Vance C. Smith, Jr., Commissioner 

Docket Management Facility 

U.S. Department of Transportation 

1200 New Jersey Avenue, SE 

West Building Ground Floor, Room W12-140 

Washington, DC 20590-0001 

RE: Office of Secretary, DOT 

July, 7, 2010 

Disadvantaged Business Enterprise Proposed Rule Changes 

Docket No. OST-2010-0118 

Dear Sir or Madam, 

GEORGIA DEPARTMENT OF TRANSPORTATION 

One Georgia Center, 600 West Peachtree Street, ~ 

Atlanta, Georgia 30308 

Telephone: (404) 631-1000 

USDOT Rule change Comment from Georgia Department of Transportation Equal Opportunity Office. Georgia 

offers the flowing comments on the proposed rule changes: 

Personal Net Worth (PNW) Adjustment 

1. Georgia agrees with the need to make adjustment of the Personal Net Worth from $750,000 to $1.3 million. 

However, I would strongly suggest that you consider the Study commissioned by the Congressional Black Caucus 

Foundation. The Study called "Increasing the Capacity of the Nation's Small and Disadvantaged Businesses 

(SDBs)" was conducted by Dr. Thomas D. Boston, CEO of EuQuant www.euquant.com: (attached). I would 

recommend that the increased adjustments for the PNW be made by industry, instead of the flat rate that fits the 

entire DBE community. The adjustment increase of the PNW for inflation alone is well within the financial 

growth indexes since 1998. Georgia would recommend: 

a. Adjust PNW for inflation and make adjustment or review every three years or annually as 

needed 

b. Set PNW ceilings by Industry 

1. Construction 

11. Manufacturing 

111. Professional Services 
DBE Certification (UCP) 

2. Georgia Department of Transportation is the lead agency for the State Unified Certification Program (UCP). In as 

much Georgia has a small dedicated staff, the proposed Rule change for certification 30 day reviews /timing, and 

hearing requirement recommendation will have a negative impact on State making determinations on out of State 

certification requests. By causing the following: 

There is a requirement to have a complete file on the applicant in case of audit and other reviews by USDOT or 

FHW A. There is a possibility that a State may have overlooked or did not have the same information when going 

from one state to another. 

Georgia and other States have experienced firms request for out of state certification, however the file 

application, taxes, resumes and pertinent information are different from the home States original application. 

While the majority of firms do get certified from one State to another, the mere independence of allowing the 

denial without a hearing is less burdensome on the outside State. If a home State firm is denied certification in an 

out of State request, it would be burdensome for the out of State firm to begin a decertification process since they 

were never certified in the first place. The denied firm can appeal. Uniform reciprocity without proper controls 

and will not work and possibility add to fronts. 

There are different standards and frequency for On-sites visits, by each State. Georgia conducts on-sites every 

6 years. States vary on the issue and may conduct on-site anywhere from 3 to 10 years span. Some make the 

r~quest for updated on-site which some of the home State are unwilling or unable to comply. 

There is also the issue of trusting the details of another States review. As quiet as it is kept, some just do not trust 

others UCP process. You cannot legislate or regulate trust. It has to be earned. The 8A reciprocal certification has 

caused more issue, because firms that are 8A certified feel empowered not to complete a application and have no 

information or site visit to verify the DBE status. 

National/Federalized Certification would not be a easy answer due to the need to fully address the procedural 

matter of hearings, denials, appeals, annual reviews, de-certifications, fraud and on-sites. 

3. The 30 Day Rule would give preference to application /files from out of State firms. Home State firm 

applications, reviews, and decisions would be delayed. Certification Coordinators take each file independently, 

the 30 Day Rule give the advantage to out of State firms over home State firm who may be in line for making a 

determination. Ninety day (90) reviews and determination would be appropriate and consistent with most 

States current policies. 

• Please continue to allow each State to make their DBE certification decisions independently 

as long as they follow the federal regulation standards. 

2 
4. Terminations and Substitutions 

Georgia supports the need for continued documentation by primes before any terminations and 

substitutions of DBE firms can be made to prevent abuse and policy violation. 

Georgia DOT appreciates the opportunity to comment on this proposed DBE Rules and would be glad to 

participate further or answer any questions. You may contact me at 404-631-1972 or e-mail me at: 

mcooper@dot.ga.gov; 

Director, Equal Opportunity Office 

Georgia Department of Transportation 

CC: Vance Smith, Commissioner 

Gerald Ross, Deputy Commissioner and Chief Engineer 

Matt Cline, General Counsel 

Attachment: Congressional Black Caucus Foundation Study by Thomas Boston, Ph.D. 

Comments from DBE Orientations June 10,2010 

3 
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he U.S. Department ot • 

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Increasing the Capacity of the 

Nation's Small and Disadvantaged 

Businesses (SOBs) 

October 16, 2007 

Submitted to: The Congressional Black Caucus Foundation 

Prepared by: EuQuant 

(Formerly Boston Research Group, Inc.) 

EUQUANT 
Increasing the Capacity of the Nation's 

Small Disadvantaged Businesses (SDBs) 

A EuQuant Report 

Commissioned by the Congressional Black Caucus Foundation 

Q 

Principal Researchers: Thomas D. Boston, Ph.D. and Linje R. Boston, M.S. 

October 16, 2007 

EuQuant 

(Formerly Boston Research Group, Inc.) 

100 Galleria Parkway SE, Suite 1440 

Atlanta, GA 30339-5959 

© 2007 by EuQuant. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit 

permission provided that full credit, including © notice, is given to source. Available electronically at: http://www.euguant.com. 
EuQuant 

(Formerly Boston Research Group, Inc.) 

E uQuant's mission is to make our clients, communities and employees successful through the creative analysis of 

data. 

E uQuant specializes in data driven research on emerging markets and underserved communities. Our clients 

include Fortune 500 and Black Enterprise 100 corporations as well as governmental agencies at all levels. 

Acknowledgments 

This report was made possible by the tireless efforts of several organizations and individuals. Before acknowledging 

their valuable contributions, we must reiterate that they are not responsible for any of the findings or views 

expressed. Additionally, the authors and EuQuant are solely responsible for all errors and omissions. This report was 

commissioned by the Congressional Black Caucus Foundation (CBCF). EuQuant is extremely grateful to CBCF for 

entrusting it with this unique and important opportunity and challenge. The unusually broad scope of topics 

examined and the unique analytical methods used in this report were made possible by an academic grant awarded to 

one of the authors by the Ewing Marion Kauffman Foundation. We thank the Foundation sincerely for its continuing 

support of research on entrepreneurship. This entire effort is due mainly to the vision and persistence of Ms. Denise 

James Gatling, Director of Global Supplier Diversity and Business Development of GlaxoSmithKline. We are deeply 

indebted to Ms. Gatling and to the Board of Advisers for the project. The Board consisted of business owners and 

experts in the field of minority procurement. We thank Attorney Anthony Robinson of the Minority Business 

Education and Legal Defense Fund for invaluable assistance and insight on legal and regulatory issues. We also thank 

Attorney Keith Wiener of Holland and Knight, LLP for assisting with the legal analysis of the Adarand Decision. The 

North Carolina Center for Minority Economic Development arranged several opportunities for the authors to vet their 

preliminary findings before experts. We are grateful to NCMED for this assistance. Finally, this research would not 

have been possible without the unique resources and data access made possible by Mr. Greg Willis of the Senate 

Small Business Committee and most importantly by Ms. Thuy Lindsey of the DoD Business Transformation Agency. 

These two government officials were extremely helpful but bare absolutely no responsibility for the views expressed 

herein. 

About the Authors 

Thomas "Danny" Boston is CEO of EuQuant and Professor of Economics at Georgia Institute of Technology. Dr. 

Boston is the author or editor of six books and numerous scholarly articles on entrepreneurship and related topics. 

He advised the U.S Department of Commerce on the benchmarking methodology currently used in the SDB Program. 

Linje R. Boston is COO and Chief Statistical Analyst of EuQuant. 
Table of Contents 

Executive Summary ..........................••..•.•..•..•........•...........•.......................................... 1 

Section I. Background and Rationale ••.•..•...••...•......•••...••.................•....•.......•...... 5 

Section II. Objectives, Outline and Data ..................•.............................................. 9 

Objectives .................................................................................................... 9 

Outline ......................................................................................................... 9 

Categories of Unique Data ........................................................................... 9 

Section III. Current State of Minority Owned Businesses ....................................... 12 

Section IV. Industries Examined in the Report ....................................................... 13 

Section V. Minority Business Disparities - Characteristics and Causes .................. 19 

Disparities by Industry, Race and Ethnicity ................................................ 19 

The Causes of Racial and Ethnic Disparities ............................................... 21 

Section VI. Government Contracting Remains the Most Viable Option for 

Minorities .............................................................................................. 22 

Section VII. Disparities among Minority CCR Vendors that are not SOB Certified .... 27 

Section VIII. The Small Disadvantaged Business (SOB) Program ............................... 31 

Eligibility Requirements and Operation of the SDB Program .................... 31 

How Goals and Objectives of the SDB Program are Achieved ................... 33 

Section IX. The Impact of the Adarand Decision on the SOB Program .................... 37 

legal Background ....................................................................................... 37 

The Meaning of 'The Compelling Governmental Interest Requirement' .. 39 

The Meaning of 'The Narrowly Tailored legislation Requirement' ........... 39 

Federal Government's Response to Adarand ............................................ 39 

Section X. Determining the Capacity of Firms but for Discrimination .................... 41 

Major Findings ........................................................................................... 41 

Summary of How the New PNW Ceiling was Determined ........................ .41 

Detailed Explanation of Results ................................................................. 42 

Explanatory Variables ................................................................................ 42 

Section XI. Determining the Relationship between SOB Capacity and the New 

Personal Net Worth ............................................................................ 46 

Data ............................................................................................................ 46 

Methodology ............................................................................................. 46 

Exploratory Data Analysis .......................................................................... 47 

Other Explanatory Variables ...................................................................... 48 

Regression Results ..................................................................................... 48 

Section XII. The Economic Impact of the Small Disadvantaged Business Program ... 51 

Section XIII. Spatial Impact of Minority-Owned Firms ............................................. 54 

ii 
Table 1. 

Table 2. 

Table 3. 

Table 4. 

Table 5. 

Table 6. 

Table 7. 

Table 8. 

Table 9. 

Table 10. 

Table 11. 

Table 12. 

Table 13. 

Table 14. 

Table 15. 

Table 16. 

Table 17. 

Table 18. 

Table 19. 

Table 20. 

Table 21. 

List of Tables/Figures 

Effect of an Unanticipated Graduation on DBE Revenue in Georgia's DOT 

Program ............................................................................................................ 8 

Categories of Small Business Concerns Analyzed ........................................... 10 

Small Business Contribution to Employment and GDP, 1998-2004 ................ 12 

Number and Percent Change of Minority Owned Firms between 

1982 and 2002 .................................................................................................. 12 

Number of Firms, Employees and Receipts by Industry, Race and Ethnicity .. 16 

Percentage of Total Firms, Receipts, Employees and Disparity Index 

by Industry, Race and Ethnicity ....................................................................... 18 

Difference between Population Percent and Business Ownership Percent ... 19 

Racial Disparities in Attributes Associated with Business Viability ................. 20 

Disparity Index by Industry Race and Ethnicity ............................................... 20 

Number and Employment in Minority and Non-Minority SBCs, 2006 ............ 22 

Number of Minority and Non-Minority SBCs by Industry, Race and 

Ethnicity, 2006 ................................................................................................ 23 

Percent of Minority and Non-Minority SBCs by Industry, Race and 

Ethnicity, 2006 ................................................................................................ 23 

Revenue of Minority and Non-Minority SBCs by Industry, Race and 

Ethnicity, 2006 ................................................................................................ 24 

Percent of Revenue for Minority and Non-Minority SBCs by Industry, 

Race and Ethnicity, 2006 ................................................................................. 25 

Mean Years of Business Operation for Minority and Non-Minority SBCs 

by Industry, Race and Ethnicity, 2006 ............................................................. 25 

Comparison between Percent of Total Revenue and Percent of Firms for 

Minority firms not SDB and OSBCs, 2006 ........................................................ 28 

Utilization, Availability and Disparity Index for Non-SDBs by Industry, 2006 .... 28 

Regression Equation: Three-Year Revenue is Estimated for Minority Firms 

Not SDBs and OSBCs after Controlling for Business Attributes ....................... 30 

Number, Revenue, Availability, and Utilization of SDBs and OSBCs, 2006 ..... 32 

Matrix of the Small Business Administration's Programs ............................... 34 

Correlation between Number of Employees and Average Revenue, 

by Industry ............................................................................................................... 43 

Table 22a. Regression Equation for Adjusting the Net Worth Limitation ....................... .45 

Table 22b. Estimated SDB Capacity (Le. 3-year Average Revenue) but for Discrimination ... 45 

iii 
Table 23. 

