com­
ply with the plan; or the adoption of company policies or pro­
cedures that have as their objectives the frustration of the 
objectives of the plan.

(e) If, after consideration of all the pertinent data, the 
contracting officer finds that the contractor failed to make a 
good faith effort to comply with its subcontracting plan, the 
contracting officer shall issue a final decision to the con­
tractor to that effect and require the payment of liquidated 
damages in an amount stated. The contracting officer’s final 
decision shall state that the contractor has the right to 
appeal under the clause in the contract entitled Disputes.

(f) With respect to commercial plans approved under the 
clause at 52.219-9, Small Business Subcontracting Plan, the 
contracting officer that approved the plan shall—

(1) Perform the functions of the contracting officer under 
this subsection on behalf of all agencies with contracts 
covered by the commercial plan;

(2) Determine whether or not the goals in the commercial 
plan were achieved and, if they were not achieved, review all 
available information for an indication that the contractor 
has not made a good faith effort to comply with the plan, and 
document the results of the review;

(3) If a determination is made to assess liquidated dam­
ages, in order to calculate and assess the amount of damages, 
the contracting officer shall ask the contractor to provide—

(i) Contract numbers for the Government contracts 
subject to the plan;

(ii) The total Government sales during the contractor’s 
fiscal year; and



89a

(iii) The amount of payments made under the Govern­
ment contracts subject to that plan that contributed to the 
contractor’s total sales during the contractor’s fiscal year; 
and

(4) When appropriate, assess liquidated damages on the 
Government’s behalf, based on the pro ra ta  share of 
subcontracting attributable to the Government contracts. 
For example: The contractor’s total actual sales were $50 
million and its actual subcontracting was $20 million. The 
Government’s total payments under contracts subject to the 
plan contributing to the contractor’s total sales were $5 
million, which accounted for 10 percent of the contractor’s 
total sales. Therefore, the pro rata share of subcontracting 
attributable to the Government contracts would be 10 per­
cent of $20 million, or $2 million. To continue the example, if 
the contractor failed to achieve its small business goal by 1 
percent, the liquidated damages would be calculated as 1 
percent of $2 million, or $20,000. The contracting officer 
shall make similar calculations for each category of small 
business where the contractor failed to achieve its goal and 
the sum of the dollars for all of the categories equals the 
amount of the liquidated damages to be assessed. A copy of 
the contracting officer’s final decision assessing liquidated 
damages shall be provided to other contracting officers with 
contracts subject to the commercial plan.

(g) Liquidated damages shall be in addition to any other 
remedies that the Government may have.

(h) Every contracting officer with a contract tha t is 
subject to a commercial plan shall include in the contract file 
a copy of the approved plan and a copy of the final decision 
assessing liquidating damages, if applicable.



90a

7. Section 52.219-9 of Volume 48 of the Code of Federal 
Regulations, as amended 65 Fed. Reg. 60,542, 60,547 (2000), 
provides:

§ 52.219-9 Small business subcontracting plan.

As prescribed in 19.708(b), insert the following clause:

Small Business Subcontracting Plan (Oct. 2000)

(a) This clause does not apply to small business concerns.

(b) Definitions. As used in this clause—

Commercial item  means a product or service tha t satis­
fies the definition of commercial item in section 2.101 of the 
Federal Acquisition Regulation.

Commercial plan means a subcontracting plan (including 
goals) that covers the offeror’s fiscal year and that applies to 
the entire production of commercial items sold by either the 
entire company or a portion thereof (e.g., division, plant, or 
product line).

Individual contract plan  means a subcontracting plan 
that covers the entire contract period (including option 
periods), applies to a specific contract, and has goals that are 
based on the offeror’s planned subcontracting in support of 
the specific contract, except that indirect costs incurred for 
common or joint purposes may be allocated on a prorated 
basis to the contract.

Master plan  means a subcontracting plan that contains all 
the required elements of an individual contract plan, except 
goals, and may be incorporated into individual contract 
plans, provided the master plan has been approved.

Subcontract means any agreement (other than one in­
volving an employer-employee relationship) entered into by 
a Federal Government prime [contractor or subcontractor



91a

calling for supplies or services required for performance of 
the contract or subcontract,

(c) The offeror, upon request by the Contracting Officer, 
shall submit and negotiate a subcontracting plan, where ap­
plicable, that separately addresses subcontracting with small 
business, veteran-owned small business, HUBZone small 
business concerns, small disadvantaged business, and 
women-owned small business concerns. If the offeror is sub­
mitting an individual contract plan, the plan must separately 
address subcontracting with small business, veteran-owned 
small business, HUBZone small business, small disadvan­
taged business, and women-owned small business concerns, 
with a separate part for the basic contract and separate 
parts for each option (if any). The plan shall be included in 
and made a part of the resultant contract. The subcontrac­
ting plan shall be negotiated within the time specified by the 
Contracting Officer. Failure to submit and negotiate the 
subcontracting plan shall make the offeror ineligible for 
award of a contract.

(d) The offeror’s subcontracting plan shall include the 
following:

(1) Goals, expressed in terms of percentages of total 
planned subcontracting dollars, for the use of small business, 
veteran-owned small business, HUBZone small business, 
small disadvantaged business, and women-owned small bus­
iness concerns as subcontractors. Service-disabled veteran- 
owned small business concerns meet the definition of 
veteran-owned small business concerns, and offerors may 
include them within the subcontracting plan goal for 
veteran-owned small business concerns. A separate goal for 
service-disabled veteran-owned small business concerns is 
not required. The offeror shall include all subcontracts that 
contribute to contract performance, and may include a pro-



92a

portionate share of products and services that are normally- 
allocated as indirect costs.

(2) A statement of—

(i) Total dollars planned to be subcontracted for an 
individual contract plan; or the offeror’s total projected sales, 
expressed in dollars, and the total value of projected sub­
contracts to support the sales for a commercial plan;

(ii) Total dollars planned to be subcontracted to small 
business concerns;

(iii) Total dollars planned to be subcontracted to veteran- 
owned small business concerns;

(iv) Total dollars planned to be subcontracted to 
HUBZone small business concerns;

(v) Total dollars planned to be subcontracted to small 
disadvantaged business concerns; and

(vi) Total dollars planned to be subcontracted to women- 
owned small business concerns.

(3) A description of the principal types of supplies and 
services to be subcontracted, and an identification of the 
types planned for subcontracting to—

(i) Small business concerns;
(ii) Veteran-owned small business concerns;
(iii) HUBZone small business concerns;
(iv) Small disadvantaged business concerns; and
(v) Women-owned small business concerns.
(4) A description of the method used to develop the sub­

contracting goals in paragraph (d)(1) of this clause.

(5) A description of the method used to identify potential 
sources for solicitation purposes (e.g., existing company 
source lists, the Procurement Marketing and Access N et­
work (PRO-Net) of the Small Business Administration



93a

(SBA), veterans service organizations, the National Minority- 
Purchasing Council Vendor Information Service, the Re­
search and Information Division of the Minority Business 
Development Agency in the Department of Commerce, or 
small, HUBZone, small disadvantaged, and women-owned 
small business trade associations). A firm may rely on the 
information contained in PRO-Net as an accurate repre­
sentation of a concern’s size and ownership characteristics 
for the purposes of maintaining a small, veteran-owned 
small, HUBZone small, small disadvantaged, and women- 
owned small business source list. Use of PRO-Net as its 
source list does not relieve a firm of its responsibilities (e.g., 
outreach, assistance, counseling, or publicizing subcon­
tracting opportunities) in this clause.

(6) A statement as to whether or not the offeror in [sic] 
included indirect costs in establishing subcontracting goals, 
and a description of the method used to determine the 
proportionate share of indirect costs to be incurred with—

(i) Small business concerns;
(ii) Veteran-owmed small business concerns;
(iii) HUBZone small business concerns;
(iv) Small disadvantaged business concerns; and
(v) Women-owmed small business concerns.
(7) The name o f’the individual employed by the offeror 

who will administer the offeror’s subcontracting program, 
and a description of the duties of the individual.

(8) A description of the efforts the offeror will make to 
assure that small business, veteran-owned small business, 
HUBZone small business, small disadvantaged business, and 
women-owned small business concerns have an equitable 
opportunity to compete for subcontracts.



94a

(9) Assurances that the offeror will include the clause of 
this contract entitled “Utilization of Small Business Con­
cerns” in all subcontracts that offer further subcontracting 
opportunities, and that the offeror will require all sub­
contractors (except small business concerns) that receive 
subcontracts in excess of $500,000 ($1,000,000 for construc­
tion of any public facility) to adopt a subcontracting plan that 
complies with the requirements of this clause.

(10) Assurances that the offeror will—

(i) Cooperate in any studies or surveys as may be 
required;

(11) Submit periodic reports so that the Government can 
determine the extent of compliance by the offeror with the 
subcontracting plan;

(iii) Submit Standard Form (SF) 294, Subcontracting 
Report for Individual Contracts, and/or SF 295, Summary 
Subcontract Report, in accordance with paragraph (j) of this 
clause. The reports shall provide information on subcontract 
awards to small business concerns, veteran-owned small 
business concerns, service-disabled veteran-owned small 
business concerns, small disadvantaged business concerns, 
women-owned small business concerns, and Historically 
Black Colleges and Universities and Minority Institutions. 
Reporting, shall be in accordance with the instructions on the 
forms or as provided in agency regulations.

(iv) Ensure that its subcontractors agree to submit SF 
294 and SF 295.

(11) A description of the types of records that will be 
maintained concerning procedures that have been adopted to 
comply with the requirements and goals in the plan, in­
cluding establishing source lists; and a description of the 
offeror’s efforts to locate small business, veteran-owned 
small business, HUBZone small business, small disadvan-



95a

taged business, and women-owned small business concerns 
and award subcontracts to them. The records shall include 
at least the following (on a plant-wide or company-wide 
basis, unless otherwise indicated):

(i) Source lists (e.g., PRO-Net), guides, and other data 
that identify small business, veteran-owned small business, 
HUBZone small business, small disadvantaged business, and 
women-owned small business concerns.

(ii) Organizations contacted in an attem pt to locate 
sources that are small business, veteran-owned small busi­
ness, HUBZone small business, small disadvantaged busi­
ness, or women-owned small business concerns.

(iii) Records on each subcontract solicitation resulting in 
an award of more than $100,000, indicating—

(A) Whether small business concerns were solicited and, 
if not, why not;

(B) W hether veteran-owned small business concerns 
were solicited and, if not, why not;

(C) W hether HUBZone small business concerns wrere 
solicited and, if not, why not;

(D) W hether small disadvantaged business concerns 
were solicited and, if not, why not;

(E) W hether women-owned small business concerns 
were solicited and, if not, why not; and

(F) If applicable, the reason award was not made to a 
small business concern.

(iv) Records of any outreach efforts to contact—
(A) Trade associations;
(B) Business development organizations;
(C) Conferences and trade fairs to locate small, 

HUBZone small, small disadvantaged, and women-owned 
small business sources; and



96a

(D) Veterans service organizations.
(v) Records of internal guidance and encouragement 

provided to buyers through—
(A) Workshops, seminars, training, etc.; and
(B) Monitoring performance to evaluate compliance with 

the program’s requirements.
(vi) On a contract-by-contract basis, records to support 

award data submitted by the offeror to the Government, 
including the name, address, and business size of each 
subcontractor. Contractors having commercial plans need 
not comply with this requirement.

(e) In order to effectively implement this plan to the ex­
ten t consistent with efficient contract performance, the 
Contractor shall perform the following functions:

(1) Assist small business, veteran-owned small business, 
HUBZone small business, small disadvantaged business, and 
women-owned small business concerns by arranging solicita­
tions, time for the preparation of bids, quantities, specifica­
tions, and delivery schedules so as to facilitate the participa­
tion by such concerns. Where the Contractor’s lists of 
potential small business, veteran-owned small business, 
HUBZone small business, small disadvantaged business, and 
women-owned small business subcontractors are excessively 
long, reasonable effort shall be made to give all such small 
business concerns an opportunity to compete over a period of 
time.

(2) Provide adequate and timely consideration of the 
potentialities of small business, veteran-owned small 
business, HUBZone small business, small disadvantaged 
business, and women-owned small business concerns in all 
“make-or-buy” decisions.

(3) Counsel and discuss subcontracting opportunities with 
representatives of small business, veteran-owned small



97a

business, HUBZone small business, small disadvantaged 
business, and women-owned small business firms.

(4) Provide notice to subcontractors concerning penalties 
and remedies for misrepresentations of business status as 
small, veteran-owned small business, HUBZone small, small 
disadvantaged, or women-owned small business for the 
purpose of obtaining a subcontract that is to be included as 
part or all of a goal contained in the Contractor’s subcontrac­
ting plan.

(f) A master plan on a plant or division-wide basis that 
contains all the elements required by paragraph (d) of this 
clause, except goals, may be incorporated by reference as a 
part of the subcontracting plan required of the offeror by 
this clause; provided—

(1) The master plan has been approved,

(2) The offeror ensures that the master plan is updated as 
necessary and provides copies of the approved master plan, 
including evidence of its approval, to the Contracting Officer, 
and

(3) Goals and any deviations from the m aster plan 
deemed necessary by the Contracting Officer to satisfy the 
requirements of this contract are set forth in the individual 
subcontracting plan.

(g) A commercial plan is the preferred type of subcon­
tracting plan for contractors furnishing commercial items. 
The commercial plan shall relate to the offeror’s planned sub­
contracting generally, for both commercial and Government 
business, rather than solely to the Government contract. 
Commercial plans are also preferred for subcontractors that 
provide commercial items under a prime contract, whether 
or not the prime contractor is supplying a commercial item.



98a

(h) Prior compliance of the offeror with other such sub­
contracting plans under previous contracts will be con­
sidered by the Contracting Officer in determining the re ­
sponsibility of the offeror for award of the contract.

(i) The failure of the Contractor or subcontractor to com­
ply in good faith with (1) the clause of this contract entitled 
“Utilization Of Small Business Concerns,” or (2) an approved 
plan required by this clause, shall be a material breach of the 
contract.

(j) The Contractor shall submit the following reports:
(1) Standard Form 294, Subcontracting Report for In­

dividual Contracts. This report shall be submitted to the 
Contracting Officer semi-annually and at contract com­
pletion. The report covers subcontract award data related to 
this contract. This report is not required for commercial 
plans.

(2) Standard Form 295, Summary Subcontract Report. 
This report encompasses all of the contracts with the 
awarding agency. It must be submitted semi- annually for 
contracts with the Department of Defense and annually for 
contracts with civilian agencies. If the reporting activity is 
covered by a commercial plan, the reporting activity must 
report annually all subcontract awards under that plan. All 
reports submitted at the close of each fiscal year (both 
individual and commercial plans) shall include a breakout, in 
the Contractor’s format, of subcontract awards, in whole 
dollars, to small disadvantaged business concerns by North 
American Industry Classification System (NAICS) Industry 
Subsector. For a commercial plan, the Contractor may 
obtain from each of its subcontractors a predominant NAICS 
Industry Subsector and report all awards to that subcontrac­
tor under its predominant NAICS Industry Subsector.

(End of clause)



99a

Alternate I (Oct 2000). When contracting by sealed bid­
ding ra ther than by negotiation, substitute the following 
paragraph (c) for paragraph (c) of the basic clause:

(c) The apparent low bidder, upon request by the Con­
tracting Officer, shall submit a subcontracting plan, where 
applicable, that separately addresses subcontracting with 
small business, veteran-owned small business, HUBZone 
small business, small disadvantaged business, and women- 
owned small business concerns. If the bidder is submitting 
an individual contract plan, the plan must separately address 
subcontracting with small business, veteran-owned small 
business, HUBZone small business, small disadvantaged 
business, and women-owned small business concerns, with a 
separate part for the basic contract and separate parts for 
each option (if any). The plan shall be included in and made a 
part of the resultant contract. The subcontracting plan shall 
be submitted within the time specified by the Contracting 
Officer. Failure to submit the subcontracting plan shall 
make the bidder ineligible for the award of a contract.

Alternate II (Oct 2000). As prescribed in 19.708(b)(1), 
substitute the following paragraph (c) for paragraph (c) of 
the basic clause:

(c) Proposals submitted in response to this solicitation 
shall include a subcontracting plan that separately addresses 
subcontracting with small business, veteran-owned small 
business, HUBZone small business, small disadvantaged 
business, and women-owned small business concerns. If the 
offeror is submitting an individual contract plan, the plan 
must separately address subcontracting with small business, 
veteran-owned small business, HUBZone small business, 
small disadvantaged business, and women-owned small 
business concerns, with a separate part for the basic contract 
and separate parts for each option (if any). The plan shall be 
included in and made a part of the resultant contract. The



100a

subcontracting plan shall be negotiated within the time 
specified by the Contracting Officer. Failure to submit and 
negotiate a subcontracting plan shall make the offeror 
ineligible for award of a contract.



101a

APPENDIX F

Department of Justice Guidelines for 
Affirmative Action

The Departm ent of Justice Proposed Rules governing 
Affirmative Action in Federal Procurement, 61 Fed. Reg. 
26,042-26,063 (1996), provide in pertinent part:

DEPARTMENT OF JUSTICE

Proposed Reforms to Affirmative Action in Federal 
Procurement

*  *  *  *  *

SUMMARY: The proposal set forth herein to reform affir­
mative action in federal procurement has been designed to 
ensure compliance with the constitutional standards estab­
lished by the Supreme Court in Adarand Constructors, Inc. 
v. Pena, 115 S. Ct. 2097 (1995). The proposed structure, 
which has been developed by the Justice Department, will 
form a model for amending the affirmative action provisions 
of the Federal Acquisition Regulation and the Defense 
Federal Acquisition Regulation Supplement.

Introduction

In Adarand, the Supreme Court extended strict judicial 
scrutiny to federal affirmative action programs that use 
racial or ethnic criteria as a basis for decisionmaking. In 
procurement, this means that any use of race in the decision 
to award a contract is subject to strict scrutiny. Under strict 
scrutiny, any federal programs that make race a basis for 
contract decisionmaking must be narrowly tailored to serve 
a compelling government interest.



102a

Through its initial authorization of the use of section 8(a) 
of the Small Business Act to expand opportunities for 
minority-owned firms and through reenactments of this and 
other programs designed to assist such businesses, Congress 
has repeatedly made the judgment tha t race-conscious 
federal procurement programs are needed to remedy the 
effects of discrimination that have raised artificial barriers to 
the formation, development and utilization of businesses 
owned by minorities and other socially disadvantaged in­
dividuals. In repeated legislative enactments, Congress has, 
among other measures, established goals and granted 
authority to promote the participation of Small Disadvan­
taged Businesses (SDBs) in procurement for the Depart­
ment of Defense, NASA and the Coast Guard. I t also 
enacted the Surface Transportation Assistance Act of 1982, 
the Surface Transportation and Uniform Relocation Assis­
tance Act of 1987 and the Intermodal Surface Transportation 
Efficiency Act of 1991, each of which successively authorized 
a goal for participation by Disadvantaged Business E nter­
prises. Congress also included similar provisions in the Air­
port and Airway Improvement Act of 1982 with respect to 
procurement regarding airport development and conces­
sions. Under Section 15(g) of the Small Business Act, 15 
U.S.C. 644(g), Congress has established goals for SDB parti­
cipation in agency procurement. Finally, in 1994, Congress 
enacted the Federal Acquisition Streamlining Act (FASA), 
which extended generally to federal agencies authority to 
conduct various race-conscious procurement activities. The 
purpose of this measure was to facilitate the achievement of 
goals for SDB participation established for agencies pur­
suant to Section 15(g) of the Small Business Act.

Based upon these congressional actions, the legislative 
history supporting them, and the evidence available to Con­
gress, this congressional judgment is credible and consti-



103a

tutionally defensible. Indeed, the survey of currently avail­
able evidence conducted by the Justice Department since the 
Adarand decision, including the review of numerous specific 
studies of discrimination conducted by state and local gov­
ernments throughout the nation, leads to the conclusion that, 
in the absence of affirmative remedial efforts, federal con­
tracting would unquestionably reflect the continuing impact 
of discrimination that has persisted over an extended period. 
For purposes of these proposed reforms, therefore, the Jus­
tice Department takes as a constitutionally justified premise 
that affirmative action in federal procurement is necessary, 
and that the federal government has a compelling interest to 
act on that basis in the award of federal contracts.1

Subject to certain statutory limitations (that are discussed 
below), Congress has largely left to the executive agencies 
the determination of how to achieve the remedial goals that 
it has established. The Court in Adarand made clear that, 
even when there is a constitutionally sustainable compelling 
interest supporting the use of race in decisionmaking, any 
such programs must be narrowly tailored to meet that 
interest. We have focused, therefore, on ensuring that the 
means of serving the congressionally mandated interest in 
this area are narrowly tailored to meet that objective. This 
task must be taken very seriously. Adarand made clear that 
Congress has the authority to use race-conscious decision­
making to remedy the effects of past and present discrim­
ination but emphasized that such decisionmaking must be 
done carefully. This Administration is committed to en­
suring that discriminatory barriers to the opportunity of 
minority-owned firms are eliminated and the maximum op­
portunities possible under the law are maintained. Our

1 Set forth as an appendix to this notice is a preliminary survey of 
evidence establishing the compelling interest for affirmative action in 
federal procurement.



104a

focus, therefore, has been on creating a structure for race­
conscious procurement that will meet the congressionally 
determined objective in a manner that will survive consti­
tutional scrutiny.

In giving content to the narrow tailoring prong of strict 
scrutiny, courts have identified six principal factors: 
(1) W hether the government considered race neutral al­
ternatives and determined that they would prove insufficient 
before resorting to race-conscious action; (2) the scope of the 
program and whether it is flexible; (3) whether race is relied 
upon as the sole factor in eligibility, or whether it is used as 
one factor in the eligibility determination; (4) whether any 
numerical target is reasonably related to the number of 
qualified minorities in the applicable pool; (5) whether the 
duration of the program is limited and whether it is subject 
to periodic review; and (6) the extent of the burden imposed 
on nonbeneficiaries of the program. Not all of these factors 
are relevant in every circumstance and courts generally 
consider a strong showing with respect to most of the factors 
to be sufficient. This proposal, however, responds to all six 
factors.

The Department of Defense (DoD), which conducts a sub­
stantial majority of the federal government’s procurement, 
was the focus of initial post-Adarand compliance actions by 
the federal government. In particular, DoD, acting pursuant 
to authority granted by 10 U.S.C. § 2323,2 had developed

2 Section 2323 establishes a five percent goal for DoD contracting with 
small disadvantaged businesses (“SDBs”) and authorizes DoD to “enter 
into contracts using less than full and open competitive procedures * * * 
and partial set asides for [SDBs].” Section 2323 states that the cost of 
using such measures may not exceed fair market price by more than ten 
percent. It authorizes the Secretary of Defense to adjust the applicable 
percentage “for any industry category if available information clearly indi­
cates that nondisadvantaged small business concerns in such industry



105a

through regulation a practice known as the “rule of two.” 
Pursuant to the rule of two, whenever a contract officer 
could identify two or more SDBs that were qualified to bid 
on a project at a price within 10% of fair market price, the 
officer was required to set the contract aside for bidding ex­
clusively by SDBs. Under section 2323, firms owned by 
individuals from designated racial minority groups are pre­
sumed to be SDBs.3 Others may enter the program by es­
tablishing that they are socially and economically disadvan­
taged. After consultation with the Department of Justice, 
DoD suspended use of the rule of two in October 1995.

Congress in 1994 extended the affirmative action author­
ity granted DoD by section 2323 to all agencies of the federal 
government through enactment of the Federal Acquisition 
Streamlining Act (FASA), Public Law No. 103-355, sec. 7102, 
108 Stat. 3243, 15 U.S.C. 644 note.4 Because of Adarand and 
the effort to review federal affirmative action programs in 
light of that decision, regulations to implement the affirma-

category are generally being denied a reasonable opportunity to compete 
for contracts because of the use of that percentage in the application of 
this paragraph.”

3 10 U.S.C. 2323 incorporates by explicit reference the language of 
section 8(d) of the Small Business Act, which states that members of des­
ignated racial or ethnic groups are presumed to be socially and economi­
cally disadvantaged. Participants in the 8(a) program are also presumed 
to be SDBs.

4 FASA states that in order to achieve goals for SDB participation in 
procurement negotiated with the Small Business Administration, an 
“agency may enter into contracts using—(A) less than full and open 
competition by restricting the competition for such awards to small 
business concerns owned and controlled by socially and economically dis­
advantaged individuals described in subsection (d)(3)(C) of section 8 of the 
Small Business Act (15 U.S.C. 637); and (B) a price evaluation preference 
not in excess of 10 percent when evaluating an offer received from such a 
small business concern as the result of an unrestricted solicitation.”



106a

tive action authority granted by FASA have been delayed. 
See 60 Fed. Reg. 448258, 48259 (Sept. 18, 1995). This pro­
posal provides the basis for those regulations.

The proposed structure will necessarily affect a wide 
range of measures that promote minority participation in 
government contracting through race-conscious means. Tak­
ing DoD as an example, approximately one-sixth of contract­
ing with minority-owned firms in 1994 resulted from use of 
the rule of two. The majority of dollars to minority firms 
was awarded by DoD through other means: direct competi­
tive awards, the Small Business Administration’s (SBA) 
section 8(a) program, subcontracting pursuant to section 8(d) 
of the Small Business Act, and a price credit applied pur­
suant to section 2323. With the exception of direct competi­
tive awards (which do not take race into account), activities 
pursuant to all of these methods will be affected by the pro­
posed reforms.5

The 8(a) program merits special mention at the outset. 
This program serves a purpose that is distinct from that 
served by general SDB programs. The 8(a) program is de­
signed to assist the development of businesses owned by so­
cially and economically disadvantaged individuals. To this 
end, the program is targeted toward concerns that are more 
disadvantaged economically than other SDBs (e.g., the stan­
dard for economic disadvantage for entry into 8(a) is an

0 This proposal addresses only affirmative action in the federal gov­
ernment’s own direct procurement. It does not address affirmative action 
in procurement and contracting that is undertaken by states and localities 
pursuant to programs in which such entities receive funds from federal 
agencies {e.g., the Disadvantaged Business Enterprise program that the 
Department of Transportation administers pursuant to the Intermodal 
Surface Transportation Efficiency Act of 1991, Pub. L. No. 102-240, sec­
tion 1003(b), 105 Stat. 1919-1922, and the Airport and Airway Improve­
ment Act of 1982, 49 U.S.C. 47101, e t seq .).



107a

owner’s net worth of $250,000 compared to $750,000 for SDB 
programs). Participants in the program are required to es­
tablish business development plans and are eligible for tech­
nical, financial, and practical assistance, and may compete in 
a sheltered market for a limited time before graduating from 
the program. Each of these aspects of the program is 
designed to assist the business in developing the technical 
and practical experience necessary to become viable without 
assistance. By contrast, the general SDB program is a pro­
curement program, designed to assist the government in 
finding firms capable of providing needed services, while, at 
the same time, helping to address the traditional exclusion of 
minority-owned firms from contracting opportunities.

The operation of the 8(a) program will become subject to 
the overall limitations in the measures described below. In 
addition, the SBA is working to strengthen safeguards 
against fraud and to ensure that the 8(a) program serves its 
purpose of assisting the development of businesses owned by 
individuals who are socially and economically disadvantaged.

Because the proposed reforms are broad and cover a 
number of different subjects related to affirmative action in 
federal procurement, the Justice Departm ent is seeking 
comments on each of the aspects of the proposal. Comments 
will be taken into account in the formulation of revised pro­
curement regulations.

Overview of Structure

The SDB reform outlined herein involves five major 
topics: (1) Certification and eligibility; (2) benchmark limita­
tions; (3) mechanisms for increasing minority opportunity; 
(4) the interaction of benchmark limitations and mechanisms; 
and (5) outreach and technical assistance. The proposed 
structure incorporates these elements into a system that 
furthers the President’s commitment to ensuring equal



108a

opportunity in contracting, responds to the courts’ narrow 
tailoring requirements, and is faithful to statutory authority.

I. Eligibility and Certification

At present, while a concern must have its eligibility certi­
fied by the SBA to participate in the 8(a) program, there is 
no similar certification requirement for participation in SDB 
programs. Under current practice, firms simply check a box 
to identify themselves as SDB’s when bidding for federal 
contracts or 8(d) subcontracts. Reform of this certification 
process is needed to assure that programs meet constitu­
tional and statutory objectives. While the basic elements of 
eligibility under these programs are statutorily determined, 
agencies have discretion to impose significant additional con­
trols and to establish mechanisms to assure that the statu­
tory criteria are in fact met.

