**Government Contracting with Small Businesses in the Wake of The
Federal Acquisition Streamlining Act, The Federal Acquisition Reform
Act, and *Adarand*:**

**Small Business as Usual?**

[Major Patrick E. Tolan, Jr.\*]{.smallcaps}

**I. OVERVIEW**

When the U.S. Supreme Court concluded in *Adarand*[^1] that government
contracting initiatives to favor small and disadvantaged businesses
would have to overcome strict scrutiny, many forecasted that this would
bring an end to these types of affirmative action programs. Indeed,
legislation proposed last summer would do just that.[^2] However, the
Clinton administration's policy to "mend not end" affirmative action has
brought about global review of the existing regulatory scheme, with an
eye toward modifying the preferences for minority businesses, so that
the programs will pass strict scrutiny.[^3] As the federal contracting
regulations are updated and revised, those involved with government
procurement will struggle to adapt to the shifting landscape.

Although much has been written about what "could," "should," or "would"
change in response to *Adarand*, this article focuses on the practical
implications of what will soon change.[^4] Contracting officers and base
legal counsel may have to contend with district court actions blocking
award of particular contracts which employ race-based presumptions.
Furthermore, because the Supreme Court failed to communicate clear
precedent in this regard, and because of the deep philosophical
differences regarding affirmative action underlying the Court's 5-4
vote, district courts are unlikely to be uniform in their analysis of
which government contracting practices violate strict scrutiny. For this
reason, contracting officers in Colorado, for instance, may be enjoined
from awarding prime contracts with a preference for minority
subcontractors, but there might be no problem making similar awards in
other jurisdictions. Familiarity with the small business preferences
that are being challenged and how the Government is seeking to overcome
the challenges will be essential to the practitioner operating in this
environment.

**II. INTRODUCTION**

Contracting Officers (COs) at the base level are required to track and
report the dollar amounts and percentages of contracts awarded to small
businesses and to small disadvantaged businesses.[^5] For years, the
Department of Defense (DOD) and the Small Business Administration (SBA)
have established goals to increase the percentage of business awarded to
small businesses (SBs) and to small and disadvantaged businesses
(SDBs).[^6] Various statutory and regulatory guidance has been
promulgated to tell the base-level COs how to accomplish these
goals.[^7] Historically, programs developed to foster SB and SDB
participation have been honed to a point where they have been relatively
successful in assisting government agencies in attaining their
goals.[^8] Most of these programs involved either "setting aside"
contracts solely for competition between qualified small businesses,[^9]
or contained financial incentives that were provided directly to an SDB
or to a prime contractor to encourage the use of SDB
subcontractors.[^10]

Because there are separate and distinct goals for small disadvantaged
businesses, these goals and the regulations designed to achieve them
sometimes serve to siphon government business away from small businesses
that are not also "disadvantaged." In other words, preferences designed
to increase the share of procurement dollars devoted to SDBs removes
this subset of awards from non-SDB small businesses. Adarand
Constructors Inc., (Adarand) qualifies as a small business because of
its size; but does not qualify as a "disadvantaged" business, because
the company (although 60 percent woman-owned) is operated by a white
male.[^11] Mr. Randy M. Pech, president and general manager of Adarand,
contends that the aforementioned "goals" are nothing more than a
pseudonym for "quotas," considering the way the government has achieved
these goals in practice.[^12]

In 1989, Adarand was bidding as a subcontractor to provide the
guardrails for a federal highway program.[^13] Based upon a federal
financial incentive to prime contractors to utilize SDBs as
subcontractors, Adarand (the low priced bidder) lost the job to Gonzales
Construction, a company presumed to be disadvantaged based upon a
race-based presumption mandated by the Federal Acquisition Regulation
(FAR).[^14] Based upon his personal conviction that "discrimination
based upon race or gender is immoral, unethical, against the law, and
should not be allowed, much less performed by the government,"[^15] Mr.
Pech brought his constitutional challenge to the federal regulatory
scheme to court in the Federal District Court for the State of Colorado.
Eight years later, despite victories at the Supreme Court,[^16] and
later on remand at the district court,[^17] the case is still being
litigated. For Adarand, as a practical matter, nothing has changed.[^18]

The 1995 *Adarand* decision sent shock waves through the federal
government and the minority business community.[^19] President Clinton
demanded a top-down review of government affirmative action programs,
causing a temporary freeze on SDB programs while the administration
determined how to redraft existing regulations to comply with the strict
scrutiny standard.[^20] DOD suspended those sections of the Defense
Federal Acquisition Regulation Supplement (DFARS) which prescribed the
set-aside of acquisitions for SDB concerns while the interagency
government-wide review of affirmative action programs was
conducted.[^21] Despite the turmoil and uncertainty of the day, COs were
nevertheless required to continue to monitor and report the amount of
small business and small disadvantaged business participation in
government contracts.[^22] COs also were confronted with the dilemma of
keeping the numbers up without some of the tools they had previously
enjoyed.[^23] Finally, the local "mom and pop" contractors that had
secured fairly steady and dependable government contracts based upon the
SB and SDB preferences stood to lose the competitive advantage garnered
under the former rules. Furthermore, installation commanders interested
in maintaining solid relations with the local community risked losing
some of the goodwill that the government enjoyed by virtue of the
government contract link.

To further complicate matters, The Federal Acquisition Streamlining Act
(FASA)[^24] was passed by Congress in 1994 to allow the federal
government to act more like a commercial enterprise in conducting its
procurement efforts. Significantly, for purchases under \$100,000, the
government was encouraged to use "simplified" techniques and was
directed to revise the FAR to accommodate these streamlined
procedures.[^25] The set-aside programs designed to foster small
business growth had always depended on low dollar value contracts as the
cornerstone of the SB and SDB programs. Would "streamlining" erode, or
reinforce, the strength of the set-aside programs?[^26]

The Federal Acquisition Reform Act of 1996 (FARA)[^27] took
"commercialization" of government acquisition one step further. Section
4101 required that the Federal Acquisition Regulations be amended to
qualify that "full and open competition" be tempered by efficiency.[^28]
Section 4203 of FARA establishes "commercial off-the shelf" (COTS) items
as a subset of commercial items which could be offered to the government
without modification, just as they are offered in the commercial
marketplace.[^29] Section 4203 is even more generous in exempting COTS
items from federal procurement laws than FASA was in exempting
"commercial" acquisitions from the ordinary bureaucracy of the
government purchasing system.[^30] FARA requires the Office of Federal
Procurement Policy (OFPP) to publish a list of federal laws, which are
inapplicable to COTS items, including any law "imposing
Government-unique policies, procedures, requirements, or restrictions .
. . ."[^31] Small business programs are obviously "Government-unique."
FARA required that implementing regulations be generated which are
effective no later than January 1, 1997.[^32] How will small business
initiatives be impacted by these new regulations?

This article is designed to inform COs, their legal counsel, and their
commanders, about DOD and SBA initiatives to promote and preserve SB and
SDB programs. It also examines areas of continuing uncertainty as to the
constitutionality of the current and proposed regulatory schemes, and
discusses the potential for increased courtroom and bid protest activity
in this regard.[^33] The article begins with a short history of federal
contracting with small businesses prior to FARA, FASA, and *Adarand*.
Next, the *Adarand* case is discussed in depth, particularly the June
1997 district court decision on remand that the SDB incentives in
question violated Adarand's fifth amendment right to equal protection,
since the regulations in question were not sufficiently narrowly
tailored to accomplish the government's remedial purpose.[^34] The
business consequences to Adarand itself are examined to put the court's
ruling in perspective. Then, the current and proposed regulatory schemes
are analyzed with an eye toward whether changes incorporated in the last
two years can overcome strict scrutiny as it is being applied in the
lower courts. Finally, because "non-disadvantaged" small businesses are
in direct competition with small and disadvantaged businesses, potential
pitfalls in the form of non-minority contractor court challenges and
protests to the latest SDB initiatives will be explored.

**III. CONTRACTING WITH SMALL BUSINESSES HISTORICALLY**

When the United States entered World War II, Congress perceived a need
"to mobilize the productive facilities of small business in the interest
of successful prosecution of the war, and for other purposes."[^35]
Congress created the Smaller War Plants Corporation (SWPC) to enter into
contracts with the federal government and to subcontract the performance
of these contracts to small businesses.[^36] Only 260 contracts were
actually let by the SWPC to small businesses.[^37] A similar agency, the
Small Defense Plants Administration (SDPA) was created by Congress
during the Korean War to foster mobilization of small plants to
contribute to America's productive strength.[^38] After the SDPA also
made little use of its authority, Congress created the Small Business
Administration (SBA) pursuant to the Small Business Act of 1953.[^39]

**A. Evolution of the 8(a) Preference Program.**

Congress created the SBA to stimulate and encourage "small business
enterprises in peacetime as well as in any future war or mobilization
period."[^40] The Small Business Act of 1958[^41] created the statutory
authority for the government to afford preferential treatment in the
award of government contracts to small businesses.[^42] Section 8(a) of
the 1958 Act specifically allowed the SBA to contract with other
government agencies and to subcontract "to small business concerns or
others for the manufacture, supply, or assembly of such articles,
equipment, supplies, or materials."[^43] As originally promulgated, the
legislation was designed to promote all small businesses, not only
minority or "disadvantaged" businesses.

The SBA's focus on placing contracts with minority owned businesses did
not evolve until the late 1960s and early 1970s.[^44] Earlier efforts in
the 1960s to set aside contracts under their 8(a) authority for
contractors (not restricted to minority-owned businesses) agreeing to
locate in or near inner city ghettos and provide jobs for the
unemployed, failed to result in projected plant relocations, hiring and
training.[^45] In 1969 and 1970, stimulated by a couple of executive
orders,[^46] the SBA shifted its 8(a) efforts to assisting small
concerns owned by disadvantaged persons. In 1971, to further stimulate
minority business, President Nixon in 1971 issued Executive Order No.
11,625, which directed the Secretary of Commerce, with participation of
other federal departments and agencies, to "develop comprehensive plans
and goals for the minority enterprise program; establish regular
performance monitoring and reporting systems to assure that goals are
being achieved; and evaluate the impact of Federal support in achieving
the objectives established by this order."[^47] To qualify for the
minority enterprise program, a business had to be owned and controlled
by one or more "socially or economically disadvantaged persons."[^48]
The definition of a minority business enterprise (MBE) explicitly linked
social and economic disadvantage to race.[^49]

The statutory conversion of the historic 8(a) program (fostering small
business) to the modern 8(a) program (promoting small disadvantaged or
minority business) occurred as part of the 1978 "Act to Amend the Small
Business Act and the Small Business Investment Act of 1958" (hereinafter
1978 Amendments).[^50] The 1978 Amendments required that all 8(a)
set-aside opportunities be subcontracted by the SBA to "socially and
economically disadvantaged small business concerns."[^51] The SBA was
charged with determining which businesses would qualify as "socially and
economically disadvantaged."[^52] Although SBA regulations have evolved
over time, since 1989 the SBA has defined social disadvantage as, "those
who have been subjected to racial or ethnic prejudice or cultural bias
because of their identities as members of groups without regard to their
individual qualities."[^53] Members of designated minority groups are
*presumed* to be socially disadvantaged.[^54] An individual seeking
socially disadvantaged status as a member of a designated group may be
required to demonstrate that he/she holds himself/herself out and is
identified as a member of a designated group, if SBA has reason to
question such individual\'s status as a group member.[^55]

An individual who is not a member of one of the named groups must
establish his/her individual social disadvantage on the basis of clear
and convincing evidence.[^56] Those not enjoying the presumption of
disadvantaged status based on race must establish "chronic and
substantial" disadvantage and personal suffering due to "color, ethnic
origin, gender, physical handicap, long-term residence in an environment
isolated from the mainstream of American society, or other similar cause
. . . ."[^57] Additionally, these individuals must prove that their
social disadvantage negatively impacted on "entry into and/or
advancement in the business world."[^58]

**B. Evolution of the 8(d) Preference Program.**

The 1978 Amendments made other significant changes to the Small Business
Act, including establishing the requirement to set goals for SB and SDB
procurements and the requirement for agencies to report their progress
in meeting these goals.[^59] The 1978 Amendments also created an "8(d)"
preference program for minority subcontractors. Like the 8(a) change,
programs previously dedicated to fostering small business were converted
to affirmative action programs to stimulate government procurement from
"socially and economically disadvantaged" small businesses.[^60] The SBA
definition of social disadvantage for purposes of the 8(d) program
contains the same presumptions as those applicable to the 8(a)
program.[^61]

Unlike the 8(a) program, however, the mechanism for funneling government
business to small and disadvantaged companies in the 8(d) program was
through a prime contractor versus a government agency. The current
version of the 8(d) program requires that for all procurements over
\$500,000 (\$1,000,000 for construction of public facilities), prime
contractors must develop and submit subcontracting plans detailing how
they will meet percentage goals for the utilization of small businesses,
small businesses owned and controlled by "socially and economically
disadvantaged individuals," and (since enactment of FASA in 1994 and
FARA in 1996) small businesses "owned and controlled by women."[^62] The
current statute allows prime contractors to rely on written
representations by their subcontractors regarding their status as a
small business, a small business owned and controlled by women, or a
small business owned and controlled by socially and economically
disadvantaged individuals.[^63] It further requires that "\[t\]he
contractor *shall* presume that socially and economically disadvantaged
individuals include Black Americans, Hispanic Americans, Native
Americans, Asian Pacific Americans, and other minorities, or any
individual found to be disadvantaged by the Administration pursuant to
section 8(a) of the Small Business Act."[^64] The 8(d) presumption,
therefore, extends to both social and economic disadvantage (in contrast
to the 8(a) program, which requires an individualized showing of
economic disadvantage).[^65] Every federal agency is authorized by this
statute to provide incentives to encourage such subcontracting
opportunities.[^66] The *Adarand* case is based upon a Department of
Transportation subcontracting incentive program tied to a similar
presumption of social and economic disadvantage.[^67] DOD regulations
also impose race-based presumptions for qualification as small
disadvantaged businesses.