Table 24. 

Table 25. 

Table 26. 

Table 27. 

Table 28. 

Table 29. 

Table 30. 

Firm Count and Average Revenue by Industry, 1995-97 ............................... .48 

Regression Equation: The Influence of Three Year Average Revenue on 

Net Worth is Estimated Controlling for Attributes of Firms in 8(a) Program, 

1992 to 2000 .................................................................................................... 49 

Recommended Industry Specific PNW Ceiling ................................................ 50 

Impact on Industry Final Demand of Minority Firms Participating 

in the SDB Program ... : .................................................................................... 52 

Impact on Industry Final Demand of Firms Graduating from the 

SDB Program ........................................................................................................... 53 

Impact on Industry Jobs of Firms Participating in the SDB Program ............... 53 

Impact on Industry Jobs of Firms Graduating from the SDB Program ............ 53 

Number and Percent of Minority-Owned Businesses in High and low 

Poverty Areas of Central Cities ........................................................................ 55 

Figure 1. Effect of Graduation on DBE Revenue .............................................................. 8 

Figure 2. Effect of Firm Capacity on Personal Net Worth ............................................. .42 

Figure 3. Structure of Regression Analysis ..................................................................... 44 

Figure 4. Plot of Net Worth ............................................................................................ 46 

Figure 5. Boxplot of Organization Type on log Average Total Revenue ........................ 47 

Figure 6. Percent of Businesses in High Poverty Areas .................................................. 54 

Figure 7. Median Income of Neighborhoods, by Race and Ethnicity, 1999 ................... 55 

Figure 8. Percent of High Skilled Businesses in low-Income Communities ................... 56 

Figure 9. Percent of low Skilled Businesses in High-Poverty Neighborhoods ............... 57 

Figure 10. Race/Ethnic Compositions of Central City Areas where Businesses 

are located ...................................................................................................... 57 

iv 
Executive Summary 

E uQuant (formerly Boston Research Group) was 

commissioned by the Congressional Black Caucus 

Foundation to conduct a comprehensive study of 

the Small Disadvantaged Business (SDB) Program run by 

the U.S. Small Business Administration. The report seeks 

to increase the national and global competitiveness of 

SDBs by offering recommendations that are designed to 

increase their capacity and success in federal procurement 

and in corporate supply chain relations. The primary 

recommendation is that the $750,000 personal net worth 

ceiling of the SDB program should be adjusted so that 

participants can build greater capacity. By building 

greater capacity, SDBs are able to operate more 

successfully in the public and private sectors. Their 

greater success adds significant value to overall economic 

output and generates jobs, income, and wealth in the 

general economy and especially in underserved 

communities. 

Background and Purpose 

• The government's Small Disadvantaged Business (SDB) 

Program was established to help mitigate the effects of 

discrimination on the performance of businesses 

owned by minorities and other socially and 

economically disadvantaged individuals. 

• This comprehensive report assesses the impact of the 

SDB Program on minority-owned businesses and 

examines the contribution of SDBs to national output 

and employment. 

• A major section of the report is devoted to exploring 

how the SDB Program's $750,000 personal net worth 

(PNW) ceiling affects SDBs. 

• After determining that the PNW ceiling is too low and 

that it adversely affects the operation of SDBs, new 

program changes are proposed. 

1 

• The recommendations are designed to increase the 

capacity of SDBs so they will become more competitive 

in federal procurement and in corporate supply 

chains. 1 

• The results are based on an examination of 47,254 

Small Business Concerns (SBCs)2 listed with the 

government's Central Contractor Registration (CCR) in 

2006. 

What the Reader can Expect 

The report has thirteen sections. These sections describe 

the current status of minority-owned businesses, 

document the critical importance of government 

contracting to minority business viability, and examine the 

plight of more than 10,000 minority-owned SBCs that are 

listed in the CCR but have never participated in the SDB 

program. The report considers how the U.S. Supreme 

Court Adarand Decision has changed the SDB Program. It 

measures the impact of the SDB Program on minority 

business performance and analyzes how the $750,000 

PNW ceiling has affected SDB capacity. Finally, it 

estimates the influence of the SDB Program on national 

output and employment and it analyzes where minority 

and non-minority-owned firms are located in relation to 

the most distressed areas of central cities. 

1 As used in this report, capacity is synonymous with the threeyear average revenue of a firm. 

2 A Small Business Concern (SBC) means any for-profit business 

that meets the industry and employment size standards as 

determined by the Office of Small Business Standards of the 

Small Business Administration (See Federal Acquisition 

Regulation FAR 19.101, at: 

http://acguisition.gov/faricurrent/htmI/FARTOCP19.html).This 

report does not examine SBCs that register with CCR as Womenowned Small Business Concerns, Veteran-owned or Disabled 

Veteran-owned Small Business Concerns. 
Findings3 

In 2006, the SDB Program had an economic impact of $5.5 

billion on U.S. final demand and created over 124,000 

jobs. 

Minority-owned small businesses also contributed to the 

economic development of distressed central cities. In 

2006, 31% of minority-owned businesses listed in CCR 

were located in high poverty areas of central cities as 

compared to 24% of non-minority-owned companies. 4 

In some central cities a very high percentage of minorityowned businesses were located in high poverty areas: In 

Baltimore (69%), Philadelphia (60%), Detroit (50%) and 

Boston (48%). 

Despite the significant contribution that minority-owned 

businesses make to the U.S. economy, they still encounter 

large disparities in private sector business transactions. 

Consequently, they depend more heavily upon 

government contracting because access to government 

contracts is usually more equal than is access to private 

sector opportunities. While minority-owned businesses 

comprised 18% of all U.S. small businesses, they made up 

35% of the 47,254 small businesses listed in CCR in 2006. 

Between 2004 and 2006 the SDB program had a 

significant effect on the performance of SDB certified 

firms. The average revenue of SDBs was $2.8 million 

greater than the average revenue of identical firms that 

did not participate in the SDB Program. 

SDBs experienced an annual disparity in revenue of $0.9 

million in comparison to non-minority-owned smallbusiness concerns with similar characteristics. 

There were 10,513 minority-owned small businesses listed 

in CCR in 2006 that had never been SDB certified. These 

firms experienced the greatest disparities of all small 

businesses that sought federal government contracting. 

3 The study used regression analysis and decomposition analysis 

extensively to explain the differences in performance between 

minority-owned firms that never entered the SOB Program 

(10,513), active SOBs (6,758) and other small business concerns 

that were not minority-owned in 2006 (27,087). A multivariate 

propensity score matching procedure was used to measure 

performance differences between firms with identical 

characteristics that were SOBs and non-SOBs. 

4 High poverty areas are defined as census tracts where poverty 

was 20% or greater in 2000. 

2 

The $750,000 personal net worth (PNW) ceiling of the SDB 

Program has not been adjusted for inflation in nine years. 

Therefore, the current real value of the ceiling is 

$558,070. Yet innovations in corporate supply chains and 

the increasing use of contract bundling in government 

procurement require SDBs to have greater capacity. 

The capacity of SDBs and the personal net worth of their 

owners is closely related. When capacity increases by 

10%, PNW increases by 4%. Therefore, if the PNW ceiling 

is too low, it is impossible for SDBs to reach their optimum 

capacity. In a marketplace free of discrimination we 

estimated that the average capacity of SDBs would be 

$4.1 million. The current PNW ceiling prevents SDBs from 

achieving this average capacity. 

A PNW ceiling that is set too low causes other economic 

hardships. For example, in February of 2007 seventeen 

firms were graduated out of the Georgia Department of 

Transportation Disadvantaged Business Enterprise 

Program when an audit revealed that their PNW 

surpassed the $750,000 ceiling. We interviewed the 

owners of these firms and tracked their monthly financial 

performance. The owners felt that they were being 

penalized for being successful and they complained that 

very few corporations solicited or engaged their services 

after they were de-certified. They also stated that the low 

PNW ceiling had not allowed them to build sufficient 

bonding capacity to compete successfully as prime 

contractors. During the first five months of 2007, their 

average monthly revenue decreased by 45% in 

comparison to 2005 and 2006. 

Many large businesses are incorrectly registered in CCR as 

small businesses. In a recent Congressional hearing, SBA 

Inspector General Eric Thorson stated that, uThe number 1 

management challenge facing the SBA is that large firms 

are receiving small business contracts and federal 

agencies are receiving credit for these awards.us This 

report identified 442 companies registered as small 

businesses that exceeded the small-business size standard 

for their industry. In 2006, the average revenue of these 

442 companies ($172 million) was forty-four times larger 

than the average revenue of legitimate small business 

concerns. 

5 Chapman, Lloyd. 2006. "SBA Reauthorization Lacks Provisions 

to stop Fraud and Abuse." American Small Business league, July 

20,2006: 

Accessed at: http://www.asbl.com/showmedia.php?id=275 
Recommendations 

1) Increase the PNW ceiling for construction 

industries to $979,000, for manufacturing 

industries to $1,043,000 and for professional and 

scientific service and IT services industries to 

$1,026,000. The PNW ceilings should be adjusted 

annually for inflation. In addition SOBs that 

exceed the PNW ceiling should be given a two 

year transition period during which they remain 

eligible to participate in the SOB Program. 

Rationale for this recommendation 

First, the current PNW ceiling has not been 

adjusted for inflation since it was established in 

1998. If adjusted, the current PNW would be 

$977,560. Second, the SOB Program was 

established to help mitigate the effects of 

discrimination. But it is very difficult for SOBs to 

achieve the capacity they would be expected to 

have in a non-discriminatory market because the 

PNW ceiling is too low and capacity and PNW are 

closely related. Third, the PNW regulation assumes 

that "one size fits all." Therefore, only one PNW 

ceiling has been set for all industries. This 

contrasts with small business size standards that 

are set for each industry. The single PNW ceiling 

does not take into consideration the level of 

capitalization required by different industries. 6 

Finally, when SOBs are "graduated" from the 

program unexpectedly because of the PNW ceiling, 

they face significant short-run decreases in 

revenue. For example recent data from the 

Georgia OOT indicated that when minority-owned 

firms were "graduated" from the OBE program 

because of an audit of PNW, their monthly revenue 

decreased by 45% during the first six months 

following their exit. 

6 The research team was unable to determine why the initial 

PNW ceiling for the SOB program was set at $750,000 and we 

did not have access to PNW data for non-SOBs. Therefore, we 

could not determine the industry specific PNW for all small 

businesses; but only for SOBs. As a result, we had to use the 

current PNW ceiling as our starting point for making an 

adjustment. 

3 

2) The SBA should establish race-neutral monitoring 

procedures for small minority-owned firms that 

are not SOB certified. 

Rationale for the recommendation 

First, it is important to know whether minorityowned firms have fair access to corporate supply 

chains and government procurement in the 

absence of SOB mandates. Results of this study 

indicate that they do not. For example the 10,513 

minority-owned small businesses listed in CCR that 

were not SOB certified in 2006 experienced the 

largest disparities in government procurement 

awards and supply chain utilization among all CCR 

firms. Second, it is important to know why so 

many minority-owned businesses are not SOB 

certified. Some owners have indicated that the 

costs and paperwork involved in certification are 

deterrents while others maintain that the benefits 

of the program have been greatly reduced over 

time. A revision should be made to Standard Form 

295 (Summary Subcontract Report) by including a 

category to record the utilization of minority firms 

that are not SOBs. Additionally, improvements 

should be made to the way that corporations and 

government agencies report subcontracting data. 

