Small-biz set-aside ruling cause for concern

A federal court ruling that narrowed contracting preferences for minority-owned businesses could in the future expand to other socio-economic set-asides by using the same rationale, a former top acquisition official said.

While on its face the court ruling deals with specific race-based categories of small businesses, Robert Burton, former deputy administrator of the Office of Federal Procurement Policy and now a partner at the law firm Venable, said the ruling could be a precedent for cases that govern to other socio-economic set-asides.

The court's rationale would require the government to show proof of discrimination against small, disadvantaged businesses, he said. The underlying principle of showing proof could be applied, for example, to women-owned small business contract set-asides.

A federal appeals court ruled Nov. 5 that Congress didn't provide enough proof that the Defense Department was discriminating against small businesses owned by minorities to justify preferential treatment through contract set-asides. The court ruled that the set-aside violates the right to equal protection. Because the law incorporates an explicit racial classification, it's subject to strict scrutiny and Congress didn't provide "a strong basis in evidence," according to the ruling.

Enacted by Congress in the 1980s and reauthorized as recently as 2006, under that law DOD has an annual goal of sending at least five percent of its contracting dollars to minority-own small businesses. In 2007, the department exceeded the five-percent goal.

However Burton said the court's ruling won't end small-business set-aside programs. There are federal laws creating those programs, and this ruling doesn't overturn those statutes.

Federal agencies are still assessing the effects of court's decision and haven't made comments about the possible consequences of the ruling.

The genesis of the case started in the late 1980s when the Air Force contracted with Rothe Development Corp. to work on computer systems at an Air Force base. In the late 1990s, the Air Force decided to consolidate Rothe's contract with a contract for communications services.

Among the bids, Rothe, a woman-owned business, entered a lower bid than International Computer and Telecommunications, a competitor owned by a Korean-American couple and certified as a small, disadvantaged business. Despite the lower price, the minority-owned business won the contract because of its status. Rothe sued in November 1998.

Matthew Weigelt writes for Federal Computer Week, an 1105 Government Information Group publication.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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