**C. The Department of Defense SDB Preference Program.**

The DOD established its SDB preference program primarily under authority
of Section 1207 of the National Defense Authorization Act of 1987.[^68]
The Act established a five percent goal for funds authorized to be spent
on fiscal year 1987 defense contracts and subcontracts to be devoted to
SDBs.[^69] Subsequent defense authorizations extended the five percent
goal to each succeeding fiscal year and allowed that awards to
historically black colleges and universities and minority institutions
could be included within these goals.[^70] The National Defense
Authorization Act for Fiscal Year 1993 extended the annual five percent
goal for DOD contracts to SDBs to the year 2000[^71] and codified the
five percent goal as part of 10 U.S.C. § 2323.[^72]

The authorization acts left to DOD's discretion the promulgation of
regulations and procedures necessary to achieve the stated objective of
awarding five percent of the dollar value of DOD\'s contracts to SDB
concerns.[^73] The DOD general policy is to use the section 8(a)
program, small disadvantaged business set-asides and evaluation
preferences, advance payments, outreach, and technical assistance to
meet its five percent goal for contract and subcontract awards to small
disadvantaged businesses.[^74] Prior to the *Adarand* case, DOD employed
a number of restrictive practices to promote SDB contracts and
subcontracts. For example, DOD required that whenever a product or
service had been acquired successfully in the past as part of a small
disadvantaged business set-aside, absent exigent circumstances, that
product or service was required to be set aside forever as a small
disadvantaged business set-aside procurement.[^75] Another provision
provided that except for certain circumstances (most notably 8(a), or
prior successful small business set-asides), "the contracting officer
shall set aside an acquisition for small disadvantaged businesses when
there is a reasonable expectation that . . . \[o\]ffers will be received
from at least two responsible small disadvantaged business (SDB)
concerns . . . \[and\] \[a\]ward will be made at not more than ten
percent above fair market price . . . ."[^76] This latter set-aside
provision has been nicknamed the "Rule of Two."[^77]

In addition to these special provisions, DOD also relied heavily upon
traditional 8(a) and 8(d) restrictions and preferences.[^78] "A concern
must qualify as a small disadvantaged business (SDB) on the date of
submission of its initial offer including price to be eligible for−(i)
Award under a small disadvantaged business set-aside; (ii) Preferential
consideration as an SDB under a partial set-aside; or (iii) An
evaluation preference for SDBs."[^79] Before DOD could consider one of
the above set-aside programs, the CO was required to "review the
acquisition for offering under the 8(a) Program."[^80] When a contract
was not to be awarded using 8(a) or DOD SDB set-aside procedures, the
SDB contractor was entitled to an evaluation preference, whereby all
non-SDB bidders would have the price of their offers inflated by ten
percent before they were compared to SDB offers (where award was to be
based on price or price-related factors).[^81]

Qualifying as an SDB in the DOD scheme is a somewhat amorphous
proposition. The DFARS provide, "\[t\]o be eligible as an SDB
subcontractor, a concern must meet the definition in the provision at
\[DFARS\] 252.219-7000, Small Disadvantaged Business Concern
Representation (DOD Contracts)."[^82] "Small disadvantaged business
concern" is defined in DFARS 252.219-7000 as a small business concern,
owned and controlled by individuals who are both socially and
economically disadvantaged, as defined by the Small Business
Administration at 13 CFR part 124"[^83] Thus, ultimately, the decision
as to which businesses qualify as SDBs relies upon application of the
SBA definitions. The contractor must certify that it is an SDB and must
indicate the basis of the certification by representing minority status
or other SDB qualification of the owner.[^84] Parallel requirements
apply to SDB subcontracting and SDB evaluation preferences.[^85]
Although the DOD regulations don't make this distinction, presumably the
SBA definitions concerning the 8(a) program would apply to DOD
set-asides, and the definitions pertaining to the 8(d) program would
govern subcontracting incentives and evaluation preferences.

IV. **THE *ADARAND* CASE−ITS History and AFTERMATH**

**A. History**

Since 1989, Adarand has tracked the volume of business that it knows it
has lost due to SDB incentives.[^86] Adarand has lost at least
thirty-three contracts in the past eight years where prime contractors
have been willing to tell them that the reason they lost an otherwise
low bid was because the prime contractor could not enjoy the SDB
incentive if they awarded to Adarand.[^87] Adarand's general manager
suspects that many times the primes may not tell him, even when this is
the reason they select an SDB over Adarand, because the primes know how
strongly he feels about this issue. He thinks that, on some occasions,
primes will simply tell him he wasn't "low" rather than face a possible
argument.[^88]

The thirty-three contracts that were positively lost as a result of
incentives to hire SDBs totaled over \$2 million in lost revenues, about
eight percent of Adarand's revenues.[^89] This adverse impact is based
upon the preference programs alone, since it is impossible to know how
much business was lost due to set-aside programs.[^90]

Adarand doesn't perform much "pentagon work," so it wasn't too
significant to Adarand when the DOD did away with the "Rule of Two" for
small disadvantaged business set-asides.[^91] The Rule of Two had
required that whenever a DOD CO reasonably believed that two or more
responsible SDBs would submit bids on a defense contract, the CO had to
set the contract aside exclusively for SDB participation, effectively
closing the door to all other small businesses.[^92] Because Adarand's
four main competitors are all SDBs, if Adarand had been subjected to
this constraint, it would have been precluded from bidding on any DOD
contracts if any two or more of its competitors were bidding. When the
Rule of Two was abolished, about \$1 billion of annual defense contracts
were no longer required to be set aside in this fashion.[^93]
Ironically, because Adarand does virtually no DOD work, it hasn't
benefited at all from this significant change in government contracting,
brought about by Adarand's Supreme Court victory.

The bulk of Adarand's work involves state and federal highway
programs.[^94] Most of the projects are not awarded by the federal
government, but are federally funded.[^95] The states, in order to
qualify for federal funding, must implement Department of Transportation
(DOT) affirmative action programs and goals.[^96] Adarand faced
obstacles when trying to overcome SDB preferences on federally funded
state projects.

Since most highway projects involve more than just guardrail work,
Adarand is almost always competing at the subcontractor level.[^97] As
the only non-minority owned guardrail contractor in Colorado, Adarand is
victimized by the race-based preferences extended to SDB subcontractors
as part of the 8(d) subcontracting program (as applied directly by the
Central Federal Lands Highway Division (CFLHD), which is part of DOT, or
as applied indirectly by the State of Colorado on federally-funded
highway projects).[^98] These were the provisions challenged in its 1989
lawsuit.

When Adarand submitted the low bid to a DOT prime contractor, Mountain
Gravel, it was informed by Mountain Gravel that it would have received
the subcontract, had it not been for the additional payment that
Mountain Gravel would receive by selecting an SDB instead.[^99] Adarand
Constructors filed suit in the federal district court protesting the
federally mandated, race-conscious subcontracting compensation clause
(SCC) which provided a financial incentive to Mountain Gravel for
subcontracting with an SDB instead of Adarand.[^100] The federal
regulations being contested included a race-based presumption that
certain minorities were, "socially and economically
disadvantaged."[^101] Adarand protested that this presumption, as part
of a federal regulation, violated his fifth amendment (versus fourteenth
amendment) right to equal protection. The Court of Appeals for the Tenth
Circuit, following what appeared to be a dichotomy between Fourteenth
Amendment equal protection analysis (where the courts apply strict
scrutiny) and Fifth Amendment equal protection analysis (where the
courts applied a lesser scrutiny), denied Adarand's appeal, holding that
the federal scheme complied with this lesser standard.[^102] The United
States Supreme Court decided, in June of 1995, that the same judicial
standard of review, strict scrutiny, should apply to both Fifth
Amendment and Fourteenth Amendment equal protection analysis.[^103]
Significantly, the Supreme Court left unanswered the ultimate question
of whether or not the challenged regulations violated the strict
scrutiny standard,[^104] and in a 5-4 decision, remanded the case to the
Tenth Circuit with directions to apply the correct legal standard.[^105]

Ultimately, in June of 1997, the SDB preferences and the statutory
provisions upon which they were based were held to be unconstitutional
by the Federal District Court of Colorado.[^106] The government has
appealed the judgment to the Tenth Circuit.[^107] For Mr. Randy Pech,
Adarand's president and general manager, this is a matter of principle
which won't be resolved by settlement.[^108] "As long as the presumption
is in place and the government discriminates against me because of the
color of my skin, I'll continue to fight every policy that's in
place."[^109]

The controversy surrounding this case should not be surprising given the
split along political lines regarding affirmative action and the
diversity among even the Supreme Court Justices on this very issue. One
need only compare the diverse opinions of the Justices deciding this
case to appreciate the underlying philosophical chasm.

In his concurrence with the majority, Justice Scalia writes, "In my
view, government can never have a 'compelling interest' in
discriminating on the basis of race in order to 'make up' for past
racial discrimination in the opposite direction . . . . In the eyes of
government, we are just one race here. It is American."[^110]

Justice Thomas takes this argument one step further. "In my mind,
government-sponsored racial discrimination based on benign prejudice is
just as noxious as discrimination inspired by malicious prejudice. In
each instance, it is racial discrimination, plain and simple."[^111]

Writing in dissent, Justice Ginsburg states, "The divisions in this
difficult case should not obscure the Court\'s recognition of the
persistence of racial inequality and a majority\'s acknowledgement of
Congress\' authority to act affirmatively, not only to end
discrimination, but also to counteract discrimination\'s lingering
effects."[^112]

Justice Souter writes separately in dissent, "The Court has long
accepted the view that constitutional authority to remedy past
discrimination is not limited to the power to forbid its continuation,
but extends to eliminating those effects that would otherwise persist
and skew the operation of public systems even in the absence of current
intent to practice any discrimination."[^113]

Finally, in yet another dissent, Justice Stevens posits, "There is no
moral or constitutional equivalence between a policy that is designed to
perpetuate a caste system and one that seeks to eradicate racial
subordination. Invidious discrimination is an engine of oppression . . .
. Remedial race-based preferences reflect the opposite impulse: a desire
to foster equality in society."[^114]

On the other hand, Justice O'Connor, writing for the majority, left the
door open for certain affirmative action programs to survive strict
scrutiny.

> "Finally, we wish to dispel the notion that strict scrutiny is 'strict
> in theory, but fatal in fact.' (citation omitted) The unhappy
> persistence of both the practice and the lingering effects of racial
> discrimination against minority groups in this country is an
> unfortunate reality, and government is not disqualified from acting in
> response to it."[^115]

Justice O'Connor also provided some (albeit limited) guidance for the
lower courts to follow in making their decisions. "When race-based
action is necessary to further a compelling interest, such action is
within constitutional constraints if it satisfies the 'narrow tailoring'
test this Court has set out in previous cases."[^116] Although not
providing any insight as to what the Supreme Court might consider
"compelling," she did suggest that in deciding whether the programs are
"narrowly tailored," the lower courts should consider whether
"race-neutral" means could be used to increase minority business
participation in government contracting, and whether an affirmative
action program "will not last longer than the discriminatory effects it
is designed to eliminate."[^117]

This divergence of opinion suggests that reasonable minds might not only
differ, but also passionately disagree. For this reason, district court
judges are unlikely to come to consistent conclusions regarding the
constitutionality of the SDB preferences as implemented by the various
federal agencies. Even so, it is necessary to examine lower court
decisions, precisely because of the vacuum left by the Supreme Court's
failure to address *whether in fact* these regulations failed to meet
the strict scrutiny standard.