3) Reauthorize all preferential procurement benefits 

of SOB status including Price Evaluation 

Adjustment (designed to assist SOBs as prime 

contractors), Subcontracting Evaluation Factors 

and Monetary Subcontracting Incentives 

(designed to increase SOB subcontracting 

opportunities). 

Rationale for the recommendation 

First, SOBs add significant value to national output 

and employment. In 2006 SOBs added $5.5 billion 

to U.S. final demand and created 124,000 jobs that 

would not have existed without the program. 

Second SOBs, in comparison to non-SOBs, add 

significantly to economic opportunity in high 

poverty areas of central cities. Therefore by 

reinstating SOB procurement incentives, the goals 

of the HUBZone Program will be reinforced. 7 Third, 

7 If enacted, H.R. 1873, Sec. 214 would provide financial 

support to conduct of a study on the "feasibility and 

desirability" of providing financial incentives to contractors for 

meeting subcontracting utilization goals. PEAs allowed SOBs to 

receive a price benefit of up to 10% in specified industries. 
SOBs still face significant inequality in business 

transactions. For example, SOBs experienced an 

annual disparity in revenue of $0.9 million in 

comparison to non-minority-owned small-business 

concerns with similar characteristics. Finally, the 

procurement benefits are a major incentive for 

participating in the SOB Program. 

4) Existing regulations that penalize large businesses 

for self-certifying as small business concerns 

(SBCs) should be enforced more vigorously and 

new penalties should be established. 

Additionally, the SBA Inspector General should 

audit the CCR annually to identify and penalize 

firms that are inappropriately self-certified as 

SBCs. 8 

Rationale for the recommendation 

Inaccurate self-certification has been cited as a 

growing problem that is adversely affecting small 

business opportunity. This report identified 442 

companies, that exceeded the small-business size 

standard for their industry, registered as small 

businesses. The average revenue of these firms 

was $172 million, which was forty-four times larger 

than the average revenue of legitimate small 

business concerns. 

They expired in 2004. The HUBZone Empowerment Contracting 

Program is part of the Small Business Reauthorization Act of 

1997. It is designed to stimulate economic development and 

create jobs in hard-pressed urban and rural communities. 

Contracting preferences are given to small businesses that are 

located in a HUBZone and that hire employees who live in a 

HUBZone. 

8 House of Representative Bill H.R. 1873: "Small Business 

Fairness in Contracting Act" passed the House on May 10, 2007 

and has been sent to the Senate for consideration. Sec. 301-

303 of the bill contains language specifying penalties for large 

businesses that fraudulently certify as small business concerns. 

4 

5) Additional studies are needed to further 

illuminate factors that may enhance the 

competitiveness of SOBs. These additional studies 

should examine: 

• What happens to firms following their exit from 

the SOB Program; 

• Ways of improving the global competitiveness of 

SOBs; 

• The extent to which government procurement 

dollars are shifting from SOBs to other CCR 

groups; 

• The relationship of PNW and firm capacity for 

non-minority-owned firms; 

• The impact of the PNW ceiling on the ability to 

secure bonding, financing and supply chain 

opportunities; and, monitor the performance of 

minority-owned firms that are not-SOB certified. 
Background and Rationale 

I

n his June 6, 2007 opening statement as Chairman of 

the U.S. Senate Committee on Small Business and 

Entrepreneurship, Senator John Kerry noted that 

over the last decade minority entrepreneurs started 

more than 50% of the nation's two million new 

businesses. Minority persons will comprise 90% the 

country's 131 million new citizens between 1995 and 

2050. These trends show the growing importance of 

minorities to the underlying growth and 

competitiveness of the American economy.9 President 

Bush's 2002 Small Business Agenda proposed a number 

of steps to increase small business access to federal 

contracting- including a reduction in contract bundling. 

More recently, the Government Contracting and 

Business Oevelopment Office requested additional 

funds in the financial year 2008 to identify methods of 

improving opportunities for Small Oisadvantaged 

Businesses (SOBs) and other small business contractors. 

Minority-owned businesses represent the 

fastest growing sector of all u.s. firms. 

Despite their improving status and the 

value they add to the U.S. economy, they 

remain significantly under-represented in 

the national markets. 

This under-representation is due in part to historical 

and contemporary practices of discrimination. These 

practices have constrained their access to markets and 

limited their endowment and accumulation of factors, 

that are essential for starting and operating successful 

dynamically-growing businesses. 

The existence of unequal business practices in the 

private sector forces minority firms to rely more heavily 

on government procurement opportunities. 

9 Kerry, John F. 2007. "Kerry Opening Statement on Minority 

Entrepreneurship Hearing" U.S. Senate Committee on Small 

Business and Entrepreneurship. May 22, 2007, cited at: 

http://sbc.senate.qov/record.c(m ?id=74847 accessed 

6/6/2007 10:37 a.m. 

5 

In fact, the SOB Program has been designed so that 

federal procurement can be used in remedying the 

effects of societal and marketplace discrimination. The 

Program's benefits are structured to increase 

government procurement opportunities and minority 

business access to the supply chains of corporations 

that are prime contractors to the government. 

Adjustments must be made to the SDB Program 

On July 30, 1998 the Government revised Federal 

Acquisition Regulations (FAR) governing eligibility 

criteria for participating in the SOB Program. The 

revisions were in response to the U.S. Supreme Court 

1995 Adarand Oecision and to President Clinton's 

mandate to "mend, rather than end" affirmative action. 

A major review of all federal affirmative action 

procurement programs was undertaken. The review 

was designed to ensure that the potential benefits of 

the program were narrowly tailored as mandated by the 

Adarand Oecision. Some federal procurement programs 

and policies were suspended temporarily, others were 

changed or terminated. Major changes to the SOB 

Program involved the use of industry benchmarks to 

establish SOB utilization goals and to determine the 

industries where the goals should be applied and a 

personal net worth (PNW) of $750,000 was established 

for individuals participating in the SOB Program. 10 The 

new $750,000 PNW ceiling was also imposed on 8(a) 

program participants. This meant that two PNW 

ceilings affected the 8(a) program. Specifically, business 

owners' PNW cannot exceed $250,000 at the time they 

enter the program, and has to remain below $750,000 

during the 9-year life time eligibility for the program. 

The comprehensive revisions also required that SOBs be 

certified by the SBA or an organization approved by the 

agency to certify SOB status. Finally, the benefits of SOB 

status were expanded to include a Price Evaluation 

10 The ceiling excluded the net value of the owner's primary 

residence and net assets in the business from the net worth 

determination. 
Adjustment (PEA) for SDBs bidding as prime contractors, 

Subcontracting Evaluation Factors and Monetary 

Subcontracting Incentives, to increase SDB 

subcontracting opportunities. The new regulation 

modified the Federal Acquisition Streamlining Act of 

1994 (Pub. L. 103-355, Sec. 7102), by using 

benchmarking criteria to determine the specific 

industries where incentives would apply. 

PEAs allowed SDBs to receive a price benefit on 

procurements in specified industries. This policy was 

accomplished by adding up to 10% to the price of bids 

or offers received from non-SDBs. To apply 

Subcontracting Evaluation Factors, the contracting 

officer awarded the highest pOints to the bidder with 

the most dollars targeted to SDB subcontractors in 

authorized industries. Monetary Subcontracting 

Incentives allowed contracting officers to make 

monetary awards to prime contractors of up to 10% of 

the value by which SDB utilization exceeded the 

authorized industry target; {See, U.S. SBA America's 

Small Business Resource, Federal Acquisition Regulation 

(FAR) Council Rules, final rule published on July 2, 

1999).11 On December 9, 2004 the SBA's authority to 

use PEAs for civilian agencies expired and was not 

renewed as part of the Small-Cap and Business 

Reauthorization and Manufacturing Assistance Act of 

2004 (Pub.L.108-447, Division K). The expiration covers 

all non-Department of Defense agencies, with the 

exception of the National Aeronautics and Space 

Administration (NASA) and the Coast Guard. 12 

If the SDB Program is to continue to operate efficiently 

and accomplish its stated goals, several important 

adjustments should be made. This report identifies 

those adjustments and provides a rationale for them 

based on empirical research. 

11 See also, Office of Management and Budget, Office of Federal 

Procurement Policy, SOB Procurement: Reform of Affirmative 

action in Federal Procurement. Accessed electronically at: 

http://www.whitehouse.qov/omb/fedreq/sdb-rethtm/ June 15, 

2007. Code of Federal Regulations, Title 13, Volume 1, Revised as 

of January 1, 2005. From the US. Government printing office via 

GPO access [CITE: 13CFR124]. Available electronically at: 

http://SBAs.qov/library/ctrs/13ctr124.htm/. 

12 See also, [Federal Register: April 19, 2006 (Volume 71, Number 

75)] [Rules and Regulations] [Page 20304-20305) From the Federal 

Register Online via GPO Access [wais.access.gpo.gov] 

[DOCID:fr19ap06-21]. The Department of Defense, NASA and the 

Coast Guard operate under a separate statutory authority and 

continue to use these preferences. 

6 

The impOSition of the PNW ceiling is problematic for 

several reasons. 

1) For almost a decade, the $750,000 

personal net worth eligibility criterion has 

been capped at the same level. By failing 

to adjust the net worth ceiling for 

inflation, the 2007 real value of $750,000 

(1998) is $558,070. 

The static cap has made it more difficult for SDBs to 

win awards in corporate supply chains because 

global competitive pressures have forced 

corporations to reduce the number of suppliers 

they use. This means that suppliers must have 

larger capacities today than ever before. At the 

same time, government agencies have increasingly 

"bundled" procurement solicitations as a way of 

reducing administrative expenses and performance 

costs. 13 These changes require all corporate 

suppliers to have significantly greater capacity to 

enter core areas of supply chains or to participate 

as government prime contractors. 

Capacity in this report is specified as average firm 

revenue over a three-year period. The report 

examines the relationship between firm capacity 

and personal net worth. We found that the 

elasticity or responsiveness of personal net worth 

to changes in firm capacity is 40%. This means that 

when the capacity of a firm increases by 10%, 

personal net worth of the owner increases by 4%. 

Therefore, when a ceiling is placed on the personal 

net worth of individuals in the SDB Program, that 

ceiling also limits the capacity of their firms. 

13 House of Representative bill H.R 1813 reauthorizes the Small 

business Administration's procurement programs under the Small 

Business Fairness in Contracting Act. It scales back "contract 

bundling" - the practice of grouping small government contracts 

together and awarding them as one large contract. House Small 

Business Committee Chairwoman Nydia Velazquez, D-N.Y., said 

the bill was needed to help small businesses gain more 

opportunities, because the federal government has been 

"bundling" individual contracts into mega-contracts out of the 

price range for small businesses to place bids. 
If the ceiling on personal net worth is set too low, 

firms that should be eligible to participate in the 

SDB Program are barred by the ceiling cap. This 

report finds that the ceiling on personal net worth 

is incorrect for several reasons. First, it has not 

been adjusted for inflation in nine years. Second, it 

does not allow SDBs to achieve the level of capacity 

that they would be able to achieve in the absence 

of discrimination. We note that industry 

benchmarks, used to establish goals for SDB 

utilization and identify industries where goals will 

be applied, are determined by the Department of 

Commerce (DOC). DOC's benchmarks are based on 

evaluating seventy major industry groups to 

determine how the share of federal contracts that 

SDBs actually receive compares to the share they 

would be expected to receive in the absence of 

discrimination. Similarly, this report argues that 

any net worth ceiling must at a minimum, allow 

SDBs to attain the capacity they would achieve in 

the absence of discrimination. Any ceiling that 

does not allow this level of capacity to be achieved 

is a burden on small disadvantaged business 

owners. Finally, the current PNW assumes that 

"one size fits all." Therefore, only one PNW ceiling 

has been set for all industries, including 

Construction Services, Manufacturing and 

Professional and Scientific Services. This practice 

contrasts with how the SBA sets small business size 

standards, which are set for each industry. 

2) Corporate sector prime contractors argue that the 

ceiling does not allow SDBs to build the capacity 

needed to perform in core business areas of their 

supply chain. Furthermore, their incentive to 

mentor SDB suppliers is reduced because when 

SDBs build sufficient capacity, they may become 

disqualified by the PNW ceiling. 