The SBA will continue as the sole agency with authority 
to certify firms for the 8(a) program. The following discus­
sion, therefore, concerns only certification of SDB’s that are 
not participants in the 8(a) program.

Each bid that an SDB submits to an agency, or to a prime 
contractor seeking to fulfill 8(d) subcontracting obligations, 
will have to be accompanied by a form certifying that the 
concern qualifies as a small disadvantaged business under 
eligibility standards that will be published by the SBA. The 
standards and certification form will allow 8(a) participants 
to qualify automatically for SDB programs. Others will be 
required to establish their eligibility by submitting required 
statements and documentation.

When a concern has been certified by an agency as eligible 
for SDB programs, its name will be entered into a central on­
line register to be maintained by SBA. That certification 
will be valid for a period of up to three years during which 
time registered firms will have only to complete a portion of



109a

the form confirming the continued validity of that certifica­
tion to participate in SDB programs at any agency. A full 
application will have to be submitted to an agency every 
three years to maintain eligibility.

A. Social and Economic Disadvantage

Members of designated minority groups seeking to parti­
cipate in SDB and 8(d) programs will continue to fall within 
the statutorily mandated presumption of social and economic 
disadvantage.6 This presumption is rebuttable as to both 
forms of disadvantage. The form will ask the applicant to 
identify the group identification triggering a presumption of 
social and economic disadvantage.7 In addition, the form will 
enumerate the objective criteria constituting economic dis­
advantage according to SBA standards and advise the appli­
cant that the presumption of such disadvantage is rebuttable 
and any challenge to the individual’s SDB status will be 
resolved on the basis of these criteria. Challenges would be 
processed through existing SBA challenge mechanisms.

Individuals who do not fall within the statutory pre­
sumption will be required to establish social and economic 
disadvantage by answering a series of questions demon­
strating such disadvantage. Questions regarding social dis­
advantage will be included in the standard certification form. 
Pursuant to current practice, individuals who do not fall

6 Both FASA and 10 U.S.C. 2323 incorporate by explicit reference the 
definition of social and economic disadvantage contained in section 8(d) of 
the Small Business Act. Pursuant to section 8(d), members of designated 
groups are presumed to be both socially and economically disadvantaged; 
those presumptions are rebuttable. By contrast, for the 8(a) program, 
members of identified groups are rebuttably presumed to be socially 
disadvantaged, but must establish that they are economically 
disadvantaged.

7 Members of minority groups do not have to participate in the SDB 
program in order to bid on federal contracts.



110a

within a presumption must prove their social disadvantage 
by clear and convincing evidence. That standard will be 
changed to permit proof by a preponderance of the evidence.

The SBA currently has criteria for evaluating social dis­
advantage. SBA will conduct training seminars designed to 
instruct personnel from other agencies on the procedures for 
making eligibility determinations. Individuals who do not 
fall within the statutory presumption will also be required to 
demonstrate that they are economically disadvantaged 
according to the criteria established by SBA.

Agencies will have discretion to decide which official with­
in the agency will have authority to determine whether 
“non-presumed” individuals are socially and economically 
disadvantaged.8 In most instances, the contracting officer 
should not have final authority to make the determination; 
the procedure must, however, facilitate quick decisions so 
that the procurement process will not be delayed and appli­
cants will have a fair opportunity to compete. An agency 
may wish to assign this responsibility to its Office of Small 
and Disadvantaged Business Utilization. The SBA will 
answer inquiries regarding eligibility determinations and the 
procuring agency will retain the ability to refer applications 
to the SBA for final eligibility determinations through the 
protest procedures now in place. In the alternative, an 
agency may enter into an agreement with SBA to have SBA 
make all determinations, including the initial determination 
of eligibility.

8 The form that such individuals are to complete will ask whether they 
previously have applied for SDB certification and been rejected or 
accepted. A rejected firm will not be permitted to re-apply for certifi­
cation for one year after rejection, unless it can show changed circum­
stances.



111a

B. Ownership and Control

In addition to submitting the form described above, every 
applicant will be required to submit with each bid a certifi­
cation that the business is owned and controlled by the des­
ignated socially and economically disadvantaged individuals 
as those term s are defined by the SBA’s standards for 
ownership and control at 13 C.F.R. 124.103 and 124.104.9 
Such a certification must come from an SBA approved or­
ganization, a list of which will be maintained by the SB A. In 
order to be approved by the SBA to certify ownership and 
control, (1) the entity must certify ownership and control ac­
cording to the standards established by the SBA for the 8(a) 
program (13 C.F.R. 124.103 and 124.104); (2) the ehtity’s 
certifications must have been accepted by a state or local 
government or a major private contractor; and (3) the entity 
must not have been disqualified by any government author­
ity from making certifications within the past five years. 
Such entities may include private organizations, the SBA 
(i e through the 8(a) program), entities that provide certifi­
cations for participation in the Department of Transporta­
tion’s disadvantaged business enterprise (“DBE”) program, 
or states or localities, so long as the certification addresses 
the standards for ownership and control promulgated by the 
SBA.

This procedure is intended to take advantage of the exten­
sive network of certifying entities already in existence. At 
present, firms may have to obtain several different certifica-

9 The standard certification form will accommodate one eligibility 
criterion peculiar to the DoD’s SDB program under 10 U.S.C. 2323—that 
the majority of earnings must directly accrue to the socially and econom­
ically disadvantaged individuals that own and control the concern. The 
standard certification form will accommodate this criterion by including a 
DoD-specific section requiring the concern to attest that the majority of 
the firm’s earnings do flow in this manner.



112a

tions as they pursue a mix of private and public contracts. 
While it is clear that a control mechanism is needed to pro­
tect against fraud, it makes little sense to create a new 
federal bureaucracy to perform work that is already being 
done and to erect another hurdle that an SDB must clear 
before qualifying for a federal contract. The limited re ­
sources of the federal government and of SDBs make crea­
tion of such a bureaucracy counterproductive.

To police the quality of certifications, SB A will conduct 
periodic audits of certifying organizations. Any entity may 
submit information to the SBA in an effort to persuade the 
agency to initiate such an audit.

As a means of ensuring that the identified socially and 
economically disadvantaged individuals retain ownership 
and control of a firm, a certification of ownership and control 
will be valid for a maximum of three years from the date it 
was issued. Certified firms will be required to recertify their 
eligibility by submitting a full application, including an 
updated certification of ownership and control, every three 
years.

C. Challenges

Where an SDB is the apparent successful offeror on a 
contract, the name of that firm and of the entity that cer­
tified its ownership and control will be a m atter of public 
record. SBA regulations currently allow any concern that 
submitted an offer to protest the eligibility of an SDB that 
receives a contract through an SDB program. The procuring 
agency or SBA may also protest the eligibility of an SDB. 
Individuals or organizations that did not submit a bid for the 
contract in question may submit information to the pro­
curing agency in an effort to convince the agency to initiate a



113a

protest.10 The SBA’s Division of Program Certification and 
Eligibility will process any protest tha t contains specific 
factual allegations that the concern is not eligible for the 
program..

Grounds for an eligibility protest may include, but are not 
limited to, evidence that:

• The owners of the firm are not in fact socially or 
economically disadvantaged;

• The firm is not owned and controlled by the in­
dividuals who meet the definition of social and economic dis­
advantage;

• The disadvantaged firm has acted, or is acting, as a 
front company by failing to complete required percentages of 
the work contracted to the concern.11

Upon receiving a protest supported by specific factual in­
formation, the SBA will make an eligibility determination by 
examining documentation from the SDB including, for 
example, personal and business financial statements, bus­
iness records, ownership certifications, and other infor­
mation deemed necessary to permit a determination as to 
the eligibility of the firm. Current regulations require the 
SBA to make a determination concerning the eligibility of

10 The protests contemplated in the discussion here relate only to 
certification and eligibility. The discussion does not relate to protests to 
other features of the proposed reforms that might be raised through exist­
ing bid protest procedures or through actions under the Administrative 
Procedure Act.

11 The basis for such a challenge would be 48 C.F.R. 19.508, which re­
quires completion of a minimum percentage of contract activities by the 
firm awarded a contract through a small business set aside or the 8(a) 
program. A clause must be inserted in such contracts that limits the 
amount of work that can be subcontracted. 48 C.F.R. 52.219-14. These 
requirements will be expanded to include contracts awarded through the 
reformed SDB program as well.



114a

the firm within 15 days of the filing of the challenge or notify 
the contracting officer of any delay.

D. Enforcement

Finally, there must be a concerted effort to enforce the 
law against individuals who present fraudulent information 
to the government. The existence of a meaningful threat of 
prosecution for falsely claiming SDB status, or for fraudu­
lently using an SDB as a  front in order to obtain contracts, 
will do much to ensure that the program benefits those for 
whom it is designed. To this end, there will be an enhanced 
effort by SBA and the Department of Justice to identify and 
pursue individuals fraudulently misrepresenting information 
in order to obtain contracts through an SDB program. Any 
individual may forward specific factual information 
suggesting such a misrepresentation to the procuring agency 
contracting officer or the agency’s inspector general. Simi­
larly, the Inspector General of SBA will refer evidence of 
misrepresentation that emerges through the challenge pro­
cedure or otherwise to the Department of Justice. In its 
enforcement, the Department of Justice will ensure that it 
pursues to the extent permitted by law all of the parties re­
sponsible for fraudulent or sham transactions.

Penalties for misrepresentations in this area were in­
creased by the Business Opportunity Development and Re­
form Act of 1988 and include:

(1) A fine of up to $500,000, imprisonment of up to 10 
years, or both;

(2) Suspension and debarment from Federal contracting 
(48 C.F.R. pt. 9.4);

(3) Ineligibility to participate in any program or activity 
conducted under the authority of the Small Business Act or



115a

the Small Business Investment Act of 1958 for a period of up 
to three years; and

(4) Administrative remedies prescribed by the Program 
Fraud Civil Remedies Act of 1986 (31 U.S.C. 3801-3812).

Knowing and willful fraudulent statements or representa­
tions may subject an individual to criminal penalties, in­
cluding imprisonment for up to five years, pursuant to 18 
U.S.C. 1001. In addition, knowing misrepresentations to 
obtain payment from the federal government may violate 
the False Claims Act, 31 U.S.C. 3729, and subject the claim­
ant to civil penalties and treble damages.

II. Benchmark Limits

Although Congress has made the judgment that affirma­
tive race-conscious measures are needed in federal contrac­
ting, the use of race must be narrowly tailored. The federal 
government operates under a general statutory mandate to 
achieve the “maximum practical opportunity” for SDB parti­
cipation and that overall mandate is translated into specific 
agency-by-agency goals. Some specific programs operate 
under statutorily prescribed goals.12 To the extent that 
race-conscious measures (going beyond outreach and techni­
cal assistance) are utilized to obtain these objectives, limita­
tions must be established to comply with narrow tailoring 
requirements.

To this end, the proposal relies on development of a set of 
specific guidelines to limit, where appropriate, the use of 
race-conscious measures in specific areas of federal procure­
ment. The limits, or “benchmarks”, will be set for each in-

12 See, e .g ., 10 U.S.C. 2323 (5% goal for DoD contracting with SDBs); 
Intermodal Surface Transportation Efficiency Act of 1991, Pub. L. No. 
102-240, 105 Stat. 1914 (10% goal for highway construction projects car­
ried out directly by the Department of Transportation).



116a

dustry for the entire government. The Department of Com­
merce, in consultation with the General Services Admini­
stration (GSA) and SBA, will establish appropriate bench­
mark limitation figures for each industry and report them to 
the Office of Federal Procurement Policy (OFPP), which will 
publish and disseminate the final benchmark figures. Each 
industry benchmark limitation will represent the level of mi­
nority contracting that one would reasonably expect to find 
in a market absent discrimination or its effects. Benchmark 
limitations will provide the basis for comparison with actual 
minority participation in procurement in that industry (and, 
where appropriate, in a region).

In establishing the benchmark limitations, the first step is 
to define whether industries operate according to regional or 
national markets. In general, industries will be defined 
according to two-digit Standard Industrial Classification 
(SIC) codes. Based on the evidence, it appears that most 
federal contracting is conducted on a national basis. We also 
start from the view, reflected in a variety of federal policies, 
that federal contracting should encourage the development 
of national markets wherever feasible. Where data indicate, 
however, that an industry operates regionally, the bench­
mark limitations will be established by region.

After identifying the markets, the system will then mea­
sure, using primarily census data, the capacity of firms 
operating in each market that are owned by minorities. In 
estimating capacity, a number of factors will be examined. 
Most significant, of course, will be the number of minority 
SDBs available and qualified to perform government con­
tracts.13 In general, it appears appropriate to look at the

13 For these purposes, the calculation of the number of minority-owned 
firms will not include corporations owned by federally-recognized Native 
American tribes and Alaskan Native villages. Bidding credits for such 
corporations are not subject to the A d a r a n d  strict scrutiny standard.



117a

industry in question and identify the smallest firm that has 
won a government contract in that industry in the last three 
years. Firms that are significantly smaller would be pre­
sumed to be unqualified to perform government contracts in 
that industry. While keeping in mind that capacity is not 
fixed, it will also be important to look at measures such as 
the number of employees and amount of revenues.

In addition to calculating the capacity of existing minority 
firms, the proposed system will examine evidence, if any, 
demonstrating that minority business formation and opera­
tion in a specific industry has been suppressed by discrimina­
tion. This evidence may include direct evidence of discrimi­
nation in the private and public sectors in such areas as ob­
taining credit, surety guarantees and licenses. I t may also 
include evidence of discrimination in pricing and contract 
awards. In addition, the evidence may include the results of 
regression analysis techniques similar to those used in state 
studies of discrimination in procurement. That form of 
analysis holds constant a variety of variables that might 
affect business formation so that the effect of race can be iso­
lated.

The combination of existing minority capacity and, where 
applicable, the estimated effect of race in suppressing minor­
ity business activity in the industry will form the benchmark 
limitation. Although there is no absolutely precise way to 
calculate the impact of discrimination in various markets, the 
benchmark limitations represent a reasonable effort to es­
tablish guidelines to limit the use of race-conscious measures 
and to meet the requirement that such measures be nar­
rowly tailored to accomplish the compelling interest that 
Congress has identified in this area.

Benchmark limitations will be adjusted every five years, 
as new data regarding minority firms are made available by



118a

the Census Bureau. Generally, census regions will be used 
indefining the scope of regional markets.

III. Mechanisms for Increasing Minority Opportunity

Under the reformed structure, the federal government 
will generally have authority, subject to the limitations dis­
cussed in the next section, to use several race-conscious con­
tracting mechanisms: SBA’s 8(a) program; a bidding credit 
for SDB prime contractors; and an evaluation credit for non­
minority prime contractors that use SDBs in subcontracting. 
In addition, at all times, agencies must engage in a variety of 
outreach and technical assistance activities designed to 
enhance contracting opportunities for SDBs (but tha t are not 
subject to strict scrutiny). Those efforts will be expanded as 
described more fully below.

The 8(a) program will continue to provide for sole source 
contracting and sheltered competition for 8(a) firms. How­
ever, the program will be monitored; and where the bench­
mark limitations described more fully below w arrant adjust­
ments to the SDB program, corresponding adjustments will 
be made to the 8(a) program to ensure that its operation is 
subject to those limitations.

A second available race-conscious measure will be a bid­
ding credit in prime contracting for SDBs. Statutory author­
ity for the use of such a credit exists for DoD in 10 U.S.C. 
2323 and for the remainder of the government in FASA. 
Each statute permits use of such a credit so long as the final 
price does not exceed a fair market price by more than 10%.

The use of the term “credit” is not meant to restrict utili­
zation by agencies of this mechanism to contracts where 
price is the primary factor in selecting the successful bidder. 
Where the successful bidder is selected based on other 
factors—such as the ability to produce a contract that 
provides the “best value” to the agency—agencies may build



119a

the value of increasing the participation of SDB contractors 
into the evaluation of offers. For some contracts, a numeri­
cal credit may be appropriate; in others, some form of non- 
numerical assignment may make more sense to the agency. 
This proposal does not restrict such options. However, re­
gardless how it operates, any bidding credit will be subject 
to the overall limitations on race-conscious mechanisms 
described herein.

Pursuant to 10 U.S.C. 2323 and FASA, agencies will also 
be permitted to use, as a third race-conscious mechanism, an 
evaluation credit with respect to the utilization by non­
minority prime contractors of SDBs as subcontractors. Such 
goals would be set by the agency for each prime contract 
based on the availability of minority firms to perform the 
work. The award of evaluation credits for prime contractors 
that use SDBs as subcontractors will supplement the exist­
ing statutory SDB subcontracting requirements in Section 
8(d) of the Small Business Act.14 In order to certify their 
eligibility as SDBs, subcontractors will submit the same 
certification form to the prime contractor that is described in 
the certification section of this proposal.

Such an evaluation credit can take a number of different 
forms, depending on the circumstances of a solicitation.15 
For example, where it is practical for bidders to secure en­
forceable commitments from SDB subcontractors prior to

14 For certain types of procurement, Section 8(d) requires agencies to 
negotiate an SDB subcontracting plan with the successful bidder for the 
prime contract. The statute provides that each such plan shall include 
percentage goals for the utilization of SDB subcontractors.

15 As was the case with respect to the use of the term “credit” in con­
nection with bids from SDBs as prime contractors, the use of that term 
here in connection with SDB subcontracting is not intended to restrict the 
utilization of this mechanism to the evaluation of prime contract bids for 
which price is the primary factor in selecting the successful bidder.



120a

the submission of bids, agencies should establish an SDB 
subcontracting goal for the contract, and award an evalua­
tion credit to bidders who demonstrate th a t they have 
entered into such commitments as a means of achieving the 
goal. Where that is not practical, agencies can award an 
evaluation credit to a bidder that specifically identifies in a 
subcontracting plan those SDB subcontractors tha t it in­
tends to use to achieve the agency’s SDB subcontracting 
goal.16 Agencies may also award an evaluation credit based 
on demonstrable evidence of a bidder’s past performance in 
using SDB subcontractors. Agencies may also grant bonus 
awards to prime contractors to encourage the use of SDB 
subcontractors.17 This proposal is not intended to limit 
agencies in developing or using additional mechanisms to 
increase SDB subcontracting, but any such mechanism will 
be subject to the limitations on race-conscious mechanisms 
described herein.

In applying these bidding and evaluation credits, race will 
simply be one factor that is considered in the decision to 
award a contract—in contrast to programs in which race is 
the sole factor.

TV. Interaction of Benchmark Limits and Mechanisms

In determining how benchmark limitations will be used to 
measure the appropriateness of various forms of race-con­
scious contracting, the objective has been to develop a sys-

16 In either case, a successful prime contractor should notify the con­
tracting officer of any substitution of a non-SDB subcontractor for an SDB 
firm with which the prime contractor had entered into enforceable 
commitments or that had been specifically identified in the prime con­
tractor’s subcontracting plan.

17 See, e .g ., Department of Transportation Incentive Subcontracting 
Program for Small and Small Disadvantaged Business Concerns, 48 
C.F.R. 52.219-10.



121a

tem that can operate with a sufficient degree of clarity, con­
sistency and simplicity over the range of federal agencies 
and contracting activities. Where the use of all available 
tools, including direct competition and race-neutral outreach 
and recruitm ent efforts, results in minority participation 
below the benchmark, race-based mechanisms will remain 
available. Their scope, however, will vary and be recalcu­
lated depending on the extent of the disparity between ca­
pacity and participation. Where participation exceeds the 
benchmark, and can be expected to continue to do so with re­
duced race-conscious efforts, adjustments will be made.

At the close of each fiscal year, the Department of Com­
merce will review data collected by its GSA’s Federal Pro­
curement Data Center for the three preceding fiscal years to 
determine the percentage of contracting dollars that has 
been awarded to minority-owned SDBs in each two-digit 
SIC code. Commerce will analyze minority SDB partici­
pation for all transactions that exceed $25,000. This review 
will include minority-owned SDBs participating through 
direct contracting (including full and open competition), the 
8(a) program, and SDB prime and subcontracting pro­
grams.18 Data regarding minority participation will be re­
viewed annually, but will include the past three fiscal years 
of experience. Examining experience over three year

18 In order to measure accurately SDB subcontracting participation, it 
will be necessary to have information regarding SDB subcontracting par­
ticipation by two-digit SIC code. At the same time, however, it is 
important to minimize the amount of new record-keeping and reporting 
that these reforms may require. Prime contractors such as commercial 
vendors that report SDB participation through company-wide annual sub­
contracting plans will continue to be able to use this reporting method, 
with some modification that serves to facilitate SIC code reporting. 
Under one approach, prime contractors could require all subcontractors to 
identify their primary SIC code and then track, as most primes do now, 
the amount of dollars that flows to each subcontractor.



122a

stretches should produce a more accurate picture of minority 
participation, given short-term fluctuations and the fact that 
the process of bidding and awarding a contract may span 
more than a single fiscal year.

Commerce will analyze the data and, after consultation 
with SBA, report to OFPP regarding which mechanisms 
should be available in each industry and the size of the 
credits that can be applied. OFPP will publish and dissemi­
nate the mechanisms that can be used by the agencies in the 
upcoming year.

Pursuant to 15 U.S.C. 644(g), each agency now negotiates 
goals for SDB participation with SBA for each year. Com­
merce would inform SBA and agencies of the appropriate 
benchmark limits for the industries in which the agency 
contracts and of the mechanisms available.

Where Commerce determines that participation by SDBs 
in government contracting in an industry is below the rele­
vant benchmark limitation, it may report to OFPP that 
agencies should be authorized to grant credit to SDB bidders 
and to prime contractors for SDB subcontracting. Com­
merce will set a percentage cap of up to ten percent on the 
amount the credit can allow the price of a contract to deviate 
from the fair market price. That percentage will represent 
the maximum credit that each agency may use in the evalua­
tion of bids from SDBs and prime contractors who commit to 
subcontracting with SDBs. The size of the credit will de­
pend, in part, on the extent of the disparity between the 
benchmark limitations and minority SDB participation in 
federal procurement and industry. It also will depend on an 
assessment of pricing practices within particular industries 
to indicate the effect of credits within that industry. Com­
merce’s determinations would be published and dissemi­
nated by OFPP.



123a

Where the bidding and evaluation credits have been used 
in an industry and the percentage of dollars awarded to 
SDBs in that industry exceeds the benchmark limit, Com­
merce, in consultation with SBA, must estimate the effect of 
curtailing the use of race-conscious contracting mechanisms 
and report to OFPP. If Commerce determines that the 
minority participation rate would fall substantially below the 
benchmark limit in the absence of race-conscious measures,19 
it need not require agencies to stop using such measures, but 
may, as described below, require agencies to adjust their 
use.

Agencies will report the number of contracts that were 
awarded using a bidding or evaluation credit as well as the 
amount of those credits. These figures will allow an estimate 
of the effect on SDB participation of adjusting or removing 
the credit. In the absence of that objective measure, Com­
merce will have to estimate and report to OFPP how much 
minority contracting resulted from the application of these 
race-conscious measures. One indication may be the success 
of minorities in winning contracts through direct competition 
in which race is not used in the decision to award a contract. 
It may also be useful to examine comparable experience in 
private industries operating without affirmative action 
programs.

Even when agencies are not required to terminate bidding 
and evaluation credits, they may be required to adjust their 
size in order to ensure that the credits do not lead to the 
award of a disproportionately large number[ ] of contracts to

19 More than three “standard deviations” will generally be viewed as 
“substantial” for these purposes. Under applicable Supreme Court de­
cisions, a disparity in the range of two or three standard deviations is 
strong evidence of a prima facie case of discrimination in the employment 
context. A standard deviation is a measure of the departure from the 
level of activity that one would expect in the absence of discrimination.



124a

SDBs. Statutory authority for this adjustment exists in both 
FASA and section 2323. Because the size of credits will af­
fect industries differently, it is impossible to prescribe a set 
of specific rules to govern adjustments. Responsibility will 
rest with Commerce to analyze the impact of credits by in­
dustry category and make adjustments where appropriate, 
which would then be published and disseminated by OFPP.

In addition, in some circumstances, an agency may use 
less than the authorized bidding or evaluation credit where 
necessary to ensure that use of the credits by a specific 
agency does not unfairly limit the opportunities of non-SDB 
contractors seeking contracts from that agency. While the 
size of the maximum credits will be determined on an 
industry-wide basis and apply across all agencies, it remains 
important to maintain flexibility at the agency level to en­
sure against any undue concentrations of SDB contracting 
and unnecessary use of race-conscious credits. Thus, for 
example, where an agency has been particularly successful in 
reaching out to SDB contractors, it may find its use of the 
full credits unnecessary to achieve its goals, in which event it 
could, subject to approval by Commerce, depart downward 
from the authorized credits. The exercise of this discretion 
will be particularly important to avoid geographic concentra­
tions of SDB contracting that unduly limit opportunities for 
non-SDBs.

When Commerce concludes that the use of race-conscious 
measures is not justified in a particular industry (or region), 
the use of the bidding credit and the evaluation credit will 
cease. Suspending the use of race-conscious means will not 
affect the continued use of race-neutral contracting mea­
sures. The limits imposed by the benchmarks also would not 
affect the applicability of statutorily mandated goals, but 
would limit the extent to which race-conscious means could 
be used to achieve those goals. For example, DoD would



125a

retain its five percent overall statutory goal and would 
continue to exhort prime contractors to achieve goals for 
subcontracting with SDBs. Prime contractors, however, 
would no longer receive credit in evaluation of their bids for 
signing up or identifying SDB subcontractors. Likewise, 
outreach and technical assistance efforts would continue and 
minority bidders on prime contracts would continue to seek 
and win competitive awards; but there would no longer be 
any bidding credit for minority firms.

It should be emphasized that the benchmarks are not a 
limit on the level of minority contracting in any industry that 
may be achieved without the use of race-conscious measures. 
Conversely, there is, of course, no assurance that minority 
participation in particular industries will reach the bench­
mark limitations through the available race conscious mea­
sures. Minority participation will depend on the availability 
of qualified minority firms that successfully win contracts 
through open competition, subcontracting, the 8(a) program 
or through the application of price or evaluation credits. The 
system described herein is a good faith effort to remedy the 
effect of discrimination, but it is not a guarantee of any 
particular result.

The affirmative action structure described herein does not 
utilize the statutory authorization under FASA to allow 
federal agencies (or in the case of DoD its direct authori­
zation under 10 U.S.C. 2323) to set contracts aside for bid­
ding exclusively by SDBs. If federal agencies use race­
conscious measures in the manner outlined above, together 
with concerted race-neutral efforts at outreach and technical 
assistance as described below, we believe the use of this ad­
ditional statutory authority should be unnecessary. Fol­
lowing the initial two-year period of the reformed system’s 
operation (and at regular intervals thereafter), however, 
Commerce, SBA and DoD will evaluate the operation of the



126a

system and determine w hether this statutory power to 
authorize set-asides should be invoked. In making that 
determination, those agencies will take into account whether 
persistent and substantial underutilization of minority firms 
in particular industries or in government contracting as a 
whole is the result of the effects of past or present discrimi­
natory barriers that are not being overcome by this system.

Such periodic reviews should also consider whether, based 
on experience, further limitation of the use of race-conscious 
measures is appropriate beyond those outlined herein. In 
that regard, it should be noted that the reformed structure is 
inherently and progressively self-limiting in the use of race­
conscious measures. As barriers to minority contracting are 
removed and the use of race-neutral means of ensuring 
opportunity succeeds, operation of the reformed structure 
will automatically reduce, and eventually should eliminate, 
the use of race in decisionmaking. In addition, the statutory 
authority upon which the use of bidding and evaluation 
credits is based expires at the end of fiscal year 2000. Con­
gress will determine whether that authority should be 
extended. See 10 U.S.C. 2323; FASA, § 7102.

Section 8(a) Program

Contracts obtained by minority firms through the 8(a) 
program will count toward the calculation whether minority 
participation has reached or exceeded the benchmark in any 
industry.20 The Administrator of SBA will be under an ob­
ligation to monitor .the use of the 8(a) program in relation to 
the benchmark limits. Thus, where Commerce advises that 
the use of race-conscious measures must be curtailed in a 
specific industry on the basis of the benchmarks, the Admini-

20 As with calculation of the benchmark limitations, see n. 13, s u p r a ,  
corporations owned by federally-recognized Native American tribes and 
Alaskan Native villages will not be included in this calculation.