# **B. The Aftermath**

Perhaps the best place to begin the analysis of whether the government
has a compelling interest in these types of SDB preference programs and,
if so, whether the programs are narrowly tailored to accomplishing their
remedial purposes, is the *Adarand* case itself on remand. Surprisingly,
the Tenth Circuit remanded the case to the district court "for further
proceedings" rather than applying the strict scrutiny test to the facts
of record.[^118] Judge Kane, the Senior District Court Judge, who
ultimately decided the case on remand, expressed his concern eloquently.
"In light of the lack of a genuine issue as to any material fact, the
rationale for the circuit court's remand to this trial court eludes
me."[^119]

Indeed, the circuit court may have been passing the buck because they
were unable to obtain consensus on the issue of whether the statutory
and regulatory schemes involved in the SDB preference programs survived
strict scrutiny. A similar lack of consensus may have generated the
remand from the Supreme Court. Judge Kane expressed his concern in this
regard also:

The prudence of remanding this case to the trial court is difficult to
perceive. Both parties have stipulated to the absence of any dispute of
material fact (citation omitted), and the unresolved questions posed by
Justice O'Connor . . . concern only issues of statutory construction . .
. and a number of "apparent discrepancies" the Court found in the
application of the statutes and regulations involved . . . . The higher
courts are better equipped to decide as a matter of law whether, under
the proper interpretation, the statutes involved can be described as in
furtherance of a compelling interest and narrowly tailored to meet that
interest.[^120]

The Supreme Court's determination that these purely legal issues,
"should be addressed in the first instance by the lower courts"[^121]
certainly is not predicated upon the Court's inability to resolve and
interpret complex regulatory and statutory schemes. Rather, it suggests
either an inability to obtain a majority opinion about the underlying
affirmative action program, or it reflects a desire on the part of the
Court to use the lower courts as an experimental proving ground, before
formalizing its opinion in this regard.[^122]

In *Adarand*, Judge Kane concluded, Congress need not make
state-to-state nor city-to-city findings of discrimination before it can
find a compelling interest in eliminating documented discriminatory
barriers.[^123] This portion of the decision is *dicta*, however,
because of the later determination that the subcontracting compensation
clause at issue was not tailored narrowly enough to survive strict
scrutiny.[^124] "Contrary to the Court\'s pronouncement that strict
scrutiny is not 'fatal in fact,' I find it difficult to envisage a
race-based classification that is narrowly tailored. By its very nature,
such program is both underinclusive and overinclusive."[^125]

Judge Kane considered the Supreme Court's direction with regard to
narrow tailoring, including whether there was any consideration of the
use of race-neutral means to increase minority business participation in
government contracting, and whether the program was appropriately
limited such that it would not last longer than the discriminatory
effect it was designed to eliminate.[^126] In addressing the first
issue, he concluded that the government's evidence regarding
race-neutral programs for at least twenty-five years before the 1978
Amendments to the Small Business Act, coupled with Congressional
findings that less than one percent of federal contracts in 1977 were
awarded to minority businesses, sufficed to prove that race-neutral
measures had been ineffective in increasing minority participation in
government contracting.[^127] He further determined that "\[w\]hen and
in what circumstances, the SCC program will end seems unclear. However,
because I have not found the SCC program to be narrowly tailored based
on other relevant factors, I need not rule on the issue of whether or
not the . . . program 'will not last longer than the discriminatory
effect it is designed to eliminate.'"[^128] Judge Kane's "other relevant
factors" related to the issue of narrow tailoring were based on Justice
O\'Connor\'s observation that "unresolved questions remain concerning
the details of the complex regulatory regimes implicated by the use of
subcontractor compensation clauses."[^129]

> The subject SCCs were not themselves created by any act of Congress.
> Rather, they were instituted by the CFLHD as one means by which to
> comply with the congressional requirements in the SBA, STURAA, and
> ISTEA. As such, both the SCCs themselves and the authority under which
> they arise must be examined in determining whether the SCC program is
> a narrowly tailored measure that furthers the government\'s proffered
> interest of reducing discriminatory barriers in federal
> contracting.[^130]

In examining the SCCs themselves, the court concluded, "the record
indicates retaining Gonzales, a disadvantaged business enterprise (DBE),
did not impose any additional cost upon Mountain Gravel. To the extent
an SCC payment acts as a gratuity for a prime contractor who engages a
DBE, it cannot be said to be narrowly tailored to the government\'s
interest of eliminating discriminatory barriers."[^131]

Adarand proved in its case that its four main competitors in the
guardrail business (all of whom are entitled to SDB status and
preferences) are established small businesses who have been competing
with Adarand for decades.[^132] Prime contractors are confident that all
of these four SDB contractors will deliver at the price bid without any
additional "oversight" costs to the prime.[^133] Adarand further pointed
out that when it competes with these firms, most of the time its SDB
competitors are awarded subcontracts because they are the lowest bidder
for the work.[^134] Based upon his conversations with them and the prime
highway contractors, Adarand's general manager estimates that about
ninety-five percent of the SDB's business is a result of ordinary
competition.[^135] Because these firms are capable of competing on an
equal basis, it seems there is no compelling need to give these SDBs an
advantage on the other five percent of the contracts.[^136] To the
extent that the government incentivizes awards to SDBs who don't need
the incentives, Adarand contends that the program is
over-inclusive.[^137]

On the other hand, Adarand contends that the program, as it has been
applied to the highway construction business in Colorado, is also
under-inclusive, since there is no requirement that the prime
contractors utilize SDBs that actually require additional
oversight.[^138] Over the past twenty-one years, Mr. Pech has seen
numerous SDBs try to "break in" to the guardrail business in
Colorado.[^139] Since the primes have no incentive to hire a truly
disadvantaged business, they meet their goals and earn their incentives
by using the four SDBs they know they can trust.[^140] From a business
perspective this makes sense, since the primes can keep the entire
incentive where there are no actual "oversight" expenses, plus the prime
incurs less risk of problems or failure with the four entrenched SDB
contractors.[^141] Of course, the four SDB contractors have no business
incentive to support or encourage newcomers, since any additional SDB
contractor will be competing for the same business and will enjoy the
same preferred footing. Despite the subcontracting preferences of the
past two decades, of the dozens of new minority contractors who have
attempted to enter this niche of the construction market, none have been
successful.[^142]

Turning from the SCC itself to the entire general regulatory and
statutory scheme, the district court noted:

> Congress has clearly mandated that its agencies award a certain
> percentage of federal contracts to groups certified under the
> race-based presumptions . . . . Section 637(d) of the SBA states "the
> contractor shall presume that socially and economically disadvantaged
> individuals include Black Americans, Hispanic Americans, Native
> Americans, Asian Pacific Americans, and other minorities . . . ."
> Section 644(g) of the SBA states: "The President shall annually
> establish Government-wide goals for procurement contracts . . . at not
> less than 5 percent . . . ."[^143]

Congress' national jurisdiction allows it, where appropriate, to
determine that discriminatory barriers exist with reference to specific
groups.[^144] "The statutes and regulations governing the SCC program
are overinclusive in that they presume that all those in the named
minority groups are economically and, in some acts and regulations,
socially disadvantaged."[^145] In other words, even though a minority
business might not be socially and economically disadvantaged, the
presumptions operate in its favor. The presumption, for instance, would
include Bill Cosby and Michael Jordan as "economically disadvantaged"
simply because of their race.

"This presumption is flawed, as is its corollary, namely that the
majority (Caucasians) as well as members of other (unlisted) minority
groups are not socially and/or economically disadvantaged."[^146] By
excluding certain minority groups whose members are economically and
socially disadvantaged due to past and present discrimination, the
program is also under-inclusive.[^147] Therefore, anyone who actually is
socially and economically disadvantaged that doesn't fall into the
"presumed disadvantaged" racial categories is compelled to prove their
individual disadvantage in accordance with the scheme outlined by the
SBA[^148] or forgo the benefits that disadvantage is supposed to afford.

> \[T\]he statutes and regulations implicated in the SCC program, with
> respect to the races included as presumptively disadvantaged, do not
> provide a reasonable assurance that the application of racial criteria
> will be limited to accomplishing the remedial objectives of Congress.
> (citation omitted) As such, they are not narrowly tailored to serve
> the interest of eliminating discrimination in the construction
> industry.[^149]

Just as a quota system is not narrowly tailored to achieving its
objective (potentially including more or fewer beneficiaries than
necessary to achieve a remedial goal), the presumptions at issue in this
case and the "mandatory" goals required by the statutory and regulatory
scheme miss the constitutional mark.

As Mr. Pech explained, in practice, the prime contractors have to base
their bids upon receiving the subcontracting incentives when competing
for these awards, because their competitors will be using the same
strategy.[^150] Just as Adarand is at a disadvantage when competing
against SDB subcontractors, primes who don't use SDB subcontractors are
at a disadvantage because they can't lower their bids (with the
expectation of recovering some incentive money later) to compete on
equal footing with primes who can plan to receive the incentives. If
Adarand can't make its bid attractive enough (by being sufficiently
below his SDB competitors) then they won't seriously be considered for
award of the subcontract.[^151]

Even when they can bid sufficiently low, they may not get the award
where the state refuses to grant a waiver to their "goals."[^152] "In
reality, the goals are quotas because someone is accountable if a goal
isn't met."[^153] "The practical impact is much more drastic than
reading the letter of the regulations might suggest; the end result is a
very rigid program that discriminates against white, male
businessmen."[^154]

In one situation, Adarand was 18% below his nearest SDB competitor and
the prime sought a waiver from the state suggesting that it was not
reasonable to obtain the work from an SDB in this situation.[^155] The
state refused to grant the waiver initially, until one of Adarand's SDB
competitor's intervened on its behalf and convinced the state that the
SDBs would be unwilling to perform the work for the same amount.[^156]
Adarand explained that the bureaucracy and delay associated with the
waiver procedure means that primes are extremely reluctant not to meet
their goals.[^157] To award to Adarand, they usually must hire more than
the target SDB subcontractor percentage in some other area of the work,
to offset the fact that Adarand is not an SDB.[^158]

DOD contractors are under similar obligations to work in good faith to
meet DOD goals. Where an SDB subcontractor does not belong to the
presumed disadvantaged category, and has not been previously certified
by the SBA under the 8(a) program, it is difficult to convince a prime
that it should win the award, due to the potential delay and
inconvenience. All of the inertia of the system itself means that
white-owned firms are substantially burdened by the existing scheme and
that minorities who don't enjoy the presumptive determination of this
status face a daunting task if they are attempting to qualify as
socially and economically disadvantaged.

The *Adarand* court on remand finally concluded that the mere fact that
there were inconsistencies in the various statutory and regulatory
provisions precluded a determination that the scheme was narrowly
tailored.[^159]

> Justice O\'Connor drew attention to the issue of whether the
> differences in the statutes and regulations implicated in the SCC
> program are relevant to a strict scrutiny analysis . . . . In my
> opinion, these disparities further indicate a lack of narrow tailoring
> . . . \[because of\] the resultant uncertainty as to who may or may
> not participate in the race-based SCC program.[^160]

The court thus struck down not only the particular subcontracting
compensation clause at issue in the case, but also the 8(d)
subcontracting incentive provision and the goal requirement of the Small
Business Act as Amended.[^161] However, the judgment only holds these
provisions unconstitutional as applied to highway construction in the
State of Colorado.[^162]

Because the 8(d) provisions are statutory and extend to every federal
agency in every state, it is likely that district court judges in other
areas of the country may rule the same way. Also, because the DOD
regulations contain similar presumptions and goals, DOD contracts are
equally vulnerable to challenge. Contracting officers may face district
court injunctions commanding them not to award an 8(d) contract or
invalidating the entire 8(d) program. Based upon the Supreme Court's
ruling that strict scrutiny standard applies, the government's 8(a)
program has also come under attack.

In *Dynalantic Corp. v. Department Of Defense*,[^163] the District of
Columbia Circuit Court overruled the district court to hold that
Dynalantic (a non-8(a) firm) had standing to challenge the 8(a) program.
"Dynalantic\'s injury is its lack of opportunity to compete for Defense
Department contracts reserved to 8(a) firms."[^164] In reaching this
ruling, the court considered the following facts significant:

> Of the approximately 5,700 firms currently in the 8(a) program, only
> about two dozen−less than one-half of one percent−have qualified by
> demonstrating to the SBA by "clear and convincing evidence," 13 C.F.R.
> § 124.105(c)(1), that they are socially disadvantaged; thus, over 99
> percent of the firms qualified as a result of race-based presumptions.
> That means that 99 percent of those companies that have a preferred
> position to appellant in competing for Defense Department contracts
> received an allegedly illegal boost to put them in the preferred
> category. It seems more than likely that without the regulatory
> presumption there would be considerably fewer 8(a) contractors, for
> such contractors would have to make by "clear and convincing evidence"
> the showing required by 13 C.F.R. § 124.105(c)(1), including that the
> disadvantage has been personally felt and has impacted their entry
> into the business world. Appellant would thus suffer a considerably
> lessened injury: a smaller number of 8(a) firms means a smaller number
> of contracts procured under the 8(a) program.[^165]

One notable feature of the court's decision was that the actual contract
originally at issue in the case had been withdrawn from the 8(a)
program.[^166] Although the dissent rigorously agreed with the district
court that the issue was now moot, nevertheless, the majority held:

> In sum, the interdependency of various provisions of the Act and the
> 8(a) regulatory scheme demonstrates that Dynalantic\'s injury−its
> inability to compete on equal footing with 8(a) participants−is
> traceable to the 8(a) program and is likely to be redressed by a
> decision holding all or part of the program unconstitutional.
> Dynalantic thus has standing to challenge the constitutionality of the
> 8(a) program . . . .[^167]

Standing to challenge the constitutionality of the preferences is the
key to gaining entrance to the courtroom. The government's position on
standing is that only those non-preferenced 8(a) businesses have
standing to challenge the race-based preference provisions, since only
these companies would be eligible for award if the 8(a) race-based
presumptions were found unconstitutional. This would be practically
impossible, given the *Dynalantic* court's statistics.[^168]

Other courts have also rejected the government's position. In *C.S.
McCrossan Co. v. Cook*,[^169] the district court found that McCrossan, a
large business, had standing to challenge the 8(a) scheme. In *Cortez
III Service Corp v. NASA*,[^170] Cortez, a former 8(a) contractor argued
not that the entire 8(a) scheme was unconstitutional, but only that the
application to it was unconstitutional. Cortez was found to have
standing.[^171] Certainly, the door is open to 8(a) challenges based
upon these cases.

That the door is open, however, is no guarantee that these firms are
likely to be successful on the merits. In *McCrossan*, the court stated:
"Defendants have submitted significant evidence that the 8(a) program
may survive strict scrutiny."[^172] Unfortunately, the court provided no
analysis of the strict scrutiny test when arriving at this
conclusion.[^173]

In *Cortez*, however, the court held that while the 8(a) program was
constitutional on its face, there was no effort whatsoever by NASA or
the SBA to address the particularized application of the 8(a) program to
this case, so Cortez was granted a preliminary injunction while the case
was litigated.[^174]

> The fact that Section 8(a) is constitutional on its face, however,
> does not give the SBA, NASA or any other government agency carte
> blanche to apply it without reference to the limits of strict
> scrutiny. Rather, agencies have a responsibility to decide if there
> has been a history of discrimination in the particular industry at
> issue . . . . It is not inconsistent with Congress\'s mandate to the
> SBA, to require the SBA to ensure that in each context where an 8(a)
> set-aside is proposed, such a set-aside is actually required. The
> defendants have at no time related why they believe it is necessary to
> pursue the 8(a) route. If NASA wants to proceed in this fashion, it
> has an obligation to explain what past societal disadvantages it
> intends to correct.[^175]

Because agencies have not made particularized findings regarding
discrimination when utilizing 8(a) and 8(d) programs in the past, COs
facing court actions in jurisdictions taking a "*Cortez*" type approach
might find many of their awards enjoined.