7 

3) Some administrators of the SDB and DBE programs 

indicate that the PNW ceiling limits the number of 

available vendors with sufficient capacity to attain 

their program goals. 

4) SDBs argue that the SBA's failure to adjust the PNW 

ceiling forces them to exit from the program 

prematurely. In addition, the low ceiling constrains 

their ability to secure capital and finance and the 

bonding capacity they are able to build, making it 

difficult for them to compete as prime contractors. 

At the same time, prime contractors do not employ 

their services if they are not SDB certified. 

In February of 2007, the Georgia DOT 

Disadvantaged Business Enterprise (DBE) 

program graduated seventeen DBEs after 

an audit revealed the owners' PNW 

exceeded the program ceiling. During the 

first five months of 2007, these firms' 

average monthly revenue decreased by 45% 

in comparison to 2005 and 2006. Table 1 

and Figure 1 describes what happened to 

these seventeen firms that experienced an 

unanticipated decertification. 
Table 1 

Effect of an Unanticipated Graduation on DBE Revenue in Georgia's DOT Program 

Symbol for Firm's Monthly Revenue; Firm's Monthly Revenue; 

Graduated Firm 2005-2006 Jan-May YTO 07 

A $ 495,671 $ 290,200 

B $ 1,668,657 $ 420,029 

C $ 886,664 $ 284,000 

D $ 2,375,602 $ 686,510 

E $ 263,907 $ 89,075 

F $103,440 $ 103,588 

G $ 934,130 $1,062,276 

H $ 878,940 $ 563,599 

$ 1,073,963 $ 595,127 

$192,217 $15,320 

K $ 90,965 $824,579 

Average $ 814,923 $448,573 

Note: In February 2007 all firms above were graduated following a program audit. 

Figure 1 

Effect of Graduation on DBE Revenue 

$900,000 

$800,000 

$700,000 

$600,000 

$500,000 

$400,000 

$300,000 

$200,000 

$100,000 

$0 

Average Monthly Revenue 

2005 - 2006 

8 

45% Decrease 

$448,573 

Average Monthly Revenue 

Jan-MayYTD 2007 

Percent Change in 

Monthly Revenue 

-41% 

-75% 

-68% 

-71% 

-66% 

0% 

14% 

-36% 

-45% 

-92% 

806% 

-45% 
Objectives, Outline and Data 

Objectives 

This report documents the contribution of minority 

entrepreneurs and small businesses to the nation's 

well-being. It also identifies sectors of the economy 

where qualified, willing and able minority businesses 

continue to face unfair treatment. The conclusions are 

based on an examination of 47,254 Small Business 

Concerns (SBCs)14 registered with the government's 

Central Contractor Registration (CCR) database. The 

firms analyzed in this study meet small business size 

standards established by the Office of Size Standards 

(OSS).15 

Outline 

The study is organized into thirteen sections. The first 

section consists of the background, rationale and 

recommendations of the study. Section II outlines the 

objectives and data of the study. Section III explores the 

current state of minority-owned businesses while 

Section IV looks at the race and ethnic characteristics of 

minority businesses in the selected industries. Section V 

examines disparities between minority and non-minority 

business owners in the general marketplace. This 

section looks at the nature of disparities across 

14 As used in this report, a "Small Business Concern" means any 

business entity that meets the industry and employment size 

standards for small businesses and is organized for profit (even 

if its ownership is in the hands of a nonprofit entity). It must 

have a place of business located in the United States or its 

outlying areas and it must make a significant contribution to 

the u.s. economy through payment of taxes and/or use of 

American products, material and/or labor, etc. "Concern" 

includes but is not limited to an individual, partnership, 

corporation, joint venture, association, or cooperative (See 

FAR 19.101). The full regulation is available at: 

http://acguisition.gov!far!current!html/FARTOCP19.html. 

15 The report does not include firms certified as Women-owned 

Business Concerns (WOBCs), Veteran-owned or Disabled 

Veteran-owned Business Concerns (VO/DVOBCs). 

9 

different industries and summarizes the research 

findings that attempt to explain them. Section VI 

analyzes why government contracting remains the most 

viable option for small businesses owned by minorities. 

In Section VII, we examine the disparities among 

minority small businesses that are registered with CCR 

but do not participate in the SOB Program. The long 

standing persistence of disparities in private and 

government sector contracting, led to the establishment 

of the SOB Program, which is the focus of Section VIII. 

Section IX describes the effect of the U.S. Supreme 

Court's Adarand Oecision on the SOB Program. In the 

next section, we develop a methodology to determine 

the capacity of small businesses in the absence of 

discrimination. We follow this analysis in Section XI 

where we determine the relationship between SOB 

capacity and the new ceiling for the personal net worth. 

Section XII analyzes the economic impact of the SOB 

Program on jobs and income. The final section of the 

report, Section XIII, describes the spatial impact of 

minority-owned firms; that is, it investigates the 

characteristics of communities where companies choose 

to locate. The primary objective is to determine 

whether minority-owned firms and SOBs as compared to 

Other Small Business Concerns (OSOBs) tend to locate in 

communities that experience greater economic and 

social distress, such as low income inner cities, high 

unemployment areas or areas where poverty is 

concentrated. The street addresses of companies are 

geo-coded and their neighborhood characteristics 

(poverty rate, median family income, unemployment 

rate and racial composition) are examined. 

Categories of Unique Data 

The primary database used in preparing this report was 

the CCR for the period 2004 through 2006. All 

companies, whether large or small, desiring to contract 

with the Federal Government must register with the 

CCR. Categories of small business concerns considered 

in this report are listed in Table 2. 
Table 2 

Categories of Small Business Concerns Analyzed 

(all firms are currently registered through the CCR System) 

Number in 

Category CCR 

Database 

1. Small Business Concerns (SBCs) 47,254 

2. Non-Minority SBCs; non-minority firms in all 

categories 28,017 

3. Minority SBCs; minority firms in all categories 19,237 

4. Minority, not SOB; all minority firms excluding 

active SOBs and Graduated SOBs 10,513 

5. SOBs (Small Oisadvantaged Businesses); all 

certified and active SOBs-- 8(a) firms are 

automatically SOB Certified 6,758 

6. Graduated SDBs; former SDBs that exceed 

industry or net worth size standard 2,848 

7. OSBC (Other Small Business Concerns), 

includes all non-minority SBCs except those 

certified as SDBs 27,081 

Total excludes firms registered as Women-owned Small Business 

Concerns and Veteran-owned/Disabled Veteran-owned Small Business 

Concerns. Total also includes firms in selected industries only. 

Source: CCR, January 2007. 

Category 1 lists the total number of SBCs that are 

registered with CCR as "Small Business Concerns" 

(47,254 firms). The second category consists of SBCs 

that are owned by non-minority persons (28,017 firms). 

They mayor may not be SDB certified. Category 3 is the 

total number of firms that are owned by minority 

persons, independent of whether they are SDB certified. 

The number of minority-owned firms that are registered 

with CCR and have never been SDB certified is 10,513 

firms. These firms comprise Category 4. Category 5 

consists of SBCs that are SDB Certified (6,758 firms). In 

considering this category, it is important to keep in mind 

that all 8(a) certified firms are automatically SDB 

Certified. 16 Category 6 lists SBCs that were formerly SDB 

Certified but are no longer eligible due to their size or 

their owner's net worth. These firms are presumed to 

have graduated from the SDB Program (2,848 firms). 

Finally, Category 7 lists the total number of Other Small 

Business Concerns (OSBCs). These are firms that are not 

owned by minority persons and have never been SDB 

Certified (27,081 firms). The study examines prime 

contracting of SBCS. 17 To examine the relationship 

16 All 8(a) Certified firms are automatically SOB Certified and 

activities for these firms are not reported separately from SOB 

totals. 

10 

between SDB capacity and the net worth of business 

owners, we used data that preceded the establishment 

of the PNW ceiling to avoid the potential for statistical 

bias. 

In this regard, historical administrative data on the 8(a) 

program was used because it contains information on 

Net Assets and SDB Capacity. The data, formerly 

referred to as ERDB, has detailed financial and owner 

attribute information on businesses that were involved 

in the 8(a) small business program between 1995 and 

1997. The information includes unadjusted and adjusted 

personal net worth of business owners who enrolled in 

the program, the legal form of the company 

organization, the businesses SIC number, the 8(a) 

program status of the company (active, inactive, 

terminated), the racial and ethnic status of the owner, 

size of employment, the volume of non-8(a) and 8(a) 

sales and the Dun and Bradstreet number of the firm. 

Program data for 8(a) was used to investigate the 

relationship between personal net worth and capacity 

during a period when the $750,000 PNW was not in 

effect. These data were also merged with the Federal 

Procurement Data System (FPDS) data. 

CCR and FPDS-NG data were used to analyze SDBs 

between 2004 and 2006. The Federal Procurement Data 

System - Next Generation or FPDS-NG database contains 

information on all government awards to prime 

contractors. This data was used to supplement CCR 

data. The data contains pertinent information on the 

firms' specialization (NAICS code), the age of the 

business, the legal form of business organization, the 

race and ethnicity of the owner, the gender of the owner 

and the program status of the firm (that is, SDB concern, 

8(a) concern, Women-owned Business concern, Veteranowned Business Concern, or Disabled Veteran-owned 

Business Concern). 

17 Oata regarding subcontracting activity of SBCs are becoming 

more accurate and more readily available. Recently completed 

studies in this area suggest SOBs experience significantly 

greater disparities in access to subcontracting opportunities 

than they encounter in prime procurement opportunities. See 

Clark, M., C. Moutray and R. Saade 2006. "The Government's 

Role in Aiding Small Business Federal Subcontracting Programs 

in the United States," Office of Advocacy, U.S. Small Business 

Administration Small Business Research Summary. September 

2006. No. 281. pp 1-31. 
Since the public version of CCR does not contain revenue 

or employment information, we were granted clearance 

to access the private portion of the CCR database. This 

11 

access made available two additional pieces of 

information; the average total revenue, and the average 

employment, both over the three years from 2004-2006. 
Current State of Minority-Owned Businesses 

I

t is widely recognized that small businesses are a 

primary engine of innovation and job growth in the 

economy. During the period 1998 to 2004 small 

businesses produced 50.5% of the total gross domestic 

product of the United States. They accounted for 85% 

of the total value added in the construction industry, 

33% of the total value added in manufacturing, 41% in 

wholesale trades, about 67% in professional and 

technical services and 48% of the total value added in 

retail trade. In 2004 small businesses added $4,717 

billion to the U.S. GDP while large businesses added 

$4,593 billion (See Table 3).18 

Table 3 

Small Business Contribution to Employment and 

GDP, 1998-2004 

Number of Small Businesses with Employees 

Number of Jobs in Small Businesses 

Percent of All Employees in Small Businesses 

Percent of Value Added in Construction 

Percent of Value Added in Professional and 

Tech. Service Industries 

Percent of Value Added in Wholesale Industry 

Source: Kobe, Katherine. 2007. 

Value 

6,331,242 

58,597,452 

51.0% 

85.5% 

66.6% 

55.4% 

Between 1982 and 1992, the number of all small firms 

increased by 91% and the number of firms owned bV 

Whites increased by 66%. In comparison, firms owned 

by Blacks increased by 288% while firms owned by 

Asians and Hispanics increased by 353% and 454% 

respectively (Table 4). Between 1997 and 2002, the 

number of firms owned by Blacks increased faster than 

the number of firms owned by all other racial and ethnic 

groups. However, this growth was largely confined to 

businesses without paid employees. 

18 Kobe, Katherine. 2007. The Small Business Share of GOP, 

1998-2004, Small Business Research Summary, SBA Office of 

Advocacy, April 2007, No. 299, pp 1- 37. 