127a

strator would take appropriate action to limit the use of the 
program through one or more of the following techniques: 
(1) Limiting entry into the program in that industry; (2) ac­
celerating graduation for firms that do not need the full 
period of sheltered competition to satisfy the goals of the 
program; and (3) limiting the number of 8(a) contracts 
awarded in particular industries or geographic areas.

These same techniques should be used by the Admin­
istrator in carrying out existing authority to ensure that 8(a) 
contracting is not concentrated unduly in certain regions. 
Even where a market is defined as national in scope, and 8(a) 
is being used within applicable national benchmark limits, 
efforts should be made to guard against excessive use of 8(a) 
contracting in a limited region.

As noted earlier, the 8(a) program is distinct from the 
general SDB program in that it is animated by its own 
distinct purpose—to assist socially and economically dis­
advantaged individuals to overcome barriers that have sup­
pressed business formation and development. Consistent 
with its unique nature, the 8(a) program has features that 
already reflect some of the factors that make up the narrow 
tailoring requirement. Unlike other SDB’s, individuals seek­
ing admission to the 8(a) program must establish economic 
disadvantage without the benefit of any presumption. The 
Small Business Act defines economically disadvantaged indi­
viduals as “those socially disadvantaged individuals whose 
ability to compete in the free enterprise system has been 
impaired due to diminished capital and credit opportunities 
as compared to others in the same business area who are not 
socially disadvantaged.” Furthermore, SBA employs objec­
tive criteria to measure whether an individual is econo­
mically disadvantaged. In this sense, the statute and regula­
tions are targeted toward victims of discrimination; the SBA 
is proposing to clarify the regulations implementing the



128a

program to emphasize this fact. In addition, individuals are 
admitted to the 8(a) program for a limited period—nine 
years—and their performance is reviewed throughout. An 
individual may be required to leave the program prior to the 
nine year graduation period if the review reveals tha t the 
individual is no longer economically disadvantaged or the 
firm meets other graduation criteria determined by the 
SBA.

SBA has under consideration additional program changes 
designed to ensure that the 8(a) program focuses on its 
central mission of assisting businesses to develop and con­
centrates it[s] resources on its intended beneficiaries. These 
changes would further ensure that the 8(a) program is nar­
rowly tailored to serve the compelling interest for which it 
was enacted by Congress.

V. Outreach and Technical Assistance

At present, agencies undertake a variety of activities 
designed to make minority firms aware of contracting op­
portunities and to help them take advantage of those 
opportunities. As a general proposition, these activities 
are not subject to strict scrutiny. The structure outlined 
above for the use of race-conscious measures assumes that 
agencies will continue such outreach and technical assistance 
efforts at all times, so that race-conscious measures will be 
used only to the minimum extent necessary to achieve 
legitimate objectives. Our review indicates that, while there 
are a variety of good programs of this nature operated by 
various federal agencies, there is a lack of consistency and 
sustained energy and direction to these efforts.

SBA operates several assistance programs th a t are 
targeted toward minority firms, but are also available to 
qualifying nonminority firms. Notably, pursuant to section 
7(j) of the Small Business Act, SBA provides financial



129a

assistance to public and private organizations to provide 
technical and management assistance to qualifying indivi­
duals. 13 CFR 124.403, 404. SBA also operates a program to 
provide assistance to socially and economically disadvan­
taged businesses in preparing loan applications and 
obtaining pre-qualification from SBA for loans. See 13 CFR 
120. SBA also operates a surety bond program pursuant to 
which it provides up to a 90% guarantee for bonds required 
of small contractors.

The Department of Commerce, through the Minority 
Business Development Administration, sponsors several 
programs to provide information, training and research that 
are targeted toward minority-owned businesses. These 
programs include Minority Business Development Centers 
around the country to provide hands on assistance to mi­
nority businesses.

DoD has operated since 1990 the Mentor-Protege Pilot 
Program, which provides incentive for DoD prime con­
tractors to furnish SDBs with technical assistance. See 10 
U.S.C. 2301. Mentor firms provide a variety of assistance, 
including progress payments, advance subcontract pay­
ments, loans, providing technical and management as­
sistance and awards of subcontracts on a noncompetitive 
basis to the protege. DoD reimburses the mentor firm for its 
expenses. The award of subcontracts under this program is 
subject to strict scrutiny, but other portions of the program 
are not.

The following are among the efforts that should be 
actively pursued:

1. A race-neutral version of the mentor-protege program 
(that does not guarantee the award of subcontracts on a non­
competitive basis) should be encouraged at all agencies.



130a

2. DoD has proposed—and other agencies should follow 
DoD’s lead—eliminating the impact of surety costs from 
bids. Because SDB’s generally incur higher bond costs, this 
race-neutral change would assist SDB’s and address one of 
the most frequently cited barriers to minority success in 
contracting. In this regard, agencies should also examine the 
use of irrevocable letters of credit in lieu of surety bonds.

3. Where agencies use mailing lists, a minimum goal 
should be set for inclusion of SDB’s on agency mailing lists of 
bidders.

4. The function of the Procurement Automated Source 
System (PASS), currently maintained by SBA, should be 
continued. The system provides contracting officers with a 
continuously updated list of SDB firms, classified by interest 
and region.

5. A uniform system for publishing agency procurement 
forecasts on SBA Online should be established. In addition, 
SBA should develop a systematic means for publishing up­
coming subcontracting opportunities.

6. Agencies should target outreach and technical assis­
tance efforts, including mentor-protege initiatives, toward 
industries in which SDB participation traditionally has been 
low. Agencies should continue to pursue strategies in which 
minority-owned firms are encouraged to become part of joint 
ventures or form strategic alliances with non-minority enter­
prises.

7. The SBA should enhance its technical assistance initia­
tives to enhance the ability of SDBs to use the tools of 
electronic commerce.

8. Pursuant to Executive Order 12876, which directs 
agencies to seek to enter into contracts with Historically 
Black Colleges and Universities, agencies should attempt to 
increase participation by such institutions in research and



131a

development contracts as means of assisting the develop­
ment of business relationships between the institutions and 
SDBs.

9. Each agency should review its contracting practices 
and its solicitations to identify and eliminate any practices 
that disproportionately affect opportunities for SDBs and do 
not serve a valid and substantial procurement purpose.

The foregoing is merely a partial list of possible mea­
sures. What is required—both as a m atter of policy and 
constitutional necessity—is a systematic and continuing 
government-wide focus on encouraging minority partici­
pation through outreach and technical assistance. I t is 
proposed in contracting, therefore, that agencies should 
report annually to the President on their outreach and tech­
nical assistance practices. These reports should present the 
actual practices and experiences of federal agencies and 
include recommendations as to approaches that can and 
should be adopted more broadly. The maximum use of such 
race-neutral efforts will reduce to a minimum the use of 
race-conscious measures under the benchmark limits de­
scribed above.

Conclusion

The structure outlined above has been crafted with regard 
for each of the six factors that courts have identified as 
relevant in determining whether race-based decisionmaking 
is narrowly tailored to meet an identified compelling 
interest. While courts have identified these six factors as 
relevant in determining whether a measure is narrowly 
tailored, they have not required that race-conscious enact­
ments satisfy each element or satisfy any particular element 
to any specific degree. The structure proposed herein for 
SDB procurement, however, measures up favorably with re­
spect to each of the six factors.



132a

The proposal requires that agencies at all times use race- 
neutral alternatives to the maximum extent possible. An 
annual review mechanism is established to ensure maximum 
use of such race-neutral efforts. Only where those efforts 
are insufficient to overcome the effects of past and present 
discrimination can race-conscious efforts be invoked.

The system is flexible in that race will be relied on only 
when annual analysis of actual experience in procurement 
indicates that minority contracting falls below levels that 
would be anticipated absent discrimination. Moreover, the 
extent of any credit awarded will be adjusted annually to 
ensure that it is closely matched to the need for a race-based 
remedial effort in a particular industry.

Race will not be relied upon as the sole factor in SDB 
procurement decisions. The use of credits (instead of set- 
asides) ensures that all firms have an opportunity to compete 
and that in order to obtain federal contracts minority firms 
will have to demonstrate that they are qualified to perform 
the work.21

Application of the benchmark limits ensures th a t any 
reliance on race is closely tied to the best available analysis 
of the relative capacity of minority firms to perform the 
work in question—or what their capacity would be in the 
absence of discrimination.

The duration of the program is inherently limited. As 
minority firms are more successful in obtaining federal con­
tracts, reliance on race-based mechanisms will decrease 
automatically. When the effects of discrimination have been

21 The SBA’s 8(a) program contains a variety of elements that help to 
target the program on firms in need of special assistance, including a 
requirement that applicants affirmatively demonstrate economic dis­
advantage. Furthermore, the program is not limited to minority-owned 
firms. These features of the program ensure that race is not the sole fac­
tor in determining entry into the program.



183a

eliminated, as demonstrated by minority success in obtaining 
procurement contracts, reliance on race will terminate auto­
matically. The system as a whole will be reexamined by the 
executive branch at the end of two years and at regular 
intervals thereafter. In addition, the principal enactments 
that this proposal implements, FASA and the Department of 
Defense Authorization Act, expire at the end of the fiscal 
year 2000. Congress will have to examine the functioning of 
this system and make a determination whether to extend the 
authority to continue its operation.

Finally, the proposal avoids any undue burden on non­
beneficiaries of the program. As a practical matter, the 
overwhelming percentage of federal procurement money 'wall 
continue to flow, as it does now, to nonminority businesses. 
Furthermore, implementation of the benchmark limitations 
will ensure that race-based decisionmaking cannot result in 
concentrations of minority contracting in particular in­
dustries or regions and will thereby limit the impact on non­
minorities.

The structure of affirmative action in contracting set forth 
herein will not be simple to implement and will undoubtedly 
be improved through further refinement. Agencies will have 
to make judgments and observe limitations in the use of 
race-conscious measures, and make concentrated race- 
neutral efforts that are not required under current practice. 
The Supreme Court, however, has changed the rules gov­
erning federal affirmative action. This model responds to 
principles developed by the Supreme Court and lower courts 
in applying strict scrutiny to race-based decisionmaking. 
The challenge for the federal government is to satisfy, within 
these newly-applicable constitutional limitations, the com­
pelling interest in remedying the effects of discrimination 
that Congress has identified.
Michael C. Small,
Deputy Associate Attorney General.



134a

Appendix—The Compelling Interest for Affirmative 
Action in Federal Procurement: A Preliminary Survey

Under the Supreme Court’s ruling last year in Adarand 
Constructors, Inc. v. Pena, 115 S. Ct. 2097 (1995), strict 
scrutiny applies to federal affirmative action programs that 
provide for the use of racial or ethnic criteria as factors in 
procurement decisions in order to benefit members of 
minority groups. Such programs satisfy strict scrutiny if 
they serve a “compelling interest,” and are “narrowly tai­
lored” to the achievement of that interest. Strict scrutiny is 
the most exacting standard of constitutional review. I t is the 
same standard that courts apply when reviewing laws that 
discriminate against minority groups. The Supreme Court in 
Adarand did not decide whether a compelling interest is 
served by the procurement program at issue in the case (or 
by any other federal affirmative action program), and reman­
ded the case to the lower courts, which had not applied strict 
scrutiny.1 Nevertheless, a strong majority of the Court— 
led by Justice O’Connor, who wrote the majority opinion— 
admonished that even under strict scrutiny, affirmative 
action by the federal government is constitutional in appro-

1 A d a r a n d  involved a constitutional challenge to a Department of 
Transportation (“DOT”) program that compensates prime contractors if 
they hire subcontractors certified as small businesses controlled by 
“socially and economically disadvantaged” individuals. The legislation on 
which the DOT program is based, the Small Business Act, establishes a 
government-wide goal for participation of such concerns at “not less than 5 
percent of the total value of all prime contract and subcontract awards for 
each fiscal year.” 15 U.S.C. § 644(g)(1). The Act further provides that 
members of designated racial and ethnic minority groups are presumed 
to be socially and economically disadvantaged. Id . § 637(a)(5)(6), 
§ 637(d)(2),(3). In A d a r a n d ,  the Supreme Court stated that the pre­
sumption constitutes race-conscious action, thereby triggering application 
of strict scrutiny. 115 S. Ct. at 2105.



135a

priate circumstances.2 Without spelling out in precise terms 
what those circumstances are, the Court stated that the 
government has a compelling interest in remedying “[t]he 
unhappy persistence of both the practice and the lingering 
effects of racial discrimination against minority groups in 
this country.” 115 S. Ct. at 2117.

At bottom, after Adarand, the compelling interest test 
centers on the nature and weight of evidence of discri­
mination that the government needs to marshal in order to 
justify race-conscious remedial action. It is clear that the 
mere fact that there has been generalized, historical societal 
discrimination in the country against minorities is an in­
sufficient predicate for race-conscious remedial measures; 
the discrimination to be remedied must be identified more 
concretely. The federal government would have a com­
pelling interest in taking remedial action in its procurement 
activities, however, if it can show with some degree of 
specificity just how “the persistence of both the practice and 
the lingering effects of racial discrimination”—to use Justice 
O’Connor’s phrase in Adarand—has diminished contracting 
opportunities for members of racial and ethnic minority 
groups.3

2 A d a r a n d ,  115 S. Ct. at 2117. The Court emphasized that point in 
order to “dispel the notion that strict scrutiny is ‘strict in theory, but fatal 
in fact.’” Id . Seven of the nine justices of the Court embraced the 
principle that it is possible for affirmative action by the federal govern­
ment to meet strict scrutiny. This group included: (i) Justice O’Connor 
and two other justices in the majority, Chief Justice Rehnquist and Justice 
Kennedy; and (ii) the four dissenting justices (Stevens, Souter, Ginsburg, 
and Breyer). Only Justices Scalia and Thomas, both of whom concurred in 
the result in the case, advocated a position that approaches a near blanket 
constitutional ban on affirmative action.

3 A d a r a n d  did not alter the principle that the government may take 
race-conscious remedial action in the absence of a formal judicial or admi­
nistrative determination that there has been discrimination against



136a

In coordinating the review of federal affirmative action 
programs that the President directed agencies to undertake 
in light of Adarand, the Justice Department has collected 
evidence that bears on that inquiry. The evidence is still 
being evaluated, and further information remains to be 
collected. As set forth below, that evidence indicates that 
racially discriminatory barriers hamper the ability of mi­
nority-owned businesses to compete with other firms on an 
equal footing in our nation’s contracting markets. In short, 
there is today a compelling interest to take remedial action 
in federal procurement.4

The purpose of this memorandum is to summarize the 
evidence that has been assembled to date on the compelling 
interest question. Part I of the memorandum provides an 
overview of the long legislative record that underpins the 
acts of Congress that authorize affirmative action measures

individual members of minorit[y] groups (or minorities as a class). The 
test is whether the government has a “strong basis in evidence” for the 
conclusion that such action is warranted. C ity  o f  R i c h m o n d  v. J .A .  C r o s o n  

C o., 488 U.S. 469, 500 (1989). A d a r a n d  also did not alter the principle that 
the beneficiaries of race-conscious remedial measures need not be limited 
to those individuals who themselves demonstrate that they have suffered 
some identified discrimination. See L o c a l  28, S h e e t  M e ta l  W o r k e r s ’ I n t ’l 
A s s ’n  v. E E O C , 478 U.S. 421, 482 (1986); W y g a n t  v. J a c k s o n  B d . o f  E d u c . ,  

476 U.S. 267, 277-78 (1986) (plurality opinion); id . at 287 (O’Connor, J., 
concurring).

4 The term “federal procurement” refers to goods and services that 
the federal government purchases directly for its own use. This is to be 
distinguished from programs in which the federal government provides 
funds to state and local governments for use in their procurement ac­
tivities. As part of those programs, Congress has authorized recipients of 
federal funds to take remedial action in procurement. Those programs are 
not the focus of this memorandum. However, much of the evidence 
discussed herein that supports the use of remedial measures in the federal 
government’s own procurement also supports the use of congressionally- 
authorized remedial measures in state and local procurement.



137a

in procurement—a record tha t is entitled to substantial 
deference from the courts, given Congress’ express consti­
tutional power to identify and redress, on a nationwide basis, 
racial discrimination and its effects. The remaining sections 
of the memorandum survey information from various 
sources: (1) Congressional hearings and reports that bear on 
the problems that discrimination poses for minority oppor­
tunity in our society, but that are not strictly related to 
specific legislation authorizing affirmative action in govern­
ment procurement; (2) recent studies from around the 
country that document the effects of racial discrimination on 
the procurement opportunities of minority-owned businesses 
at the state and local level; and (3) works by social scientists, 
economists, and other academic researchers on the manner 
in which the various forms of discrimination act together to 
restrict business opportunities for members of racial and 
ethnic minority groups.5

All told, the evidence that the Justice Department has 
collected to date is powerful and persuasive. I t shows 
that the discriminatory barriers facing minority-owned busi­
nesses are not vague and amorphous manifestations of his­
torical societal discrimination. Rather, they are real and 
concrete, and reflect ongoing patterns and practices of 
exclusion, as well as the tangible, lingering effects of prior 
discriminatory conduct.6

5 It is well-established that the factual predicate for a particular 
affirmative action measure is not confined to the four corners of the legi­
slative record of the measure. See, e.g ., C o n c r e te  W o r k s  v. C i ty  a n d  C o u n ­

t y  o f  D e n v e r , 36 F.3d 1513,1520-22 (10th Cir. 1994), cert, denied, 115 S. Ct. 
1315 (1995); C o n tr a c to r s  A s s ’n  v. C i t y  o f  P h i la d e lp h ia ,  6 F.3d 990, 1004 
(3d Cir. 1993): C o r a l C o n s tr .  C o. v. K in g  C o u n ty ,  941 F.2d 910, 920 (9th 
Cir. 1991), cert, denied, 502 U.S. 1033 (1992).

6 Congress has also adopted affirmative action measures in federal 
procurement, as well as in programs that fund the procurement activities 
of state and local governments, that are intended to assist women-owned



138a

It is important to emphasize that, even though the gov­
ernment has a compelling interest in taking race-conscious 
remedial measures in its procurement, their use must be 
limited. Under the requirements of the “narrow tailoring” 
prong of strict scrutiny, the federal government may only 
employ such measures to the extent necessary to serve the 
compelling interest in remedying the impact of discri­
mination on minority contracting opportunity. The Justice 
Department’s proposed reforms to affirmative action in 
federal procurement (to which this memorandum is attach­
ed) are intended to target race-conscious remedial measures 
to markets in which the evidence indicates that discrimi­
nation continues to impede the participation of minority 
firms in contracting. Thus, the proposal seeks to ensure that 
affirmative action In federal procurement operates in a 
flexible, fair, limited, and careful manner, and hence will 
satisfy the requirements of narrow tailoring.

businesses. At present, such measures are subject to intermediate 
scrutiny, not the A d a r a n d  strict scrutiny standard. Therefore, they have 
not been the focus of the post- A d a r a n d  review that the Justice De­
partment is coordinating. However, some of the evidence collected by the 
Justice Department bears on the constitutional justification for affirma­
tive action programs for women in government procurement. See, e.g ., 
Interagency Committee on Women’s Business Enterprise, E x p a n d i n g  
B u s i n e s s  O p p o r tu n i t i e s  f o r  W o m e n  (1996); National Foundation for 
Women Business Owners and Dunn & Bradstreet Information Services, 
W o m e n -O w n e d  B u s in e s s e s :  A  R e p o r t  o n  th e  P ro g r e s s  a n d  A c h ie v e m e n t  o f  
W o m e n -O w n e d  E n te r p r i s e s — B r e a k in g  th e  B o u n d a r ie s  (1995); P r o b l e m s  

F a c in g  M i n o r i t y  a n d  W o m e n -O w n e d  S m a l l  B u s in e s s e s  i n  P r o c u r in g  U .S . 

G o v e r n m e n t  C o n tr a c ts :  H e a r in g  B e fo r e  th e  S u b c o m m .  o n  C o m m e r c e ,  
C o n s u m e r  a n d  M o n e ta r y  A f f a i r s  o f  th e  H o u s e  C o m m , o n  G o v e r n m e n t  

O p e ra tio n s , 103d Cong., 2d Sess. (1994).



139a

I. Survey of the Legislative Record
In evaluating the evidentiary predicate for affirmative 

action in federal procurement, it is highly significant that the 
measures have been authorized by Congress, which has the 
unique and express constitutional power to pass laws to 
ensure the fulfillment of the guarantees of racial equality in 
the Thirteenth and Fourteenth Amendments.7 These 
explicit constitutional commands vest Congress with the 
authority to remedy discrimination by private actobs, as well 
as state and local governments.8 Congress may also exercise 
its constitutionally grounded spending and commerce pow­
ers to ensure that discrimination in our nation is not inad­
vertently perpetuated through government procurement 
practices.9 In exercising its remedial authority, Congress 
need not target only deliberate acts of discrimination. It 
may also strive to eliminate the effects of discrimination that 
continue to impair opportunity for minorities, even in the

7 See C ro so n , 488 U.S. at 488 (plurality opinion); F u l l i lo v e  v. 
K lu t z n ic k ,  448 U.S. 448, 483 (1980) (plurality opinion); id . at 500 (Powell, 
J., concurring); see also A d a r a n d , 115 S. Ct. at 2114; M e tr o  B r o a d c a s t in g ,  
In c . v. F C C ,  497 U.S. 547, 563 (1990); id . at 605-06 (O’Connor, J., 
dissenting); cf. S e m in o le  T r ib e  o f  F lo r id a  v. F lo r id a ,  116 S. Ct. 1114,1125 
(1996) (reaffirming that broad grant of remedial power under Section 5 of 
the Fourteenth Amendment enables Congress to override state sovereign 
immunity).

8 See C ro so n , 488 U.S. at 490 (plurality opinion); F u ll i lo v e , 448 U.S. at 
476-78 (plurality opinion); id . at 500 (Powell, J., concurring); R u n y o n  v. 
M c C r a r y , 427 U.S. 160, 179 (1976); see also A d a r a n d ,  115 S. Ct. at 2126 
(Stevens, J., dissenting); M e tr o  B r o a d c a s t in g , 497 U.S. at 605 (O’Connor, 
J., dissenting).

9 See C ro so n , 488 U.S at 492 (plurality opinion) (“It is beyond dispute 
that any public entity, state or federal, has a compelling interest in 
assuring that public dollars, drawn from the tax contributions of all 
citizens, do not serve to finance the evil of private prejudice.”); see also 
M e tr o  B r o a d c a s t in g , 497 U.S. at 563-64; F u l l i lo v e , 448 U.S at 473-76 
(plurality opinion).



140a

absence of ongoing, intentional acts of discrimination.10 
Furthermore, in combatting discrimination and its effects, 
Congress has the latitude to develop national remedies for 
national problems. Congress need not make findings of dis­
crimination with the same degree of precision as do state or 
local governments. Nor is it obligated to make findings of 
discrimination in every industry or region tha t may be 
affected by a remedial measure.11

Congress has repeatedly examined the problems that 
racial discrimination poses for minority-owned businesses. 
A complete discussion of the entire record of Congress in 
this area is beyond the scope of this memorandum.12 The

10 See A d a r a n d ,  115 S. Ct. at 2117 (Congress may adopt affirmative 
action to remedy “both the practice and the lingering effects of dis­
crimination”). Accord id . at 2133 (Souter, J., dissenting) (government may 
act to redress effects of discrimination “that would otherwise persist and 
skew the operation of public systems even in the absence of current intent 
to practice any discrimination”).

11 C ro so n , 488 U.S. at 490, 504; F u l l i l o v e , 448 U.S. at 502-03 (Powell, J., 
concurring).

12 Congressional hearings on the subject from 1980 to the present 
include the following: T h e  S m a l l  B u s in e s s  A d m i n i s t r a t i o n ’s  8 (a )  M in o r i t y  
B u s in e s s  D e v e lo p m e n t  P r o g r a m :  H e a r in g  B e fo r e  th e  S e n a te  C o m m , o n  

S m a l l  B u s in e s s ,  104th Cong., 1st Sess. (1995); D i s c r i m i n a t i o n  i n  S u r e t y  
B o n d in g :  H e a r in g  B e fo r e  th e  S u b c o m m . o n  M i n o r i t y  E n te r p r i s e ,  F in a n c e  
a n d  U r b a n  D e v e lo p m e n t  o f  th e  H o u s e  C o m m , o n  S m a l l  B u s in e s s ,  103d 
Cong., 1st Sess. (1993); D e p a r tm e n t  o f  D e fe n s e :  F e d e r a l  P r o g r a m s  to  

P r o m o te  M i n o r i t y  B u s in e s s  D e v e lo p m e n t:  H e a r in g  B e fo r e  th e  S u b c o m m .  
o n  M i n o r i t y  E n te r p r i s e ,  F in a n c e  a n d  U r b a n  D e v e lo p m e n t  o f  th e  H o u s e  

C o m m , o n  S m a l l  B u s in e s s ,  103d Cong., 1st Sess. (1993); S B A ’s  M i n o r i t y  
B u s in e s s  D e v e lo p m e n t  P r o g r a m :  H e a r in g  B e fo r e  th e  H o u s e  C o m m , o n  
S m a l l  B u s in e s s ,  103d Cong., 1st Sess. (1993); P r o b le m s  F a c in g  M i n o r i t y  
a n d  W o m e n - O w n e d  S m a l l  B u s i n e s s e s  i n  P r o c u r i n g  U .S . G o v e r n m e n t  

C o n tr a c ts :  H e a r in g  B e fo r e  th e  S u b c o m m .  o n  C o m m e r c e ,  C o n s u m e r  a n d  

M o n e ta r y  A f f a i r s  o f  th e  H o u s e  C o m m , o n  G o v e r n m e n t  O p e r a t io n s , 103d 
Cong., 1st Sess. (1993); F is c a l  E c o n o m ic  a n d  S o c ia l  C r is e s  C o n fr o n t in g  
A m e r i c a n  C it ie s :  H e a r in g s  B e fo r e  th e  S e n a te  C o m m , o n  B a n k i n g ,



141a

H o u s in g  a n d  U r b a n  A f f a i r s ,  102d Cong., 2d Sess. (1992); S m a l l  D i s ­

a d v a n ta g e d  B u s i n e s s  I s s u e s :  H e a r in g  B e fo r e  th e  I n v e s t i g a t i o n s  S u b -  

c o m m . o f  th e  H o u s e  C o m m , o n  A r m e d  S e r v ic e s , lG2d Cong., 1st Sess. 
(1991); F e d e r a l  M i n o r i t y  B u s in e s s  P r o g r a m s :  H e a r in g  B e fo r e  th e  H o u s e  

C o m m , o n  S m a l l  B u s in e s s ,  102d Cong., 1st Sess. (1991); T o  A m e n d  th e  
C iv i l  R ig h t s  A c t  o f  1964.: P e r m i t t in g  M i n o r i t y  S e t - A s id e s :  H e a r in g  B e fo r e  

th e  S e n a te  C o m m , o n  G o v e r n m e n ta l  A f f a i r s ,  101st Cong., 2d Sess. (1990); 
C i ty  o f  R i c h m o n d  v . J .A .  C ro so n : I m p a c t  a n d  R e s p o n s e :  H e a r in g  B e fo r e  
th e  S u b c o m m .  o n  U r b a n  a n d  M in o r i t y - O w n e d  B u s i n e s s  D e v e lo p m e n t  o f  

th e  S e n a te  C o m m , o f  S m a l l  B u s in e s s ,  101st Cong., 2d Sess. (1990); M i n ­

o r i ty  B u s in e s s  S e t - A s id e  P r o g r a m s :  H e a r in g  B e fo r e  th e  H o u s e  C o m m , o n  
th e  J u d ic i a r y ,  101st Cong., 1st Sess. (1990); M i n o r i t y  C o n s t r u c t io n  C o n ­

tr a c t in g :  H e a r in g  B e fo r e  th e  S u b c o m m . o n  S B A ,  th e  G e n e r a l  E c o n o m y  

a n d  M i n o r i t y  E n te r p r i s e  D e v e lo p m e n t  o f  th e  H o u s e  C o m m , o n  S m a l l  

B u s in e s s ,  101st Cong., 1st Sess. (1989); S u r e t y  B o n d s  a n d  M i n o r i t y  

C o n tr a c to r s :  H e a r in g  B e fo r e  th e  S u b c o m m .  o n  C o m m e r c e ,  C o n s u m e r  
P r o te c t io n  a n d  C o m p e t i t i v e n e s s  o f  th e  H o u s e  C o m m , o n  E n e r g y  a n d  
C o m m e r c e , 100th Cong., 2d Sess. (1988); T w e n ty  Y e a r s  a f t e r  th e  K e m e r  
C o m m is s io n :  T h e  N e e d  f o r  a  N e w  C iv i l  R ig h t s  A g e n d a :  H e a r in g  B e fo r e  
th e  S u b c o m m . o n  C iv i l  a n d  C o n s t i tu t io n a l  R ig h t s  o f  th e  H o u s e  C o m m , o n  

th e  J u d ic i a r y ,  100th Cong., 2d Sess. (1988); D is a d v a n ta g e d  B u s in e s s  S e t-  

A s id e s  i n  T r a n s p o r ta t io n  C o n s t r u c t io n  P r o je c ts :  H e a r in g s  B e fo r e  th e  
S u b c o m m .  o n  P r o c u r e m e n t ,  I n n o v a t io n  a n d  M i n o r i t y  E n te r p r i s e  D e v ­

e lo p m e n t  o f  th e  H o u s e  C o m m , o n  S m a l l  B u s in e s s ,  100th Cong., 2d Sess. 
(1988); B a r r i e r s  to  F u l l  M i n o r i t y  P a r t i c ip a t io n  i n  F e d e r a l l y  F u n d e d  
H ig h w a y  P r o je c ts :  H e a r in g s  B e fo r e  a  S u b c o m m . o f  th e  H o u s e  C o m m , o n  
G o v e r n m e n t  O p e r a tio n s , 100th Cong., 2d Sess. (1988); T h e  S m a l l  B u s in e s s  

C o m p e t i t i v e n e s s  D e m o n s t r a t io n  P r o g r a m  A c t  o f  198 8 : H e a r in g s  o n  S .  

