Clinton Contract Plan Favors Poor Areas

Industry and government will negotiate rules during the next few months

President Bill Clinton's long-awaited Empowerment Contracting plan will give some federal contractors a 10 percent advantage in contract bids if they divert one-sixth of the company's workload to poor areas.

The plan will begin with a six-month pilot program during which a number of contracts -- each worth more than $100,000 -- will be awarded according to the Empowerment Contracting guidelines, said Larry Parks, director of the Commerce Department's office of regional growth, which is overseeing the contracting plan.

Companies would qualify for the program if they divert 15 percent of the workload into areas with a 20 percent poverty rate, hire roughly 20 percent of their workers from such areas or base roughly 20 percent of their facilities in poor areas, said Parks.

Details of the plan will be published soon in the Federal Register. Government and industry executives will decide which agencies should participate and what type and number of contracts will be included in the plan, said Parks. The executive order creating the plan was signed by Clinton May 21.

The program may persuade construction and service companies to change their hiring practices, but infotech companies probably won't alter their hiring decisions, despite the 10 percent contract advantage, said Bob Deller, president of Global Systems & Strategies Inc., Vienna, Va. Infotech contractors can't afford to hire untrained people from poor areas or shift work to poor areas "because [contract] performance demands are high," he said.

The Empowerment Contracting plan complements other anti-poverty initiatives of the Clinton administration, said Jonathan Weiss, an official in the office of Vice President Al Gore. For example, the administration will propose tax breaks for companies that hire workers now on welfare and has pushed banks to open offices in poor areas. The administration also has urged Congress to increase the number of Empowerment Zones and Community Enterprise Zones.

In 1993, 105 Empowerment Zones and Community Enterprise Zones were created to boost local economic activity with cash grants, tax incentives, regulatory exemptions and other government aid.

Clinton's support for these anti-poverty programs plays into the 1996 election because Jack Kemp, the Republican nominee for vice president, has long championed tax breaks and regulatory waivers for poor areas.

Also, Republican presidential candidate Robert Dole has promoted an economic plan offering cuts in capital gains taxes, tax credits for donations to poverty-fighting charities, $500 tax credits for every child in a family and vouchers worth $1,500 to help children attend non-government schools.

Some executives are cautiously optimistic about the plan, said Stan Soloway, director of the Washington-based Contract Services Association, a coalition of federal contractors. "The devil is in the details.... If the regulations end up being too onerous or restrictive, it will not work," said Soloway. The association's members compete for federal services contracts ranging from mowing grass to maintaining radar sites, Soloway said.

However, the new policy may further tangle the already complex federal procurement process, argued Bert Concklin, president of the Professional Services Council, an association of high-tech consulting firms based in Vienna, Va.

"We would very much prefer not to encumber the otherwise fragile federal procurement system with collateral policy objectives. This one, while it has a clearly meritorious purpose, holds the potential to be very difficult and controversial in implementation," he said. Instead, the government should adopt simple approaches, such as a tax incentive, to encourage companies to move into poor areas, he said.

Industry's concerns may be overblown, said one person familiar with the Empowerment Contracting effort. Until the program is tested, "no one really knows what will happen... [but] this is not likely to have much of an impact on the high-tech companies [or] the computer industries," she said.

The program will mostly aid "non-residential construction, heavy construction, commercial physical research and facilities support services," according to a White House statement issued May 21. "There is much less potential for the [plan] to have an impact in high-technology contracting sectors, such as electronics, computer equipment software and computer-related services, because there is a very limited presence of such companies in high-poverty areas."

When drafting the plan, government officials modified the terms to satisfy concern among minority contractors that the plan might divert federal dollars away from the $4.5 billion 8(a) program and the $5 billion earmarked for small, disadvantaged businesses.

Although the program offers the promise of helping poor areas, minority-owned companies were concerned it would dilute the White House's public support for affirmative action programs, said Carlos Sandoval, a McLean, Va., partner with the law firm of Grossman & Sandoval, PLC. "Younger 8(a) [companies] are for it, some of the older 8(a)s are against it," he said.

One factor that has bolstered support for the Empowerment Contracting plan is a proposal by Sen. Christopher Bond, R-Mo., the chairman of the Senate Committee on Small Business, to divert 3 percent of federal contract dollars -- roughly $6 billion per year -- toward poor areas. Bond's proposal has been strongly opposed by executives in 8(a) companies who feared it would divert funds away from the 8(a) program.

The Empowerment Contracting order "is probably the only hope we have to defeat the Bond proposal," said George Stephanopoulos, a close adviser to Clinton. Stephanopoulos spoke April 3 at a Washington meeting hosted by the Washington-based National Coalition of Minority Businesses.

However, Bond's plan hasn't made progress toward Senate approval. A matching anti-poverty proposal in the House, pushed by Rep. J.C. Watts, R-Okla., and James Talent, R-Mo., has also stalled.

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