12 

Table 4 

Number and Percent Change of Minority-Owned 

Firms Between 1982 and 2002 

Percent 

Race or Hispanic 1982 2002 Change, 

Origin category 1982-

2002 

All Firms 12,059,950 22,974,655 90.5% 

White alone, not Hispanic 11,234,999 18,609,599 65.6% 

Hispanic or Latino (any 

race) 284,011 1,573,464 454.0% 

Black or African American 308,260 1,197,567 288.5% 

American Indian and 

Alaskan Native 17,100 201,387 1077.7% 

Asian 240,806 1,103,587 358.3% 

Source: Lowry, Ying 2007. 
Industries Examined in the Report 

(Race, Ethnicity and Industry Characteristics) 

This report examined Small Business Concerns only 

in the following industries: 

Construction of Buildings 

Heavy Construction and Civil Engineering 

Specialty Trade Contractors 

Textile and Leather Manufacturing 

Paper, Printing and Related Manufacturing 

Chemical, Non-Metallic Minerals Manufacturing 

Plastics and Rubber Manufacturing 

Primary Metals and Machinery Manufacturing 

Computer and Electronic Manufacturing 

Wholesale Trade In Durable and Non-Durable Goods 

Publishing, except the Internet 

Internet Publishing, Telecommunications and ISP 

Professional, Scientific and Technical Services 

The race and ethnic ownership characteristics of these 

businesses are given in detail in the 2002 Census 

Bureau's Survey of Business Owners (SBO). This section 

describes the industry characteristics of small businesses 

with paid employees, as provided in the SBO data. 

Construction of Buildings 

According to the 2002 SBO, there are 220,348 small 

firms with paid employees involved in the Construction 

of Buildings (NAICS code 236). They comprised about 

32.3% of all firms in the industry. The combined sales 

and receipts of these firms was over $522 billion for year 

2002 (See Table 5). In the same industry, the five racial 

minorities together made up almost 5.5% of total small 

firms with paid employees, of which 5,789 firms were 

Hispanic-owned, 2,782 Asian-owned and 2,179 

businesses owned by Blacks. In comparison, minorityowned small businesses received 2.9% of all industry 

revenue (See Table 6). 

13 

Heavy Construction and Civil Engineering 

There were 51,122 small businesses involved in Heavy 

and Civil Engineering Construction (NAICS code 237) that 

had paid employees. Among the five minorities, 

Hispanics-owned 1,404 businesses, that was more than 

half of total minority firms. Of the rest, 542 businesses 

were Black-owned, followed by 402 American Indian and 

361 Asian-owned firms. While the average employment 

for all firms was 22.6 workers per firm, the same average 

for minority-owned firms was 15.6 persons per firm. 

There were a total of 42,748 workers employed by 

minority firms and 24,399 of them worked in firms with 

Hispanic ownership. Small business revenue in heavy 

construction was $205.6 billion in 2002; in comparison, 

small minority business receipts totaled $6.45 billion, or 

3.1% of the total. Hispanic businesses ranked highest 

among minorities with almost $3.27 billion, followed by 

American Indian businesses that made $1.23 billion. 

Black businesses outnumbered American Indian 

businesses by 140 firms, but ranked third in terms of 

receipts and sales, making $899.0 million. 

Specialty Trade Contractors 

The 2002 SBO indicates that there were over 1.9 million 

small firms operating in the NAICS code 238, as Specialty 

Trade Contractors and 458,750 of these firms had paid 

employees. A total of 4,210,594 workers were 

employed in the industry which made over $205 billion 

in 2002. Minority businesses made up 6.8% of all firms 

and employed 209,571 workers. They received 4.5% of 

total revenue. Once again, Hispanic firms ranked first 

among the minorities in the number of businesses, 

number of employees and receipts. There were 17,954 

Hispanic firms employing an average of 7.1 workers per 

firm, and making almost $12.4 billion in sales and 

receipts. Although there were more Black firms than 

Asian firms, the latter recorded slightly higher sales at 

$3.53 billion when compared with $3.51 billion made by 

Black firms. 
Textile and Leather Manufacturing 

Small businesses under the NAICS codes 313, 314, 315 

and 316 together make up the Textile and Leather 

Manufacturing Industry. According to the SBO, firms 

with paid employees made up about 41% of the 60,892 

small firms in this industry in 2002. Of these, 5,110 firms 

were minority-owned: Asians owned 3,539 firms, 

Hispanics 1,316 firms, and Blacks 129 firms. The total 

employment in the industry for firms with paid 

employees was 854,831 workers. The average 

employment per firm was highest in Hispanic-owned 

firms at almost 10 workers per firm, followed by Black 

firms with 7.5 workers. Asian firms on an average 

employed 4.5 workers which was lower than American 

Indian firms with 5.5 workers. Total receipts in all firms 

for the year 2002 were close to $132 billion; minorityowned firms received 1.0% of total revenue. 

Paper, Printing and Related Manufacturing 

Of the 69,600 small businesses in the Paper, Printing and 

Related Manufacturing industry (NAICS 322 and 323), 

39,957 firms had paid employees. Total minority-owned 

firms in 2002 was 2,781; 1,313 of these were owned by 

Asians, 1,045 by Hispanics and Blacks owned 415 

businesses. A total of 1.2 million workers were 

employed in this industry, at an average of 30.6 workers 

per firm. Among minorities, Hispanic-owned firms 

employed 9,916 workers, at 9.5 workers per firm, Asian 

owners followed with 9,000 employees and Black firms 

with 3,490 employees. The total receipts for the 

industry in 2002 was over $253.5 billion and of the 

minorities, Hispanic businesses totaled over $1.1 billion, 

followed by $414.1 million for Black-owned firms. 

Chemical, Non-Metallic Minerals Manufacturing 

There were 39,534 small firms registered under NAICS 

codes 325 and 327, in the Chemical and Non-metallic 

Minerals Manufacturing Industry; 21,594 of these firms 

had paid employees, and 5.7% of these were owned by 

minorities. The industry employed 1.4 million workers, 

and average firm employment was 63 workers, but 

minority owners employed only 15 workers per firm. 

Total sales for all small firms with paid employees was 

over $580 billion in 2002, but minority firms made just 

over $4 billion dollars. 

Plastics and Rubber Manufacturing 

Almost 70% of small businesses in the Plastics and 

Rubber Manufacturing industry (NAICS 326) had paid 

employees, and each firm on an average employed over 

79 workers. Of the 12,421 firms with employees, 

Hispanics and Asians owned over 90% of the 690 

14 

minority firms and employed 6,597 and 15,001 workers 

each. Asian firms were most successful recording $2.4 

billion dollar revenues, followed by Hispanics with over 

$928 million and Blacks with $487.7 million revenue. 

Primary Metals and Machinery Manufacturing 

The Primary Metals and Machinery Manufacturing 

industry includes firms registered under NAICS codes 

331, 332 and 333. According to the 2002 SBO, 89,592 of 

the 142,403 firms in the industry employed a total of 

over 3.3 million paid workers. Among firms with paid 

employees, minorities owned 5.2% of all firms, and on 

average, each firm employed less than a third of the 37 

workers that non-minority firms employed. The total 

revenue for firms with paid employees was over $655.7 

billion in the year surveyed. Minorities' share of the 

revenue was almost a tenth, at $7.7 billion. Hispanics 

owned 2,487 firms, more than half of all minority firms, 

employed 29,358 workers and recorded revenues of 

over $4 billion. The 1,494 Asian-owned businesses 

employed 14,955 workers and listed revenue of $2.11 

billion dollars. There were relatively fewer Black owners 

in the industry with just 313 firms employing 5,864 

workers. 

Computer and Electronic Manufacturing 

According to the SBO, two out of every three of the 

21,638 firms in the Computer and Electronic 

Manufacturing industry (NAICS 334) had paid workers. 

The industry also had the highest employee per firm 

ratio of 92 workers and employed a total of 1,313,608 

workers. Minority firms employed significantly lower 

number of workers, on an average, 20 workers in each 

firm. Asians owned close to 70% of all minority-owned 

businesses in the industry and employed 17,500 

workers. Hispanics ranked second in terms of ownership 

and total employment, with 6,029 workers in the 270 

firms they owned. Black owners in this industry 

provided the most employment per firm among the 

minorities, employing 28 workers in each of the 84 firms 

they owned. The total revenue recorded for these firms 

was over $378 billion of which minorities' share was less 

than a billion dollars in total. 

Wholesale Trade in Durable and Non-Durable Goods 

A total of 657,593 firms were involved in Wholesale 

Trade of Durable and Non-durable goods in 2002. 

Registered under the NAICS codes 423 and 424, there 

were 317,846 firms which had a total of 5.7 million paid 

employees. Of the 13 industries examined in this report, 

firms in wholesale trade recorded the highest revenue of 
$4.26 trillion. The 38,171 minority firms made a total of 

$40.66 billion in revenue (excluding Asian firms for 

which there was no revenue reported). There were 

23,460 Asian firms and they provided jobs to 150,000 

employees. Hispanic-owned firms came in next at 

almost 12,000 firms making a sum of $33.97 billion in 

revenue and employing over 84,000 employees. With 

combined revenue of $4.85 billion, the 1,877 African 

American firms employed an average of six workers in 

each firm. American Indians owned 765 firms, the 

second highest industry participation of the minority 

group and registered $1.84 billion in receipts. 

Publishing, except the Internet 

Small businesses under the NAleS code 511 are classified 

as the Publishing Industry. There were a total of 24,337 

firms with paid employees in this industry and 1,722 of 

them were minority-owned: Asians owned 3.7% of the 

firms, Hispanics 1.7%, African Americans 1.1% and 

American Indians 0.4% of the minority firms. In terms of 

employment, Asians employed 7,500 of the 16,157 

workers employed by minority owners, followed by 

Hispanic and Black employers engaging 3,916 and 3,217 

workers respectively. Financially, the small businesses in 

the industry received over $245.8 billion. Minorities 

received only 0.5% of the revenue while constituting 

over 7% of all firms. Among the minorities, African 

American firms performed the best, with $676 million in 

revenue, followed by Hispanics at $484.35 million. 

Internet Publishing, Telecommunications and ISP 

Firms under the NAles codes 516, 517 and 518 

collectively constitute the Internet Publishing, 

15 

Telecommunication and ISP industry. According to the 

2002 SBO, 25,406 of the 91,997 firms in the industry 

employed a total of over 2 million workers. The industry 

revenue was over $511 billion. Minority firm ownership 

was 10.8% and the firms employed 1.2% of all 

employees. The 1,531 Asian-owned firms employed 

over 11,000 workers, more than double that of the next 

major group, Hispanics owned 745 firms and employed 

5,314 workers and recorded revenue of almost a billion 

dollars. Black owners were the third most prominent 

group in the industry owning 394 firms and employing 

an average of 12 workers per firm. 