1559  B e fo r e  th e  S e n a te  C o m m , o n  S m a l l  B u s in e s s ,  100th Cong., 2d Sess. 
(1988); S m a l l  B u s in e s s  P r o b le m s :  H e a r in g s  B e fo r e  th e  H o u s e  C o m m , o n  
S m a l l  B u s in e s s ,  100th Cong., 1st Sess. (1987); M i n o r i t y  B u s in e s s  D e v ­

e lo p m e n t  A c t :  H e a r in g  B e fo r e  th e  S u b c o m m .  o n  P r o c u r e m e n t ,  I n n o ­

v a t i o n  a n d  M i n o r i t y  E n te r p r i s e  D e v e lo p m e n t  o f  th e  H o u s e  C o m m , o n  

S m a l l  B u s i n e s s ,  100th Cong., 1st Sess. (1987); A  B i l l  to  R e f o r m  th e  
C a p ita l  O w n e r s h ip  D e v e lo p m e n t  P r o g r a m :  H e a r in g s  o n  H .R .  1 8 0 7  B e fo r e  
th e  S u b c o m m .  o n  P r o c u r e m e n t ,  I n n o v a t i o n  a n d  M i n o r i t y  E n t e r p r i s e  

D e v e lo p m e n t  o f  th e  H o u s e  C o m m , o n  S m a l l  B u s in e s s ,  100th Cong., 1st 
Sess. (1987); T o  P r e s e n t  a n d  E x a m i n e  th e  R e s u l t  o f  a  S u r v e y  o f  th e  
G r a d u a te s  o f  th e  S m a l l  B u s in e s s  A d m i n i s t r a t i o n  S e c t io n  8 (a )  M i n o r i t y



142a

theme that emanates from this record is unequivocal: 
Congress has adopted race-conscious remedial measures in 
procurement directly in response to its findings that “wide­
spread discrimination, especially in access to financial credit, 
has been an impediment to the ability of minority-owned 
business to have an equal chance at developing in our 
economy.”13 Furthermore, Congress has recognized that 
expanding opportunities for minority-owned businesses in 
government procurerhent helps to bring into mainstream 
public contracting networks firms that otherwise would be 
excluded as a result of discriminatory barriers. In light of 
Congress’ expansive remedial charter, it is a fundamental

B u s in e s s  D e v e lo p m e n t  P r o g r a m :  H e a r in g s  B e fo r e  th e  S e n a te  C o in m . o n  

S m a l l  B u s in e s s ,  100th Cong., 1st Sess. (1987); M i n o r i t y  E n t e r p r i s e  a n d  
G e n e r a l S m a l l  B u s in e s s  P r o b le m s :  H e a r in g s  B e fo r e  th e  S u b c o m m .  o n  
S B A  a n d  S B I C  A u t h o r i t y ,  M i n o r i t y  E n t e r p r i s e  a n d  G e n e r a l  S m a l l  

B u s in e s s  P r o b le m s  o f  th e  S e n a te  C o m m , o n  S m a l l  B u s in e s s ,  99th Cong., 
2d Sess. (1986); T h e  S ta t e  o f  H i s p a n i c  S m a l l  B u s i n e s s  i n  A m e r i c a :  

H e a r in g s  B e fo r e  th e  S u b c o m m . o n  S B A  a n d  S B I C  A u t h o r i t y ,  M i n o r i t y  
E n te r p r is e  a n d  G e n e ra l S m a l l  B u s in e s s  P r o b le m s  o f  th e  H o u s e  C o m m , o n  

S m a l l  B u s in e s s ,  99th Cong., 1st Sess. (1985); F e d e r a l  C o n tr a c t in g  O p p o r ­

tu n i t i e s  f o r  M in o r i t y  a n d  W o m e n -O w n e d  B u s in e s s e s :  A n  E x a m i n a t i o n  o f  

th e  8 (d )  S u b c o n tr a c t in g  P r o g r a m :  H e a r in g s  B e fo r e  th e  S e n a te  C o m m , o n  
S m a l l  B u s in e s s ,  98th Cong., 1st Sess. (1983); M i n o r i t y  B u s i n e s s  a n d  I t s  
C o n tr ib u t io n  to  th e  U n ite d  S ta t e s  E c o n o m y :  H e a r in g  B e fo r e  th e  S e n a te  

C o m m , o n  S m a l l  B u s in e s s ,  97th Cong., 2d Sess. (1982); S m a l l  B u s i n e s s  

a n d  th e  F e d e r a l  P r o c u r e m e n t  S y s t e m :  H e a r in g s  B e fo r e  th e  S u b c o m m .  o n  
G e n e r a l O v e r s ig h t  o f  th e  H o u s e  C o m m , o n  S m a l l  B u s in e s s ,  97th Cong., 
1st Sess. (1981); S m a l l  a n d  M i n o r i t y  B u s in e s s  i n  th e  D e c a d e  o f  th e  1 9 8 0 ’s  

( P a r t  1 ): H e a r in g s  B e fo r e  th e  H o u s e  C o m m , o n  S m a l l  B u s i n e s s ,  97th 
Cong., 1st Sess. (1981); S m a l l  B u s i n e s s  a n d  th e  F e d e r a l  P r o c u r e m e n t  

S y s t e m :  H e a r in g s  B e fo re  th e  S u b c o m m . o n  G e n e ra l O v e r s ig h t o f  th e  H o u s e  
C o m m , o n  S m a l l  B u s in e s s , 97th Cong., 1st Sess. (1981); T o  A m e n d  th e  

S m a l l  B u s i n e s s  A c t  to  E x t e n d  th e  C u r r e n t  S B A  8 (a )  P i l o t  P r o g r a m :  
H e a r in g s  o n  H .R .  5 6 1 2  B e fo r e  th e  S e n a te  S e le c t  C o m m . o n  S m a l l  
B u s in e s s , 96th Cong., 2d Sess. (1980).

13 A f f i r m a t i v e  A c t io n  R e v ie w :  R e p o r t  to  th e  P r e s id e n t  55 (1995).



143a

principle that courts must accord a significant degree of de­
ference to those findings and the attendant judgment of the 
Congress that remedial measures in government procure­
ment are warranted.14

The relevant congressional findings encompass a broad 
range of problems confronting minority-owned businesses. 
They include “deficiencies in working capital, inability to 
meet bonding requirements, disabilities caused by an inade­
quate ‘track record,’ lack of awareness of bidding oppor­
tunities, unfamiliarity with bidding procedures, pre-selection 
before the formal advertising process, and the exercise of 
discretion by government procurement officers to disfavor 
minority businesses.”15

For example, in a report that led to the legislation that 
created what has become known as the “8(a)” program at the 
Small Business Administration,16 and that established goals 
for participation in procurement at each federal agency by 
firms owned and controlled by socially and economically 
disadvantaged individuals (SDBs),17 a congressional com­
mittee found that the difficulties facing minority-owned busi­
nesses were “not the result of random chance.” Rather, the

14 See C ro so n , 488 U.S. at 488-90 (plurality opinion); F u ll i lo v e , 448 U.S. 
at 472-73 (plurality opinion); id . at 508-10 (Powell, J., concurring); see also 
M e tr o  B r o a d c a s t in g , 497 U.S. at 563; id . at 605-07 (O’Connor, J., dis­
senting). This principle was not disturbed by the Supreme Court’s ruling 
in A d a r a n d ;  thus, it continues to have force, even under strict scrutiny. 
See A d a r a n d ,  115 S. Ct. at 2114; id . at 2126 (Stevens, J.., dissenting); id . at 
2133 (Souter, J., dissenting).

15 F u ll i lo v e , 448 U.S. at 467 (plurality opinion).
16 That program targets federal procurement opportunities for small 

firms owned and controlled by individuals who are socially and eco­
nomically disadvantaged. See 15 U.S.C. 637(a). Members of certain mi­
nority groups are presumed to be socially disadvantaged. 13 C.F.R. Pt. 
124.

17 15 U.S.C. 644(g).



144a

committee stated, “past discriminatory systems have re ­
sulted in present economic inequities.”18 In connection with 
the same legislation, another committee concluded that a 
pattern of discrimination “continues to deprive racial and 
ethnic minorities * * * of the opportunity to participate 
fully in the free enterprise system.”19 Eventually, when it 
adopted the 8(a) legislation, Congress found that minorities 
“have suffered the effects of discriminatory practices or 
similar invidious circumstances over which they have no 
control,” and that “it is in the national interest to expedi­
tiously ameliorate” the effects of this discrimination through 
increased opportunities for minorities in government pro­
curement.20

When revamping the 8(a) program in the late 1980s, 
Congress again found that “discrimination and the present 
effects of past discrimination” continued to hinder minority 
business development. Congress concluded tha t the pro-

18 H.R. Rep. No. 468,94th Cong., 1st Sess. 2 (1975).
19 S. Rep. No. 1070, 95th Cong., 2d Sess. 14 (1978). See also H.R. Rep. 

No. 949,95th Cong., 2d Sess. 8 (1978).
20 Pub. L. No. 95-507, § 201, 92 Stat. 1757,1760 (1978). See 124 Cong. 

Rec. 35,204 (1978) (statement of Sen. Weicker) (commenting on the in­
troduction of the conference report on the 8(a) legislation and observing 
that the report recognizes the existence of a “pattern of social and 
economic discrimination that continues to deprive racial and ethnic mi­
norities of the opportunity to participate fully in the free enterprise 
system”). In the same year it passed the 8(a) legislation, Congress 
considered an additional bill that sought to target federal assistance to 
minority-owned firms. In introducing that measure, Senator Dole 
remarked that “minority businessmen can compete equally when given 
equal opportunity. One of the most important steps this country can take 
to insure equal opportunity for its hispanic, black and other minority 
citizens is to involve them in the mainstream of our free enterprise 
system.” 124 Cong. Rec. 7681 (1978).



145a

gram required bolstering so that it would better “redress the 
effects of discrimination on entrepreneurial endeavors.”21

In the same vein are congressional findings that underpin 
legislation that sets agency-specific goals for participation by 
disadvantaged businesses—including minority-owned firms 
—in procurement and grant programs administered by those 
agencies. For instance, in recommending the continued use 
of such goals as part of programs through which the Depart-

21 H.R. Rep. No. 460, 100th Cong., 1st Sess. 16, 18 (1987). See 133 
Cong. Rec. 37,814 (1987) (statement of Sen. Bumpers) (discussing 
proposed revisions to 8(a) program and commenting that minorities 
“continue to face discrimination in access to credit and markets”); id . at 
33,320 (statement of Rep. Conte) (discussing proposed revisions to 8(a) 
program and commenting that effects of discrimination continued to be 
felt, and that 8(a) amendments were needed to “create a workable 
mechanism to finally redress past discriminatory practices”). See gen­
erally S. Rep. No. 394, 100th Cong., 2d Sess. (1988); T h e  S m a l l  B u s in e s s  
C o m p e t i t iv e n e s s  D e m o n s t r a t io n  P r o g r a m  A c t  o f  1988: H e a r in g s  o n  S .  

1559 B e fo r e  th e  S e n a te  C o m m , o n  S m a l l  B u s in e s s ,  100th Cong., 2d Sess.
(1988); S m a l l  B u s in e s s  P r o b le m s :  H e a r in g s  B e fo r e  th e  H o u s e  C o m m , o n  
S m a l l  B u s in e s s ,  100th Cong., 1st Sess. (1987); M i n o r i t y  B u s i n e s s  D e ­

v e lo p m e n t  A c t :  H e a r in g  B e fo r e  th e  S u b c o m m .  o n  P r o c u r e m e n t ,  I n n o ­

v a t i o n  a n d  M i n o r i t y  E n te r p r i s e  D e v e lo p m e n t  o f  th e  H o u s e  C o m m , o n  

S m a l l  B u s i n e s s ,  100th Cong., 1st Sess. (1987); A  B i l l  to  R e f o r m  th e  
C a p ita l  O w n e r s h ip  D e v e lo p m e n t  P r o g r a m :  H e a r in g s  o n  H .R .  1 8 0 7  B e fo r e  
th e  S u b c o m m .  o n  P r o c u r e m e n t ,  I n n o v a t i o n  a n d  M i n o r i t y  E n t e r p r i s e  

D e v e lo p m e n t  o f  th e  H o u s e  C o m m , o n  S m a l l  B u s in e s s ,  100th Cong., 1st 
Sess. (1987); T o  P r e s e n t  a n d  E x a m i n e  th e  R e s u l t  o f  a  S u r v e y  o f  th e  

G r a d u a te s  o f  th e  S m a l l  B u s in e s s  A d m i n i s t r a t i o n  S e c t io n  8 (a )  M i n o r i t y  

B u s in e s s  D e v e lo p m e n t  P r o g r a m :  H e a r in g s  B e fo r e  th e  S e n a te  S m a l l  
B u s in e s s  C o m m ., 100th Cong., 1st Sess. (1987); M i n o r i t y  E n te r p r i s e  a n d  

G e n e r a l S m a l l  B u s i n e s s  P r o b le m s :  H e a r in g s  B e fo r e  th e  S u b c o m m .  o n  
S B A  a n d  S B I C  A u t h o r i t y ,  M i n o r i t y  E n t e r p r i s e  a n d  G e n e r a l  S m a l l  
B u s in e s s  P r o b le m s  o f  th e  S e n a te  C o m m , o n  S m a l l  B u s in e s s ,  99th Cong., 
2d Sess. (1986); T h e  S ta t e  o f  H i s p a n i c  S m a l l  B u s i n e s s  i n  A m e r i c a :  
H e a r in g s  B e fo r e  th e  S u b c o m m . o n  S B A  a n d  S B I C  A u t h o r i t y ,  M i n o r i t y  
E n te r p r is e  a n d  G e n e r a l S m a l l  B u s in e s s  P r o b le m s  o f  th e  H o u s e  C o m m , o n  

S m a l l  B u s in e s s ,  99th Cong., 1st Sess. (1985).



146a

ment of Transportation provides funds to state and local 
governments for use in highway and transit projects, a 
congressional committee observed that it had considered 
extensive testimony and evidence, and determined that this 
action was “necessary to remedy the discrimination faced by 
socially and economically disadvantaged persons attempting 
to compete in the highway industry and mass transit con­
struction industry.”22

22 S. Rep. No. 4 ,100th Cong., 1st Sess. 11 (1987). The DoT goals were 
initially established in the Surface Transportation Assistance Act of 1982, 
Pub. L. No. 97-424, § 105(f), 96 Stat. 2097 (1982). They were continued in 
the Surface Transportation and Uniform Relocation Assistance Act of 
1987 (“STURAA”), Pub. L. No. 100-17, § 106(c)(1), 101 Stat. 132, 145 
(1987). Congress held further hearings on the subject after passage of 
STURAA. See M i n o r i t y  C o n s tr u c t io n  C o n tr a c t in g :  H e a r in g  B e fo r e  th e  
S u b c o m m . o n  S B A ,  th e  G e n e ra l E c o n o m y  a n d  M i n o r i t y  E n te r p r i s e  D e v e ­

lo p m e n t  o f  th e  H o u s e  C o m m , o n  S m a l l  B u s in e s s ,  101st Cong., 1st Sess.
(1989); D is a d v a n t a g e d  B u s i n e s s  S e t - A s i d e s  i n  T r a n s p o r t a t i o n  C o n ­

s t r u c t io n  P ro je c ts :  H e a r in g s  B e fo r e  th e  S u b c o m m . o n  P r o c u r e m e n t ,  I n n o ­

v a t i o n  a n d  M i n o r i t y  E n te r p r i s e  D e v e lo p m e n t  o f  th e  H o u s e  C o m m , o n  
S m a l l  B u s in e s s ,  100th Cong., 2d Sess. (1988); B a r r i e r s  to  F u l l  M i n o r i t y  
P a r t i c i p a t i o n  i n  F e d e r a l l y  F u n d e d  H ig h w a y  C o n s t r u c t i o n  P r o je c t s :  

H e a r in g  B e fo r e  a  S u b c o m m . o f  th e  H o u s e  C o m m , o n  G o v e r n m e n t  O p e r a ­

t io n s , 100th Cong., 2d Sess. (1988). Congress subsequently reauthorized 
the goals in the Intermodal Surface Transportation Efficiency Act of 1991, 
Pub. L. No. 102-240, § 1003(b), 105 Stat. 1914, 1919 (1991). See 137 Cong. 
Rec. S7571 (June 12, 1991) (statement of Sen. Simpson) (expressing sup­
port for continuation of disadvantaged business program at Transporta­
tion Department). •

Congress has established comparable initiatives to encourage dis­
advantaged business participation in grant programs administered by the 
Environmental Protection Agency (EPA). For example, recipients of 
grants awarded by EPA under the Clean Air Act are required to set dis­
advantaged business goals. See 42 U.S.C. § 7601 note; see also 42 U.S.C. 
§ 4370d (establishing an SDB goal for recipients of EPA funds used in sup­
port of certain environmental-related projects); H.R. Rep. No. 226, 102 
Cong., 1st Sess. 48 (1991).



147a

Congress has also established goals for SDB participation 
in procurement at the Defense Department, and authorized 
that agency to use specific forms of remedial measures to 
achieve the goals.23 The Defense Department program too is 
predicated on findings that opportunities for minority-owned 
businesses had been impaired.24 More fundamentally, in 
establishing the program, Congress recognized that foster­
ing contracting opportunities for minority-owned businesses 
at the Defense Department is crucial, because that agency 
alone typically accounts for more than two-thirds of the fed­
eral government’s procurement activities. Therefore, affir­
mative action efforts at the Defense Department enable 
minority-owned businesses to demonstrate their capabilities 
to contracting officers at that important procuring agency 
and to the vast number of nonminority firms that provide 
goods and services to the Pentagon. In turn, minority- 
owned businesses can begin to break into the contracting 
networks from which they typically have been excluded.25

23 10 U.S.C. § 2323.
24 See H.R. Rep. No. 332, 99th Cong., 1st Sess. 139-40 (1985) (if 

disadvantaged firms had been able to “participate in the ‘early’ develop­
ment of major Defense systems, they would have had an opportunity to 
gain the expertise required to bid on such contracts”); see also H.R. Rep. 
No. 450, 99th Cong., 1st Sess. 179 (1985); 131 Cong. Rec. 17,445-17,448 
(1985); H.R. Rep. No. 1086, 98th Cong., 2d Sess. 100-01 (1984).

25 See 131 Cong. Rec. 17,447 (1985) (statement of Rep. Conyers) 
(affirmative action needed to break down “buddy-buddy contracting” at 
the Defense Department, “which has the largest procurement program in 
the Federal Government”); id . (statement of Rep. Schroeder) (an “old 
boy’s club” in Defense Department contracting excludes many minorities 
from business opportunities); see also D e p a r tm e n t  o f  D e fe n s e :  F e d e r a l  
P r o g r a m s  to  P r o m o te  M i n o r i t y  B u s in e s s  D e v e lo p m e n t:  H e a r in g  B e fo r e  
th e  S u b c o m m .  o n  M i n o r i t y  E n te r p r is e ,  F in a n c e  a n d  U r b a n  D e v e lo p m e n t  
o f  th e  H o u s e  C o m m , o n  S m a l l  B u s in e s s ,  103d Cong., 1st Sess. 49 (1993) 
(statement of Rep. Roybal-Allard) (“Old attitudes and old habits die hard 
* * *. Defense contracting has, traditionally, been a closed shop. Only a



148a

Opportunities for minority-owned businesses to partici­
pate in Defense Department procurement increased follow­
ing the introduction of the affirmative action program there 
in the late 1980s. However, the effects of discrimination 
were still felt in federal procurement generally. Based on 
information it obtained through a 1993 hearing, a congres­
sional committee reported the following year that this “lack 
of opportunity results primarily from discriminatory or eco­
nomic conditions,” and that “improving access to govern­
ment contracts and procurement offers a significant op­
portunity for business development in many industry sec­
tors.”26 In the Federal Acquisition Streamlining Act of 1994, 
Congress saw fit to make available to all agencies the re­
medial tools that previously had been granted to the Defense 
Department, in order to “improv[e] access to contracting 
opportunities for * * * minority-owned small businesses.”27

Through its recurring assessments of the implications of 
discrimination against minority-businesses, Congress has 
concluded that, standing alone, legislation that simply pro­
scribes racial discrimination is an inadequate remedy. Con­
gress also has attempted to redress the problems facing mi­
nority businesses through race-neutral assistance to all small 
businesses.28 Congress has determined, however, that those

select few need apply. Since the passage of the minority contracting op­
portunity law, some progress has been made.”); H.R. Rep. No. 1086, 98th 
Cong., 2d Sess. 100-101 (1984) (low level of participation by disadvantaged 
firms in Defense Department contracting indicated a need to expand 
procurement opportunities at that agency for such firms).

26 H.R. Rep. No. 870,103d Cong., 2nd Sess. 5 (1994).
27 140 Cong. Rec. H9242 (Sept. 20,1994) (statement of Rep. Dellums).
28 Beginning with the Small Business Act of 1953, Congress has 

authorized numerous programs to “aid, counsel, assist, and protect * * * 
the interests of small-business concerns” and “insure that a fair proportion 
of the total purchases and contracts for supplies and services for the 
government be placed with small-business enterprises.” Pub. L. No. 163,



149a

remedies, by themselves, are “ineffectual in eradicating the 
effects of past discrimination,”29 and that race-conscious 
measures are a necessary supplement to race-neutral ones.30 
Finally, based on its understanding of what happens at the 
state and local level when use of affirmative action is se­
verely curtailed or suspended outright, Congress has con­
cluded that minority participation in government procure­
ment tends to fall dramatically in the absence of at least 
some kind of remedial measures, the result of which is to

§ 202, 67 Stat. 232 (1953). After recognizing in the 1960s the specific 
problems facing minority owned businesses, Congress attempted to ad­
dress them through race-neutral measures. For example, in 1971, Con­
gress amended the Small Business Investment Act to create a surety bond 
guarantee program to assist small businesses that have trouble obtaining 
traditional bonding. In 1972, Congress created a new class of small 
business investment companies to provide debt and equity capital to small 
businesses owned by socially and economically disadvantaged individuals. 
And over the years, Congress has continuously reviewed and strength­
ened programs to assist all small businesses through the Small Business 
Act. See e.g. Pub. L. No. 93-386, 88 Stat. 742 (1974); Pub. L. No. 94-305, 90 
Stat. 663 (1976); Pub. L. No. 95-89, 91 Stat. 553 (1977).

29 C ro so n , 488 U.S. at 550 (Marshall, J., dissenting). Accord F u ll i lo v e ,  
448 U.S. at 467 (plurality opinion); id . at 511 (Powell, J., concurring); see 
also C i t y  o f  R i c h m o n d  v. J .A .  C ro so n :  I m p a c t  a n d  R e s p o n s e :  H e a r in g  

B e fo re  th e  S u b c o m m .  o n  U r b a n  a n d  M in o r i t y - O w n e d  B u s i n e s s  D e v e lo p ­

m e n t  o f  th e  S e n a te  C o m m , o n  S m a l l  B u s in e s s ,  101st Cong., 2d Sess. 48
(1990) (statement of Ray Marshall); H.R. Rep. No. 468, 94th Cong., 1st 
Sess. 32 (1975).

30 It bears emphasizing that race-neutral programs for small busi­
nesses are important and necessary components of an overall con­
gressional strategy to enhance opportunity for small businesses owned by 
minorities. For example, Congress has authorized contracting set asides 
for small businesses generally—minority and nonminority alike—as well 
as a host of bonding, lending, and technical assistance programs that are 
open to all small businesses. See 15 U.S.C. § 631 e t seq .



150a

perpetuate the discriminatory barriers that have kept mi­
norities out of the mainstream of public contracting.31

The foregoing is just a sampling from the legislative re­
cord of congressionally-authorized affirmative action in gov­
ernment procurement. The remainder of the memorandum 
surveys evidence from other sources regarding the impact of 
discrimination on the ability of minority-owned businesses to 
compete equally in contracting markets. This evidence con­
firms Congress’ determination that race-conscious remedial 
action is needed to correct that problem.

II. Discriminatory Barriers to Minority Contracting Op­
portunities

Developing a business that can successfully compete for 
government contracts depends on many factors. To begin 
with, technical or professional experience, which is typically 
attained through employment and trade union opportunities, 
is an important prerequisite to establishing any business. 
Second, obtaining financing is necessary to the formation of 
most businesses. The inability to secure the twin building 
blocks of experience and financing may prevent a business 
from ever getting off the ground. Some individuals over­
come these initial obstacles and are able to form businesses. 
However, they subsequently may be shut out from impor­
tant contracting and supplier networks, which can hinder 
their ability to compete effectively for contract oppor-

31 T h e  M e a n in g  a n d  S ig n i f i c a n c e  f o r  M i n o r i t y  B u s i n e s s e s  o f  th e  
S u p r e m e  C o u r t  D e c is io n  i n  th e  C i t y  o f  R i c h m o n d  v . J .A .  C r o s o n  C o.: 
H e a r in g  B e fo r e  th e  L e g is la t io n  a n d  N a t i o n a l  S e c u r i t y  S u h c o m m .  o f  th e  
H o u s e  C o m m , o n  G o v e r n m e n t O p e r a tio n s , 101st Cong., 2d Sess. 57, 62-90 
(1990); C i ty  o f  R ic h m o n d  v . J .A .  C ro so n :  I m p a c t  a n d  R e s p o n s e :  H e a r in g  
B e fo r e  th e  S u b c o m m . o n  U r b a n  a n d  M in o r i t y - O w n e d  B u s in e s s  D e v e lo p ­

m e n t  o f  th e  S e n a te  C o m m , o n  S m a l l  B u s in e s s ,  101st Cong., 2d Sess. 39-44 
(1990) (statement of Andrew Brimmer).



151a

tunities. And further barriers may be encountered when a 
business tries to secure bonding and purchase supplies for 
projects—critical requirements for many major government 
contracts.

While almost all new or small businesses find it difficult to 
overcome these barriers and become successful, these prob­
lems are substantially greater for minority-owned busi­
nesses. Empirical studies and reports issued by congres­
sional committees, executive branch commissions, academic 
researchers, and state and local governments document the 
widespread and systematic impact of discrimination on the 
ability of minorities to carry out each of the steps that are 
required for participation in government contracting. This 
evidence of discrimination can be grouped into two cate­
gories:

(i) evidence showing that discrimination works to pre­
clude minorities from obtaining the experience and capital 
needed to form and develop a business, which encompasses 
discrimination by trade unions and employers and discrimi­
nation by lenders;

(ii) evidence showing that discriminatory barriers de­
prive existing minority firms of full and fair contracting 
opportunities, which encompasses discrimination by private 
sector customers and prime contractors, discrimination by 
business networks, and discrimination by suppliers and 
bonding providers.