Due to the paucity of decisions on the merits considering the
constitutionality of the SDB preferences in the courts, the Government
Accounting Office (GAO) has been unwilling to conclude that award of
8(a) or 8(d) contracts should be denied based upon alleged
constitutional infirmity of the programs. In the wake of *Adarand*, the
GAO received protests from disgruntled bidders complaining that award
should not be made to the SDB contractors. The GAO has held uniformly:

> Our position is that *there must be clear judicial precedent on the
> precise issue presented to us before we will consider a protest based
> on the asserted unconstitutionality of a procuring agency\'s action*.
> Neither the *Adarand* nor the *Croson*^\[^[^176]^\]^ decision
> constitutes clear judicial precedent on the constitutionality or
> legality of this SDB set-aside program. These decisions addressed the
> particular set-aside programs that were before the Court, and while
> they indicate what factors need to be considered to determine the
> constitutionality of a particular set-aside program, we are unaware
> of, and the protester does not cite to, any dispositive federal court
> decisions applying the standards articulated in *Adarand* and *Croson*
> to a set-aside program which is sufficiently similar to DOD\'s program
> so as to warrant regarding those decisions as clear judicial precedent
> here.[^177]

The GAO requirement for clear judicial precedent on the precise issue
presented provides tremendous relief to the agencies and their
contracting officers. Since COs are powerless to do anything other than
to conform to agency regulations, it is at least comforting to know that
GAO is not going to intervene until the issue is settled. According to
the bid protest expert in the Secretary of the Air Force, General
Counsel office, after GAO made it clear that it was too early to handle
these cases, and following DODs suspension of set-aside programs (the
main point of contention), it's been very quiet in the bid protest
arena.[^178] "Until we get some kind of Supreme Court precedent, GAO
simply won't tackle *Adarand*−type cases."[^179] With the changing
regulatory landscape, it is unlikely that "there will be clear judicial
precedent on the precise issue presented" for quite some time.

**V. STATUTORY AND REGULATORY CHANGES SINCE 1994**

At the time it was passed, The Federal Acquisition Streamlining Act of
1994 (FASA), generated the broadest and most far-ranging changes to the
government procurement system in almost a decade.[^180] Not
surprisingly, FASA also included statutory changes to certain
socio-economic programs, including those procurements related to small,
and small and disadvantaged businesses. FASA § 7105 extended the SDB
initiatives of 10 U.S.C. § 2323 beyond the Department of Defense, to
NASA and the Coast Guard.[^181] Section 7102 similarly extended SDB
price evaluation preferences and competition restrictions to other
federal agencies.[^182] Section 7106 of FASA extends preferential
treatment to women-owned and controlled concerns and creates a separate
five percent procurement goal for women-owned businesses.[^183] Most of
these changes were to become effective when implemented by the FAR and
regulations to be generated by the agencies concerned.[^184]

FASA § 4301 created a new "micro-purchase" procedure which became
effective upon enactment.[^185] Micro-purchases are defined as purchases
of under \$2500.[^186] The new procedures are designed to allow the
federal government greatly accelerated and simplified procedures
(especially with the use of government credit cards) for its smallest
purchases. These micro-purchases are expressly exempt from the small
business set-aside provisions of the Small Business Act.[^187]
Acquisitions above the micro-purchase threshold, however, remained
subject to the full gamut of small business and SDB preferences.[^188]

COs also enjoy tremendous flexibility selecting contractors for award of
these micro-purchases, so long as the CO distributes the contracts
equitably among qualified sources.[^189] The CO need not even obtain
competitive quotations if they believe that the price obtained is fair
and reasonable.[^190] Even though micro-purchases are exempt from the
formal small business provisions, government needs in this price-range
are typically easy to satisfy by award to local small or small and
disadvantaged businesses. Thus, there need be no adverse impact on small
business due to this change.

Perhaps the notion that small contractors can handle small contracts
also explains why Congress required that (other than the micro-purchases
previously discussed) all acquisitions below FASA's new "simplified
acquisition threshold" be set aside for small businesses.[^191] The
"simplified acquisition threshold" (initially established as \$100,000),
replaced the \$25,000 "small purchase threshold" then in effect.[^192]
FASA retained the general preference of the Small Business Act (as
amended) that small contracts be reserved for small contractors, but
because the threshold was elevated from \$25,000 to \$100,000, small
businesses should enjoy even more business in this regard.[^193]

The Small Business Act was further amended at 15 U.S.C. § 644(g) by
inserting: "Government-wide goal for participation by small business
concerns owned and controlled by women shall be established at not less
than five percent of the total value of all prime contract and
subcontract awards for each fiscal year."[^194] The 8(d) program was
similarly expanded to include women-owned businesses within the scope of
preferred subcontractors.[^195] In September of 1995, the FAR was
modified to accommodate these changes. Specifically, FAR Subpart 19.7
was amended to include "Women-Owned Small Business Concerns" as part of
the subcontracting program, and to establish a requirement for prime
contractors to prepare subcontracting plans with "\[s\]eparate
percentage goals for using small business concerns, small disadvantaged
business concerns and women-owned small business concerns as
subcontractors."[^196] The related FAR clauses and mandated contract
clauses were similarly modified.[^197]

On September 18, 1995, the FAR provisions concerning acquisition of
commercial items, authorized by FASA, were finalized, to become
effective 1 October 1995. The new FAR rules benefit small businesses by
allowing the contractors to provide their commercial products to the
government (as manufactured or provided to the public at large), instead
of conforming their products to detailed government specifications,
allowing a broader range of products manufactured by small businesses to
satisfy government needs.[^198] Contracting officers are permitted
increased flexibility to use either the streamlined solicitation
procedures created in FAR Subpart 12.6 for acquiring commercial items,
or the existing procedures (in Parts 13, 14 or 15, as applicable), if
they are more beneficial, thereby allowing maximum flexibility for
contracting with small businesses.[^199] The government relies on the
contractor\'s quality assurance system instead of imposing a
government-specified system; and, by significantly limiting the flow
down of government-unique terms and conditions to subcontractors at all
levels, the government minimizes the burden on a significant number of
small businesses that operate primarily at the subcontractor
level.[^200]

A.  **The Recent Impact on DOD SDB Programs.**

On October 23, 1995, the DOD issued a directive suspending certain SDB
set-aside provisions of the Defense Federal Acquisition Regulation
Supplement, in light of *Adarand.*[^201] In April, 1996, DOD issued a
"final rule to implement initiatives designed to limit the adverse
impact \[on SDBs\] of this suspension \[while\] \[t\]he efforts of a
government-wide group to reform affirmative action programs in
procurement continue."[^202] What was the extent of the "adverse impact"
that DOD sought to avoid?

In FY 1992, when DOD first achieved its five percent goal, it awarded
\$5.2 billion in SDB prime contracts and an additional \$1.8 billion in
subcontracts to SDBs.[^203] The \$7 billion total amounted to six
percent of the total DOD awards of \$117.2 billion.[^204] Since the
inception of DOD's SDB program, the dollar value of the awards to SDBs
had grown from \$8 million to \$7 billion.[^205] Revenues to SDBs
generated as a result of the "Rule of Two" set-asides (at the time the
rule was suspended) totaled \$1 billion annually.[^206] With the demise
of the Rule of Two, DOD needed to implement other programs to meet its
SDB goals.

The 1996 DFARS rule implemented, "initiatives designed to facilitate
awards to SDBs while taking account of the Supreme Court\'s decision in
*Adarand.*"[^207] This DFARS rule expanded the ability of COs to
consider small, small disadvantaged, and women-owned small business
subcontracting as a factor in the evaluation of prime contractor's past
performance, and to weigh enforceable commitments to use small
businesses, SDBs, and women-owned small businesses more heavily than
non-enforceable commitments; required prime contractors to notify the
contracting officer of any substitutions of firms that are not small,
small disadvantaged, or women-owned small businesses for the firms
listed in the subcontracting plan; and established a test program of an
SDB evaluation preference that would remove bond cost differentials
between SDBs and other businesses as a factor in most source selections
for construction acquisitions.[^208]

The evaluation factors required to be considered when an award is to be
made by negotiated procurements (both for present subcontracting plans
and for past performance in subcontracting with small, small and
disadvantaged, and women-owned businesses) are designed to satisfy the
narrow tailoring requirement of strict scrutiny based upon the notion
that, unlike quotas, an evaluation preference is flexible. The CO has
the capability to adapt the relative weight of these factors to the
specific situation confronted by the CO. Such evaluation factors may by
weighed more heavily in favor of SDBs in procurements that pertain to
locations or industries where SDBs have demonstrated that they continue
to need assistance to overcome racial barriers, or to redress
individualized discrimination that they have faced. On the other hand,
where SDBs face no lingering barriers, have been competing successfully,
or where the burden on non-SDB small businesses is inordinately high,
the evaluation factor may be weighed more lightly. To the extent COs
apply the evaluation factors arbitrarily or inflexibly in award of
government contracts, they are vulnerable to a finding that the measures
were not narrowly tailored and violate strict scrutiny as applied.
However, given the secrecy of source selection proceedings, the
deference to CO discretion, and the presumption that the government acts
in good faith, it is unlikely that there will be any significant protest
activity or litigation in this regard.

A more significant development in the DFARS rules was the restoration
(as modified) of the price preference for SDB construction contractors.
It is evident in these rules and the clauses created that the government
was seeking to constrain the ten-percent price preference to situations
where a bidder evidenced actual "economic disadvantage" in terms of
higher bonding costs. It's worth examining the test program in more
detail to show how the government was seeking to satisfy the narrow
tailoring requirement of strict scrutiny as applied to this preference.
The evaluation preference must be used in all competitive acquisitions
for construction to be performed inside the United States, except:
"acquisitions which-(1) Are less than or equal to the simplified
acquisition threshold; (2) Are set aside for small businesses; or (3)
Are awarded under section 8(a) procedures."[^209] "The evaluation
preference need not be applied when the head of the contracting activity
determines that the evaluation preference is having a disproportionate
impact on non-SDB concerns or nondisadvantaged small business
concerns."[^210] This ability to "opt out" of the preferences where the
burden on small, non-SDB contractors is too great allows the program to
be more narrowly tailored.

The push toward narrow tailoring is even more evident when you compare
the procedures used to implement the test program with the prior scheme.

219.7203−Procedures. \[The New Construction Test Program\]

> \(a\) Solicitations that require bonding shall require offerors to
> separately state bond costs in the offer. Bond costs include the costs
> of bid, performance, and payment bonds.
>
> \(b\) Evaluate total offers. If the apparently successful offeror is
> an SDB concern, no preference-based evaluation is required under this
> subpart.
>
> \(c\) *If the apparently successful offeror is not an SDB concern,
> evaluate offers excluding bond costs. If, after excluding bond costs,
> the apparently successful offeror is an SDB concern, add bond costs
> back to all offers, and give offers from SDB concerns a preference in
> evaluation by adding a factor of 10 percent to the total price of all
> offers, except-*
>
> *(1) Offers from SDBs* which have not waived the evaluation
> preference; and
>
> \(2\) Offers from historically black colleges and universities or
> minority institutions, which have not waived the evaluation
> preference.[^211]

As seen above, in the new program, where the SDB would have been the low
bidder, except that its bonding costs elevated its bid above a non-SDB
rival, the SDB is given an evaluation preference by inflating the
non-SDB bid by ten percent (because award is made to the low bidder, the
preference will likely result in award to the SDB). Since it has long
been felt that one of the economic barriers confronting SDBs has been
the higher cost of bonding, linking the remedy to the specific hardship
(here the preference only applies where the SDB actually would have lost
business due to its higher bonding cost) is a much more focused way of
redressing the issue than the former scheme. While reducing the problem
of over-inclusion, it might be under-inclusive in that women-owned
businesses and small minority businesses (not owned and controlled by
individuals defined by the SBA as SDBs) are not entitled to the
preference, even though they might be equally disadvantaged in obtaining
bonding.

Under the former evaluation preference provisions, suspended in October
1995,[^212] SDB bidders enjoyed the ten percent evaluation preference
any time award was based upon price or price-related factors (all sealed
bidding), and at the discretion of the source selection authority in all
other competitive procurements.[^213] Because the preference was, and
continues to be,[^214] based upon race-based presumptions as to social
and economic disadvantage, the previous scheme was probably overbroad in
awarding bonuses to minority contractors who were not actually
economically disadvantaged in a given procurement. Other than the test
program at DFARS Subpart 219.72, to promote SDB concerns through
evaluation preferences in construction acquisitions,[^215] the
evaluation preferences for small disadvantaged business concerns at
DFARS Subpart 219.70 shall not be used.[^216]

> **B. Current Status of the DOD Preference Program.**

The changed SDB provisions need to be read together with the existing
scheme of DFARS provisions to appreciate the nature of the current SDB
programs. When desiring to benefit from its SDB status, the contractor
must represent to the DOD the nature and source of its SDB status.[^217]
The definition of SDB status is found in Part (a) of the required
representation clause.[^218] The definition is unchanged from the way it
has been phrased since 1991.[^219] Part (b) of the clause contains the
actual representations, which must be completed by the offeror
describing its status.[^220] The definition of SDB status and the
determination of eligibility for this status did not change, except to
include within the scope of the presumption individuals from additional
minority groups.[^221] Part (c), which used to contain a certification
by the contractor regarding its status, was changed to a section to be
"completed by" the contractor.[^222] FARA required elimination of
certain regulatory certification requirements and directed that the FAR
be changed to remove such certifications unless the certification
requirement had been specifically imposed by statute.[^223] Finally,
Part (d) notifies the contractor that false representations can subject
it to penalties including contractual consequences such as debarment and
criminal penalties for fraud.[^224]

As can be seen in the following provision, those not enjoying a
categorical race-based presumption must have previously demonstrated
their qualification as an SDB or must overcome a protest about their
status by the CO.