Professional, Scientific and Technical Services 

Over 3.2 million firms in various areas of business 

ranging from architectural consulting to translation 

services, with a common NAles code of 541 were 

categorized under the Professional, Scientific and 

Technical Services Industry. Of these, 727,893 firms 

employed 10 workers per firm with reported total 

industry revenue of $911.5 billion. 63,966 firms, 

identified as belonging to minority owners, employed 

382,008 workers and reported over $43.7 billion in 

revenue. Asians owned 30,000 firms, followed by 

Hispanics at 19,360 firms, Blacks at 11,014 firms, 

American Indians at 3,271 and 321 firms owned by 

Native Hawaiian. While Asians hired almost 6.5 workers 

per firm, Black firms had 6.4 workers, Hispanic 5.1 

workers and American Indians and Native Hawaiian an 

average of 4.7 and 4.2 workers per firm. Financially, 

Asians reported over $23 billion in revenue, followed by 

Hispanic owners at over $11.5 billion and Black owners 

at over $7 billion in revenue. 
Table 5 

Number of Firms, Employees in Firms and Receipts of Firms in Industry Race and Hispanic Origin 

Industry Name 

Construction of buildings 

Number of firms with paid employees 

Receipts for firms with paid employees ($'000) 

Total number of employees 

Average employees per firm 

Heavy and Civil Engineering Construction 

Number of firms with paid employees 

Receipts for firms with paid employees ($'000) 

Total number of employees 

Average employees per firm 

Specialty Trades Contractors 

Number of firms with paid employees 

Receipts for firms with paid employees ($'000) 

Total number of employees 

Average employees per firm 

Textile and leather Manufacturing 

Number of firms with paid employees 

Receipts for firms with paid employees ($'000) 

Total number of employees 

Average employees per firm 

Paper, Printing and Related Manufacturing 

Number of firms with paid employees 

Receipts for firms with paid employees ($'000) 

Total number of employees 

Average employees per firm 

Chemical, Non-metallic minerals Manufacturing 

Number of firms with paid employees 

Receipts for firms with paid employees ($'000) 

Total number of employees 

Average employees per firm 

Plastics and Rubber Manufacturing 

Number of firms with paid employees 

Receipts for firms with paid employees ($'000) 

Total number of employees 

Average employees per firm 

Primary Metals and Machinery Manufacturing 

All Firms 

220,348 

$522,063,852 

1,624,657 

7.4 

51,112 

$205,628,844 

1,156,027 

22.6 

458,750 

$481,219,852 

4,210,594 

9.2 

24,950 

$131,992,127 

854,831 

34.3 

39,957 

$253,506,291 

1,223,746 

30.6 

21,594 

$580,832,157 

1,362,970 

63.1 

12,421 

$175,094,500 

986,603 

79.4 

Number of firms with paid employees 89,592 

Receipts for firms with paid employees ($'000) $655,772,165 

Total number of employees 3,304,887 

Average employees per firm 36.9 

Computer and Electronic Manufacturing 

Number of firms with paid employees 14,282 

Receipts for firms with paid employees ($'000) $378,094,641 

Total number of employees 1,313,608 

Average employees per firm 92.0 

All Minority 

12,043 

15,500,905 

72,687 

6.0 

2,741 

$6,449,085 

42,748 

15.6 

31,454 

$21,626,330 

209,571 

6.7 

5,110 

$1,331,959 

30,538 

6.0 

2,781 

$1,523,408 

22,456 

8.1 

1,232 

$4,008,408 

18,679 

15.2 

690 

$3,824,611 

24,716 

35.8 

4,697 

$7,700,960 

55,816 

11.9 

1,313 

$929,202 

26,486 

20.2 

16 

American 

Indian & 

Alaska 

Native 

1,184 

$1,443,428 

5,500 

4.6 

402 

$1,232,240 

6,577 

16.4 

3,249 

$2,189,873 

19,262 

5.9 

126 

$66,850 

692 

5.5 

3 

NA 

40 

13.3 

73 

$94,269 

514 

7.0 

Asian 

2,782 

$3,783,550 

14,374 

5.2 

361 

$814,328 

4,558 

12.6 

4,246 

$3,531,454 

27,918 

6.6 

3,539 

NA 

15,873 

4.5 

1,313 

NA 

9,000 

6.9 

554 

$2,455,990 

10,509 

19.0 

NA 309 

NA $2,408,851 

NA 15,001 

NA 48.5 

403 1,494 

$721,884 $2,111,829 

5,579 14,955 

13.8 10.0 

44 

$62,278 

428 

9.7 

915 

NA 

17,500 

19.1 

Black or 

African 

American 

2,179 

$3,088,438 

14,103 

6.5 

542 

$899,009 

6,310 

11.6 

6,005 

$3,516,097 

34,723 

5.8 

129 

NA 

967 

7.5 

415 

$414,122 

3,490 

8.4 

155 

$316,002 

1,826 

11.8 

58 

$487,696 

3,118 

53.8 

313 

$798,931 

5,864 

18.7 

84 

$117,159 

2,354 

28.0 

Hispanic or 

Latino 

5,789 

$7,003,527 

38,012 

6.6 

1,404 

$3,268,807 

24,399 

17.4 

17,954 

$12,388,906 

127,668 

7.1 

1,316 

$1,265,109 

12,947 

9.8 

1,045 

$1,109,286 

9,916 

9.5 

446 

$1,115,615 

5,644 

12.7 

323 

$928,064 

6,597 

20.4 

2,487 

$4,068,316 

29,358 

11.8 

270 

$749,765 

6,029 

22.3 

Native 

Hawaiian 

& Pacific 

Islander 

109 

$181,962 

698 

6.4 

32 

$234,701 

904 

28.3 

NA 

NA 

NA 

NA 

NA 

NA 

59 

NA 

5 

NA 

10 

2.0 

4 

$26,532 

186 

46.5 

o 

NA 

o 

NA 

NA 

NA 

60 

NA 

NA 

NA 

175 

NA 

CONTINUED 
Table 5 (CONTINUED) 

Number of Firms, Employees in Firms and Receipts of Firms in Industry Race and Hispanic Origin 

American Black or Native 

Industry Name All Firms All Minority Indian & Asian African Hispanic or Hawaiian 

Alaska Latino & Pacific 

Native American Islander 

Wholesale Trade In Durable I Non-durable Goods 

Number of firms with paid employees 317,846 38,171 765 23,460 1,877 11,991 78 

Receipts for firms with paid employees ($'000) $4,260,775,896 $40,657,519 $1,836,572 NA $4,846,244 $33,974,703 NA 

Total number of employees 5,748,199 252,141 5,575 150,000 11,232 84,209 1,125 

Average employees per firm 18.1 6.6 7.3 6.4 6.0 7.0 14.4 

Publishing except internet 

Number of firms with paid employees 24,337 1,722 108 931 273 401 9 

Receipts for firms with paid employees ($'000) $245,876,005 $1,252,552 $92,283 NA $675,921 $484,348 NA 

Total number of employees 1,099,157 16,157 1,349 7,500 3,217 3,916 175 

Average employees per firm 45.2 9.4 12.5 8.1 11.8 9.8 19.4 

Internet Publishing, Telecommunication and ISP 

Number of firms with paid employees 25,406 2,734 44 1,531 394 745 20 

Receipts for firms with paid employees ($'000) $511,537,853 $1,737,172 $129,427 $0 $612,938 $994,807 $0 

Total number of employees 2,050,704 24,016 2,113 11,625 4,744 5,314 220 

Average employees per firm 80.7 8.8 48.0 7.6 12.0 7.1 11.0 

Professional, Scientific and Technical Services 

Number of firms with paid employees 727,893 63,966 3,271 30,000 11,014 19,360 321 

Receipts for firms with paid employees ($'000) $911,568,291 $43,727,866 $1,569,868 $23,359,848 $7,096,863 $11,528,555 $172,732 

Total number of employees 7,426,468 382,008 15,310 196,057 70,852 98,438 1,351 

Average employees per firm 10 6 5 7 6 5 4 

Note: Some Minority group total receipts are not given. This causes an understatement of the total receipts by minorities. 

Source: Survey of Business Owners, 2002. 

17 
Table 6 

Percentage of Total Firms, Receipts, Employees and Disparity Index by Industry, Race and Ethnicity 

Industry Name 

Construction of buildings 

Percent of firms with paid employees 

Percent of Receipts for firms with paid employees 

Total Percent of employees 

Heavy and Civil Engineering Construction 

Percent of firms with paid employees 

Percent of Receipts for firms with paid employees 

Total Percent of employees 

Specialty Trades Contractors 

Percent of firms with paid employees 

Percent of Receipts for firms with paid employees 

Total Percent of employees 

Textile and leather Manufacturing 

Percent of firms with paid employees 

Percent of Receipts for firms with paid employees 

Total Percent of employees 

Paper, Printing and Related Manufacturing 

Percent of firms with paid employees 

Percent of Receipts for firms with paid employees 

Total Percent of employees 

Chemical, Non-metallic minerals Manufacturing 

Percent of firms with paid employees 

Percent of Receipts for firms with paid employees 

Total Percent of employees 

Plastics and Rubber Manufacturing 

Percent of firms with paid employees 

Percent of Receipts for firms with paid employees 

Total Percent of employees 

Primary Metals and Machinery Manufacturing 

Percent of firms with paid employees 

Percent of Receipts for firms with paid employees 

Total Percent of employees 

Computer and Electronic Manufacturing 

Percent of firms with paid employees 

Percent of Receipts for firms with paid employees 

Total Percent of employees 

Wholesale Trade In Durable I Non-durable Goods 

Percent of firms with paid employees 

Percent of Receipts for firms with paid employees 

Total Percent of employees 

Publishing except internet 

Percent of firms with paid employees 

Percent of Receipts for firms with paid employees 

Total Percent of employees 

Internet Publishing, Telecommunication and ISP 

Percent of firms with paid employees 

Percent of Receipts for firms with paid employees 

Total Percent of employees 

Professional, Scientific and Technical Services 

Percent of firms with paid employees 

Percent of Receipts for firms with paid employees 

Total 

Minority 

5.47% 

2.97% 

4.47% 

5.36% 

3.14% 

3.70% 

6.86% 

4.49% 

4.98% 

20.48% 

1.01% 

3.57% 

6.96% 

0.60% 

1.84% 

5.71% 

0.69% 

1.37% 

5.56% 

2.18% 

2.51% 

5.24% 

1.17% 

1.69% 

9.19% 

0.25% 

2.02% 

12.01% 

0.95% 

4.39% 

7.08% 

0.51% 

1.47% 

10.76% 

0.34% 

1.17% 

8.79% 

4.80% 

American 

Indian & 

Alaska 

Native 

0.54% 

0.28% 

0.34% 

0.79% 

0.60% 

0.57% 

0.71% 

0.46% 

0.46% 

0.51% 

0.05% 

0.08% 

0.01% 

0.00% 

0.00% 

0.34% 

0.02% 

0.04% 

NA 

NA 

NA 

0.45% 

0.11% 

0.17% 

0.31% 

0.02% 

0.03% 

0.24% 

0.04% 

0.10% 

0.44% 

0.04% 

0.12% 

0.17% 

0.03% 

0.10% 

0.45% 

0.17% 

Asian 

1.26% 

0.72% 

0.88% 

0.71% 

0.40% 

0.39% 

0.93% 

0.73% 

0.66% 

14.18% 

NA 

1.86% 

3.29% 

NA 

0.74% 

2.57% 

0.42% 

0.77% 

2.49% 

1.38% 

1.52% 

1.67% 

0.32% 

0.45% 

6.41% 

NA 

1.33% 

7.38% 

NA 

2.61% 

3.83% 

NA 

0.68% 

6.03% 

0.00% 

0.57% 

4.12% 

2.56% 

Black 

0.99% 

0.59% 

0.87% 

1.06% 

0.44% 

0.55% 

1.31% 

0.73% 

0.82% 

0.52% 

NA 

0.11% 

1.04% 

0.16% 

0.29% 

0.72% 

0.05% 

0.13% 

0.47% 

0.28% 

0.32% 

0.35% 

0.12% 

0.18% 

0.59% 

0.03% 

0.18% 

0.59% 

0.11% 

0.20% 

1.12% 

0.27% 

0.29% 

1.55% 

0.12% 

0.23% 

1.51% 

0.78% 

Hispanic or 

latino 

2.63% 

1.34% 

2.34% 

2.75% 

1.59% 

2.11% 

3.91% 

2.57% 

3.03% 

5.27% 

0.96% 

1.51% 

2.62% 

0.44% 

0.81% 

2.07% 

0.19% 

0.41% 

2.60% 

0.53% 

0.67% 

2.78% 

0.62% 

0.89% 

1.89% 

0.20% 

0.46% 

3.77% 

0.80% 

1.46% 

1.65% 

0.20% 

0.36% 

2.93% 

0.19% 

0.26% 

2.66% 

1.26% 

Native 

Hawaiian 

& Pacific 

Islander 

0.05% 

0.03% 

0.04% 

0.06% 

0.11% 

0.08% 

NA 

NA 

NA 

NA 

NA 

0.01% 

0.01% 

NA 

0.00% 

0.02% 

0.00% 

0.01% 

0.00% 

NA 

0.00% 

NA 

NA 

0.00% 

NA 

NA 

0.01% 

0.02% 

NA 

0.02% 

0.04% 

NA 

0.02% 

0.08% 

0.00% 

0.01% 

0.04% 

0.02% 

Total Percent of employees 5.14% 0.21% 2.64% 0.95% 1.33% 0.02% 

Note: Some minority group total receipts are not given. This causes an understatement of the total percent of receipts by minorities. 

Source: Survey of Business Owners, 2002. 

18 
Minority Business Disparities - Characteristics and Causes 

Despite the rapid growth of minorityowned firms, the owners of these firms 

continue to encounter significant 

disparities in the general market place. 