The following provides an overview7 of both categories of 
evidence.

A. Effects o f Discrimination on the Formation and De­
velopment o f Minority Businesses

A primary objective of affirmative action in procurement 
is to encourage and support the formation and development



152a

of minority-owned firms as a remedy to the “racism and 
other barriers to the free enterprise system that have placed 
a heavier burden on the development and m aturity  of 
minority businesses.”32 That these efforts are necessary is 
evident from the recent findings by the U.S. Commission on 
Minority Business Development, appointed by President 
Bush. The Commission amassed a large amount of evidence 
demonstrating the marginal position that minority-owned 
businesses hold in our society:

• Minorities make up more than 20 percent of the pop­
ulation; yet, minority-owned businesses are only 9 percent of 
all U.S. businesses and receive less than 4 percent of all 
business receipts.33

• Minority firms have, on average, gross receipts that 
are only 34 [percent] of that of nonminority firms.34

• The average payroll for minority firms with employees 
is less than half that of nonminority firms with employees.35

President Bush’s Commission undertook an extensive an­
alysis of the barriers that face minority-owned business for­
mation and development. It concluded that “minorities are 
not underrepresented in business because of choice or

32 S m a l l  a n d  M in o r i t y  B u s in e s s  i n  th e  D e c a d e  o f  th e  1 9 8 0 ’s  ( P a r t  1): 

H e a r in g s  B e fo r e  th e  H o u s e  C o m m , o n  S m a l l  B u s in e s s ,  97th Cong., 1st 
Sess. 4 (1981). See also H.R. Rep. No. 870,103d Cong., 2d Sess. 5 (1994).

33 United States Commission on Minority Business Development, 
F i n a l  R e p o r t  2-6 (1992). These statistics are based on 1987 census data, 
the most recent full data available regarding the status of minority-owned 
businesses. Preliminary reports from 1992 census data reveal that the 
status of minority firms has not significantly improved. For instance, 
African Americans are 12[%] of the population but, in 1992, owned only 
3.6% of all businesses (up from 3.1% in 1987) and received just 1[%] of all 
U.S. business receipts (which is the same level as in 1987).

34 Id . at 3.
Id . at 4.35



153a

chance. Discrimination and benign neglect is the reason why 
our economy has been denied access to this vital resource.”36 
Further evidence of the effect of discrimination on minority 
business development is revealed in recent studies showing 
that minorities are significantly less likely than whites to 
form their own business—even after controlling for income 
level, wealth, education level, work experience, age and mar­
ital status.37 These findings strongly indicate that minorities 
“face barriers to business entry that non-minorities do not 
face.”38

Since the inception of federal affirmative action initiatives 
in procurement, policy makers have recognized that there 
are two principal barriers to the formation and development 
of minority-owned businesses: limited technical experience 
and limited financial resources. President Nixon’s Advisory 
Council on Minority Business Enterprise identified these 
barriers in 1973 when it reported that “a characteristic lack 
of financial and managerial resources has impaired any will­
ingness to undertake enterprise and its inherent risk.”39 
Two decades later, a congressional committee found that mi­
norities continue to have “fewer opportunities to develop 
business skills and attitudes, to obtain necessary resources,

36 Id  at 60.
37 See Division of Minority and Women’s Business Development, 

O p p o r tu n i ty  D e n ie d :  A  S t u d y  o f  R a c ia l  a n d  S e x u a l  D is c r im in a t i o n  R e ­

la te d  to  G o v e r n m e n t  C o n tr a c t in g  i n  N e w  Y o r k  S ta te , Appendix D, 53-75 
(1992) (finding that minorities in New York were 20% less likely to enter 
self-employment than similarly situated whites); Timothy Bates, S e l f -  

e m p l o y m e n t  E n t r y  A c r o s s  I n d u s t r y  G r o u p s , Journal of Business 
Venturing, Vol. 10, at 143- 56 (1995).

38 Timothy Bates, S e l f - e m p lo y m e n t  E n t r y  A c r o s s  I n d u s t r y  G ro u p s ,  
Journal of Business Venturing, Vol. 10,149 (1995).

39 Samuel Doctors & Anne Huff, M i n o r i t y  E n te r p r i s e  a n d  th e  P r e ­

s i d e n t ’s  C o u n c i l 4-6 (1973) (quoted in Tuchfarber e t a l . ,  C i ty  o f  C in c in n a t i :  
C r o s o n  S t u d y  150 (1992)).



154a

and to gain experience, which is necessary for the success of 
small businesses in a competitive environment.”40 Discrimi­
nation in two sectors of the national economy accounts, at 
least in part, for the diminished opportunity: discrimination 
by trade unions and employers, which has prevented minori­
ties from garnering crucial technical skills; and discrimina­
tion by lenders, which has prevented minorities from gar­
nering needed capital.

1. Discrimination by Trade Unions and Employers

President Nixon’s Advisory Council on Minority Business 
Enterprise determined that “the lack of opportunity to parti­
cipate in managerial technical training has severely re ­
stricted the supply of [minority] entrepreneurs, managers 
and technicians.”41 A history of discrimination by unions and 
employers helps to explain this unfortunate phenomenon.

Prior to the civil rights accomplishments of the 1960s, 
labor unions and employers were virtually free to practice 
overt racial discrimination. Minorities were segregated into 
menial, low wage positions, leaving no minority managers or 
white collar workers in most sectors of our economy. Trade 
unions, which controlled training and job placement in many 
skilled trades, commonly barred minorities from member­
ship. As a result, “whole industries and categories of em­
ployment were, in effect, all-white, all-male.”42 These prac­
tices left minorities unable to gain the experience needed to 
operate all but the smallest businesses, primarily consisting 
of small “mom and pop” stores with no employees, minimal

40 H.R. Rep. No. 870,103d Cong., 2d Sess. 5 (1994).
41 Samuel Doctors & Anne Huff, M i n o r i t y  E n t e r p r i s e  a n d  th e  

P r e s i d e n t ’s C o u n c i l  4-6 (1973) (quoted in Tuchfarber e t  a l . ,  C i t y  o f  
C in c in n a t i :  C r o s o n  S tu d y  150 (1992)).

42 A f f i r m a t i v e  A c t io n  R e v ie w :  R e p o r t  to  th e  P r e s id e n t  7 (1995).



155a

revenue, located in segregated neighborhoods, and serving 
an exclusively minority clientele.43

Discrimination by unions has been recognized as a major 
factor in preventing minorities from obtaining employment 
opportunities in the skilled trades. Title VII of the Civil 
Rights Act of 1964 (prohibiting employment discrimination) 
was passed, in part, in response to Congress’s desire to halt 
“the persistent problems of racial and religious discrimi­
nation or segregation * * * by labor unions and profes­
sional, business, and trade associations.”44 Even after Title 
VII went on the books, however, unions precluded minori­
ties from membership through a host of discriminatory 
policies, including the use of “tests and admissions criteria 
which [have] no relation to on-the-job skills and which [have] 
a differential impact” on minorities;45 discriminating in the 
application of admission criteria;46 and imposing admission

43 See, e.g., Joseph Pierce, N e g r o  B u s in e s s  a n d  B u s in e s s  E d u c a t i o n  

(1947); Andrew Brimmer, T h e  E c o n o m ic  P o te n t ia l  o f  B la c k  C a p i ta l i s m ,  
Public Policy Vol. 19, No. 2, at 289-308 (1971); Kent Gilbreath, R e d  

C a p ita l i s m :  A n  A n a l y s i s  o f  th e  N a v a jo  E c o n o m y  (1973).
44 S. Rep. No. 872, 88th Cong., 1st Sess. 1 (1964). See, e.g ., Brimmer & 

Marshall, P u b l ic  P o l i c y  a n d  P r o m o t io n  o f  M i n o r i t y  E c o n o m i c  D e v e lo ­

p m e n t :  C i ty  o f  A t l a n t a  a n d  F u l t o n  C o u n ty ,  G eo rg ia , Pt. VII, 11-17 (1990) 
(in 1963, minorities were prohibited from joining Atlanta unions repre­
senting plumbers, electricians, steel workers and bricklayers); TEM 
Associates, M i n o r i t y / W o m e n  B u s i n e s s  S t u d y :  R e v i s e d  F i n a l  R e p o r t ,  
P h a s e  I , Volume I 3-13 (“In 1963, not one of the 1,000 persons in ap­
prenticeship training in Dade County was Black, and the Miami Sheet 
Metal Workers local, like most other trade unions, was all white.”).

45 U n ite d  S ta te s  v . I r o n  W o r k e r s  L o c a l 86 , 443 F.2d 544, 548 (9th Cir.), 
cert, denied, 404 U.S. 984 (1971). See also H a m e e d  v. I n t e r n a t i o n a l  A s s ’n  
o f  B r id g e ,  S t r u c tu r a l  &  O r n a m e n ta l  I r o n  W o r k e r s , 637 F.2d 506 (8th Cir. 
1980) (selection criteria, including aptitude test, and the requirement of a 
high school diploma as a condition of eligibility were discriminatory).

46 U n ite d  S ta te s  v . I r o n  W o r k e r s  L o c a l 8 6 , 443 F.2d 544, 548 (9th Cir.) 
(differential application and admissions requirements between whites and



156a

conditions, such as requiring that new members have a 
family relationship with an existing member, that locked 
minorities out of membership opportunities.47 As a result, 
unions remained virtually all-white for some time after the 
enactment of Title VII:

• In 1965, the President’s Commission on Equal Oppor­
tunity found that out of 3,969 persons selected for skilled 
trade union apprenticeships in 30 southern cities, only 26 
were black.48

• In 1967, blacks made up less than 1 percent of the 
nation’s mechanical union members (i.e. sheet metal wor­
kers, boilermakers, plumbers, electricians, ironworkers and 
elevator constructors).49

blacks; spurious reasons given for rejections of blacks), cert, denied, 404 
U.S. 984 (1971); S i m s  v . S h e e t  M e ta l  W o r k e r s  I n t ’l  A s s ’n , 489 F.2d 1023 
(6th Cir. 1973) (union waived requirements for white applicants).

47 U n i t e d  S t a t e s  v . U n i te d  B h d .  o f  C a r p e n te r s  a n d  J o i n e r s  o f  
A m e r ic a ,  457 F.2d 210, 215 (7th Cir.), cert, denied, 409 U.S. 851 (1972) 
(family relation requirement excluded minorities from Carpenters trade); 
U n ite d  S ta t e s  v . I n t e r n a t i o n a l  A s s ’n  o f  B r id g e ,  S t r u c t u r a l  a n d  O r n a ­

m e n t a l  I r o n  W o r k e r s , 438 F.2d 679, 683 (7th Cir.) (requiring family 
relationships between new and existing members “effectively precluded 
non-white membership”), cert, denied, 404 U.S. 830 (1971); A s b e s to s  
W o r k e r s , L o c a l  53  v . V o g le r , 407 F.2d 1047 (5th Cir. 1969) (rule restricting 
membership to sons or close relatives of current members perpetuated the 
effect of past exclusion of minorities).

48 Jaynes Associates, M i n o r i t y  a n d  W o m e n ’s  P a r t i c i p a t i o n  i n  th e  
N e w  H a v e n  C o n s tr u c t io n  I n d u s t r y :  A  R e p o r t  to  th e  C i t y  o f  N e w  H a v e n  
24 (1989) (citing findings of President’s Commission on Equal Opportu­
nity).

49 Steve Askin & Edmund Newton, B lo o d , S w e a t  a n d  S te e l , Black 
Enterprise, Vol. 14, at 42 (1984).



157a

• In 1969, only 1.6 percent of Philadelphia construction 
union members were minorities.50

Even when minorities wTere admitted to unions, dis­
criminatory hiring practices and seniority systems often 
were used to foreclose job opportunities to them.51 These 
actions were the subject of numerous civil rights suits, 
leading the Supreme Court to declare in 1979 that “judicial 
findings of exclusion from crafts on racial grounds are so 
numerous as to make such exclusion a proper subject for 
judicial notice.”52 Well into the 1980s, courts, committees of 
Congress, and administrative agencies continued to identify 
the “inability of many minority workers to obtain jobs” 
through unions because of “slavish adherence to traditional 
preference practices [and] also [ ] overt discrimination.”53

50 Department of Labor Memorandum from Arthur Fletcher to All 
Agency Heads (1969) (cited in A f f i r m a t i v e  A c t i o n  R e v ie w :  R e p o r t  to  th e  

P r e s id e n t  11 (1995)) (introducing the “Philadelphia Plan” requiring the use 
of affirmative action goals and timetables in construction, Secretary 
Fletcher noted that “equal employment opportunity in these trades in the 
Philadelphia area is still far from a reality. * * * We find, therefore, that 
special measures are required to provide equal opportunity in these seven 
trades”).

51 See P e n n s y l v a n ia  v. O p e r a tin g  E n g ’r s ,  L o c a l  5U2, 469 F. Supp. 329, 
339 (E.D. Pa. 1978) (unions held liable for racial discrimination in employee 
referral procedures and practices); Waldinger & Bailey, T h e  C o n t in u in g  
S i g n i f i c a n c e  o f  R a c e :  R a c i a l  C o n f l i c t  a n d  R a c i a l  D i s c r i m i n a t i o n  i n  

C o n s tr u c t io n , Politics and Society, Vol. 19, No. 3, at 299 (1991) (“Despite 
rules and formal procedures, informal relationships still dominate the 
union sector’s employment processes.”); Edmund Newton, S te e l ,  T h e  
U n io n  F ie fd o m , Black Enterprise, Vol. 14, at 46 (1984) (discrimination in 
operation of hiring halls “operated as impenetrable barriers” to minority 
job seekers). See generally Barbara Lindeman Schlei & Paul Grossman, 
E m p l o y m e n t  D is c r im in a t io n  L a w  619-28 (1983).

52 U n ite d  S te e lw o r k e r s  o f  A m .  v . W eber , 443 U.S. 193,198 n. 1 (1979).
53 T a y lo r  v . U n i te d  S ta te s  D e p t, o f  L a b o r , 552 F. Supp. 728, 734 (E.D. 

Pa. 1982). See M i n o r i t y  B u s in e s s  P a r t i c ip a t io n  i n  D e p a r tm e n t  o f  T r a n s -



158a

The discriminatory conduct that was the subject of the 
Supreme Court’s decision in Local 28, Sheet Metal Workers 
v. EEOC,54 is illustrative of the pattern of racial exclusion by 
trade unions and its consequences for minorities. The union 
local operated an apprenticeship training program designed 
to teach sheet metal skills. Apprentices enrolled in the pro­
gram received class-room training, as well as on-the-job 
work experience. As the Supreme Court described it, suc­
cessful completion of the program was the principal means of 
attaining union membership. But by excluding minorities 
from the apprenticeship program through “pervasive and 
egregious discrimination,”55 the local effectively excluded 
minorities from the union for decades. Such exclusion con­
tinued notwithstanding the passage of Title VII and a series 
of administrative and judicial findings in the 60s and 70s that 
the local had engaged in blatant discrimination in shutting 
minorities out of the program. Indeed, even into the 80s, the 
local persisted in violating court orders to open up the 
program to minorities.56

p o r t a t i o n  P r o je c ts :  H e a r in g  B e fo r e  a  S u b c o m m . o f  th e  H o u s e  C o m m , o n  

G o v e r n m e n t  O p e r a tio n s , 99th Cong., 1st Sess. 201 (1985) (testimony of 
James Haughton) (minority contractors continue to “suffer!] heavily 
because they have been victims to that discrimination as practiced by the 
unions”); Division of Minority and Women’s Business Development, 
O p p o r tu n i t y  D e n ie d ! :  A  S t u d y  o f  R a c ia l  a n d  S e x u a l  D i s c r im in a t i o n  
R e la t e d  to  G o v e r n m e n t  C o n tr a c t in g  i n  N e w  Y o r k  S ta t e  41 (1992) (“At 
least seven reports were issued by federal, state and city commissions and 
agencies between 1963 and 1982 documenting the pattern of racial exclu­
sion from New York’s skilled trade unions by constitution and by-law 
provisions, member sponsorships rules, subjective interview tests and 
other techniques, as well as the complicity of construction contractors and 
the acquiescence of government agencies in those practices.”).

54 478 U.S. 421 (1986)
55 Id  at 476.
56 Id  at 433-34.



159a

More recently, a Yale University economist prepared a 
report documenting the history of discrimination by New 
Haven unions that “confirms the nationwide pattern of dis­
crimination.”57 Prior to the passage of the Civil Rights Act 
of 1964, New Haven’s unions prohibited minority member­
ship, and minority workers were almost completely segre­
gated into jobs that whites would not take because they 
required working under conditions of extreme heat or 
discomfort.58 After passage of the Civil Rights Act, minori­
ties were prevented from entering unions by a rule requiring 
that at least three current members sponsor the application 
of any new member.59 Although the policy was race-neutral 
on its face, “it was almost impossible to find three members 
who would nominate a minority [and] stand up for him in a 
closed meeting when other members would undoubtedly 
attack the candidate and his sponsors.”60 This and other 
discriminatory policies prevented all but five African 
Americans from joining the 1,216 white members of the 
highest paid skilled trade unions in 1967, and throughout the 
mid-70s, unions and apprenticeship programs remained 
virtually all-white.61 The report concluded that the history 
of “blocked access to the skilled trades is the most important 
explanation of the low numbers of minority and women 
construction contractors today.”62

57 Jaynes Associates, M i n o r i t y  a n d  W o m e n ’s  P a r t i c ip a t io n  i n  th e  
N e w  H a v e n  C o n s t r u c t io n  I n d u s t r y :  A  R e p o r t  to  th e  C i t y  o f  N e w  H a v e n  

25-26 (1989).
58 Id . at 26-27.
59 Id . at 28.
60 Id . at 28.
61 Id . at 33; New Haven Board of Aldermen, Minority and Women 

Business Participation in the New Haven Construction Industry: Commit­
tee Report 7 (1990).

62 Jaynes Associates, M i n o r i t y  a n d  W o m e n ’s P a r t i c ip a t io n  i n  th e  
N e w  H a v e n  C o n s tr u c t io n  I n d u s t r y :  A  R e p o r t  to  th e  C i t y  o f  N e w  H a v e n  34



160a

There is no doubt that trade unions have put much of the 
discriminatory past behind them, and they now provide an 
important source of opportunity for minorities. Some bar­
riers to full opportunity remain, however.63

A parallel history of discriminatory treatm ent by em­
ployers has prevented minorities from rising into the private 
sector management positions that are most likely to lead to 
self-employment. In 1972, Congress found tha t only 3.5 
percent of minorities held managerial positions compared to

(1989). Comparable conclusions about the impact of trade union discri­
mination have been reached in studies from other jurisdictions around the 
country. See, e .g ., D.J. Miller & Associates, e t a l.,  T h e  D is p a r i t y  S t u d y  f o r  

M e m p h is  S h e lb y  C o u n ty  I n t e r g o v e r n m e n ta l  C o n s o r t iu m  11-46 (Oct. 1994) 
(“In Memphis, trade unions have historically discriminated against African 
Americans.”); R e p o r t  o f  th e  B lu e  R ib b o n  P a n e l  to  th e  H o n o r a b le  R ic h a r d  
M . D a le y , M a y o r  o f  th e  C i ty  o f  C h ic a g o  43 (March 1990) (“The Task Force 
specifically notes the exclusion of minorities and women from the building 
trades.”); National Economic Research Associates, e t a l . ,  A v a i l a b i l i t y  a n d  
U t i l i z a t io n  o f  M i n o r i t y  a n d  W o m e n -O w n e d  B u s in e s s  E n te r p r i s e s  a t  th e  

M a s s a c h u s e t t s  W a te r  R e s o u r c e s  A u t h o r i t y  72 (Nov. 1990) (“A number of 
M/WBE owners complain that problems caused by unions are exacerbated 
by state bidding requirements that make it difficult or impossible for non­
union firms to bid.”); Coopers & Lybrand, e t a l . ,  S ta t e  o f  M a r y l a n d  
M i n o r i t y  B u s in e s s  U ti l i z a t io n  S t u d y  9 (Feb. 1990) (discussing discrimina­
tory union practices).

63 See BPA Economics, e t  a l., M B E fW B E  D is p a r i t y  S t u d y  o f  th e  C i ty  

o f  S a n  J o s e  1-34 (1990) (“When trying to join unions, minorities may face 
testing and experience requirements that are waived in the case of 
relatives of current union members.”); Waldinger & Bailey, T h e  C o n t i n u ­

in g  S ig n i f i c a n c e  o f  R a c e :  R a c ia l  C o n f l ic t  a n d  R a c ia l  D i s c r im in a t i o n  i n  

C o n s tr u c t io n , Politics and Society, Vol. 19, No. 3, at 296-97 (1991) (“In 
1987, blacks averaged less than 80 percent of parity for all skilled trades 
with even lower levels of representation in the most highly paid crafts like 
electricians and plumbers.”); T h e  M e a n in g  a n d  S ig n ific a n c e  f o r  M in o r ity  
B u s in e s se s  o f  th e  S u p re m e  C o u r t D ec is io n  in  th e  C ity  o f  R ic h m o n d  v. J . A  

C ro so n  Co.: H e a r in g  B efore  th e  L e g is la tio n  a n d  N a tio n a l S e c u r ity  S u b c o m m .  

o f  th e  C o m m , o n  G o v e rn m e n t O pera tions, 101st Cong., 2d Sess. 111-15 (1990).



161a

11.4 percent of white employees.64 Congress attributed this 
underrepresentation to continued discriminatory conduct by 
“employers, labor organizations, employment agencies and 
joint labor-management committees.”65 Evidence derived 
from caselaw and academic studies shows a variety of dis­
criminatory employment practices, including promoting 
white employees over more qualified minority employees;66 
relying on word-of-mouth recruiting practices that exclude 
minorities from vacancy announcements;67 and creating pro­
motion systems that lock minorities into inferior positions.68

64 H.R. Rep. No. 238,92d Cong., 2d Sess. 3 (1972).
65 Id . at 7.
66 See, e.g ., W in b u s h  v. Io w a , 69 FEP Cases 1348 (8th Cir. 1995) 

(evidence was “overwhelming” that employer had engaged in disparate 
treatment with respect to promotion of black employees); U n ite d  S ta te s  v. 
N .L .  I n d u s t r i e s ,  I n c . ,  479 F.2d 354 (8th Cir. 1973) (99 percent white man­
agement structure caused, in part, by promoting lesser qualified white 
employees over more qualified minorities).

67 See, e.g ., E E O C  v. D e tr o i t  E d i s o n  C o ., 515 F.2d 301, 313 (6th Cir. 
1975), vacated and remanded on other grounds, 431 U.S. 951 (1977)

' (finding discrimination in “the practice of relying on referrals by a 
predominantly white work force”); L o n g  v. S a p p , 502 F.2d 34, 41 (5th Cir. 
1974) (word-of-mouth recruitment serves to perpetuate all-white work 
force); T h o m a s  v. W a s h in g to n  C o u n ty  S c h . B d . , 915 F.2d 922 (4th Cir. 
1990). See also Univ. of Mass., B a r r i e r s  to  th e  E m p l o y m e n t  a n d  W o r k -  

P la c e  A d v a n c e m e n t  o f  L a t in o s :  A  R e p o r t  to  th e  G la s s  C e i l in g  C o m m is ­

s io n  52 (Aug. 1994) (word-of-mouth recruiting methods that rely on social 
networks are a significant “exclusionary barrier” to employment op­
portunities for minorities); Roosevelt Thomas, e t  a l . ,  T h e  I m p a c t  o f  

R e c r u i tm e n t ,  S e le c tio n ,  P r o m o t io n  a n d  C o m p e n s a t io n  P o l ic ie s  a n d  P r a c ­

t ic e s  o n  th e  G la s s  C e il in g , submitted to U.S. Department of Labor Glass 
Ceiling Commission,. 14 (April 1994) (noting that “recruitment practices 
primarily consisting] of word-of-mouth and employee referral networking 
* * * promote the filling of vacancies almost exclusively from within. If 
the environment is already homogenous, which many are, it maintains this 
same ‘home-grown’ environment”); Gertrude Ezorsky, R a c i s m  a n d  
J u s t ic e :  T h e  C a se  f o r  A f f i r m a t i v e  A c t i o n  14- 1 8  (1991)] U.S. Commission



162a

A study published earlier this year surveyed a broad 
range of current labor market evidence and concluded that 
employment discrimination is “not a thing of the past.”69 
Rather, race still matters when it comes to determining ac­
cess to the best employment opportunities.70 Progress has 
been made, of course. Yet, “more than three decades after 
the passage of the Civil Rights Act, segregation by race and 
sex continues to be the rule rather than the exception in the 
American workplace, and discrimination still reduces the pay 
and prospects of workers who are not white or male.”71 The 
exclusionary conduct frequently is not deliberate, and the 
people on top—who are mostly white and male—often be­
lieve that they are behaving fairly. But old habits die hard: 
reliance on outmoded stereotypes and group reputations, 
and the persistence of “invisible biases” work to perpetuate 
a system that creates disadvantages in employment for 
minorities today.72

on Civil Rights, A f f i r m a t i v e  A c t i o n  i n  th e  1 980s: D i s m a n t l i n g  th e  P r o c e s s  

o f  D is c r im in a t i o n  8 (1981); Barbara Lindeman Sehlei & Paul Grossman, 
E m p l o y m e n t  D is c r im in a t io n  L a w  571 (1983).

68 See, e.g ., P a x to n  v. U n io n  N a t i o n a l  B a n k ,  688 F.2d 552, 565-566 
(8th Cir. 1982), cert, denied, 460 U.S. 1083 (1983); S e a r s  v. B e n n e t t ,  645 
F.2d 1365 (10th Cir. 1981) (system requiring that porters, all of whom 
were black, forfeit seniority when changing jobs designed to prevent 
promotion of black employees), cert, denied, 456 U.S. 964 (1982); T e r r e l l v. 
U .S . P ip e  a n d  F o u n d r y  C o., 644 F.2d 1112 (5th Cir. 1981) (seniority 
system created for clearly discriminatory purposes), vacated on other 
grounds, 456 U.S. 955 (1982). See also Ella Bell & Stella Nkomo, B a r r i e r s  
to  W o r k p la c e  A d v a n c e m e n t  E x p e r ie n c e d  b y  A f r i c a n  A m e r i c a n s  3 (1994) 
(“African Americans * * * are functionally segregated into jobs less 
likely to be on the path to the top levels of management.”).

69 Barbara Bergmann, I n  D e fe n se  o f  A f f i r m a t i v e  A c t i o n  32-33 (1996).
70 Id. at 33.
71 Id . at 62.

Id . at 63-82.72



163a

The results of recent “testing” studies—in which equally 
matched minorities and nonminorities seek the same 
job—are but one source of evidence supporting this 
conclusion. These studies show, for instance, that white 
males receive 50 percent more job offers than minorities 
with the same characteristics applying for the same jobs.73 
As Justice Ginsburg described them, the testing studies 
make it abundantly clear that “[j]ob applicants with identical 
resumes, qualifications, and interview styles still experience 
different receptions, depending on their race.”74

Even when minorities are hired today, a “glass ceiling” 
tends to keep them in lower-level positions. This problem 
was recognized by Senator Dole who, in 1991, introduced the 
Glass Ceiling Act on the basis of evidence “confirming * * * 
the existence of invisible, artificial barriers blocking women 
and minorities from advancing up the corporate ladder to 
management and executive level positions.”75 That Act 
created the Federal Glass Ceiling Commission, which subse­
quently completed an extensive study of the opportunities 
available to minorities and women in private sector employ­
ment, and concluded that “at the highest levels of business, 
there is indeed a barrier only rarely penetrated by women or 
persons of color.”76 Evidence released by the Commission 
paints the following picture:

73 Cross e t  a l . ,  E m p l o y e r  H ir in g  P r a c tic e s :  D i f f e r e n t ia l  T r e a tm e n t  o f  
H is p a n i c  a n d  A n g lo  J o b  S e e k e r s  (1990); Turner e t  a l . ,  O p p o r tu n i t ie s  
D e n ie d , O p p o r tu n i t ie s  D im in is h e d :  D i s c r im in a t io n  i n  H ir in g  (1991).

74 A d a r a n d ,  115 S. Ct. at 2135 (Ginsburg, J., dissenting).
75 Federal Glass Ceiling Commission, G o o d  f o r  B u s in e s s :  M a k i n g  

F u l l  U se  o f  th e  N a t i o n ’s  H u m a n  C a p i ta l iii (1995) (citing 1991 statement 
by Senator Dole regarding 1991 Department of Labor R e p o r t  o n  th e  G la s s  
C e il in g  I n i t ia t i v e ) .