> The contracting officer shall protest an offeror\'s representation
> that it is a small disadvantaged business concern when . . . . The
> offeror represents its ownership as other than Black American,
> Hispanic American, Native American (including Indian tribes and Native
> Hawaiian organizations), Asian Pacific American, or subcontinent Asian
> American, unless the offeror represents that−
>
> \(A\) It currently is in the Section 8(a) program; or
>
> \(B\) Within the 6 months preceding submission of its offer, the
> offeror was determined by the Small Business Administration to be
> socially and economically disadvantaged, and no circumstances have
> changed to vary that determination.[^225]

The above provisions make clear that DOD continues to rely upon
race-based presumptions in determining disadvantaged status. Of course,
since DOD is involved in the FAR revision of SDB policies, and will be
bound by any final rules issued, changes to the FAR are certain to also
impact DOD. Because the SBA is ultimately responsible for determining
SDB status, any final changes to SBA regulations will by implication
change the DOD programs (where, for example, DOD provisions incorporate
SBA definitions by reference). Since these changes are sure to impact
DOD, COs need to be aware of what looms on the horizon for small
business contracting.

**C. The SBA's Regulatory Response to *Adarand ***

Regulatory changes to the 8(a) program could result in a 50% increase in
participants.[^226] The key proposed change is a more relaxed
standard−preponderance of evidence−for non-minority applicants to claim
eligibility for participation in the program.[^227] The preponderance
standard would replace the existing "clear and convincing evidence"
standard that many applicants, especially women, have claimed is unduly
onerous.[^228] Because the clear and convincing standard is so difficult
to prove, according to SBA Administrator Aida Alvarez, all but a handful
of 8(a) firms are owned by members of racial and ethnic
minorities.[^229] The new standard should improve opportunities for
persons with disabilities and firms located in poorer geographic areas
to qualify more easily.[^230] Proposed changes could increase the number
of eligible firms from about the current 6,000, to about 9,000.[^231]
SBA is working to increase the goal from 20% to 23% in order to
accommodate the larger pool of participants.[^232] The proposed rules
also rename the program the "8(a) Business Development" program.[^233]

The proposed rules were published in the Federal Register on 14 August
1997 with comments due 14 October 1997.[^234] In addition to the change
in the standard of proof for social and economic disadvantage, the
regulations are proposed to be amended to clarify that the race-based
presumption of disadvantage is rebuttable.[^235] While reducing the
burden on those not presumed to be socially and economically
disadvantaged is designed to make inclusion in the preferred group
easier (reducing under-inclusion); rebutting a race-based presumption
should help prevent over-inclusion by eliminating those presumed to be,
but who actually are not, disadvantaged. The presumption may be overcome
with "significant, credible evidence to the contrary."[^236] Because it
is very difficult to prove the negative, it may still be difficult to
challenge this presumption. Finally, "economic disadvantage" is
clarified to highlight that the focus of the inquiry is on the financial
condition of the individual, as opposed to the business.[^237]

**D. The Proposed FAR Changes in Response to *Adarand ***

In May of 1996, the Department of Justice (DOJ) published its "Proposed
Reforms to Affirmative Action in Federal Procurement."[^238] Given the
legal nature of the challenge to comprehensively review and overhaul the
federal procurement system so that it could survive strict scrutiny, it
made sense that DOJ would take the lead to solve this problem. In
addition to detailing the nature and extent of the existing SBD
preference programs, DOJ included its analysis regarding the
government's compelling interest in perpetuating affirmative action
programs in federal procurement.[^239] DOJ emphasized in this regard
that "\[s\]even of the nine justices of the Court embraced the principle
that it is possible for affirmative action by the federal government to
meet strict scrutiny."[^240] "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."[^241] At the same time, DOJ recognized, "the mere fact that
there has been generalized, historical societal discrimination in the
country against minorities is an insufficient predicate for
race-conscious remedial measures; the discrimination to be remedied must
be identified more concretely."[^242]

Since DOJ believed in the compelling interest, the only question that
remained is: How can the regulations be "narrowly tailored" to achieve
this interest? Because race-based preferences are incorporated
explicitly in the parts of the Small Business Act (as amended),[^243]
the executive branch is bound to follow and implement these laws unless
the courts find them unconstitutional on their face. So long as there is
a potential that the laws can be applied in a constitutional fashion,
the executive branch must try to do so. The issue, therefore, was how to
implement a preference program which relied, at least in part, on
race-based presumptions, and to narrowly tailor that program to achieve
the government's remedial objectives.

The solution, according to DOJ, was explained on 9 May 1997, in DOJ's
"Response to Comments to Department of Justice Proposed Reforms to
Affirmative Action in Federal Procurement."[^244] The proposed
amendments to the FAR−necessary to implement the proposed DOJ
reforms−were published the same day.[^245] These procedures were
proposed to implement § 7102 of the FASA, and to further implement 10
U.S.C. § 2323.[^246] As noted by DOJ: "These statutes permit federal
agencies to allow competitive advantages, including price and evaluation
credits, in awards involving small businesses owned and controlled by
socially and economically disadvantaged persons."[^247] However, even if
the statutes themselves are deemed to be constitutional, the method of
implementation must be narrowly tailored or the regulations are
unconstitutional. The regulations explaining how consideration of social
and economic disadvantage can be determined for firms wishing to be
treated as SDBs has not yet been formally proposed, but the essence of
the change advanced by DOJ had been to allow the presumption to
continue; to make clear that it was a rebuttable presumption; and, to
lower the evidentiary standard to a preponderance of the evidence.[^248]

DOJ noted that the preponderance of the evidence standard is the
preferred burden of proof in civil cases.[^249] "The Supreme Court has
held that the preponderance of the evidence standard is appropriate for
most inquiries made in civil litigation, including questions of
discrimination."[^250] It remains to be seen whether merely lowering the
burden for otherwise qualified applicants meets the strict scrutiny test
where the race-based status presumption enjoyed by all members of the
designated minority groups, who must only prove their membership in the
minority race, continues.

The FAR changes proposed to accommodate the new SDB regime look
strikingly similar to the DFARS changes implemented a year earlier, but
go farther than the DFARS provisions in creating SDB preferences.[^251]
Like the DFARS, they create a required evaluation factor for negotiated
procurements based upon the extent of the commitment to contract with
SDBs.[^252] They also require that prior success in attaining SDB
subcontracting goals be evaluated any time past performance is required
to be considered as an evaluation factor.[^253] Proposed FAR §
19.1202-3, like the parallel DFARS clause, allows COs discretion when
evaluating competing proposals to attach greater weight to bidders with
firm commitments to use SDB subcontractors, as opposed to bidders merely
stating explicit goals to use such subcontractors.[^254] Beyond the
evaluation preference, however, the proposed FAR would allow the CO to
award monetary incentives to prime contractors based upon their actual
achievement of SDB contracting goals, where the Office of Federal
Procurement Policy (OFPP) determines that greater SDB subcontracting
opportunities need to be afforded for a particular industry, based upon
the standard industrial code (SIC) classifications.[^255]

Another expanded authority the FAR would allow is the ability to give
SDBs a price preference in sealed bidding.[^256] Unlike the DFARS Test
Program where the price preference is limited to construction contracts,
and further limited to bonding costs which made an SDB other than the
low bidder, the FAR authorizes a price adjustment (again adjusting
non-SDB bids upward, thereby making them less competitive) any time OFPP
has authorized the price evaluation factor.[^257] While the FAR proposal
limits the factor at ten percent (DOD required ten percent), any factor
below ten percent might be provided by OFPP depending on the SIC code of
the industry affected.[^258] The FAR proposal is therefore potentially
much broader than the corresponding DFARS test program and, at the same
time, allows OFPP a role in deciding which SDB SICs should be entitled
to the preference. Presumably, this discretion can be used to afford
evaluation preferences where industries have a pattern of discriminatory
barriers that SDBs are otherwise unable to overcome. This flexibility
may be used to fit the remedy more narrowly to any discriminatory past
practice thereby rendering the relief more narrow than some bright line
rule.

It is clear that the changes are geared toward trying to tailor the
remedies more narrowly so that the SDB program will survive strict
scrutiny. However, those judges predisposed to viewing the affirmative
action programs in question as satisfying a compelling government need
might still have trouble concluding that the remedies are tailored
narrowly enough to satisfy strict scrutiny. Without a showing that the
individual small business effected actually needed the boost from the
government to overcome past discrimination, these provisions are still
vulnerable.

Because the regulations are derived from statutory raced-based
presumptions, however, unless or until the courts are clear that the
statutes themselves are invalid on their face, the administration will
continue to rely on the presumptions contained therein. It is precisely
because of these presumptions, however, that the scheme is likely to
remain both over-inclusive and under-inclusive. Moreover, the scheme
remains vulnerable to a strict scrutiny attack because it is not clear
that a race-neutral program based entirely on economic need would be
unable to satisfy the same objectives. Of course, if the statutes
themselves are changed or eliminated, the small business environment
would be dramatically affected, and so would the accompanying regulatory
scheme.

VI. **CONCLUSION**

Contracting officers and base level attorneys will have little choice
but to understand and implement the proposed changes to the
disadvantaged preference systems in the FAR when they take effect. A
broader understanding of the potential pitfalls will help COs avoid
problem areas and apply the new regulations in a manner that is designed
to overcome constitutional challenges to their actions. By understanding
which cases are most vulnerable to litigation, government counsel and
COs can better prepare ahead of time to avoid or defend these cases.

[^1]: *^\*^ Major Tolan (B.S.E.E., United States Air Force Academy,
    J.D., University of Michigan Law School) is assigned as an Associate
    Professor of Law at The United States Air Force Academy, Colorado,
    where he is Course Director for both Government Acquisition Law and
    Law for Commanders. He is a member of the Michigan Bar.*

    ^?^ Adarand Constructors, Inc. v. Pena*,* 515 U.S. 200 (1995).

[^2]: H.R. 1909 would eliminate virtually all preferential treatment
    programs within the federal government and would end racial and
    gender-based preferences in government contracting. *GOP Legislators
    Renew Campaign to Ban Racial Preferences in Government Programs*, 67
    Fed. Cont. Rep. (BNA) 740 (June 23, 1997). A similar measure (S.
    950) was introduced in the Senate. The legislation, entitled the
    "Civil Rights Act of 1997," is substantially the same as a measure
    former Senator Dole proposed as a direct assault on President
    Clinton's endorsement of affirmative action. *Id.* If passed, the
    President has indicated that he would veto the bill. *Bill to Ban
    Preferences wins House Judiciary Panel Approval Along Party Lines,*
    68 Fed. Cont. Rep. (BNA) 28 (July 14, 1997).

[^3]: *See,* *e.g.,* Department of Justice, Proposed Reforms to
    Affirmative Action in Federal Procurement, 61 Fed. Reg. 26,042 app.
    at 26,050 (1996) \[hereinafter DOJ Proposed Reforms\].

[^4]: At the time this article went to press, the Federal Acquisition
    Regulation changes proposed in May, 1997 dealing with affirmative
    action reform were not yet final. *See* discussion *infra* Part
    V.D., and note 245.

[^5]: 15 U.S.C.A. § 639(a) and (d); 15 U.S.C.A. § 644(h) (West 1976 &
    Supp. 1997).

[^6]: 15 U.S.C.A. § 644(g)(1) (West 1976 & Supp. 1997); 10 U.S.C.A. §
    2323(a) (West Supp. 1997).

[^7]: *See generally* 10 U.S.C. § 2323; 15 U.S.C. §§ 631-657; Gen.
    Servs. Admin. et. al., Fed. Acquisition Reg. part 19, 48 C.F.R. §
    19.000-19.1007 (Sept. 11, 1997) \[hereinafter FAR\]; Department of
    Defense Federal acquisition Regulation Supplement part 219, 48
    C.F.R. §§ 219.000-219.7107 (Sept. 11, 1997) \[hereinafter DFARS\].

[^8]: *DOD Surpasses 5% Goal on SDB Contracting*, 60 Fed. Cont. Rep.
    (BNA) 122 (Aug. 9, 1993).

[^9]: FAR, *supra* note 7, subpart 19.8 (Contracting with the Small
    Business Administration \[The 8(a) Program\]; DFARS, *supra* note 7,
    subpart 219.5 (Set-Asides for Small Business).

[^10]: FAR, *supra* note 7, subpart 19.7 (Subcontracting with Small
    Business and Small Disadvantaged Business Concerns); DFARS, *supra*
    note 7, subpart 219.7 (Subcontracting with Small Business and Small
    Disadvantaged Business Concerns).

[^11]: Interview with Randy M. Pech, General Manager of Adarand
    Constructors, Inc., (Sept. 23, 1997).