While racial and ethnic minorities 

comprise approximately 30% of the U.s. 

population, they own just 18% of all u.s. 

businesses. 

Disparities by Industry, Race and Ethnicity 

In 2002 Blacks comprised 12.8% of the total population 

and owned 5.2% of all businesses. Hispanics comprised 

14.1% of the total population and owned 6.8% of all 

businesses; Subcontinent Asians comprised 4.2% of the 

total population and held 4.8% of all businesses; Pacific 

Islanders comprised 0.1% of the total population and 

owned 0.1% of all businesses; and American Indians and 

Alaska Natives comprised 1% of the total population and 

owned 0.9% of all businesses. 19 In comparison, nonHispanic Whites comprised 67.4% of the total 

population, and owned 81% of all non-publicly traded 

businesses (See Table 7). 

Table 7 

Racial disparities in small business revenue are 

significant among all groups except Asians and American 

Indians. Furthermore, it is impossible to determine with 

precision the racial and ethnic ownership of publicly held 

companies. However, if we assume that the largest 

share of the receipts of these companies were held by 

non-Hispanic Whites, disparities in business revenue 

among minorities would be even greater. Specifically, 

while publicly held businesses comprised only 2.2% of all 

businesses in 2002, they accounted for 60.7% of total 

business revenue. Among non-publicly held companies 

Whites received 36.4% of total revenue. Of all business 

revenues, minority percent of total revenue is much 

lower if we include revenue of public and non-public 

businesses. Hispanics received 0.1% of total business 

revenue, Blacks 0.4%, Native Americans 0.1%, Asians 

1.4%, and Pacific Islanders 0.02%.20 

Disparities in family income and poverty contributed to 

disparities in minority business performance, compared 

with businesses owned by non-minorities. For example, 

in 2005 the median income of non-Hispanic Whites was 

$50,784, for Blacks it was $30,858, for Asians $61,094, 

and for Hispanics it was $35,967. Blacks also had the 

highest percentage of households in poverty at 23.8%, 

followed by Hispanics 20.6%, Asians 8.9%, and nonHispanic Whites at 6.0% (See Table 8). 

Difference Between Population Percent and Business Ownersbip Percent 

Race 

White alone, not Hispanic 

Hispanic or Latino (any race) 

Black or African American 

American Indian and Alaskan Native 

Asian 

Total or Average 

Population, 

2004 

197,840,800 

41,322,100 

37,502,300 

2,824,800 

12,326,000 

293,655,400 

Source: u.s. Census Bureau 2005 (a), Lowery, 2007. 

Non-Publicly 

Held 

Businesses, 

2002 

18,609,599 

1,573,464 

1,197,567 

201,387 

1,103,587 

22,974,655 

Percent of 

Total 

Population 

67.4% 

14.1% 

12.8% 

1.0% 

4.2% 

100.0% 

Percent of NonPublicly Held 

Businesses 

81.0% 

6.8% 

5.2% 

0.9% 

4.8% 

100.0% 

Percentage Point 

Difference 

(Business % - Pop 

%) 

+13.6% 

-7.3% 

-7.6% 

-0.1% 

0.6% 

19 Lowery, Ying. 2007 and Survey of Business Owners, 2002. 

20 Lowery, Ying. 2007. Minorities in Business: a Demographic 

Review of Minority Business Ownership, Small Business 

Research Summary, SBA Office of Advocacy, April 2007, No. 

298, pp 1 - 50). 

19 
Table 8 

Racial Disparities in Attributes Associated with Business Viability 

Median Poverty Rate, Percent Using Business Income, 

Race or Hispanic Origin Category Three-year Three-year Bank loans to Median Net Ownership Rate 

Average Start Business, Worth,2000 (Businesses per Average 

2003-2005 2003-2005 2002 1000 persons) 

White alone, not Hispanic $50,677 8.4% 23.1% $79,400 94 

Hispanic or latino (any race) $35,467 22.2% 14.8% $9,750 38 

Black $31,140 24.7% 17.6% $7,500 32 

American Indian and Alaskan Native $33,627 12.2% 20.0% 71 

Asian $59,877 10.9% 20.1% 90 

Total or Avera!e $46,037 12.6% 22.2% $55,000 78 

Source: U.s. Census Bureau, 200S(a); Census Bureau, 2005(b); lowery, 2007; Census Bureau, 2003. 

In 2002, racial and ethnic disparities in business 

ownership and business receipts existed in all industries 

examined in this report. The simplest way of measuring 

disparities is with the disparity index (See Table 9); a 

numerical ratio of the percent of total business receipts 

gOing to a race or ethnic group, divided by the percent of 

all firms in the industry accounted for by that group. For 

example, Table 9 shows that every industry examined in 

this report had a disparity index for minority business 

Table 9 

Disparity Index by Industry Race and Ethnicity 

Industry Name Total 

Minority 

Construction of Buildings 0.54 

Heavy and Civil Engineering Construction 0.58 

Specialty Trade Contractors 0.66 

Textile and Leather Manufacturing 0.05 

Paper, Printing and Related Manufacturing 0.09 

Chemical, Non-metallic minerals Manufacturing 0.12 

Plastics and Rubber Manufacturing 0.39 

Primary Metals and Machinery Manufacturing 0.22 

Computer and ElectroniC Manufacturing 0.03 

Wholesale Trade In Durable / Non-durable Goods 0.08 

Publishing except /internet 0.07 

Internet Publishing, Telecommunication and ISP 0.03 

Professional, ScientifiC and Technical Services 0.55 

Note: Simple Disparity Index: % of Receipts + % of Firms 

owners that was less than 0.80 - the benchmark that 

court proceedings have established as indicating an 

inference of discrimination. 

Disparities existed in all industries for all 

race and ethnic groups. The only 

exceptions were Native Hawaiians and 

Pacific Islanders in the heavy construction 

and civil engineering industry, and Asians in 

specialty trade contracting. 

American Native 

Hawaiian 

& Pacific 

Islander 

Indian & 

Alaska 

Native 

0.51 

0.76 

0.64 

0.10 

0.00 

0.05 

0.24 

0.05 

0.18 

0.08 

0.15 

0.38 

Asian 

0.57 

0.56 

0.79 

0.16 

0.55 

0.19 

0.00 

0.62 

Black 

0.60 

0.41 

0.56 

0.16 

0.08 

0.60 

0.35 

0.05 

0.19 

0.25 

0.08 

0.51 

Hispanic or 

latino 

0.51 

0.58 

0.66 

0.18 

0.17 

0.09 

0.20 

0.22 

0.10 

0.21 

0.12 

0.07 

0.48 

0.70 

1.82 

0.25 

0.00 

0.43 

Some disparity values may be biased downward in cases where industry revenue data were not available. 

Source: Survey of Business Owners, 2002. 

20 
The Causes of Racial and Ethnic Disparities 

Studies suggest that the factors contributing to the 

financial viability and growth of minority businesses are 

as follows: 

1) Individual-specific factors, including owner's 

business acumen, relevant education and 

experience, choice of industry and business 

location. 

2) Environment-consequent factors, such as access 

to capital, to supportive networks, presence of 

role models and absence of racial discrimination. 

3) Group-specific factors include set-aside programs 

for minorities, equal employment opportunities 

and environments where there is significant 

minority political power (Ahiarah, 1993). 

Insufficient access to start-up capital is the most 

widespread reason typically given for the lower level of 

self-employment among racial and ethnic minorities. 

Research has indicated that minority businesses 

experience a substantial disadvantage at the start-up 

phase (Fairlie, 1999). A frequently cited study by 

Cavaluzzo, Cavaluzzo and Wolken (2002) examines 

patterns of credit application for 4,570 small businesses, 

including 1,025 minority-owned businesses run by men 

and women in 1993. The size of owner's assets 

significantly influenced the probability of securing a 

credit line. 

After holding other factors constant, 

Black-owned businesses were denied 

credit 2.5 times more frequently than 

White-owned businesses. Hispanic 

males were denied two times as often as 

White males. 

Moreover, interest rates paid by Black males who gained 

credit approval, were 11.1% higher than interest rates 

paid by White males. 

Education has also been cited as a factor in determining 

the success of business owners. Bates (1990) used 

information on males who entered self-employment 

between 1976 and 1982, and found that the level of 

21 

education positively contributed to the probability of 

business longevity. 

Bates also showed that groups with the highest 

education levels also had the most access to debt 

capital. Christopher (1998) developed a "Basic Survival 

Model" that analyzed small business performance and 

viability between 1987 and 1991 as a function of 

numerous exogenous variables. The author found that 

the probability of minority business survival increases 

with the number of years of formal education of the 

owner. 

Craig, Gent, Palumbo and Wall (2001) analyzed the 

factors that contributed to viability of small businesses in 

Buffalo, NY. They identified how financial and nonfinancial assets of business owners influenced the 

success of businesses. They found that having a formal 

business plan increased sales by 55.8%, while availability 

of loans increased sales by 55.4%. Also formal education 

and non-minority status were positively correlated with 

sales. Dunn and Holtz-Eakin (2000) used samples from 

the National Longitudinal Surveys of Labor Market 

Experience and found that parental wealth and selfemployment were important in the inter-generational 

transmission of self-employment skills. Fairlie and 

Meyer (1996), using 1990 U.S. Census of Population, 

discovered significant differences in self-employment 

rates across six ethnic and racial groups in the U.S .. They 

demonstrated that salary and personal income are 

positively correlated with self-employment rates. 

Finally, Audretsch (1991) investigated rates of firms 

survival varies across 295 industries, using the SBA data 

merge with Dun & Bradstreet data. He concluded that 

innovation substantially contributed to survival rates of 

these companies and that survival rates varied across 

industries. 

In summary, research has shown that 

access to capital and credit, personal net 

worth and income, educational 

attainment and a legacy of family 

entrepreneurship, all contribute positively 

to business start-ups and viability. In 

each case, the historical legacy of 

discrimination has lowered the 

accumulation of these attributes for 

minorities. 
Government Contracting Remains the Most Viable 

Option for Minorities 

National business statistics show that 

minority-owned firms engage in 

government contracting to a larger 

extent than do non-minority firms. This is 

because minority business owners are 

much more likely to be adversely affected 

by discriminatory practices in the private 

sector than in the public sector. 

Laws governing discrimination in business practices 

pertain primarily to government contracting activity and 

not to private sector business to business transactions. 

The greater representation of minority contractors as 

government vendors is readily apparent in Table 10. The 

table shows that in 2006 there were 47,254 small 

Table 10 

business concerns registered with the federal 

government's CCR database. Of this number, 19,237 (or 

40.7%) were minority-owned businesses. In contrast, 

minorities owned 18% of all U.S. businesses. Among the 

19,237 minority-owned SBCs, 3,388 specialized in the 

construction of buildings, 1,935 concentrated primarily 

in special trades contracting, and 671 were in the heavy 

construction industry. But the largest concentration of 

minority-owned SBCs was in professional, scientific and 

technical services; 6,843. In total SBCs employed 

821,315 workers in 2006; minority-owned SBCs 

employed 287,482 (or 35% of all workers employed by 

SBCs) while non-minority-owned SBCs employed 

533,833 workers. Among minority SBCs, the industry 

creating the largest number of jobs was construction of 

buildings, 66,136, followed by professional, scientific and 

technical services; 64,506. Internet publishing and 

telecommunications was third with 35,025 employees. 