76 Id . at iii.



164a

• 97 percent of the senior level managers in the nation’s 
largest companies are white.77

• Black and Hispanic men are half as likely as white men 
to be managers or professionals.78

• In the private sector, most minority managers and 
professionals are tracked into areas of the company—per­
sonnel, communications, affirmative action, public rela­
tions—that are not likely to lead to advancement to the 
highest levels of experience.79

• Because private sector opportunities are so limited, 
most minority professionals and managers work in the public 
sector.80

In light of the evidence that it considered, the Commission 
concluded that, “in the private sector, equally qualified and 
similarly situated citizens are being denied equal access to 
advancement on the basis of gender, race, or ethnicity.”81

In sum, there are two central means to gaining the ex­
perience needed to operate a business. One is to be taught 
by a parent, passing on a family-owned business. But the 
long history of discrimination and exclusion by unions and 
employers means there are very few minority parents with 
any such business to pass on.82 The second avenue is to learn

77 Id . at 9.
78 I d . at iv-vi.
79 Id . at 15-16.
80 Id . at 13.
81 Id . at 10-11.
82 See, e.g ., T h e  M e a n in g  a n d  S ig n i f i c a n c e  f o r  M i n o r i t y  B u s in e s s  o f  

th e  S u p r e m e  C o u r t  D e c is io n  i n  th e  C i t y  o f  R i c h m o n d  v . J .A .  C r o s o n :  
H e a r in g  B e fo r e  th e  L e g is la t iv e  a n d  N a t i o n a l  S e c u r i t y  S u b c o m m . o f  th e  

H o u s e  C o m m , o n  G o v e r n m e n t  O p e r a t io n s , 100th Cong., 2d Sess. I l l  
(1990) (statement of Manuel Rodriguez) (“[f]ew [minorities] today have 
families from whom they can inherit” a business); H.R. Rep. No. 870, 103d



165a

the skills needed through private employment. But the 
effects of employment and trade union discrimination have 
posed a constant barrier to that entryway into the business 
world.83

2. Discrimination by Lenders

Without financing, a business cannot start or develop. 
There are two main methods for a new business to raise 
capital. One is to solicit investments from the public by 
selling stock in the company (public credit); the other is to 
solicit investments from banks or other lenders (private 
credit). Congress has heard evidence that “since small bus­
inesses have very limited or no access to public credit mar­
kets, it is critically important that these entities, especially 
minority-owned small businesses, have adequate access to 
bank credit on reasonable terms and conditions.”84 The rub

Cong., 2d Sess. 15 n.36 (1994) (“[T]he construction industry is * * * 
family dominated. Many firms are in their second or third generation 
operating structures.”); New Haven Board of Aldermen, M i n o r i t y  a n d  
W o m e n  B u s in e s s  P a r t i c ip a t io n  i n  th e  N e w  H a v e n  C o n s t r u c t io n  I n d u s t r y  
10 (1990) (“The exclusion of minorities from construction trades employ­
ment before the 1970s resulted in an absence of a parent or family member 
owning a construction business.”).

83 National Economic Research Associates, e t  a l.,  T h e  U t i l i z a t i o n  o f  
M i n o r i t y  a n d  W o m e n -O w n e d  B u s in e s s e s  E n te r p r i s e s  b y  A la m e d a  C o u n ty  
176-77 (June 1992) (“A number of witnesses identified historic union 
discrimination as a major limitation to the formation and success of 
minority firms.”); Jaynes Associates, M i n o r i t y  a n d  W o m e n ’s  P a r t i c i ­

p a t i o n  i n  th e  N e w  H a v e n  C o n s tr u c t io n  I n d u s t r y :  A  R e p o r t  to  th e  C i t y  o f  
N e w  H a v e n  34 (1989) (discrimination has prevented minorities from 
“gain[ing] experience and skills” necessary to operate a business and 
therefore has “kept the pool of potential minority * * * contractors 
artificially small”).

84 A v a i l a b i l i t y  o f  C r e d i t  to  M i n o r i t y  a n d  W o m e n - O w n e d  S m a l l  
B u s in e s s e s :  H e a r in g  B e fo r e  th e  S u b c o m m .  o n  F i n a n c i a l  I n s t i t u t i o n s  
S u p e r v i s io n ,  R e g u la t io n  a n d  D e p o s i t  I n s u r a n c e  o f  th e  H o u s e  C o m m , o n



166a

is that small businesses owned by minorities find it much 
more difficult than small firms owned by nonminorities to 
secure capital. Indeed, this is often cited as the single largest 
factor suppressing the formation and development of 
minority-owned businesses.85 The sad fact is that, through 
countless hearings, Congress has learned tha t lending 
discrimination plays a major role in this regard.86

B a n k in g ,  103d Cong., 2d Sess. 6 (1994) (statement of Andrew Hove). One 
reason that minorities starting small businesses are especially reliant on 
bank lending is because they traditionally lack personal wealth or access 
to other sources of private credit, such as loans from family or friends. 
See generally Oliver & Shapiro, B la c k  W e a l th /W h ite  W e a l th  (1993).

85 See T h e  W a l l  S tr e e t  J o u r n a l  R e p o r ts :  B la c k  E n tr e p r e n e u r s h ip  R.l 
(1992) (Roper Organization poll of 472 minority business owners listed 
access to capital as the primary barrier to their business development); 
United States Commission on Minority Business Development, F i n a l  

R e p o r t 12 (1992) (“One of the most formidable stumbling blocks to the 
formation and development of minority businesses is the lack of access to 
capital.”).

86 See A v a i l a b i l i t y  o f  C r e d i t  to  M i n o r i t y  a n d  W o m e n  O w n e d  S m a l l  
B u s in e s s e s :  H e a r in g  B e fo r e  th e  S u b c o m m .  o n  F i n a n c i a l  I n s t i t u t i o n s  
S u p e r v i s io n ,  R e g u la t io n  a n d  D e p o s i t  I n s u r a n c e  o f  th e  H o u s e  C o m m , o n  

B a n k in g ,  103d Cong., 2d Sess. 27 (1994) (statement of Wayne Smith) 
(while perhaps more subtle than discrimination in mortgage lending, 
discrimination in business lending exists); H.R. Rep. No. 870,103d Cong., 
2d Sess. 7 (1994) (“There is a widespread reluctance on the part of the 
commercial banking * * * and capital markets to take the same risks 
with a [minority] entrepreneur that they would readily do with a white 
one.”); D is a d v a n ta g e d  B u s in e s s  S e t - A s id e s  i n  T r a n s p o r ta t io n  C o n s t r u c ­
t i o n  P r o je c ts :  H e a r in g  B e fo r e  th e  S u b c o m m . o n  P r o c u r e m e n t ,  I n n o v a ­

t io n ,  a n d  M i n o r i t y  E n te r p r i s e  D e v e lo p m e n t  o f  th e  H o u s e  C o m m , o n  
S m a l l  B u s in e s s ,  100th Cong., 2d Sess. 26 (1988) (statement of Joann 
Payne) (“[bjecause of the ethnic and sex discrimination practiced by 
lending institutions, it was very difficult for minorities and women to 
secure bank loans.”); T h e  D is a d v a n ta g e d  B u s in e s s  E n te r p r i s e  P r o g r a m  o f  
th e  F e d e r a l - A i d  H ig h w a y  A c t :  H e a r in g  B e fo r e  th e  S u b c o m m .  o n  
T r a n s p o r ta t io n  o f  th e  S e n a te  C o m m , o n  E n v i r o n m e n t  a n d  P u b l ic  W o r k s ,  

99th Cong. 1st Sess. 363 (1985) (statement of James Laducer) (North



167a

Over and over again, studies show that minority appli­
cants for business loans are more likely to be rejected and, 
when accepted, receive smaller loan amounts than nonminor­
ity applicants with identical collateral and borrowing cre­
dentials:

• The typical white-owned business receives three times 
as many loan dollars as the typical black-owned business 
with the same amount of equity capital.87 In construction, 
white-owned firms receive fifty  times as many loan dollars as 
black-owned firms with identical equity.88

• Minorities are approximately 20 percent less likely to 
receive venture capital financing than white firm owners 
with the same borrowing credentials.89

Dakota banks “refuse to lend monies to minority businesses from nearby 
Indian communities”); see also F is c a l  E c o n o m i c  a n d  S o c ia l  C r is e s  
C o n f r o n t in g  A m e r i c a n  C it ie s :  H e a r in g s  B e fo r e  th e  S e n a te  C o m m ,  o n  
B a n k i n g ,  H o u s in g ,  a n d  U r b a n  A f f a i r s ,  102d Cong., 2d Sess. (1992); 
F e d e r a l  M i n o r i t y  B u s in e s s  P r o g r a m s :  H e a r in g  B e fo r e  th e  H o u s e  C o m m ,  

o n  S m a l l  B u s in e s s ,  102d Cong., 1st Sess. (1991); C i ty  o f  R i c h m o n d  v . J .A .  
C r o s o n :  I m p a c t  a n d  R e s p o n s e :  H e a r in g  B e fo r e  th e  S u b c o m m .  o n  U r b a n  
a n d  M in o r i t y - O w n e d  B u s i n e s s  D e v e lo p m e n t  o f  th e  S e n a te  C o m m , o n  

S m a l l  B u s in e s s ,  101st Cong., 2d Sess. (1990); M i n o r i t y  C o n s t r u c t io n  

C o n t r a c t in g :  H e a r i n g  B e fo r e  th e  S u b c o m m .  o n  S B A ,  th e  G e n e r a l  
E c o n o m y  a n d  M i n o r i t y  E n te r p r i s e  D e v e lo p m e n t  o f  th e  H o u s e  C o m m , o n  

S m a l l  B u s in e s s ,  101 Cong., 1st Sess. (1989).
87 Timothy Bates, C o m m e r c ia l  B a n k  F in a n c i n g  o f  W h i te  a n d  B la c k  

O w n e d  S m a l l  B u s in e s s  S ta r t - u p s ,  Quarterly Review of Economics and 
Business, Vol. 31, No. 1, at 79 (1991) (“The findings indicate that black 
businesses are receiving smaller bank loans than whites—not because 
they are riskier, but, rather, because they are black-owned businesses.”).

88 Grown & Bates, C o m m e r c ia l  B a n k  L e n d i n g  P r a c t i c e s  a n d  th e  
D e v e lo p m e n t  o f  B la c k - O w n e d  C o n s tr u c t io n  C o m p a n ie s , Journal of Urban 
Affairs, Vol. 14, No. 1, at 34 (1992).

89 Bradford & Bates, F a c to r s  A f f e c t i n g  N e w  F i r m s  S u c c e s s  a n d  th e i r

U se  i n  V e n tu r e  C a p i ta l  F in a n c in g ,  Journal of Small Business Finance, 
Vol. 2, No. 1, at 23 (1992) (“The venture capital market * * *



168a

• All other factors being equal, a black business owner is 
approximately 15 percent less likely to receive a business 
loan than a white owner.90

• The average loan to a black-owned construction firm is 
$49,000 less than the average loan to an equally matched 
nonminority construction firm.91

A comparable pattern of disparity appears in the most 
recent study on lending to minority firms, w’hich was re­
leased earlier this year. That study surveyed 407 business 
owners in the Denver area. It found that African Americans 
were 3 times more likely to be rejected for business loans 
than whites.92 The denial rate for Hispanic owners was 1.5 
times as high as [for] white owners.93 Disparities in the 
denial rate remained significant even after controlling for 
other factors that may affect the lending rate, such as the 
size and net worth of the business.94 The study concluded 
that “despite the fact that loan applicants of three different 
racial/ethnic backgrounds in this sample (Black, Hispanic 
and Anglo) were not appreciably different as businesspeople,

differentially restricts minority entrepreneurs from obtaining venture 
capital.”).

90 Faith Ando, C a p ita l  I s s u e s  a n d  th e  M in o r i t y - O w n e d  B u s in e s s ,  The 
Review of Black Political Economy, Vol. 16, No. 4, at 97 (1988).

91 Grown &  Bates, C o m m e r c ia l  B a n k  L e n d in g  P r a c t i c e s  a n d  th e  
D e v e lo p m e n t  o f  B la c k - O w n e d  C o n s tr u c t io n  C o m p a n ie s , Journal of Urban 
Affairs, Vol. 14, No. 1, at 34 (1992).

92 The Colorado Center for Community Development, University of 
Colorado at Denver, S u r v e y  o f  S m a l l  B u s i n e s s  L e n d in g  i n  D e n v e r  v. 

(19964- See Michael Selz, R a c e - L in k e d  G a p  i s  W id e  i n  B u s in e s s - L o a n  
R e je c t io n s , Wall St. J., May 6,1996, at B2.

93 The Colorado Center for Community Development, University of 
Colorado at Denver, S u r v e y  o f  S m a l l  B u s i n e s s  L e n d in g  i n  D e n v e r  v . 
(19964-

94 Id .



169a

they were ultimately treated differently by the lenders on 
the crucial issue of loan approval or denial.”95

In sum, capital is a key to operating a business. Without 
financing, no business can form. Once formed, restricted 
access to capital impedes investments necessary for business 
development. Minority-owned firms face troubles on both 
fronts. And in large part, those troubles stem from lending 
discrimination.96 As President Bush’s Commission on Mi­
nority Business Development explained, the result is a self- 
fulfilling prophecy:

Our nation’s history has created a “cycle of negativ­
ity” that reinforces prejudice through its very practice; 
restraints on capital availability lead to failures, in turn, 
reinforce a prejudicial perception of minority firms as 
inherently high-risks, thereby reducing access to even 
more capital and further increasing the risk of failure.97

95 Id .

96 There is also evidence that minorities face discrimination in 
mortgage lending. See Munnell e t a l . ,  M o r tg a g e  L e n d in g  I n  B o s to n :  
I n t e r p r e t in g  th e  H M D  A  D a ta , 86 Am. Econ. Rev. 25 (1996) (finding that 
minority applicants were 60 percent more likely to be rejected for a 
mortgage loan than white males with identical characteristics, including 
age, income, wealth, and education). This serves to aggravate the prob­
lems that minorities face in seeking business loans, because an important 
source of collateral for such loans to a new firm is the home of the owner of 
the firm. Thus, mortgage discrimination that impedes the ability of mi­
norities to obtain loans to purchase homes (or drives them to purchase less 
valuable homes than they otherwise would) diminishes their ability to post 
collateral for business loans.

97 United States Commission on Minority Business Development, 
Final Report 6 (1992). While the nation has made great strides in over­
coming racial bias, the Commission’s apt characterization of the debili­
tating effects of lending discrimination mirrors the description of the 
problem in a landmark monograph written over one-half century ago:



170a

B. Discrimination in Access to Contracting Markets

Even when minorities are able to form and develop busi­
nesses, discrimination by private sector customers, prime 
contractors, business networks, suppliers, and bonding com­
panies raises the costs for minority firms, which are then 
passed on to their customers. This restricts the competi­
tiveness of minority firms, thereby impeding their ability to 
gain access to public contracting markets.

1. Discrimination by Prime Contractors and Private Sector 
Customers

In the private sector, minority business owners face 
discrimination that limits their opportunities to work for 
prime contractors and private sector customers. All too 
often, contracting remains a closed network, with prime 
contractors maintaining long-standing relationships with 
subcontractors with whom they prefer to work.98 Because

The Negro Businessman encounters greater difficulties than whites 
in securing credit. This is partially due to the marginal position of 
negro business. It is also partially due to prejudicial opinions among 
whites concerning business ability and personal reliability of 
Negroes. In either case a vicious circle is in operation keeping 
Negro business down.

Gunnar Myrdal, A n  A m e r i c a n  D i le m m a :  T h e  N e g r o  a n d  M o d e m  D e m o ­

c r a c y  308 (6th ed. 1944).
98 See New Haven Board of Aldermen, M i n o r i t y  a n d  W o m e n - B u s i -  

n e s s  P a r t i c ip a t io n  i n  th e  N e w  H a v e n  C o n s t r u c t io n  I n d u s t r y  10 (1990) 
(“The construction industry in New Haven remains to a large extent a 
closed network of established contractors and subcontractors who have 
close long-term relationships and are highly resistant to doing business 
with ‘outsiders.”'); Brimmer & Marshall, P u b l i c  P o l ic y  a n d  P r o m o t io n  o f  
M i n o r i t y  E c o n o m ic  D e v e lo p m e n t:  C i t y  o f  A t l a n t a  a n d  F u l t o n  C o u n ty ,  

G eo rg ia , Pt. II, 61 (1990) (member of trade association testified that “con­
tractors develop good working relationships with certain subcontractors



171a

minority-owned firms are new entrants to most markets, the 
existence and proliferation of these relationships locks them 
out of subcontracting opportunities. As a result, minority- 
owned firms are seldom or never invited to bid for sub­
contracts on projects that do not contain affirmative action 
requirements." In addition, when minority firms are per-

and tend to use them repeatedly, even in a few cases when their prices are 
just a little bit higher than other subcontractors”).

99 See National Economic Research Associates, T h e  S ta t e  o f  T e x a s  
D is p a r i t y  S tu d y :  A  R e p o r t  to  th e  T e x a s  L e g is la tu r e  a s  A u th o r i z e d  b y  H .B .  

2626 , 7 3 rd  L e g is la tu r e  148 (1994) (“African American owner * * * told by 
an employee of a prime contractor that the contractor prefers to work 
with [nonminority-owned firms] and works with [minority-owned firms] 
only when required to do so.”); D.J. Miller & Associates, D is p a r i t y  S t u d y  
f o r  M e m p h i s / S h e l b y  C o u n ty  I n t e r g o v e r n m e n t a l  C o n s o r t i u m  VII-10 
(1994) (“Majority companies will not do business with [minority-owned 
businesses] because they lack confidence in [them] and are not -willing to 
go beyond those businesses -with whom they have a 10 to 15 year 
relationship.”); Brown, Botz & Coddington, D i s p a r i t y  S t u d y :  C i t y  o f  

P h o e n ix  VIII-10 (July 1993) (“From the responses of a number of 
MBE/WBEs, another form of marketplace discrimination that severely 
hampers their access to the marketplace is denial of the opportunity to 
bid. This may occur in a variety of ways, including, but not limited to, the 
use of non-competitive procurement and selection procedures, as well as 
intentional acts of rejection.”); National Economic Research Associates, 
T h e  U t i l i z a t io n  o f  M i n o r i t y  a n d  W o m a n -O w n e d  B u s i n e s s e s  b y  C o n tr a  
C o s ta  C o u n ty :  F i n a l  R e p o r t  ix, xiii (1992) (70 percent of minority-owned 
firms reported seldom or never being used for contracts that do not 
contain affirmative action requirements); National Economic Research 
Associates, T h e  A v a i l a b i l i t y  a n d  U t i l i z a t io n  o f  M in o r i t y - O w n e d  B u s in e s s  
E n te r p r is e s  a t  th e  M a s s a c h u s e t ts  W a te r  R e s o u r c e s  A u t h o r i t y  74 (1992) (55 
percent of minority-owned construction firms reported that prime 
contractors that use their firms on contracts with affirmative action 
requirements seldom or never used their firms on projects that do not 
contain such requirements); A  S t u d y  to  I d e n t i f y  D i s c r im in a to r y  P r a c t ic e s  
i n  th e  M i lw a u k e e  C o n s tr u c t io n  M a r k e tp la c e  125 (Feb. 1990) (“Only 18% of 
black contractors currently have private sector contracts with primes with 
which they have worked on public sector contracts with MBE require-



172a

mitted to bid on subcontracts, prime contractors often resist 
working with them. This sort of exclusion is often achieved 
by white firms refusing to accept low minority bids or by 
sharing low minority bids with another subcontractor in 
order to allow that business to beat the bid (a practice known 
as “bid shopping”)-100 These exclusionary practices have 
been the subject of extensive testimony in congressional 
hearings.101

ments.”); see also C o ra l C o n s tr . C o. v. K in g  C o u n ty , 941 F.2d 910, 916 (9th 
Cir. 1991), cert, denied, 502 U.S. 1033 (1992) (noting reports that non­
minority firms in the county refused to work with minority firms); C o n e  
C o rp . v . H i l l s b o r o u g h  C o u n ty , 908 F.2d 908, 916 (11th Cir.), cert, denied, 
498 U.S. 983 (1990) (noting reports that when minority contractors in the 
county “approached prime contractors, some prime contractors either 
were unavailable or would refuse to speak to [the minority contractors]”).

100 See A s s o c ia te d  G en. C o n tr a c to r s  v . C o a l i t io n  f o r  E c o n o m ic  E q u i t y ,  
950 F.2d 1401, 1416 (9th Cir. 1991), cert, denied, 503 U.S. 985 (1992) 
(noting reports that local minority firms were “denied contracts despite 
being the low bidder,” and “refused work even after they were awarded 
the contracts as low bidder”); C o n e  C o rp . v . H i l l s b o r o u g h  C o u n ty ,  908 
F.2d 908, 916 (11th Cir.), cert, denied, 498 U.S. 983 (1990) (“[c]ontrary to 
their practices with non-minority subcontractors,” local prime contractors 
would take minority subcontractors’ bids “around to various non-minority 
subcontractors until they could find a non-minority to underbid [the 
minority firm]”); BBC Research and Consulting, R e g io n a l  D i s p a r i t y  
S tu d y :  C i t y  o f  L a s  V e g a s  IX-12 (1992) (low bidding Hispanic contractor 
told that he was not given subcontract because the prime contractor “did 
not know him” and that the prime “had problems with minority subs in the 
past”); BPA Economics, M B E / W B E  D is p a r i t y  S t u d y  f o r  th e  C i t y  o f  S a n  
J o s e  (V o l. 1 ) III-l (1990) (describing practices contributing to low utili­
zation in construction contracts as including “bid shopping, insufficient dis­
tribution of notices of contracts [and] insufficient lead time to prepare 
bids”); BBC Research and Consulting, T h e  C i t y  o f  T u c s o n  D i s p a r i t y  
S t u d y  IX-9-IX-11 (June 1994) (same).

101 See, e.g., H o w  S ta te  a n d  L o c a l  G o v e r n m e n ts  W i l l  M e e t  th e  C r o s o n  
S ta n d a r d :  H e a r in g  B e fo r e  th e  S u b c o m m .  o n  C iv i l  a n d  C o n s t i t u t i o n a l  
R ig h t s  o f  th e  H o u s e  C o m m , o n  th e  J u d ic ia r y ,  100th Cong., 1st Sess. 54 
(1989) (statement of Marc Bendick) (“[t]he same prime contractor who will



173a

An Atlanta study revealed evidence of the effect of discri­
mination by private sector customers and prime contractors 
on minority contracting opportunities. The study found that 
93 percent of the revenue received by minority-owned firms 
came from the public sector and only 7 percent from the pri­
vate sector. In sharp contrast, the study found that non­
minority firms receive only 20 percent of their revenue from 
the public sector and 80 percent from the private sector.102 
In addition, the study reported that nearly half of the black- 
owned firms worked primarily for minority customers, and 
minority firms rarely worked in a joint venture with a white- 
owned firm.103

use a minority subcontractor on a city contract and will be terribly 
satisfied with the firm’s performance, will simply not use that minority 
subcontractor on a private contract where the prime contractor is not 
forced to use a minority firm.”); T h e  M e a n i n g  a n d  S i g n i f i c a n c e  f o r  

M i n o r i t y  B u s in e s s e s  o f  th e  S u p r e m e  C o u r t  D e c is io n  i n  th e  C i t y  o f  R i c h ­

m o n d  v . J .A .  C r o s o n  C o .: H e a r in g  B e fo r e  th e  L e g i s la t io n  a n d  N a t i o n a l  
S e c u r i t y  S u b c o m m .  o f  th e  C o m m , o n  G o v e r n m e n t  O p e r a t io n s ,  101st 
Cong., 2d Sess. 57 (1990) (statement of Gloria Molina); id . at 100-101 
(statement of E.R. Mitchell); id . at 113 (statement of Manuel Rodriguez); 
A  B i l l  to  R e fo r m  th e  C a p i ta l  O w n e r s h ip  D e v e lo p m e n t  P r o g r a m :  H e a r in g s  

o n  H .R .  1 8 0 7  B e fo r e  th e  S u b c o m m . o n  P r o c u r e m e n t ,  I n n o v a t i o n  a n d  
M i n o r i t y  E n t e r p r i s e  D e v e lo p m e n t  o f  th e  H o u s e  C o m m ,  o n  S m a l l  
B u s in e s s ,  100th Cong., 1st Sess. 593 (1987) (statement of Edward Irons); 
S m a l l  D is a d v a n ta g e d  B u s i n e s s  I s s u e s :  H e a r in g s  B e fo r e  th e  I n v e s t i g a ­

t i o n s  S u b c o m m . o f  th e  H o u s e  C o m m , o n  A r m e d  S e r v ic e s , 100th Cong., 1st 
Sess. 19-23 (1991) (statement of Parren Mitchell).

102 Brimmer & Marshall, P u b l ic  P o l i c y  a n d  P r o m o t io n  o f  M i n o r i t y  
E c o n o m ic  D e v e lo p m e n t:  C i t y  o f  A t l a n t a  a n d  F u l t o n  C o u n ty ,  G e o rg ia , Pt. 
I, 9-10 (1990). See also D J .  Miller & Associates, C i ty  o f  D a y to n :  D is p a r i ty  
S t u d y  183 (1991) (“A small percentage of Black firms’ revenues come from 
private sector projects.”).

103 Brimmer & Marshall, P u b l ic  P o l ic y  a n d  P r o m o t io n  o f  M i n o r i t y  
E c o n o m ic  D e v e lo p m e n t:  C i t y  o f  A t l a n t a  a n d  F u l t o n  C o u n ty ,  G e o rg ia , Pt. 
Ill, 15,34 (1990).



174a

Customer prejudices are sometimes graphically ex­
pressed. African American business owners have reported 
arriving at job [sjites to find signs saying “No Niggers 
Allowed,”104 and “Nigger get out of here.”105 Other potential 
customers have simply refused to work with a business after 
discovering that its owner is a minority. In a recent en­
counter, a black business owner arriving at a home-site was 
told to leave by a white customer, who commented “you 
didn’t  tell me you were black and you don’t  sound black.”106

2. Discrimination by Business Networks

Contrary to the common perception, contracting is not a 
“meritocracy” where the low bidder always wins. “(B)e- 
neath the complicated regulations and proliferation of collec­
tive bargaining contracts lies a different reality, one domi­
nated mainly by personal contacts and informal networks.”107 
These networks can yield competitive advantages, because 
they serve as conduits of information about upcoming job 
opportunities and facilitate access to the decisionmakers 
(e.g., contracting officers, prime contractors, lenders, bond­
ing agents and suppliers). Simply put, in contracting, access

104 New Haven Board of Aldermen, M i n o r i t y  a n d  'W o m e n  P a r t i c i ­

p a t i o n  i n  th e  N e w  H a v e n  C o n s tr u c t io n  I n d u s t r y  10 (1990).
105 National Economic Research Associates, T h e  U t i l i z a t i o n  o f  

M i n o r i t y  a n d  W o m e n -O w n e d  B u s in e s s e s  b y  th e  C i t y  o f  H a y w a r d  6-23 
(1993).

106 See BBC Research and Consulting, C ity  o f  T u s c a n  D is p a r i t y  S t u d y  
IX-23 (1994).

107 Bailey & Waldinger, T h e  C o n t in u in g  S ig n i f i c a n c e  o f  R a c e :  R a c ia l  
C o n f l ic t  a n d  R a c ia l  D is c r im in a t i o n  i n  C o n s tr u c t io n , Politics and Society, 
Vol. 19, No. 3, 298 (1991). See Brimmer & Marshall, P u b l i c  P o l i c y  a n d  
P r o m o t i o n  o f  M i n o r i t y  E c o n o m i c  D e v e lo p m e n t:  C i t y  o f  A t l a n t a  a n d  

F u l t o n  C o u n ty ,  G e o rg ia , Pt. II, 35 (1990) (“(M)ost job seekers find their 
jobs through informal channels. So too it is with construction markets, 
especially in the private sector.”).



175a

to information is a ticket to success; lack of information can 
be a passport to failure. Networks and contacts can help a 
business find the best price on supplies, facilitate a quick 
loan, foster a relationship with a prime contractor, or yield 
information about an upcoming contract for which the firm 
can prepare—all of which serve to make the firm more 
competitive.