[^12]: *Id.*

[^13]: *Id.*

[^14]: *Id.* FAR § 19.001 provides in its definition of a small
    disadvantaged business concern: "Individuals who certify that they
    are members of named groups (Black Americans, Hispanic Americans,
    Native Americans, Asian-Pacific Americans, Subcontinent-Asian
    Americans) are to be considered socially and economically
    disadvantaged." FAR, *supra* note 7, § 19.001.

[^15]: Pech Interview, *supra* note 11.

[^16]: 515 U.S. 200 (1995).

[^17]: Adarand Constructors, Inc. v. Pena, 965 F. Supp. 1556 (D. Colo.
    1997).

[^18]: Pech Interview, *supra* note 11.

[^19]: "Since virtually every significant government procurement
    contract is subject to some form of affirmative action that is based
    upon racial classifications, the impact of *Adarand* on Government
    contract procurement is potentially very broad." Thomas J. Madden
    and Kevin M. Kordzeil, *Strict Scrutiny and the Future of Federal
    Procurement Set-Aside Programs in the Wake of Adarand: Does 'Strict
    in Theory' Mean 'Fatal in Fact'?* 64 Fed. Cont. Rep. (BNA) 133 (Aug.
    7, 1995). "Because affirmative action programs have been widely used
    in federal contracting−often through subcontracting quotas,
    requirements, and preferences−the *Adarand* decision will have a
    significant impact on minority preference programs[." Donald P.
    Arnavas and William J. Ruberry, Government Contract Guidebook, 1996
    Supplement]{.smallcaps} 6-5 \[hereinafter [Guidebook
    Supplement\].]{.smallcaps}

[^20]: *Clinton Unveils Affirmative Action Plans*, 37 Gov't Contractor
    385 (Fed. Pubs. July, 1995).

[^21]: Defense Federal Acquisition Regulation Supplement; Small
    Disadvantaged Business Utilization Program, 60 Fed. Reg. 54,954
    (1995).

[^22]: Even though the regulations relating to SDB procurement had been
    suspended, the statutory provisions of the Small Business Act, as
    amended, applied. Section 639 (d) specifically required:

    > For the purpose of aiding in carrying out the national policy to
    > insure that a fair portion of the total purchases and contracts
    > for property and services for the Government be placed with small
    > business enterprises, and to maintain and strengthen the overall
    > economy of the Nation, the Department of Defense shall make an
    > annual report . . . showing the amount of funds appropriated to
    > the Department of Defense which have been expended, obligated, or
    > contracted to be spend \[sic\] with small business concerns and
    > the amount of such funds expended, obligated or contracted to be
    > spent with firms other than small business . . . .

    15 U.S.C.A. § 639(d) (West 1976 & Supp. 1997).

[^23]: The DOD, for example, suspended indefinitely the "Rule of Two,"
    which had formerly required that whenever two qualified
    disadvantaged businesses sought to compete on a defense contract,
    the competition would be restricted exclusive to SDB bidders.
    Defense Federal Acquisition Regulation Supplement; Small
    Disadvantaged Business Utilization Program, 60 Fed. Reg. at 54,955.

[^24]: The Federal Acquisition Streamlining Act, Pub. L. No. 103-355,
    108 Stat. 3243 (codified in scattered sections of 10, 15, and 41
    U.S.C.) \[hereinafter FASA\].

[^25]: *Id.* Regulations to foster increased commercialization, which
    included a new FAR Section 12, regarding commercial procurements,
    were implemented in 1995. Federal Acquisition Regulation;
    Acquisition of Commercial Items, 60 Fed. Reg. 48,231 (1995)
    (codified at various parts of 48 C.F.R.).

[^26]: Section 8304 of FASA provided: "Nothing in this title shall be
    construed as modifying or superseding, or is intended to impair or
    restrict, authorities or responsibilities under\--(1) section 2323
    of title 10, United States Code . . . ." FASA § 8304. 10 U.S.C. §
    2323 imposes goals for contracting with "small disadvantaged
    businesses" and requires that the FAR contain procedures consistent
    with the Small Business Act to achieve those goals. 10 U.S.C.A. §
    2323 (West Supp. 1997). FASA actually extended the SDB initiatives
    of 10 U.S.C. § 2323 beyond the DOD, to NASA and the Coast Guard
    (FASA § 7105) and extended SDB price evaluation preferences and
    competition restrictions to other federal agencies (FASA § 7102).
    Pub. L. No. 103-355, 108 Stat. 3243 (1994). Section 7106 of FASA
    extends preferential treatment in small business procurements to
    also include women-owned and controlled concerns*.* FASA § 7106.

[^27]: The Federal Acquisition Reform Act of 1996, Pub. L. No. 104-106,
    110 Stat. 186 (codified in scattered sections of 10, 15, 38, and 41
    U.S.C.) \[hereinafter FARA\].

[^28]: FARA specifically required the addition of the following
    subsection to 10 U.S.C. 2304:

    > \(j\) The Federal Acquisition Regulation shall ensure that the
    > requirement to obtain full and open competition is implemented in
    > a manner that is consistent with the need to efficiently fulfill
    > the Government\'s requirements.

    FARA § 4101.

[^29]: FARA § 4203, titled "Inapplicability Of Certain Procurement Laws
    To Commercially Available Off-The-Shelf Items," provides in
    pertinent part, "nothing in this section shall be construed as
    modifying or superseding, or as being intended to impair or restrict
    authorities or responsibilities under . . . section 15 of the Small
    Business Act . . . . ." *Id.* *See also* [Guidebook
    Supplement,]{.smallcaps} *supra* note [19,]{.smallcaps} at
    [6-2.]{.smallcaps}

[^30]: FARA, Pub. L. No. 104-106, 110 Stat. 186 (1996).

[^31]: *Id.*

[^32]: *Id.*

[^33]: "When implemented, the new procedures will merit attention by
    procurement attorneys due to the ongoing controversy surrounding the
    topic they address; the introduction of innovative solutions
    intended to survive intense judicial scrutiny; and the high-profile,
    ongoing litigation that prompted the need for revised rules." Major
    Davis A. Wallace and Major Steven L. Schooner*, Affirmative Action
    in Procurement: A Preview of the Post-Adarand Regulations in the
    Context of an Uncertain Judicial Landscape*, [Army
    Law]{.smallcaps}., Sept. 1997 at 3.

[^34]: 965 F. Supp. 1556.

[^35]: Act of June 11, 1942, Pub. L. No. 603, 56 Stat. 351 (1942). For
    an excellent historical review of the evolution of small and
    disadvantaged business programs, *see* Thomas Jefferson Hasty,
    *Minority Business Enterprise Development and the Small Business
    Administration's 8(a) Program: Past, Present, and (is there a)
    Future?*, 145 [Mil. L. Rev]{.smallcaps}. 1 (1994).

[^36]: Act of June 11, 1942 § 4(f)4.

[^37]: Hasty, *supra* note 35, at 8 n.52.

[^38]: *Id.* at 8.

[^39]: *Id.* at 9.

[^40]: H.R. [Rep. No]{.smallcaps}. 494, 83d Cong., 1^st^ Sess. 8 (1953).

[^41]: Act of July 18, 1958, Pub. L. No. 85-536, 72 Stat. 384 (current
    version at 15 U.S.C. §§ 631-647 (1958)). Because later SBA set-aside
    programs stemmed from Section 8(a); they have been dubbed "8(a)
    set-asides."

[^42]: Hasty, *supra* note 35, at 10.

[^43]: Act of July 18, 1958 § 8(a)(1)-(2).

[^44]: Hasty, *supra* note 35, at 10-15.

[^45]: *Id*. at 12-13 n.86.

[^46]: In 1969, President Nixon signed an executive order establishing
    the Office of Minority Business Enterprise in the Department of
    Commerce. Exec. Order No. 11,458, 3 C.F.R. § 779 (1969). In 1970, he
    issued a second order calling for increased representation of the
    interests of small business concerns, particularly minority business
    enterprises, within federal departments and agencies. Exec. Order
    No. 11,518, 3 C.F.R. § 907 (1971).

[^47]: Exec. Order No. 11,625, 3 C.F.R. 616 (1971), *reprinted in* 15
    U.S.C.A. § 631 (West 1976).

[^48]: *Id.*

[^49]: *Id.* § 6(a) provided:

    > "Minority business enterprise" means a business enterprise that is
    > owned or controlled by one or more socially or economically
    > disadvantaged persons. Such disadvantage may arise from cultural,
    > racial, chronic economic circumstances or background or other
    > similar cause. Such persons include, but are not limited to,
    > Negroes, Puerto Ricans, Spanish-speaking Americans, American
    > Indians, Eskimos, and Aleuts.

    *Id.*

[^50]: An Act to Amend the Small Business Act and the Small Business
    Investment Act of 1958, Pub. L. No. 95-507, 92 Stat. 1757 (1978)
    (codified as amended in scattered sections of 15 U.S.C.)
    \[hereinafter 1978 Amendments\]. The 1978 Amendment replaced the
    following sections, which were formerly part of the SBA set aside
    scheme:

    > \(a\) It shall be the duty of the Administration and it is hereby
    > empowered, whenever it determines such action is necessary\--
    >
    > \(1\) to enter into contracts with the United States Government
    > and any department, agency, or officer thereof having procurement
    > powers obligating the Administration to furnish articles,
    > equipment, supplies, or materials to the Government. In any case
    > in which the Administration certifies to any officer of the
    > Government having procurement powers that the Administration is
    > competent to perform any specific Government procurement contract
    > to be let by any such officer, such officer shall be authorized in
    > his discretion to let such procurement contract to the
    > Administration upon such terms and conditions as may be agreed
    > upon between the Administration and the procurement officer; and
    >
    > \(2\) to arrange for the performance of such contracts by
    > negotiating or otherwise letting *subcontracts to small-business
    > concerns* *or others* for the manufacture, supply, or assembly of
    > such articles, equipment, supplies, or materials, or parts
    > thereof, or servicing or processing in connection therewith, or
    > such management services as may be necessary to enable the
    > Administration to perform such contracts.

    *Id.* § 1761 (emphasis added).

[^51]: *Id.* As codified, the most recent version of the 8(a) program
    may be found at 15 U.S.C.A. § 637(a) (West 1997).

[^52]: *Id.*

[^53]: Social Disadvantage, 13 C.F.R. § 124.105 (1998).

[^54]: Section 124.105 (b) reads:

    Members of designated groups. (1) In the absence of evidence to the
    contrary, the following individuals are presumed to be socially
    disadvantaged: Black Americans; Hispanic Americans; Native Americans
    (American Indians, Eskimos, Aleuts, or Native Hawaiians); Asian
    Pacific Americans (persons with origins from Burma, Thailand,
    Malaysia, Indonesia, Singapore, Brunei, Japan, China, Taiwan, Laos,
    Cambodia (Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust
    Territory of the Pacific Islands (Republic of Palau), Republic of
    the Marshall Islands, Federated States of Micronesia, the
    Commonwealth of the Northern Mariana Islands, Guam, Samoa, Macao,
    Hong Kong, Fiji, Tonga, Kiribati, Tuvalu, or Nauru); Subcontinent
    Asian Americans (persons with origins from India, Pakistan,
    Bangladesh, Sri Lanka, Bhutan, the Maldives Islands or Nepal); and
    members of other groups designated from time to time by SBA
    according to procedures set forth at paragraph (d) of this section.

    *Id.* § 124.105(b).

[^55]: *Id.* § 124.105(b)(2).

[^56]: *Id.* § 124.105(c)(1).

[^57]: *Id.* § 124.105(c)(1)(i-iv).

[^58]: *Id.* § 124.105(c)(1)(v).

[^59]: *Id.* *See also* Historical and Statutory Notes accompanying 15
    U.S.C.A. § 644 (West 1997).

[^60]: The 1987 Amendments substituted subsection (d) for one which
    read:

    > \(1\) Within ninety days after the effective date of this
    > subsection, the Administrator, the Secretary of Defense, and the
    > Administrator of General Services shall cooperatively develop *a
    > small business subcontracting program* which shall contain such
    > provisions as may be appropriate *to (A) enable small business
    > concerns to be considered fairly as subcontractors and suppliers
    > to contractors performing work or rendering services as prime
    > contractors or subcontractors under Government procurement
    > contracts* . . . . Provided further, That such program shall
    > provide that in evaluating bids or selecting contractors for
    > negotiated contracts, the extensive use of subcontractors by a
    > proposed contractor shall be considered a favorable factor . . . .
    >
    > \(2\) *Every contract for property or services* (including but not
    > limited to contracts for research and development, maintenance,
    > repair and construction, but excluding contracts to be performed
    > entirely outside of the United States or its territories) *in
    > excess of \$ 1,000,000 made by a Government department* or agency,
    > which in the opinion of the procuring agency offers substantial
    > subcontracting possibilities, *shall require the contractor to
    > conform to the small business subcontracting program promulgated
    > under this subsection*, and to insert in all subcontracts and
    > purchase orders in excess of \$ 500,000 which offer substantial
    > possibilities for further subcontracting a provision requiring the
    > subcontractor or supplier to conform to such small business
    > subcontracting program.

    *See* Historical and Statutory Notes accompanying 15 U.S.C.A. § 637
    (West 1997) (emphasis added).

[^61]: 13 C.F.R. § 124.105.

[^62]: 15 U.S.C.A. § 637(d) (West 1997). Failure of a contractor to
    comply in good faith with the goals, "shall be a material breach of
    such contract." *Id.* § 637(d)(8).

[^63]: *Id.* § 637(d)(3)(E).

[^64]: *Id.* § 637(d)(3)(C) (emphasis added).

[^65]: *Id.* § 637(d)(3)(C) and § 637(a)(6)(A). *See also* 13 C.F.R. §
    124.106(a).

