Infotech and the law: Constitutionality of SDB preference is fuzzy

Jonathan Cain

In late June, the U.S. Court of Appeals for the Federal Circuit reversed and remanded a lower-court decision dismissing a case challenging the constitutionality of the Defense Department's price evaluation adjustment program for small disadvantaged businesses (SDBs).

The remand keeps alive a long-running challenge to the constitutionality of the program, which was enacted in 1987 and has been reauthorized periodically through 2006.

The program sets the goal of awarding 5 percent of the department's contract dollars to SDBs. To reach this goal, the program provides that when less than 5 percent of the department's contract expenditures are awarded to SDBs during the previous fiscal year, a 10 percent price increase will be attached to any competing offer by a non-SDB for offer evaluation purposes for the next year.

The Defense Department has not been applying the price evaluation adjustment to non-SDB offers in recent years, because its awards to SDBs have been achieving the goal without the adjustment. But the percentage of SDB awards has been slipping.

Contract bundling, the increased use of large, multi-award contracts and a variety of other factors have decreased the total percentage of federal procurement going to small businesses in general and to SDBs in particular.

The case that led to the Court of Appeals decision in 1998, when the plaintiff, a non-SDB, bid on an IT services contract for the Air Force against the incumbent SDB. In the evaluation, the non-SDB technically was acceptable and submitted a lower price. In the evaluation, the Air Force adjusted the price of the non-SDB, which raised it above the incumbent, and then awarded the contract to the SDB incumbent.

The unsuccessful offerer sued in federal court, alleging that the price evaluation adjustment statute was unconstitutional both on its face and as applied to this procurement. The federal court initially dismissed the case. On the case's first appeal, that decision was reversed, and the case was remanded to develop more evidence of a justification for the statute. The trial court again dismissed the non-SDB's claims, ruling that the statute was a constitutionally valid means of remedying a long history of discrimination against SDBs in federal contracts.

The appeals court again reversed and remanded. It did not find that the price adjustment was unconstitutional, but it did keep the possibility of that result alive by sending the case once again back to the trial court to try to develop a factual record that would provide a valid justification for the program.

It remains to be seen how much enthusiasm the administration has for continuing to defend the constitutionality of the SDB price evaluation adjustment. The price adjustment is not being applied at present because the 5 percent trigger was not tripped last fiscal year. Any effect of loss of the program now would not be felt immediately because of the delay in getting contracting data. A similar price evaluation adjustment for civilian agencies expired late last year, and the administration has taken no steps to renew it.

The administration is on record as being unsympathetic to claims that SDB set-asides are needed, and there is no reason that this program would be viewed any differently.

Jonathan Cain is a member of the law firm Mintz Levin Cohn Ferris Glovsky & Popeo PC in Reston, Va. The opinions expressed in this article are his. He can be reached by e-mail at jcain@mintz.com.

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