What transforms the mere existence of established net­
works into barriers for minority-owned businesses is the 
extent to which they operate to the exclusion of minority 
membership. It has been recognized in Congress that pri­
vate sector business networks frequently are off-limits to 
minorities: “institutional wall(s),” and “old-boy network(s) 
* * * m ake() it exceedingly difficult for minority firms to 
break into the private commercial sector.”108 Parallel de­
scriptions appear in numerous state and local studies.109

108 M i n o r i t y  B u s i n e s s  D e v e lo p m e n t  P r o g r a m  R e f o r m  A c t  o f  1987:  

H e a r in g s  o n  S . 1 9 9 8  a n d  H .R . 1 8 0 7  B e fo r e  th e  S e n a te  C o m m , o n  S m a l l  

B u s in e s s ,  100th Cong., 2d Sess. 127 (1988) (statement of Parren Mitchell). 
See H.R. Rep. No. 870, 103d Cong., 2d Sess. 15 n.36 (“The construction 
industry is close-knit; it is family dominated (and reflects an) old buddy 
network. Minorities and women, unless they are part of construction 
families, have been and will continue to be excluded whenever possible.”); 
M in o r i t i e s  a n d  F r a n c h is in g :  H e a r in g s  B e fo r e  th e  H o u s e  C o m m , o n  S m a l l  

B u s in e s s ,  102d Cong., 1st Sess. 54 (1991) (statement of Rep. LaFalce) 
(discussing “problems relating to exclusion of minorities or groups of 
minorities from franchise systems”); 131 Cong. Rec. 17,447 (1985) (state­
ment of Rep. Schroeder) (an “old boy’s club” excludes many minorities 
from business opportunities).

109 See, e.g ., A s s o c ia te d  G en . C o n tr a c to r s  v. C o a l i t i o n  f o r  E c o n o m ic  
E q u i t y ,  950 F.2d 1401, 1414 (1991) (municipal study showed that there 
“continued to operate an ‘old boy network’ in awarding contracts, thereby 
disadvantaging (minority firms)”), cert, denied, 503 U.S. 985 (1992); BBC 
Research & Consulting, T h e  C i ty  o f  T u s c o n  D i s p a r i t y  S t u d y  202 (1994) 
(citing “numerous detailed examples of the exclusionary operation of good 
old boy networks”); National Economic Research Associates, T h e  U ti l iz a -



176a

Ultimately, exclusion from business networks “isolate(s 
minorities) from the ‘web of information' which flows around 
opportunities” thereby putting them at a distinct disadvan­
tage relative to nonminority firms.110 In government 
contracting, this disadvantage can be fatal: “(government) 
vendors who do get contracts, experts agree, have obtained 
vital bits of information their competitors either ignored or 
couldn’t  find. * * * (O)nly the well connected survive.”111

Restricted access to business networks can particularly 
disadvantage minorities in the planning stages of govern­
ment procurement. In designing contracts for public bid­
ding, agencies commonly consult businesses to make sure 
that specifications match available services. Only bidders 
who meet the specifications may compete for the contract

Hon o f  M inority  a n d  W om en Owned, B usiness Enterprises by  the Southeastern  

P ennsy lvan ia  Transportation, A u th o rity  107 (1993) (exclusion from ‘old-boy’ 
networks “was the most frequently cited problem” of minority and 
women-owned firms); National Economic Research Associates, T h e  U t i l i ­

z a t io n  o f  M i n o r i t y  a n d  W o m e n -O w n e d  B u s in e s s  E n te r p r i s e s  b y  th e  C i ty  
o f  H a y w a r d  6-14 (1993) (“75 percent of the witnesses cited problems 
breaking into established ‘old-boy’ networks”.).

110 U n ite d  S ta te s  v. G e o rg ia  P o w e r  C o., 474 F.2d 906 (5th Cir. 1973) 
(finding that district court’s “failure to order (word-of-mouth recruitment 
practices) to be supplemented by affirmative action * * * was clearly an 
abuse of power”). See National Economic Research Associates, A v a i l a b i l i t y  a n d  
U ti l i z a t io n  o f  M i n o r i t y  a n d  W o m e n  O w n e d  B u s i n e s s  E n te r p r i s e s  a t  th e  

M a s s a c h u s e t ts  Water Resources A u th o rity  74 (1990) (finding that minorities 
“need to spend much more time and money on marketing because they do 
not have established networks and reputations”); Minority Business 
Enterprise Legal Defense and Education Fund, A n  E x a m i n a t i o n  o f  
M a r k e tp la c e  D i s c r i m i n a t i o n  i n  D u r h a m  C o u n t y  16 (1991) (citing 
“numerous allegations that black contractors * * * learned of bid op­
portunities much later than their white competitors that are tied into the 
‘good old boy’ network”).

111 Kevin Thompson, T a k in g  th e  H e a d a c h e  O u t  o f  G o v e r n m e n t  C o n ­
tr a c ts , Black Enterprise 219 (1993).



177a

and the exclusion of minority-owned businesses from plann­
ing and consultations can lead to specifications that are writ­
ten so narrowly as to exclude minority bidders.112 In addi­
tion, the failure to consult minority-owned businesses during 
the planning stages of procurement prevents them from 
mobilizing resources for the upcoming competition. As a 
committee of Congress recently reported, “(m)inorities and 
women are always left out in any kind of design or planning 
phase for these projects, and that is why when (they) first 
know about them * * * it is traditionally too late to get 
(their) forces and resources together to react.”113

3. Discrimination in Bonding and By Suppliers

The competitiveness of bids on public and private con­
tracts is not determined solely by the bidder’s resources. 
Rather, competitiveness often hinges on the ability of the 
bidding company to obtain quality services from bonding 
companies and suppliers at a fair price. Here too, discrimi­
nation places minority firms at a disadvantage.

112 This is accomplished by, for example, specifying that bidders must 
use certain brand-name products available only to several companies, 
specifying a depth of contract experience that minority-owned firms can 
rarely provide, and bundling projects into large contracts that small 
minority-owned companies cannot perform. See, e.g ., H.R. Rep. No. 870, 
103d Cong., 2d Sess. 14 (1994) (citing recommendation that agencies sep­
arate “contracts into smaller parts, so that M&WOSB's would be able to 
participate in those opportunities”); Mason Tillman Associates, S a c ­
r a m e n to  M u n i c ip a l  U t i l i t y  D is t r ic t :  M / W B E  D is p a r i t y  S t u d y  146 (1992) 
(noting that, in many instances, contract specifications are written so 
narrowly that there are only a few firms that can do the job); Tuchfarber 
e t a l ,  C i t y  o f  C in c in n a t i :  C r o s o n  S t u d y  153 (1992) (“Products specified in 
the Request for Proposals were so narrow that only one company that had 
exclusive distribution of the product specified could satisfy the contract.”).

113 H.R. Rep. No. 870,103d Cong., 2d Sess. 13 (1994).



178a

All contractors on federal construction, maintenance, and 
repair contracts valued at over $100,000 are required to 
secure a surety bond guaranteeing the performance of the 
contract.114 To obtain bonding, most surety companies re­
quire that a firm present a record of experience to sub­
stantiate its ability to perform the job. This mandate often 
lands minorities in the middle of a vicious circle. Since a 
history of discrimination has prevented many minority com­
panies from gaining experience in contracting, they cannot 
get bonding. And since they cannot get bonding, they cannot 
get experience. As Congress has recognized, this dilemma 
“serves to preclude equitable minority business participation 
in federal construction contracts.”115

Congress also has realized that minorities are disadvan­
taged by their exclusion from business networks that facili­
tate bonding, because “firms tend to give performance and 
payment bonds to people they already know and not to the 
new business person, especially if the small business owner 
is a woman or of a racial or ethnic minority.”116 F urther­
more, Congress has considered evidence indicating that 
bonding agents, like lenders, inject racial biases into the

114 40 U.S.C. 270a-270e.
115 United States Congress, F e d e r a l  C o m p l ia n c e  to  M i n o r i t y  S e t -  

A s id e s :  R e p o r t  to  th e  S p e a k e r , U .S . H o u s e  o f  R e p r e s e n ta t i v e s ,  b y  th e  C o n ­

g r e s s io n a l  T a s k  F o r c e  o n  M i n o r i t y  S e t - A s id e s  29 (1988). See also H.R. 
Rep. No. 870, 103d Cong., 2d Sess. 14 (1994) (“Inability to obtain bonding 
is one of the top three reasons that new minority small businesses have 
difficulty procuring U.S. Government contracts.”); M i n o r i t y  B u s i n e s s  
P a r t i c ip a t io n  i n  D e p a r tm e n t  o f  T r a n s p o r ta t io n  P r o je c ts :  H e a r in g  B e fo r e  
a  S u b c o m m . o f  th e  H o u s e  C o m m , o n  G o v e r n m e n t  O p e r a tio n s , 99th Cong., 
1st Sess. 159 (1985) (statement of Sherman Brown) (“Virtually everyone 
connected with the minority contracting industry * * * apparently 
agrees that surety bonding is one of the biggest obstacles in the 
development of minority firms.”).

116 H.R. Rep. No. 870,103d Cong. 2d Sess. 15 (1994).



179a

bonding process.117 Evidence of discrimination in bonding 
also has been accumulated in a number of state and local 
studies.118 These problems have made minority businesses 
significantly less able to secure bonding on equal terms with

117 See D i s c r i m i n a t i o n  i n  S u r e t y  B o n d in g :  H e a r in g  B e fo r e  th e  S u b -  
c o m m . o n  M i n o r i t y  E n te r p r i s e ,  F in a n c e  a n d  U r b a n  D e v e lo p m e n t  o f  th e  

H o u s e  C o m m ,  o n  S m a l l  B u s in e s s ,  103d Cong., 1st Sess. 2 (1993) 
(statement by Rep. Kweisi Mfume) (“Similarities between a banker’s 
ability to make arbitrary credit decisions and a surety producer or an 
underwriter’s capability of injecting personal prejudice into the bonding 
process are compelling indeed.”); C i t y  o f  R i c h m o n d  v. J . A .  C r o s o n :  
I m p a c t  a n d  R e s p o n s e :  H e a r in g  B e fo r e  th e  S u b c o m m . o n  U r b a n  a n d  M i ­

n o r i t y - O w n e d  B u s i n e s s  D e v e lo p m e n t  o f  th e  S e n a te  C o m m , o n  S m a l l  

B u s in e s s , 101st Cong., 2d Sess. 40 (1990) (statement of Andrew Brimmer); 
id . at 165-66 (statement of Edward Bowen); D is a d v a n ta g e d  B u s in e s s  S e t-  
A s i d e s  i n  T r a n s p o r ta t io n  C o n s t r u c t io n  P r o je c t s :  H e a r in g s  B e fo r e  th e  
S u b c o m m . o n  P r o c u r e m e n t ,  I n n o v a t io n  a n d  M i n o r i t y  E n te r p r i s e  D e v e l ­

o p m e n t  o f  th e  H o u s e  C o m m , o n  S m a l l  B u s in e s s ,  100th Cong., 2d Sess. 107 
(1988) (statement of Marjorie Herter) (“Discrimination against women and 
minorities in the bonding market is quite prevalent”).

118 See Division of Minority and Women’s Business Development, 
O p p o r tu n i t y  D e n ie d !  A  S t u d y  o f  R a c i a l  a n d  S e x u a l  D i s c r i m i n a t i o n  
R e l a t e d  to  G o v e r n m e n t  C o n tr a c t in g  i n  N e w  Y o r k  S ta t e ,  Executive 
Summary 57 (1992) (noting that 47 witnesses reported “specific incidents 
of racial discrimination * * * in attempting to secure performance 
bonds”); National Economic Research Associates, T h e  U t i l i z a t i o n  o f  
M i n o r i t y  a n d  W o m e n -O w n e d  B u s in e s s  E n te r p r i s e s  b y  A l a m e d a  C o u n ty  

202, 212 (June 1992) (nearly 50 percent of minority businesses reported ex­
periencing bonding discrimination); National Economic Research Asso­
ciates, T h e  U t i l i z a t i o n  o f  M i n o r i t y  a n d  W o m e n - O iv n e d  B u s i n e s s e s  

E n te r p r i s e s  b y  C o s ta  C o u n ty  231, 241 (May 1992) (noting evidence of 
bonding discrimination); Board of Education of the City of Chicago, R e p o r t  
C o n c e r n in g  C o n s id e r a t io n  o f  th e  R e v i s e d  P l a n  f o r  M i n o r i t y  a n d  W o m e n  

B u s i n e s s  E n t e r p r i s e  E c o n o m i c  P a r t i c i p a t i o n  316 (1991) (“Bonding is 
selectively and capriciously provided or denied with the decision being 85 
percent subjective.”); Mason Tillman Associates, S a c r a m e n to  M u n i c ip a l  

U t i l i t y  D is t r i c t ,  M / W B E  D i s p a r i t y  S t u d y  119, 135-43 (1990) (noting 
evidence of bonding discrimination).



180a

white-owned firms with the same experience and credentials. For 
example:

• A Louisiana study found that minority firms were nearly 
twice as likely to be rejected for bonding, three times more 
likely to be rejected for bonding for over $1 million, and on 
average were charged higher rates for the same bonding 
policies than white firms with the same experience level.119

• An Atlanta study found that 66 percent of minority- 
owned construction firms had been rejected for a bond in the 
last three years, 73 percent of those firms limited themselves 
exclusively to contracts that did not require bonding, and 
none of them had unlimited bonding capacity. By contrast, 
less than 20 percent of nonminority firms had unlimited 
bonding capacity.120

Another factor restricting the ability of minority-owned 
businesses to compete in both private and public contracting 
is discrimination allowing “non-minority subcontractors and 
contractors [to get] special prices and discounts from sup­
pliers which [are] not available to [minority] purchasers.”121 
This drives up anticipated costs, and therefore the bid, for 
minority-owned businesses. A recent survey reported that 
56 percent of black business owners, 30 percent of Hispanic

119 DJ. Miller & Associates, S ta te  o f  L o u is ia n a  D is p a r i t y  S t u d y  Vol. 2, 
pp. 35-57 (June 1991).

120 Brimmer & Marshall, P u b l i c  P o l i c y  a n d  P r o m o t io n  o f  M i n o r i t y  

E c o n o m ic  D e v e lo p m e n t:  C i ty  o f  A t l a n t a  a n d  F u l t o n  C o u n ty ,  G e o rg ia , Pt. 
Ill, 131-38 (1990).

121 C o n e  C o rp . v . H i l l s b o r o u g h  C o u n ty ,  908 F.2d 908, 916 (11th Cir.) 
cert, denied, 498 U.S. 983 (1990). Evidence of pricing discrimination out­
side the contracting setting indicates that the problem cuts across the 
economy. For example, a recent testing study of automobile purchases 
showed that, on average, black men were charged nearly $1,000 more for 
cars than white men. Ian Ayres, F a i r  D r iv in g :  G e n d e r  a n d  R a c e  D i s ­
c r im in a t io n  i n  R e ta i l  C a r  N e g o t ia t io n s , 104 Harv. L. Rev. 817 (1991).



181a

owners, and 11 percent of Asian business owners had ex­
perienced known instances of discrimination in the form of 
higher quotes from suppliers.122 Numerous other state and 
local studies have reported similar findings.123

In one glaring case, a firm in Georgia began sending white 
employees to purchase supplies posing as owners of a white- 
owned company. The “white-front” routinely received 
quotes on supplies that were two thirds lower than those

122 National Economic Research Associates, T h e  U t i l i z a t io n  o f  M i ­

n o r i t y  a n d  W o m a n - O w n e d  B u s in e s s e s  b y  th e  R e g io n a l  T r a n s p o r ta t io n  
D is t r ic t  (D e n v e r  C o lo ra d o ):  F in a l  R e p o r t  16-23 (1992).

123 See National Economic Research Associates, T h e  S ta t e  o f  T e x a s  

D is p a r i t y  S t u d y :  A  R e p o r t  to  th e  T e x a s  L e g is la tu r e  as Authorized by H.B. 
2626, 73rd Legislature 148 (1994) (Hispanic business owner denied credit 
by supplier who told him that “we only sell on a cash basis to people of 
your kind”); D.J. Miller & Associates, D i s p a r i t y  S t u d y  f o r  M e m p h i s /  
S h e lb y  C o u n ty  I n t e r g o v e r n m e n ta l  C o n s o r t iu m  117 (1994) (“Other fre­
quent complaints pertaining to informal barriers included being com­
pletely stopped by suppliers’ discriminatory practices.”); BBC Research 
Associates, D is p a r i t y  S t u d y  f o r  th e  C i t y  o f  F o r t  W o r th  IX-20 (1993) (citing 
evidence that suppliers discriminate against minorities by “refusing] to 
sell or sell [ing] at higher prices than [to] whites”); Division of Minority 
and Women’s Business Development, O p p o r tu n i ty  D e n ie d !  A  S t u d y  o f  
R a c ia l  a n d  S e x u a l  D i s c r im in a t io n  R e la t e d  to  G o v e r n m e n t  C o n tr a c t in g  i n  

N e w  Y o r k  S ta t e ,  Executive Summary, 53 (1992) (53 witnesses reported 
“specific incidents of racial discrimination * * * where materials or 
equipment suppliers would not extend the same payment terms and 
discounts to them as they knew were being made available to white male 
owned contractors with the same financial histories”); National Economic 
Research Associates, T h e  U t i l i z a t i o n  o f  M i n o r i t y  a n d  W o m e n -O w n e d  
B u s in e s s  E n t e r p r i s e s  b y  A la m e d a  C o u n ty  187 (1992) (41% of minority- 
owned business respondents reported experiencing discrimination in 
quotes from suppliers); C i t y  o f  D a y to n ,  D is p a r i t y  S t u d y  101 (1991) (citing 
evidence of discriminatory pricing); D J .  Miller & Associates, C ity  o f  S t .  

P e te r s b u r g  D i s p a r i t y  S t u d y  39-40 (1990) (“Discrimination by suppliers has 
also prevented [minority-owned businesses] from entering successful 
bids.”); Mason Tillman Associates, S a c r a m e n to  M u n i c ip a l  U t i l i t y  D is tr ic t ,  

M /W B E  D is p a r i t y  S t u d y  135-43 (1990).



182a

quoted to the minority-owned parent company.124 Another 
firm entered into a joint venture with a white firm and each 
obtained quotes from the same supplier for the same project. 
When the two firms compared the quotes, they discovered 
that those given to the minority-owned firm were so much 
higher than those given to his white joint venture partner 
that they would have added 40 percent to the final contract 
price.125

C. Evidence o f the Impact o f Discriminatory Barriers on 
Minority Opportunity in  Contracting Markets: State 
and Local Disparity Studies

In recent years, many state and local governments have 
undertaken formal studies to determine whether there is 
evidence of racial discrimination in their relevant contracting 
markets that would justify the use of race-conscious re ­
medial measures in their procurement activities. These 
studies—many of which have been cited in the previous 
sections of this memorandum—typically contain extensive 
statistical analyses that have revealed gross disparities 
between the availability of minority-owned businesses and 
the utilization of such businesses in state and local govern­
ment procurement. Under the rules established by the 
Supreme Court in its 1989 Croson decision, which held that 
affirmative action at the state and local level is subject to 
strict scrutiny, such disparities can give rise to an inference 
of discrimination that can serve as the foundation of race-

124 Brimmer & Marshall, P u b l i c  P o l ic y  a n d  P r o m o t io n  o f  M i n o r i t y  
E c o n o m ic  D e v e lo p m e n t:  C i ty  o f  A t l a n t a  a n d  F u l t o n  C o u n ty ,  G e o rg ia  Pt. 
II, 76 (1990).

125 BBC Research and Consulting, R e g io n a l  D i s p a r i t y  S tu d y :  C i t y  o f  
L a s  V e g a s  IX-20 (1992).



183a

conscious remedial measures in procurement.126 The studies 
also generally contain anecdotal evidence and expert opinion, 
developed in hearings, surveys, and reports, that bring the 
statistical evidence to life and vividly illustrate the effects of 
discrimination on procurement opportunities for minorities.

The federal government obviously purchases some goods 
and services that state and local governments do not (e.g., 
space shuttles, naval warships). For the most part, though, 
the federal government does business in the same contract­
ing markets as state and local governments. Therefore, the 
evidence in state and local studies of the impact of discri­
minatory barriers to minority opportunity in contracting 
markets throughout the country is relevant to the question 
whether the federal government has a compelling interest to 
take remedial action in its own procurement activities.127 
Accordingly, the Justice Department asked the Urban Insti­
tu te (UI) to analyze the statistical findings in the studies. 
On the strength of the findings in 39 studies that it consi­
dered, UI has reached the following conclusions:128

126 In describing what it takes for the government to establish a 
remedial predicate in procurement, the Court in C ro so n  said that “[wjhere 
there is a significant statistical disparity between the number of qualified 
minority contractors willing and able to perform a particular service and 
the number of such contractors actually engaged by the [government] or 
the [government’s] prime contractors, an inference of discriminatory 
exclusion could arise.” 488 U.S. at 509.

127 The studies are also of particular relevance in assessing the com­
pelling interest for congressionally-authorized. affirmative action measures 
in programs that provide federal funds to state and local governments for 
use in their procurement.

128 To date, UI has evaluated 56 of the studies. Ultimately, UI 
excluded 17 of the 56 studies from its analysis, on the grounds that those 
studies do not present disparity ratios; do not present tests of statistical 
significance or number of contracts; do not present separate results by 
industry; or do not present disparity ratios based on government 
contracting.



184a

• The studies show underutilization by state and local 
governments of African American, Latino, Asian and Native 
American-owned businesses. The pattern of disparity across 
industries varies with racial and ethnic groups. However, 
the median disparity figures calculated by UI demonstrate 
disparities for all ethnic groups in every industry.129

• Minority-owned businesses receive on average only 59 
cents of state and local expenditures that those firms would 
be expected to receive, based on their availability. The me­
dian disparities vary from 39 cents on the dollar for firms 
owned by Native Americans to 60 cents on the dollar for 
firms owned by Asian-Americans.

• Minority firms are underutilized by state and local 
governments in all of the industry groups examined: [con­
struction, construction subcontracting, goods, professional 
services and other services. The largest disparity between 
availability and utilization was seen in the category of “other 
services,” where minority firms receive 51 cents for every 
dollar they were expected to receive. The smallest disparity 
was in the category of construction subcontracting, where 
minority firms still receive only 87 cents for every dollar 
they would be expected to receive.

129 UI’s findings of underutilization are predicated on two different 
measures: the median disparity ratio across all studies and the percent of 
studies reporting substantial underutilization (defined as a disparity ratio 
of less than 0.8). 'A disparity ratio is the proportion of government con­
tracting received by minority-owned firms to the proportion of available 
firms that are minority-owned. Thus, a disparity ratio of 0.8 indicates that 
businesses owned by members of a minority group received only 80 cents 
of every dollar expected to be allocated to them based on their availability. 
UI’s findings of disparity do not change substantially when analysis is 
limited to studies with either a large number of contracts or high avail­
ability. In fact, in most instances, the disparity between availability and 
utilization was greater in studies that involve large numbers of contracts.



185a

An important corollary to UTs findings is the experience 
following the Supreme Court’s 1989 ruling in Croson. 'In  the 
immediate aftermath of that case, state and local govern­
ments scaled back or eliminated altogether affirmative ac­
tion programs that had been adopted precisely to overcome 
discriminatory barriers to minority opportunity and to 
correct for chronic underutilization of minority firms. As a 
result of this re trea t from affirmative action, minority 
participation in state and local procurement plummeted 
quickly. To cite just a few examples:

• After the court of appeals decision in Croson invalidat­
ing the City of Richmond’s minority business program in 
1987, minority participation in municipal construction con­
tracts dropped by 93 percent.130

® In Philadelphia, public works subcontracts awarded to 
minority and women-owned firms declined by 97 percent in 
the first full month after the city’s program was suspended 
in 1990.131

• Awards to minority-owned businesses in Hillsborough 
County, Florida, fell by 99 percent after its program was 
struck down by a court.132

• After Tampa suspended its program, participation in 
city contracting decreased by 99 percent for African Am­
erican-owned businesses and 50 percent for Hispanic-owned 
firms.133

130 United States Commission on Minority Business Development, 
F i n a l  R e p o r t  99 (1992).

131 Id .

132 Id .

133 Id .



186a

• The suspension of San Jose’s program in 1989 resulted 
in a drop of over 80 percent in minority participation in the 
city’s prime contracts.134

Together, the information in the state and local studies, 
and the impact of the cut-back in affirmative action at the 
state and local level after Croson, provide strong evidence 
that further demonstrates the compelling in terest for 
affirmative action measures in federal procurement. The 
information documents that the private discrimination dis­
cussed previously in part II of this memorandum—discri­
mination by trade unions, employers, lenders, suppliers, 
prime contractors, and bonding providers—substantially im­
pedes the ability of minorities to compete on an equal footing 
in public contracting markets. And it these same discrimi­
natory barriers that impair minority opportunity in federal 
procurement. The information also indicates that, without 
affirmative action, minorities would tend to remain locked 
out of contracting markets.

The information also helps to illuminate what it is that 
Congress is seeking to redress—and hence what interests 
are served—through remedial action in federal procurement. 
First, Congress has a compelling interest in exercising its 
constitutional power to remedy the impact of private discri­
mination on the ability of minority businesses to compete in 
contracting markets that is reflected in the studies. Second, 
Congress has a compelling interest in exercising its consti­
tutional power to redress the statistical disparities reflected 
in the studies that give rise to an inference of discrimination 
by state and local governments, or at minimum suggest that 
those governments are compounding the impact of private 
discrimination through ostensibly neutral procurement prae-

134 BPA Economics, e t  a t ,  M B E / W B E  D is p a r i t y  S t u d y  f o r  th e  C i t y  o f  
S a n  J o se , Vol. Ill, 118-19 (1990).



187a

tices that perpetuate barriers to minority contracting op­
portunity.135 Finally, Congress has a compelling interest in 
ensuring that expenditures by the federal government do 
not inadvertently subsidize the discrimination by private and 
public actors that is reflected in the studies.136 Were that to 
occur, the federal government would itself become a 
participant in tha t discrimination through procurement 
practices that serve to sustain impediments to minority op­
portunity in national contracting markets.

III. Conclusion

As a nation, we have made substantial progress in ful­
filling the promise of racial equality. In contracting markets 
throughout the country, minorities now have opportunities 
from which they were wholly sealed off only a generation 
ago. Affirmative action measures have played an important 
part in this story. However, the information compiled by the 
Justice Department to date demonstrates that racial dis-

135 The role of state and local governments in impeding contracting 
opportunities for minority firms is most directly addressed through 
federal programs that authorize recipients of federal funds to take affir­
mative action in their procurement activities. Those programs plainly are 
examples of the exercise of Congress’ power under the Fourteenth 
Amendment to remedy discrimination by state and local governments. See 
A d a r a n d ,  115 S. Ct. at 2126 & n.9 (Stevens, J., dissenting). Since that same 
state and local conduct constitutes an impediment to minority opportunity 
in contracting markets in which the federal government does business, it 
also serves as a basis for affirmative action measures in the federal 
government’s own procurement. Therefore, those measures too entail an 
exercise of Congress’ authority under the Fourteenth Amendment. See id . 
at 2132 n.l (Souter, J., dissenting) (for purposes of exercise of Congress’ 
power under the Fourteenth Amendment, there is no difference between 
programs in which “the national government makes a construction con­
tract directly” and programs in which “it funnels construction money 
through the states”).

136 See C ro so n , 488 U.S. at 492.



188a

crimination and its effects continue to impair the ability of 
minority-owned businesses to compete in the nation’s con­
tracting markets.

The evidence shows that the federal government has a 
compelling interest in eradicating the effects of two kinds of 
discriminatory barriers: first, discrimination by employers, 
unions, and lenders that has hindered the ability of members 
of racial minority groups to form and develop businesses as 
an initial m atter; second, discrimination by prime con­
tractors, private sector customers, business networks, sup­
pliers, and bonding companies that raises the costs of doing 
business for minority firms once they are formed, and pre­
vents them from competing on an equal playing field with 
nonminority businesses. This discrimination has been, in 
many instances, deliberate and overt. But it also can take a 
more subtle form that is inadvertent and unconscious. 
Either way, the discrimination reflects practices that work 
to maintain barriers to equal opportunity.