[^66]: *Id*. § 637(d)(4)(E).

[^67]: "Those regulations say that the certifying authority should
    presume both social and economic disadvantage (i.e., eligibility to
    participate) if the applicant belongs to certain racial groups, or
    is a woman." Adarand Constructors, Inc. v. Pena*,* 515 U.S. 200*,*
    208 (1995) (referring to 49 C.F.R. § 23.62 (1994)).

[^68]: National Defense Authorization Act for Fiscal Year 1987, Pub. L.
    No. 99-661, 100 Stat. 3859, 3973 (1986).

[^69]: *Id.*

[^70]: National Defense Authorization Act for Fiscal Years 1988 and
    1989, Pub. L. No. 100-180, 101 Stat. 1034 (1987); National Defense
    Authorization Act for Fiscal Years 1990 and 1991, Pub L. No.
    101-189, 103 Stat. 1352 (1989); National Defense Authorization Act
    for Fiscal Year 1991, Pub. L. No. 101-510, 104 Stat. 1485 (1990);
    DFARS, *supra* note 7, § 226.7000.

[^71]: National Defense Authorization Act for Fiscal Year 1993, Pub. L.
    No. 102-484, 106 Stat. 2315 (1992). Section 801 of the National
    Defense Authorization Act for Fiscal Year 1993 codified and amended
    § 1207 of the earlier authorization act at 10 U.S.C.A. § 2323. *Id.*

[^72]: *Id.* § 2323 (a) and (k) (West Supp. 1997).

[^73]: Section 801 created the following requirement:

    > The Secretary of Defense shall prescribe regulations that provide
    > procedures or guidelines for contracting officers to set goals
    > which Department of Defense prime contractors that are required to
    > submit subcontracting plans under section 8(d)(4)(B) of the Small
    > Business Act (15 U.S.C.A. § 637(d)(4)(B)) in furtherance of the
    > Department\'s program to meet the 5 percent goal . . . .

    *Id.* § 2323.

[^74]: DFARS, *supra* note 7, § 219.201.

[^75]: DFARS, *supra* note 7, § 219.501(g)(S-70). This section was
    suspended for an indefinite period of time. *See supra* note 23.

[^76]: DFARS, *supra* note 7, § 219.502-2-70. This section was suspended
    for an indefinite period of time. *See supra* note 23.

[^77]: The demise of the Rule of Two was heralded in an October 1995 Los
    Angeles Times Article. *See* David G. Savage*, Pentagon Will End Job
    Pacts Based On Race,* [L.A. Times,]{.smallcaps} Oct. 22, 1995, at
    A1.

[^78]: *See generally*, DFARS, *supra* note 7, subpart 219.7
    (Subcontracting with Small Business and Small Disadvantaged Business
    Concerns), subpart 219.8 (Contracting with the Small Business
    Administration (The 8(a) Program)), and subpart 219.70 (Evaluation
    Preference for Small Disadvantaged Business (SDB) Concerns).

[^79]: *Id.* § 219.301.

[^80]: *Id.* § 219.803.

[^81]: *Id.* §§ 219.7000-219.7002.

[^82]: *Id.* § 219.703.

[^83]: *Id.* § 252.219.7000.

[^84]: *Id.*

[^85]: *Id.* §§ 252.219.7002, 252.219.7006.

[^86]: Pech Interview, *supra* note 11.

[^87]: *Id.*

[^88]: *Id.*

[^89]: *Id.*

[^90]: *Id.* Mr. Pech indicated that because Adarand isn't eligible to
    bid these contracts he doesn't know whether Adarand would have been
    the low bidder; hence it is impossible to say with any certainty how
    much set-aside business Adarand lost*.*

[^91]: *Id.*

[^92]: DFARS, *supra* note 7, § 219.502-2-70 (suspended, effective Oct.
    23, 1995. *See* 60 Fed. Reg. 54,954, 54,955 (1995)).

[^93]: The L.A. Times reported:

    The Pentagon will announce early this week that it is repealing an
    affirmative-action rule that prevented white-owned firms from
    competing last year on contracts worth \$1 billion, according to
    White House and Justice Department officials. The announcement,
    expected Monday or Tuesday, comes four months after the Supreme
    Court ruled that it is almost always unconstitutional for federal
    agencies to use \"racial classifications\" in awarding contracts.

    Savage*, supra* note 77.

[^94]: Pech Interview, *supra* note 11.

[^95]: *Id.*

[^96]: Surface Transportation and Uniform Relocation Assistance Act of
    1987 \[STURRA\], Pub. L. No. 100-17, 101 Stat. 132 (1987).
    "Approximately 98% of STURRA's funding is allocated to the States."
    Adarand Constructors, Inc. v. Pena*,* 515 U.S. 200, 254 n.9 (1995)
    (Stevens J., dissenting) (citing Respondent's \[DOJ's\] brief).
    STURAA provides that "not less than 10 percent" of the appropriated
    funds "shall be expended with small business concerns owned and
    controlled by socially and economically disadvantaged individuals."
    Pub. L. No. 100-17, 101 Stat. 132, 145 (1987). STURAA adopts the
    Small Business Act\'s definition of "socially and economically
    disadvantaged individual," including the applicable race-based
    presumptions, and adds that "women shall be presumed to be socially
    and economically disadvantaged individuals for purposes of this
    subsection." *Id.*

[^97]: Pech Interview, *supra* note 11.

[^98]: *Id.*

[^99]: *Id.*

[^100]: Adarand Constructors, Inc. v. Pena*,* 515 U.S. 200*,* 205
    (1995).

[^101]: *Id.* at 208.

[^102]: Adarand Constructors, Inc. v. Pena*,* 16 F.3d 1537, 1547 (10^th^
    Cir. 1994)*.*

[^103]: 515 U.S. at 237.

[^104]: In the emotionally charged arena of affirmative action, where
    reasonable minds can differ, the author suspects that the court was
    unable to arrive at a majority on the merits of this case.

[^105]: 515 U.S. at 237.

[^106]: Adarand Constructors, Inc. v. Pena*,* 965 F. Supp. 1556, 1587
    (D. Colo. 1997).

[^107]: Pech Interview, *supra* note 11.

[^108]: *Id.*

[^109]: *Id.*

[^110]: 515 U.S. at 239 (Scalia, J., concurring). "To pursue the concept
    of racial entitlement−even for the most admirable and benign of
    purposes−is to reinforce and preserve for future mischief the way of
    thinking that produced race slavery, race privilege and race
    hatred." *Id.*

[^111]: 515 U.S. at 240 (Thomas, J., concurring).

    > So-called 'benign' discrimination teaches many that because of
    > chronic and apparently immutable handicaps, minorities cannot
    > compete with them without their patronizing indulgence.
    > Inevitably, such programs engender attitudes of superiority or,
    > alternatively, provoke resentment among those who believe that
    > they have been wronged by the government\'s use of race. These
    > programs stamp minorities with a badge of inferiority and may
    > cause them to develop dependencies or to adopt an attitude that
    > they are 'entitled' to preferences. *Id.*

[^112]: 515 U.S. at 273 (Ginsburg, J., dissenting). "Bias both conscious
    and unconscious, reflecting traditional and unexamined habits of
    thought, keeps up barriers that must come down if equal opportunity
    and nondiscrimination are ever genuinely to become this country\'s
    law and practice . . . ." *Id.* at 274. "I would not disturb the
    programs challenged in this case . . . . " *Id.* at 276.

[^113]: 515 U.S. at 269 (Souter, J., dissenting). "Indeed, a majority of
    the Court today reiterates that there are circumstances in which
    Government may, consistently with the Constitution, adopt programs
    aimed at remedying the effects of past invidious discrimination."
    *Id.* at 270.

[^114]: 515 U.S. at 243 (Stevens, J., dissenting).

    > I do not believe such action, whether wise or unwise, deserves
    > such an invidious label as 'racial paternalism,' ante, at 1. If
    > the legislature is persuaded that its program is doing more harm
    > than good to the individuals it is designed to benefit, then we
    > can expect the legislature to remedy the problem. Significantly,
    > this is not true of a government action based on invidious
    > discrimination.

    *Id.* at 249. (quoting Justice Thomas' concurring opinion).

[^115]: 515 U.S. at 237 (1995).

[^116]: *Id.*

[^117]: *Id.* at 237-38.

[^118]: Adarand Constructors, Inc. v. Pena*,* 965 F. Supp. 1556, 1587
    (D. Colo. 1997).

[^119]: *Id.* at 1558.

[^120]: *Id.*

[^121]: 515 U.S. at 238.

[^122]: "In remanding the case, the Supreme Court has essentially
    delegated the difficult responsibility of defining strict scrutiny
    to a nationwide judiciary. In all likelihood, however, the Court has
    only taken temporary leave of the case . . . ." Madden and Kordzeil,
    *supra* note 19, at 134.

[^123]: 965 F. Supp. at 1577. For reasons to be explained later (*see
    infra* note 127) it is not clear that the Government will be able to
    prevail in all courts on the "compelling interest" question.

[^124]: *Id.*

[^125]: *Id.* at 1580.

[^126]: *Id.* at 1582, 1584.

[^127]: *Id.* at 1583. To say that discriminatory barriers existed in
    the 1970s is much different from addressing the question of whether
    those same barriers exist today. Justice Steven's dissent in
    *Adarand* suggested that some lower level of "compelling" interest
    might be suggested by the majority:

    > I think it is unfortunate that the majority insists on applying
    > the label \"strict scrutiny\" to benign race-based programs. That
    > label has usually been understood to spell the death of any
    > governmental action to which a court may apply it. The Court
    > suggests today that \"strict scrutiny\" means something
    > different--something less strict--when applied to benign racial
    > classifications. Although I agree that benign programs deserve
    > different treatment than invidious programs, there is a danger
    > that the fatal language of \"strict scrutiny\" will skew the
    > analysis and place well-crafted benign programs at unnecessary
    > risk.

    515 U.S. at 243 (Stevens, J., dissenting). However, this seems
    contrary to the express language of the majority, "any person, of
    whatever race, has the right to demand that any governmental actor
    subject to the Constitution justify any racial classification
    subjecting that person to unequal treatment under the strictest
    judicial scrutiny." 515 U.S. at 224. Furthermore, the underlying
    purposes of the majority holding were to impose the same standard
    regardless of the "race of the individual burdened or benefited"
    (consistency) and whether or not the analysis was conducted
    according to the Fifth Amendment or the Fourteenth Amendment
    (congruence). *Id*. If this is the case, based upon the Supreme
    Court's holding in *Richmond v. J.A. Croson*, 488 U.S. 469 (1989),
    then to be compelling, the Government must show "a strong basis in
    evidence for its conclusion that remedial action was necessary."
    *Id.* Indeed, looking at *Croson* and its progeny, "strict in
    theory" has almost always been "fatal in fact."

[^128]: 965 F. Supp. at 1584.

[^129]: *Id.* at 1581 (citing O'Connor, 515 U.S. at 238).

[^130]: 965 F. Supp*.* at 1578.

[^131]: *Id.* at 1579. "Rather, this aspect of the SCC results in the
    spending of public funds in a way 'which encourages, entrenches,
    subsidizes, or results in racial discrimination.'" *Id.* at
    1579-1580 (quoting Lau v. Nichols, 414 U.S. 563 (1974)).

[^132]: Pech Interview, *supra* note 11. It should be noted that both
    Mr. Pech and his wife have been called upon to testify in regard to
    the business consequences of these SDB incentive programs on
    numerous occasions by various committees and subcommittees within
    Congress. *Senate Hearings on Proposals to Prohibit the Use of Race
    and Gender Preferences by the Federal Government in Employment,
    Contracting and Other Programs,* 105^th^ Cong. 143-83 (1997)
    (testimony of Randy Pech, Adarand Constructor's, Inc.);
    *Unconstitutional Set-Asides Hearing Before the Senate Committee on
    the Judiciary, Subcommittee on the Constitution,* 105^th^ Cong.
    143-133 (testimony of Mrs. Valery Pech, Adarand Constructor's,
    Inc.).

[^133]: *Id.*

[^134]: *Id.*

[^135]: *Id.*

[^136]: *Id.*

[^137]: *Id.*

[^138]: *Id.*

[^139]: *Id.*

[^140]: *Id.*

[^141]: *Id.*

[^142]: *Id.*

[^143]: 965 F. Supp. at 1579 (citing 15 U.S.C. §§ 637(d) and 644 (g)).

[^144]: *Id.*

[^145]: *Id.* The judge probably transposed "economically" and
    "socially" and meant to write that "all those in the named minority
    groups are \[presumed\] *socially* and, in some acts and
    regulations, \[further presumed\] *economically* disadvantaged."

[^146]: *Id.*

[^147]: *Id.*

[^148]: Social Disadvantage, 13 C.F.R. § 124.105 (1998); Economic
    Disadvantage, 13 C.F.R. § 124.106 (1998).

[^149]: *Id.*

[^150]: Pech Interview, *supra* note 11.

[^151]: *Id.*

[^152]: *Id.*

[^153]: *Id.*

[^154]: *Id.*

[^155]: *Id.*

[^156]: *Id.*

[^157]: *Id.*

[^158]: *Id.*

[^159]: 965 F. Supp. at 1581. Compare, for example, the 8(d) provision
    \[15 U.S.C. § 637(d)\] and the FAR presumption \[48 C.F.R. §
    19.703(a)(2)\] for both social and economic disadvantage accruing
    solely upon minority status in a named group, with the SBA scheme
    allowing members of the same named groups the presumption of social
    disadvantage \[13 C.F.R. § 124.105\], but potentially requiring some
    individualized showing of economic disadvantage \[13 C.F.R. §
    124.106(b)\].

[^160]: 965 F. Supp. at 1581*.*

[^161]: *Id.* at 1584, striking down 15 U.S.C. §§ 637(d) and 644(g).

[^162]: *Id.*

[^163]: Dynalantic Corp. v. Department Of Defense*,* 115 F.3d 1012 (D.C.
    Cir. 1997).

[^164]: *Id.* at 1015.

[^165]: *Id.* at 1016-17.

[^166]: "We think appellant has demonstrated the likelihood that the
    government will, sometime in the near future, attempt to procure
    under the 8(a) program another contract for which Dynalantic is
    ready, willing, and able to bid." *Id.* at 1018.

[^167]: *Id.*

[^168]: *Id*. at 1015-16.

[^169]: C.S. McCrossan Co. v. Cook, No. 95-1345-HB, 40 Cont. Cas. Fed.
    (CCH) P76,917, 1996 LEXIS 14721 (D.N.M. Apr. 2, 1996).

[^170]: Cortez III Service Corp v. NASA, 950 F. Supp 357 (D.D.C. 1996).

[^171]: *Id.* at 360.

[^172]: McCrossan, 1996 LEXIS 14721.

[^173]: *Id.* In fact, the entire ruling regarding likelihood of success
    on the merits stated only: "At this juncture, Plaintiff has not
    demonstrated a substantial likelihood of prevailing on the merits.
    Defendants have submitted significant evidence that the 8(a) program
    may survive strict scrutiny as articulated in Adarand. Accordingly,
    Plaintiff\'s motion for preliminary injunction is denied." *Id.*

[^174]: 950 F. Supp. at 362-63.

[^175]: *Id.*

[^176]: The GAO is referring to the Supreme Court's holding in Richmond
    v. J.A. Croson, 488 U.S. 469 (1989).

[^177]: G.H. Harlow Co., Inc., B-266144.3, 96-1 CPD ¶ 116 (Feb. 28,
    1996) (on reconsideration) (emphasis added). *See also* Seyforth
    Roofing Co., Inc., B-235703, 89-1 CPD ¶ 574 (June 19, 1989);
    Schwegman Constructors and Engineers, Inc., B-272223, 96-2 CPD ¶ 90
    (Aug. 28, 1996); JWA Security Services, B-253836, 93-2 CPD ¶ 219
    (Oct. 12, 1993).

[^178]: Telephone interview with Greg Petkoff, Secretary of the Air
    Force General Counsel for Acquisitions (Oct. 1, 1997).

[^179]: *Id.*

[^180]: FASA, Pub. L. No. 103-355, 108 Stat. 3243 (codified in scattered
    sections of 10, 15, and 41 U.S.C.) (1994). The author remembers
    attending a government contract course entitled, "The New
    Competitive Environment" shortly after passage of the Competition in
    Contracting Act of 1984 (CICA), Pub. L. No. 98-369, 98 Stat. 1175,
    where CICA was heralded as a radical change to the fundamental way
    that the Government buys things. From the time CICA was passed until
    FASA was passed in 1994, no other procurement legislation created
    the same type of excitement and promise for change.

[^181]: FASA § 7105.

[^182]: *Id*. § 7102.

[^183]: *Id*. § 7106.

[^184]: *Id*.

[^185]: The President signed FASA into law on 13 October 1994. FASA §
    4301(c) provided that, "notwithstanding any other provision of law,
    subsection (b) \[excluding micro-purchases from the provisions of
    the Small Business Act\] shall take effect on the date of the
    enactment of this Act." FASA § 4301(c).

[^186]: *Id.* § 4301(g).

[^187]: FASA § 4301 provided: "A purchase by an executive agency with an
    anticipated value of the micro-purchase threshold or less is not
    subject to section 15(j) of the Small Business Act, 15 U.S.C. \[§\]
    644(j) . . . ." FASA § 4301, 41 U.S.C.A. 428(b) (1997).

[^188]: Section 8304 of FASA provided, "Nothing in this title shall be
    construed as modifying or superseding, or as intended to impair or
    restrict, authorities or responsibilities under−(1) section 2323 of
    Title 10, United States Code, or section 7102 of the Federal
    Acquisition Streamlining Act of 1994." *Id* § 8304. FASA § 4301
    explicitly provided:

    > The Office of Federal Procurement Policy Act (41 U.S.C. 401 et
    > seq.) is amended by adding . . . the following new section: . . .
    >
    > \(1\) The head of each executive agency shall ensure that
    > procuring activities of that agency, in awarding a contract with a
    > price exceeding the micro-purchase threshold, comply with the
    > requirements of section 8(a) of the Small Business Act (15 U.S.C.
    > 637(a)), section 2323 of title 10, United States Code, and section
    > 7102 of the Federal Acquisition Streamlining Act of 1994.

    FASA § 4301, 41 U.S.C.A. § 428(a) (West 1997).

[^189]: *Id.* § 4301(a), 41 U.S.C.A. § 428(d) (West 1997).

[^190]: *Id.* § 4301(a), 41 U.S.C.A. § 428(c) (West 1997).

[^191]: FASA § 4004 requires that all contracts with an anticipated
    value of greater than \$2500 but less than \$100,000 shall be
    reserved exclusively for small businesses unless the contracting
    officer is unable to obtain competitive offers from two or more
    small businesses. *Id.* § 4004, 15 U.S.C.A. § 644(j) (West 1997).

[^192]: FASA § 4001, 41 U.S.C.A. § 403(11) (West Supp. 1997).

[^193]: The amounts have increased from \$10,000 at the inception of
    this provision in 1978. 1997 Amendments § 221, Pub. L. No. 95-507,
    92 Stat. 1757 (1978). *See also* Historical and Statutory Notes to
    15 U.S.C.A. § 644 (West Supp. 1997).

[^194]: FASA § 7106. 15 U.S.C.A. § 644(g) (West. 1997).

[^195]: *Id*., 15 U.S.C.A. § 637(d) (West 1997).

[^196]: Subcontracting with Small Business and Small Disadvantaged
    Business Concerns, 60 Fed. Reg. 48,258, 48,262 (1995) (codified at
    48 C.F.R. Subpart 19.7).

[^197]: 48 C.F.R. §§ 19.702-19.708, 52.219-8, 52.219-9.

[^198]: Federal Acquisition Regulation; Acquisition of Commercial Items,
    60 Fed. Reg. 48,231 (1995) (codified at various parts of 48 C.F.R.).

[^199]: *Id.*

[^200]: *Id.* at 48,233.

[^201]: The directive provided, in pertinent part, that:

    > Until further notice contracting officers shall not set aside
    > acquisitions for \[SDBs\]. This suspension is effective
    > immediately. Contracting officers should amend solicitations that
    > have been issued to remove a set-aside that was based on the
    > suspended sections where the amendment of the solicitation will
    > not unduly delay a procurement such that deliveries under the
    > resultant contract would not be received when required.

    Defense Federal Acquisition Regulation Supplement; Small
    Disadvantaged Business Utilization Program, 60 Fed. Reg. 54,954
    (1995).

[^202]: Defense Federal Acquisition Regulation Supplement; Small
    Disadvantaged Business Concerns, 61 Fed. Reg. 18,686, 18,687 (1996),
    amending DFARS, *supra* note 7 \[hereinafter DFARS 1996 Interim
    Changes\].

[^203]: *DOD Surpasses 5% Goal on SDB Contracting*, 60 Fed. Cont. Rep.
    (BNA) 122 (Aug. 9, 1993).

[^204]: *Id.*

[^205]: *Id.*

[^206]: Savage*, supra* note 77.

[^207]: DFARS 1996 Interim Changes, *supra* note 202 (citation omitted).

[^208]: *Id.*

[^209]: *Id.* § 219.7202.

[^210]: *Id.*

[^211]: *Id.* § 219.7203 (emphasis added to indicate changes).

[^212]: Defense Federal Acquisition Regulation Supplement; Small
    Disadvantaged Business Utilization Program, 60 Fed. Reg. 54,954
    (1995).

[^213]: DFARS, *supra* note 7, § 219.7002.

[^214]: "Small disadvantaged business (SDB) concern" means a small
    business concern, owned and controlled by individuals who are both
    socially and economically disadvantaged, as defined by the Small
    Business Administration at 13 CFR Part 124, the majority of earnings
    of which directly accrue to such individuals. This term also means a
    small business concern owned and controlled by an economically
    disadvantaged Indian tribe or Native Hawaiian organization which
    meets the requirements of 13 CFR 124.112 or 13 CFR 124.113,
    respectively.

    DFARS 1996 Interim Changes, *supra* note 202, § 252.219-7008.

[^215]: *Id.* § 219.7200.

[^216]: *Id.* § 219.1006(b)(1)(B).

[^217]: DFARS, *supra* note 7, § 252.219-7000.

[^218]: *Id.* Corresponding changes were also made to the FAR. FAR,
    *supra* note 7, § 19.001.

[^219]: 56 Fed. Reg. 36,280 (1991).

[^220]: DFARS, *supra* note 7, § 252.219-7000.

[^221]: *Id.*

[^222]: *Id.*

[^223]: FARA, Pub. L. No. 104-106, 110 Stat. 186 (1996).

[^224]: DFARS, *supra* note 7, § 252.219-7000.

[^225]: DFARS, *supra* note 7, § 219.301.

[^226]: *Proposed 8(a) Rules Should Increase Eligible Firms by 50
    Percent, SBA Head Predicts*, 68 Fed. Cont. Rep. (BNA) 151 (Aug. 18,
    1997) (citing an interview with SBA Administrator Aida Alverez).

[^227]: *Id.*

[^228]: *Id.*

[^229]: *Id.*

[^230]: *Id.*

[^231]: *Id.*

[^232]: *Id.* In 1996, 8(a) firms received "\$6.3 billion in federal
    contracts and SDBs about \$10.3 billion," representing about five
    percent of all federal contract dollars spent in 1996. Proposed
    Rules, Small Business Administration, 62 Fed. Reg. 43,584, 43,596
    (1997) \[hereinafter Proposed SBA Rules\].

[^233]: Proposed SBA Rules, *supra* note 232, at 43,596. This will be
    referred to as the "8(a)BD" program.

[^234]: *Id* at 43,584. No final rules have been published as of the
    time this article went to press.

[^235]: "The requirements pertaining to social disadvantage would be
    moved from present § 124.105 to proposed § 124.103. Paragraph (b)
    would be amended to clarify that the presumption of social
    disadvantage for members of designated groups is a rebuttable
    presumption . . . an individual who is not a member of a designated
    socially disadvantaged group \[may\] establish his or her social
    disadvantage by a preponderance of evidence . . . ." *Id*. at
    43,587.

[^236]: *Id.*

[^237]: *Id.* at 43,600. The \$250,000 net worth ceiling for 8(a)BD
    eligibility and \$750,000 ceiling for SDB eligibility are retained.
    *Id.*

[^238]: DOJ Proposed Reforms, *supra* note 3, at 26,050.

[^239]: *Id.* "\[E\]vidence indicates that racially discriminatory
    barriers hamper the ability of minority-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." *Id.*

[^240]: *Id.*

[^241]: *Id.*

[^242]: *Id.*

[^243]: 15 U.S.C.A. § 637(d)(3)(C) (West 1997).

[^244]: Department of Justice, Response to Comments to Department of
    Justice Proposed Reforms to Affirmative Action in Federal
    Procurement, 62 Fed. Reg. 25,648, 25,650-25,651 (1997). "These
    reforms will ensure that the use of affirmative action in federal
    procurement complies with the strict scrutiny standard discussed in
    the Supreme Court\'s decision in *Adarand.*" *Id.* (citation
    omitted).

[^245]: Proposed Rules, General Services Administration, National
    Aeronautics and Space Administration, Department of Defense, 62 Fed.
    Reg. 25,786 (1997) \[hereinafter Proposed FAR changes\].

[^246]: *Id.*

[^247]: *Id.* Note 1 explains, "FASA and 10 U.S.C. § 2323 (which, in
    language similar to that in FASA, permits the Department of Defense,
    NASA, and the Coast Guard to use less than full and open competition
    in order to aid SDBs) 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." *Id.*

[^248]: *Id.*

[^249]: *Id.*

[^250]: *Id*. (citing Price Waterhouse v. Hopkins, 490 U.S. 228,
    252-255, 261 (1989)).

[^251]: Proposed FAR Changes, *supra* note 245, at 25,786-25,787.

[^252]: *Id.*

[^253]: *Id.*

[^254]: *Id.* at 25,790.

[^255]: *Id.*

[^256]: *Id.* at 25,789.

[^257]: *Id.*

[^258]: *Id.* DOJ has developed a benchmarking approach tied to the SIC
    codes as a central part of reform of affirmative action programs. It
    remains to be seen whether this approach will alleviate the
    "*Cortez*-type" concern about particularized evidence of
    discrimination as a predicate to agency set-asides.

    > The Department of Commerce continues to work to develop a
    > statistical calculation representing the effect discrimination has
    > had on suppressing minority business development and capacity, and
    > that calculation would be factored into benchmarks . . . .
    > Regardless of the outcome of that statistical effort, the effects
    > of discrimination will be considered when utilization exceeds the
    > benchmark and it is necessary to determine whether race-conscious
    > measures in a particular SIC code should be curtailed or
    > eliminated. Before race-conscious action is decreased,
    > consideration will be given to the effects discrimination has had
    > on minority business development in that industrial area, and the
    > need to consider race to address those effects.

    Department of Justice, Response to Comments to Department of Justice
    Proposed Reforms to Affirmative Action in Federal Procurement, 62
    Fed. Reg. 25,648, 25,650-25,651 (1997).