The tangible effects of the discriminatory barriers are 
documented in scores of studies that reveal stark disparities 
between minority availability and minority utilization in 
state and local procurement. In turn, the disparities show 
that state and local governments themselves are tangled in 
this web through ostensibly neutral procurement actions 
that perpetuate the discriminatory barriers. The very same 
discriminatory barriers that block contracting opportunities 
for minority-owned businesses at the state and local levels 
also operate at the federal level. Without affirmative action 
in its procurement, the federal government might well 
become a participant in a cycle of discrimination.

Affirmative action in federal procurement is not the cure- 
all that will eliminate all the obstacles that racial discrimi­
nation presents for minority businesses. No one remedial 
tool can completely address the full dimension of this



189a

problem. Laws proscribing discrimination and general race- 
neutral assistance to small businesses are critical to the 
achievement of these ends. But the evidence demonstrates 
that such measures cannot pierce the many layers of dis­
crimination and its effects that hinder the ability of mi­
norities to compete in our nation’s contracting markets. 
Thus, there remains today a compelling interest for race­
conscious affirmative action in federal procurement.



190a

APPENDIX G

Selected  Hearings and  Reports, 1972-1995

1. Minority Small Business Enterprise: Report o f the 
Subcomm. on Minority Sm all Business Enterprise to the 
House Select Comm, on Sm all Business, H.R. Rep. No. 
1615, 92d Cong., 2d Sess. (1972) (findings and conclusions 
leading to creation of a permanent select committee).

2. Government Minority Enterprise Programs— Fiscal 
Year 197: Hearings Before the Subcomm. on Minority Small 
Business Enterprise and Franchising of the House Perma­
nent Select Comm, on Small Business, 93d Cong., 1st Sess. 
(1973).

3. Government Minority Enterprise Programs— Fiscal 
Year 197p. Hearings Before the Subcomm. on Minority 
Sm all Business Enterprise and Franchising o f the House 
Permanent Select Comm, on Small Business, 93d Cong., 2d 
Sess. (1974).

4. Minority Enterprise and Allied Problems o f Sm all 
Business: A  Report of the Subcomm. on SBA Oversight and 
Minority Enterprise o f the House Comm, on Sm all Busi­
ness, H.R. Rep. No. 468, 94th Cong., 1st Sess. (1975).

5. Summary of Activities: A  Report o f the House Com­
mittee on Small Business, 94th Cong., 2d Sess. 182 (1977).

6. M inority Subcontracting: Joint Hearing Before the 
Senate Select Comm, on Small Business and Subcomm. on 
M inority Enterprise and General Oversight o f the House 
Comm, on Small Business, 95th Cong., 2d Sess. (1978).

7. To Am end the Sm all Business Act to Extend the 
Current SBA 8(a) Pilot Program: Hearings on H.R. 5612 
Before the Senate Select Comm, on Small Business, 96th 
Cong., 2d Sess. (1980).



191a

8. Small Business and the Federal Procurement System: 
Hearings Before the Subcomm. on General Oversight o f the 
House Comm, on Small Business, 97th Cong., 1st Sess. 
(1981).

9. Sm all and Minority Business in  the Decade o f the 
80’s: Hearings Before the House Comm, on Small Business, 
97th Cong., 1st Sess. (Pt. 1 1981).

10. Hearings on Minority Business and its Contributions 
to the U.S. Economy of the Senate Comm, on Small Bus­
iness, 97th Cong., 2d Sess. (1982).

11. Hearings on Federal Contracting Opportunities for  
Minority and Women-Owned Businesses: A n Examination 
o f the 8(d) Subcontracting Program Before the Senate 
Comm, on Small Business, 98th Cong., 1st Sess. (1983).

12. Hearings on the State o f Hispanic Small Business in  
America Before the Subcomm. on Sm all Business, 99th 
Cong., 2d Sess. (1985).

13. M inority Enterprise and General Sm all Business 
Problems: Hearings Before the Subcomm. on SBA  and 
SBIC Authority, Minority Enterprise and General Small 
Business Problems o f the House Comm, on Small Business, 
99th Cong., 2d Sess. (1986).

14. To Present and Examine the Result o f a Survey of the 
Graduates o f the Small Business Adm inistration Section 
8(a) M inority Business Development Program: Hearings 
Before the Senate Small Business Comm., 100th Cong., 1st 
Sess. (1987).

15. A  Bill to Reform the Capital Ownership Development 
Program: Hearings on H.R. 1807 Before the House Sub­
comm. on Procurement, Innovation, and Minority Enter­
prise Development o f the House Comm, on Small Business, 
101st Cong., 1st Sess. (1987).



192a

16. Minority Business Development Act: Hearings Before 
the Subcomm. on Procurement, Innovation, and Minority 
Enterprise Development o f the House Comm, on Sm all 
Business, 101st Cong., 1st Sess. (1987).

17. Small Business Problems: Hearings Before the House 
Comm, on Small Business, 100th Cong., 1st Sess. (1987).

18. The Small Business Competitiveness Demonstration 
Program Act o f 1988: Hearings on S. 1559 Before the Senate 
Comm, on Small Business, 100th Cong., 2d Sess. (1988).

19. Twenty Years A fter the Kerner Commission: The 
Need for a New Civil Rights Agenda: Hearing Before the 
Subcomm. on Civil and Constitutional Rights o f the House 
Comm, on the Judiciary, 100th Cong., 2d Sess. (1988).

20. Surety Bonds and M inority Contractors: Hearing 
Before the Subcomm. on Commerce, Consumer Protection 
and Competitiveness o f the House Comm, on Energy and 
Commerce, 100th Cong., 2d Sess. (1988).

21. Minority Construction Contracting: Hearing Before 
the Subcomm. on SBA, the General Economy, and Minority 
Enterprise Development o f the House Comm, on Small Bus­
iness, 101 Cong., 1st Sess. (1989).

22. Implementation o f Sm all Business Subcontracting 
Program: Hearing Before the House Comm, on Sm all 
Business, 100th Cong., 2d Sess. (1988).

23. City of Richmond v. J.A. Croson: Impact and Res­
ponse: Hearing Before the Subcomm. on Urban and Mi­
nority-Owned Business Development of the Senate Comm, 
of Small Business, 101st Cong., 2d Sess. (1990).

24. The Meaning and Significance for Minority Business 
of the Supreme Court Decision in the City of Richmond v. 
J.A. Croson: Hearing Before the Legislation and National



193a

Security Subcomm. of the House Comm, on Government 
Operations, 101st Cong., 2d Sess. (1990).

25. Federal Minority Business Programs: Hearing Before 
the House Comm, on Small Business, 102d Cong., 1st Sess. 
(1991).

26. Fiscal Economic and Social Crises Confronting A m ­
erican Cities: Hearings before the Senate Comm, on Bank­
ing, Housing and Urban Affairs, 102d Cong., 2d Sess. (1992).

27. Sm all Business Development: Hearing Before the 
Subcomm. on Procurement, Tourism and Rural Develop­
ment o f the House Comm, on Small Business, 102d Cong., 
2d Sess. (1992).

28. Problems Facing Minority and Women-Owned Small 
Businesses in Procuring U.S. Government Contracts: Hear­
ing Before the Subcomm. on Commerce, Consumer and 
Monetary Affairs o f the House Comm, on Gov’t Operations, 
103d Cong., 1st Sess. (1993).

29. Government Accounting Office Report, Problems Con­
tinue with SB A ’s Minority Business Development Program 
(Sept. 1993).

30. SB A ’s Minority Business Development: Hearing Be­
fore the House Comm, on Small Business, 103d Cong., 1st 
Sess. (1993)

31. Department o f Defense: Federal Programs to Promote 
M inority Business Development: Hearing Before the 
Subcomm. on Minority Enterprise, Finance and Urban De­
velopment o f the Comm, on Small Business, 103d Cong., 1st 
Sess. (1993).

32. Discrimination in  Surety Bonding, Hearing Before 
the Subcomm. on Minority Enterprise, Finance and Urban 
Development o f the House Comm, on Small Business, 103d 
Cong., 1st Sess. (1993).



194a

33. The S B A ’s 8(a) Minority Business Development Pro­
gram: Hearing Before the Senate Comm, on Small Business, 
104th Cong., 1st Sess. (1995).



195a

APPENDIX H 

Hearings on

The Surface Transportation Assistance A ct 
of 1982

1. Implementation o f the Surface Transportation A s ­
sistance Act o f 1982: Hearing Before the Senate Comm, on 
the Environment and Public Works, 98th Cong., 2d Sess. 
(1984).

2. Review o f the 10-Percent Set Aside Program, Section 
105(f) o f the Surface Transportation Assistance Act o f 1982: 
Hearing Before the House Comm, on Small Business, 98th 
Cong., 2d Sess. (1984).

3. Surface Transportation Issues: Hearing Before the 
House Comm, on Public Works and Transportation, 98th 
Cong., 2d Sess. (1984).

4. Review o f 10-Percent Set Aside Program (Section 
105(f)) o f the Surface Transportation Assistance Act o f 1982: 
Hearing Before the House Comm, on Small Business, 99th 
Cong., 1st Sess. (1985).

5. M inority Business Participation in Department o f 
Transportation Projects: Hearing Before the House Comm, 
on Government Operations, 99th Cong., 1st Sess. (1985).

6. The Disadvantaged Enterprise Program o f the Fed­
eral A id  Highway Act: Hearing Before the Subcomm. on 
Transportation of the Senate Comm, on Environment and 
Public Works, 99th Cong., 1st Sess. 10 (1985).

7. Minority Business Participation in  Department of 
Transportation Projects: Hearing Before the House Comm, 
on Government Operations, 99th Cong., 1st Sess. (1985).



196a

APPENDIX I
Hearings and  Reports 

In  Connection With ISTEA and TEA-21

1. Disadvantaged Business Set-Asides in  Transpor­
tation Construction Projects: Hearing Before the House 
Comm, on Small Business, 100th Cong., 2d Sess. (1988).

2. Barriers to Full Minority Participation in  Federally 
Funded Highway Construction Projects: Hearing Before the 
House Comm, on Government Operations, 100th Cong., 2d 
Sess. (1988).

3. Surety Bonds and Minority Contractors: Hearing Be­
fore the House Comm, on Energy and Commerce, 100th 
Cong., 2d Sess. (1988).

4. Subcontracting with Small and Disadvantaged B us­
inesses: GSA Subcontracting with Small and Disadvantaged 
Businesses: Hearing Before the House Comm, on 
Government Operations, 100th Cong., 2d Sess. (1988).

5. Minority Business Set-Aside Programs: Hearing Be­
fore the House Judiciary Comm., 101st Cong., 1st Sess. 
(1990).

6. Problems with Equal Employment Opportunity and 
Minority and 'Women Contracting at Federal Agencies: 
Hearing Before the House Comm. Banking, Finance and 
Urban Affairs, 102d Cong., 2d Sess. (1992).

7. Discrimination in  Surety Bonding: Hearing Before 
the House Comm, on Small Business, 103d Cong., 1st Sess. 
(1993).

8. Problems Facing Minority and Women-Owned Small 
Businesses in Procuring U.S. Government Contracts: Hear­
ing Before the Subcomm. on Commerce, Consumer and 
Monetary Affairs o f the House Comm, on Government 
Operations, 103d Cong., 1st Sess. (1993)



197a

9. Discrimination in Surety Bonding: Hearing Before 
the Subcomm. on Minority Enterprise, Finance and Urban 
Development o f the House Comm, on Sm all Business, 103d 
Cong., 1st Sess. (1993).
10. Access to Credit in  Distressed Communities: Hearing 

Before the House Comm, on Small Business, 103d Cong., 1st 
Sess. (1993).

11. Availability o f Credit to Minority and Women-Owned 
Business: Hearing Before the Subcomm. on Financial Insti­
tutions Supervision, Regulation and Deposit Insurance o f 
the House Comm, on Banking, 103d Cong., 2d Sess. (1994).

12. Unconstitutional Set-Asides: IS T E A ’s Race-Based 
Set-Asides After Adarand: Hearing Before the Subcomm. 
on the Constitution, Federalism, and Property Rights o f the 
Senate Judiciary Comm., 105th Cong., 1st Sess. (1997) 
(attaching “Proposed Reforms to Affirmative Action In 
Federal Procurement: A Preliminary Survey,” 61 Fed. Reg. 
26,041 (May 23,1996)).



198a

APPENDIX J Contract  Mo. DTFH68-89-C-9001
Account No. 191-16-O8-54-Ob02-uO2 

West  Dolores Contract -------------------------------------
[Excerpts]

Department of Transporta tion 
Federal Highway Administration 

Central Federal Lands Highway Division

Colorado FH 60-2(2) 
West Dolores

Proposal and Contract

This c o n t r a c t  c i t e s  f e d e r a l  Highway Administration 
Sp ec i f ic a t io n s  FP-85, 1985

Proposal of Mountain Gravel & Construct ion Co.

Address P.0. Box 788, Dolores, CO 81323

O
'*



A-1

SOLICITATION, OFFIH,
i. soucjtatIBA *8.

jT[ sgauio 8io a r t )ANO AWAAO C0 FH 60-2(2) 8/10/89 1 of 3(Co ntmtevo*. Aw n m , or A to m ) Q  NICOTIATEO IH m
IMPORTANT -  t>i« "offtf" taction on w  fw«n« m utt at fully compared ey oWtror.
rTTTrnrxzrxsr------------- ------ ——[i, MBuiiiTiaA/SnaHAig Maum wg:—
DTFH68-89-C-90016 (C-1675-91p)

rwgTRT w :---------—— — ............
CO FH 60-2(2)

'•'**“*“ cooei
U.S. Department of Transportation 
Federal Highway Administration 
Central Federal Lands Highway Division 
P.0. Box 25246 
Denver, CO 80225

Jerry L. Budwig, Division Engineer 
Federal Highway Administration 
Central Federal Lands Highway Division 
P.0. Box 25246 
Oenver, Colorado 8Q225 

OR
* Hand carry to address below

9. ran information
CAU.; ►See continuation of SF 1442

NOTH* In matttd ted taiiaia d d m  and "offapdr" rrnion s'lsitf"’ and ‘1iiddGr,\
is. rwt1 w ^ ^ itwiaSWgyTTOWBirr i ^ ^ a s  ;vy>u*aarg^»ssawya --------
for construction of Colorado FH 60-2(2), West Dolores, in strict accordance with:
1. FAR CONTRACT CLAUSES
2. MINIMUM WAGE SCHEDULE
3. STANDARD SPECIFICATIONS FOR CONSTRUCTION OF ROADS AND BRIDGES ON 

FEDERAL HIGHWAY PROJECTS, FP-85 (1985), INCLUDING ERRATA
4. SPECIAL CONTRACT REQUIREMENTS
5. BID SCHEDULE
6. PLANS CONSISTING OF 50 PAGES.

* hand CARRY BIDS TO:
Jerry L. Budwlg, Division Engineer 
Federal Highway Administration 
Central Federal Lands Highway Division 
555 Zang Street - 4th Floor 
Lakewood, Colorado 80228

11 TNfMWn«.l>.llllT l . .4 lW M ^ lZ  10 ..... 240
□

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u, jcagrrmwi: laoatwwi
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locw om«,__9/12/89 f + m  n a . i .  i h m m  ntiotanon, oHmaMtasufeMtyoaaiMattfwttjnw Sm m «t« oom
sontwwty otWr* maM M  trrnmt ta mow «» •rimer's norm and aeerws,vm sefecnWen mm**. tn4 d» dew and w »  ««** sre due.

a. A^eMvfuaranm (Hit. Di in wm mmk Set continuation of SF 1442

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nHdPifio#»

0. Offers orondme Ms tfwi 35 calender dev* for Government sceeo*snes sriw *m M  offers ire <k* not 8* connarto me 
'•-will W  rew ew e. ■'V,A>"

IMtiU fTAMOAMi ram  i«u ««i ». *-«»•

199a



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r.vsiJVTnr^ '* (S tJsrg u en o fi) d c ,

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amounts ^ See bid schedule

13. Tha o tfsrw  »?rsw  w  fumi«* «ny r w u * N  performance *rw p * * m * n  ecnOa.

19. ACKNCWUS0GM5NT GP AfeSgN0«3NTS 
rr%»* * f  > « W — * M w  w l i m i  m *m mmmmm  —  $tmmmmtmum*X»W*m*U

a m s n o m s n t  n o . / <2 3
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Al l , Schedule A

: l  AUgCST------------- -

$3,267,704.35
24 SUtMlT INVQICU TO AQQMM SHOWN IN 

<4 — a m  I........ l * W  WlrlRIMI
rrnr

if. mgBU»VIW» JUJ'B T S W W IXriBA ssw r

26
li. iauiAHTW ia i r

See continuation of SF 1442

- ~ ~  - m m i m 'm m w u c

TT. o-h-U tS*S «W  K S K M  m ' '

atO U .tC  2M*W  I I P I  41 lM .t2 J S « M  )
,WN  .... — —  ""  ......

Federal Highway Administration
Office of Fiscal Services - Finance Division
Room 4311, HFS-20
400 Seventh Street, S.lf.
♦?42hlngg f b  6C £03§9_

□ 2S. NSC3T1AT10 M * U » m t r

t o
on ifii, form **4 m* car 
can v w t !> • tufm «MI ywanml M Ml i h w w i  mlraRRBIftam. MT>lfWMMIÎ4 
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200a



/V 5*C /V >’c

0-7

52.219-1

SMALL BUSINESS CONCERN REPRESENTATION. (MAY 1986)

The offeror represents and certifies as part of Its offe/that It [Mj 1s 
[ ] is not a small business concern and that [ ] all, M  not all end Items 
to be furnished will be manufactured or produced by a small business concern 
in the United States, Its territories or possessions, Puerto R1co, or the 
Trust Territory of the Pacific Islands. "Small business concern," as used in 
this provision, means a concern, Including Its affiliates, that 1s Independ­
ently owned and operated, not dominant In the field of operation 1n which it 
is bidding on Government contracts, and qualified as a small business under 
the size standards 1n this solicitation.

SMALL 8USINESS CONCERN REPRESENTATION FOR THE SMALL BUSINESS 
COMPETITIVENESS DEMONSTRATION PROGRAM (DEC 1988), ALTERNATE I

(a) Definition.
"Emerging small business", as used in this solicitation, means a small 

business concern whose size is no greater than 50 percent of the nunerical 
size standard applicable to the standard industrial classification code 
assigned to a contracting opportunity.

(b) (Complete only if Offeror has certified itself under the clause at FAR 
52.219-1 as a small business concern under the size standards of this 
solicitation.)

The Offeror represents and certifies as part of its offer that it [ ] is, 
EVJ is not an emerging small business.

(c) (Complete only if the Offeror is a small business or an emerging small 
business, indicating Its size range.)

Offeror's average annual gross revenue for the last three fiscal years. 
(Check one of the following.)
Average annual gross revenues

$1 million or less 
$1,000,001 - $2 million 

’ $2,000,001 - $3.5 million 
$3,500,001 - $5 million

-  m
3 7 v i 0 , ^ , f m  -  $17 m illio n  

Over $17 million

(a) Representation. The offeror represents that 1t [ ] 1s, [ not a 
small disadvantaged business concern.

52.219-2

SMALL DISADVANTAGED BUSINESS CONCERN REPRESENTATION. (APR 84)



y? * * * *

F-13

52.219-9

SMALL BUSINESS AND SMALL DISADVANTAGED BUSINESS 
SUBCONTRACTING PLAN. (APRIL 1984) ALTERNATE 1 (APRIL 1984)

(a) This clause does not apply to small business concerns.

(b) "Commercial product," as used 1n this clause, means a product 1n 
regular production that 1s sold 1n substantial quantities to the general 
public and/or Industry at established catalog or market prices. It also 
means a product which, In the opinion of the Contracting Officer, differs 
only Insignificantly from the Contractor's commercial product.

"Subcontract," as used in this clause, means any agreement (other than 
one involving an employer-employee relationship) entered Into by a Federal 
Government prime Contractor or subcontractor calling for supplies or services 
required for performance of the contract or subcontract.

(c) The apparent low bidder, upon request by the Contracting Officer, 
shall submit a subcontracting plan, where applicable, which addresses 
separately subcontracting with small business concerns and small 
disadvantaged business concerns, and which shall be Included In and made part 
of the resultant contract. The subcontracting plan shall be submitted within 
the time specified by the Contracting Officer. Failure to submit the 
subcontracting plan shall make the bidder Ineligible for the award of a 
contract.

(d) The offeror's subcontracting plan shall Include the following:
(1) Goals, expressed in terms of percentages of total planned 

subcontracting dollars, for the use of small business concerns and small’ 
disadvantaged business concerns as subcontractors. The offeror shall 
Include all subcontracts that contribute to contract performance, and may 
Include a proportionate share of products and services that are normally 
allocated as Indirect costs.

(2) A statement of—
(I) Total dollars planned to be subcontracted;
(II) Total dollars planned to be subcontracted to small

business concerns; and
(III) Total dollars planned to be subcontracted to small

disadvantaged business concerns.
(3) A description of the principal types of supplies and services to 

be subcontracted, and an Identification of the types planned for 
subcontracting to (1) small business concerns and (11) small disadvantaged 
business concerns.

(4) A description of the method used to develop the subcontracting 
goals in (1) above.

(5) A description of the method used to Identify potential sources 
for solicitation purposes (e.g., existing company source lists, the 
Procurement Automated Source System (PASS) of the Small Business
Administration, the National Minority Purchasing Council Vendor Information 
Service, the Research and Information Division of the Minority Business 
Development Agency in the Department of Commerce, or small and small 
disadvantaged business concerns trade associations).

202a



F-l 4

(6) A statement as to whether or not the offeror Included indirect 
costs in establishing subcontracting goals, and a description of the method 
used to determine the proportionate share of indirect costs to be incurred 
with (1) small business concerns and (11) small disadvantaged business 
concerns.

(7) The name of the individual employed by the offeror who will 
administer the offeror*s subcontracting program, and a description of the 
duties of the individual.

(8) A description of the efforts the offeror will make to assure that 
small business concerns and small disadvantaged business concerns have an 
equitable opportunity to compete for subcontracts.

(9) Assurances that the offeror will include the clause 1n this 
contract entitled "Utilization of Small Business Concerns and Small 
Disadvantaged Business Concerns" in all subcontracts that offer further 
subcontracting opportunities, and that the offeror will require all 
subcontractors (except small business concerns) who receive subcontracts in 
excess of $500,000 ($1,000,000 for construction of any public facility), to 
adopt a plan similar to the plan agreed to by the offeror.

(10) Assurances that the offeror will (1) cooperate in any studies or 
surveys as may be required, (ii) submit periodic reports in order to allow 
the Government to determine the extent of compliance by the offeror with 
the subcontracting plan, (iii) submit Standard Form (SF) 294, Subcontract­
ing Report for Individual Contracts, and/or SF 29S, Summary Subcontract 
Report, in accordance with the instructions on the forms, and (iv) ensure 
that its subcontractors agree to submit Standard Form 294 and 29S.

(11) A recitation of the types of records the offeror will maintain to 
demonstrate procedures that have been adopted to comply with the 
requirements and goals in the plan, Including establishing source lists;, 
and a description of Its efforts to locate small and snail disadvantaged 
business concerns and award subcontracts to them. The records shall 
include at least the following (on a pTant-wide or company-wide basis, 
unless otherwise indicated):

(i) Source lists, guides, and other data that identify small and 
small disadvantaged business concerns.

(11) Organizations contacted in an attempt to locate sources 
that are small or small disadvantaged business concerns.

(ill) Records on each subcontract solicitation resulting In an 
award of more than $100,000, Indicating (A) whether small business 
c o tw f i t*  w*r* f5*31®*! ar>*3 If not, why not, (B) whether s-wsH
disadvantaged business concerns were solicited and 1f not, why not, 
and (C) if applicable, the reason award was not made to a small 
business concern.

(iv) Records of any outreach efforts to contact (A) trade 
associations, (8) business development organizations, and (C) 
conferences and trade fairs to locate small and small disadvantaged 
business sources.

(v) Records of Internal guidance and encouragement provided to 
buyers through (A) workshops, seminars, training, etc., and (B) 
monitoring performance to evaluate compliance with the program's 
requirements.

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F-15

(vi) On a contract-by-contract basis, records to support award 
data submitted by the offeror to the Government, Including the name, 
address, and business size of each subcontractor. Contractors having 
company or division-wide annual plans need not comply with this 
requirement.

(e) In order to effectively implement this plan to the extent consistent 
with efficient contract performance, the Contractor shall perform the 
following functions:

(1) Assist small business and small disadvantaged business concerns 
by arranging solicitations, time for the preparation of bids, quantities, 
specifications, and delivery schedules so as to facilitate the 
participation by such concerns. Where the Contractor's lists of potential 
small business and small disadvantaged subcontractors are excessively long, 
reasonable effort shall be made to give all such small business concerns an 
opportunity to compete over a period of time.

(2) Provide adequate and timely consideration of the potentialities 
of small business and small disadvantaged business concerns in all 
"make-or-buy" decisions.

(3) Counsel and discuss subcontracting opportunities with 
representatives of small and small disadvantaged business firms.

(f) A master subcontracting plan, on a plant or division-wide basis whlcfr 
contains all the element required by (d) above, except goals, may be 
incorporated by reference as a part of the subcontracting plan required of 
the offeror by this clause; provided, (1) the master plan has been approved,
(2) the offeror provides copies of the approved master plan and evidence of 
its approval to the Contracting Officer, and (3) goals and any deviations 
from the master plan deemed necessary by the Contracting Officer to satisfy 
the requirements of this contract are set forth 1n the individual 
subcontracting plan.

(g) (1) If a commercial product 1s offered, the subcontracting plan 
required by this clause may relate to the offeror's production generally, for 
both commercial and noncommercial products, rather than solely to the 
Government contract. In these cases the offeror shall, with the concurrence 
of the Contracting Officer, submit one company-wide or division-wide annual 
plan.

(2) .The annual plan shall be reviewed for approval by the agency 
awarding *hfr offeror 1t* first prise contract requiring a subcontracting 
plan during the fiscal year, or by an agency satisfactory to the 
Contract!ngt Officer.

(3) The approved plan shall remain in effect during the offeror's 
fiscal year for all of the offeror's commercial products.

(h) Prior compliance of the offeror with other such subcontracting plans 
under previous contracts will be considered by the Contracting Officer In 
determining the responsibility of the offeror for award of the contract.

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F-16

( i )  The failure of the Contractor or subcontractor to comply in good faith 
with (1) the clause of this contract entitled "Utilization of Small Business 
Concerns and Small Disadvantaged Business Concerns," or (2) an approved plan 
required by this clause, shall be a material breach of the contract.

52.219- 13

UTILIZATION OF WOMEN-OWNED SMALL BUSINESSES. (AUGUST 1986)

(a) "Woman-owned snail businesses," as used in this clause, means snail 
business concerns that are at least 51 percent owned by women who are United 
States citizens and who also control and operate the business.
"Control," as used 1n this clause, means exercising the power to make 

policy decisions.
"Operate," as used In this clause, means being actively Involved 1n the 

day-to-day management of the business.
"Small business concern," as used in this clause, means a concern Including 

its affiliates, that 1s independently owned and operated, not dominant in the 
field of operation in which 1t is bidding on Government contracts, and quali­
fied as a small business under the criteria and size standards 1n 13 CFR 121.

(b) It Is the policy of the United States that woman-owned smell 
businesses shall have the maximum practicable opportunity to participate In 
performing contracts awarded by any Federal agency.

(c) Hie Contractor agrees to use Its best efforts to give women-owned 
small businesses the maximum practicable opportunity to participate In the 
subcontracts It awards to the fullest extent consistent with the efficient 
performance of its contract.

(d) The Contractor may rely on written representations by its subcontrac­
tors regarding their status as women-owned small businesses.

52.219- 16

LIQUIDATED DAMAGES - SMALL 8USINESS SUBCONTRACTING P U N  (AUGUST 1989)

(a) "Failure to make a good faith effort to comply with the
subcontracting plan#* as used 1n this clause, sesnss a sillhsl er Untonitonal 
failure to parfersa accordance with the raquireseats of the subeontracting 
plan approved under the clause in this contract entitled "Stoll Business and 
Small Disadvantaged Business Subcontracting Plan," or willful or Intantlonal 
action to frustrata the plan.

(b) If, at contract completion, or 1n the case of a commercial products 
plan, at the close of the fiscal year for which the plan 1s applicable, the 
Contractor has failed to meet its subcontracting goals and the Contracting 
Officer decides 1n accordance with paragraph (c) of this clause that the
Contractor failed to make a good faith effort to comply with Its

205a