Number and Employment in Minority and Non-minority SBCs, 2006 

Minority-owned SBCs Non-Minority-owned AIISBCs SBCs 

Employment Percent of Non- Employment Total 

Industry Minority- in minority- all minority- in non- Number employees owned SBCs employees owned minority- ofSBCs owned SBCs in SBCs SBCs owned SBCs in SBCs 

Construction of Buildings 3,388 66,136 66% 2,147 33,543 5,535 99,679 

Heavy Construction 671 13,781 37% 1,205 23,042 1,876 36,823 

Specialty Trades Contracting 1,935 22,421 36% 2,957 39,977 4,892 62,398 

Textile and Leather Manufacturing 381 6,467 18% 747 29,755 1,128 36,222 

Paper, Printing and Related Manufacturing 572 5,175 23% 741 17,296 1,313 22,471 

Chemical, Non-Metallic Minerals Manufacturing 318 3,515 13% 896 23,650 1,214 27,165 

PlastiCS and Rubber Manufacturing 154 2,190 11% 625 16,969 779 19,159 

Primary Metal and Machinery Manufacturing 1,287 23,648 15% 4,909 133,029 6,1% 156,677 

Computer and ElectroniC Manufacturing 1,341 29,745 27% 2,722 80,873 4,063 110,618 

Wholesale Trade (Durable and Non-Durable) 955 6,685 23% 1,639 21,987 2,594 28,672 

Publishing, Except Internet 509 8,188 44% 824 10,592 1,333 18,780 

Internet Publishing, Telecommunications and ISP 883 35,025 66% 650 18,400 1,533 53,425 

Professional, Scientific and Technical Services 6,843 64,506 43% 7,955 84,720 14,798 149,226 

Total 19,237 287,482 35% 28,017 533,833 47,254 821,315 

Source: CCR, 2007 and FPDS, 2005-2007. 

22 
Tables 11 through 15 describe various characteristics of 

minority SBCs by industry, race and ethnicity. Blacks 

comprised the largest number of minority SBCs (7,223), 

representing 15.3% of all SBCs. Blacks were followed in 

respective order by Hispanics (5,102 SBCs or 10.8%), 

Table 11 

Asian and Pacific Americans (2,828 or 6% of all SBCs), 

Subcontinent Asian Americans (2,049 or 4.3% of SBCs), 

and Native Americans (2,035 SBCs or 4.7%). Nonminority SBCs comprised 59.3% of all firms (See Tables 

11 and 12). 

Number of Minority and Non-Minority SBCs by Industry, Race and Ethnicity, 2006 

Native Subcontinent 

NonIndustry Asian Pacific Black Hispanic Americans Asian Minority 

SBCs 

Construction of Buildings 354 1,192 1,037 638 167 2,147 

Heavy Construction 62 203 238 144 24 1,205 

Specialty Trades Contracting 195 776 682 231 51 2,957 

Textile and Leather Manufacturing 66 143 109 37 26 747 

Paper, Printing and Related Manufacturing 74 247 176 42 33 741 

Chemical, Non-Metallic Minerals Manufacturing 66 106 82 21 43 896 

Plastics and Rubber Manufacturing 19 30 65 22 18 625 

Primary Metal and Machinery Manufacturing 245 228 488 203 123 4,909 

Computer and Electronic Manufacturing 362 374 266 95 244 2,722 

Wholesale Trade (Durable and Non-Durable) 141 387 251 91 85 1,639 

Publishing, Except Internet 94 194 84 24 113 824 

Internet Publishing, Telecommunications and ISP 124 382 144 65 168 650 

Professional, Scientific and Technical Services 1,026 2,961 1,480 422 954 7,955 

Total 2,828 7,223 5,102 2,035 2,049 28,017 

Table 12 

Percent of Minority and Non-Minority SBCs by Industry, Race and Ethnicity, 2006 

Industry 

Asian Black Hispanic Native Subcontinent Non-Minority Total Pacific Americans Asian SBCs 

Construction of Buildings 6.4% 21.5% 18.7% 11.5% 3.0% 38.8% 100.0% 

Heavy Construction 3.3% 10.8% 12.7% 7.7% 1.3% 64.2% 100.0% 

Specialty Trades Contracting 4.0% 15.9% 13.9% 4.7% 1.0% 60.4% 100.0% 

Textile and Leather Manufacturing 5.9% 12.7% 9.7% 3.3% 2.3% 66.2% 100.0% 

Paper, Printing and Related Manufacturing 5.6% 18.8% 13.4% 3.2% 2.5% 56.4% 100.0% 

Chemical, Non-Metallic Minerals Manufacturing 5.4% 8.7% 6.8% 1.7% 3.5% 73.8% 100.0% 

Plastics and Rubber Manufacturing 2.4% 3.9% 8.3% 2.8% 2.3% 80.2% 100.0% 

Primary Metal and Machinery Manufacturing 4.0% 3.7% 7.9% 3.3% 2.0% 79.2% 100.0% 

Computer and Electronic Manufacturing 8.9% 9.2% 6.5% 2.3% 6.0% 67.0% 100.0% 

Wholesale Trade (Durable and Non-Durable) 5.4% 14.9% 9.7% 3.5% 3.3% 63.2% 100.0% 

Publishing, Except Internet 7.1% 14.6% 6.3% 1.8% 8.5% 61.8% 100.0% 

Internet Publishing, Telecommunications and ISP 8.1% 24.9% 9.4% 4.2% 11.0% 42.4% 100.0% 

Professional, Scientific and Technical Services 6.9% 20.0% 10.0% 2.9% 6.4% 53.8% 100.0% 

Total 6.0% 15.3% 10.8% 4.3% 4.3% 59.3% 100.0% 

23 
Table 13 

Revenue of Minority and Non-Minority SHes by Industry, Race and Ethnicity, 2006 

Industry Asian Pacific 

Construction of Buildings $ 1,213,297,452 

Heavy Construction $ 164,025,683 

Specialty Trades Contracting $ 285,955,872 

Textile and leather Manufacturing $ 135,447,577 

Paper, Printing and Related Manufacturing $ 61,090,819 

Chemical, Non-Metallic Minerals Manufacturing $ 111,808,324 

Plastics and Rubber Manufacturing $ 28,069,301 

Primary Metal and Machinery Manufacturing $ 1,018,687,152 

Computer and Electronic Manufacturing $ 2,414,157,208 

Wholesale Trade (Durable and Non-Durable) $ 389,088,875 

Publishing, Except Internet $ 142,695,417 

Internet Publishing, Telecommunications and ISP $ 1,036,643,737 

Professional, Scientific and Technical Services $ 1,006,520,699 

Total $ 8,007,488,116 

Industry 

Subcontinent 

Asian 

Construction of Buildings $ 843,642,226 

Heavy Construction $ 64,980,777 

Specialty Trades Contracting $ 46,844,721 

Textile and leather Manufacturing $ 22,714,968 

Paper, Printing and Related Manufacturing $ 44,993,000 

Chemical, Non-Metallic Minerals Manufacturing $ 82,042,500 

PlastiCS and Rubber Manufacturing $ 45,020,000 

Primary Metal and Machinery Manufacturing $ 463,946,368 

Computer and ElectroniC Manufacturing $ 882,732,259 

Wholesale Trade (Durable and Non-Durable) $ 247,181,228 

Publishing, Except Internet $ 243,034,626 

Internet Publishing, Telecommunications and ISP $ 1,360,669,578 

Professional, Scientific and Technical Services $ 1,224,103,491 

Total $ 5,571,905,742 

Table 13 provides the total revenue received by SBCs by 

race, ethnicity and industry. The largest revenue to a 

minority group ($11 billion) went to Blacks, followed in 

respective order by Hispanics, Asian and Pacific 

Islanders, Native Americans, and Subcontinent Asians. 

Overall, Blacks represented 15.3% of all CCR-listed small 

business concerns (SBCs) and received 8.7% of the total 

revenue of those firms. The comparable figures for 

Hispanics were 10.8% and 7.7%; for Asian and Pacific 

Islanders the revenue percent was 6.3% and they 

comprised 6.0% of all SBCs. Native Americans and 

Subcontinent Asians received 4.7% and 4.4% of total 

revenue respectively (See Table 14). They each 

comprised 4.3% of all available SBCs. 

24 

Black Hispanic Native 

Americans 

$ 2,003,544,462 $ 3,178,094,149 $ 2,638,624,991 

$ 343,894,463 $ 728,909,201 $ 289,763,607 

$ 433,337,335 $ 738,439,530 $ 263,021,894 

$ 42,734,535 $ 204,147,514 $ 153,863,863 

$ 186,274,889 $ 240,553,982 $ 325,905,825 

$ 263,141,794 $ 146,319,445 $ 81,455,723 

$ 120,265,763 $ 100,922,036 $ 52,146,250 

$ 346,221,838 $ 1,013,767,528 $ 632,575,687 

$ 2,283,408,017 $ 927,921,327 $ 447,803,475 

$ 582,339,104 $ 687,361,118 $ 250,219,583 

$ 172,865,553 $ 116,308,424 $ 10,283,002 

$ 2,715,018,966 $ 408,086,569 $ 467,232,590 

$ 1,506,124,929 $1,180,214,983 $ 351,922,844 

$ 10,999,171,648 $ 9,671,045,806 $ 5,964,819,334 

Non-Minority SBCs 

$ 6,569,060,081 

$ 3,471,796,962 

$ 4,529,894,116 

$ 3,732,809,657 

$ 2,935,265,689 

$ 3,891,460,954 

$ 2,444,081,648 

$ 22,675,953,901 

$ 13,897,698,980 

$ 8,756,154,774 

$ 1,369,586,203 

$ 2,176,230,922 

$ 9,455,611,988 

$ 85,905,605,875 

Blacks comprised 21.5% of small business 

concerns in construction of buildings and 

received 12.2% of total revenue going to 

SBCs. Hispanics comprised 18.7% of all 

firms in this industry and received 19.3% 

of total revenue. In contrast, Native 

Americans and Subcontinent Asians 

comprised 11.5% and 3% of SBCs but 

accounted for 16% and 5.1% 

respectively, of total revenue received by 

these firms. Fifty-nine and three-tenths 

percent of all firms were owned by nonminorities and they received 68.1% of 

the total revenue. 
Table 14 

Percent of Revenue for Minority and Non-Minority SBCs by Industry. Race and Ethnicity. 2006 

Asian Native Subcontinent NonIndustry Pacific Black Hispanic Americans Asian Minority Total 

SBCs 

Construction of Buildings 7.4% 12.2% 19.3% 16.0% 5.1% 39.9% 100.0% 

Heavy Construction 3.2% 6.8% 14.4% 5.7% 1.3% 68.6% 100.0% 

Specialty Trades Contracting 4.5% 6.9% 11.7% 4.2% 0.7% 71.9% 100.0% 

Textile and Leather Manufacturing 3.2% 1.0% 4.8% 3.6% 0.5% 87.0% 100.0% 

Paper, Printing and Related Manufacturing 1.6% 4.9% 6.3% 8.6% 1.2% 77.4% 100.0% 

Chemical, Non-Metallic Minerals Manufacturing 2.4% 5.8% 3.2% 1.8% 1.8% 85.0% 100.0% 

Plastics and Rubber Manufacturing 1.0% 4.3% 3.6% 1.9% 1.6% 87.6% 100.0% 

Primary Metal and Machinery Manufacturing 3.9% 1.3% 3.9% 2.4% 1.8% 86.7% 100.0% 

Computer and Electronic Manufacturing 11.6% 10.% 4.4% 2.1% 4.2% 66.6% 100.0% 

Wholesale Trade (Durable and Non-Durable) 3.6% 5.3% 6.3% 2.3% 2.3% 80.2% 100.0% 

Publishing, Except Internet 6.9% 8.4% 5.7% 0.5% 11.8% 66.7% 100.0% 

Internet Publishing, Telecommunications and ISP 12.7% 33.3% 5.0% 5.7% 16.7% 26.7% 100.0% 

Professional, ScientifiC and Technical Services 6.8% 10.2% 8.0% 2.4% 8.3% 64.2% 100.0% 

Total 6.3% 8.7% 7.7% 4.7% 4.4% 68.1% 100.0% 

Table 15 

Mean Years of Business Operation for Minority and Non-Minority SBCs by Industry. Race and 

Ethnicity.2006 

Industry Asian 

Pacific 

Construction of Buildings 12 

Heavy Construction 12 

Specialty Trades Contracting 12 

Textile and leather Manufacturing 14 

Paper, Printing and Related Manufacturing 16 

Chemical, Non-Metallic Minerals Manufacturing 13 

Plastics and Rubber Manufacturing 14 

Primary Metal and Machinery Manufacturing 15 

Computer and ElectroniC Manufacturing 13 

Wholesale Trade (Durable and Non-Durable) 13 

Publishing, Except Internet 8 

Internet Publishing, Telecommunications and ISP 9 

Professional, ScientifiC and Technical Services 10 

Mean, All Industries 12 

In the heavy construction industry, the total number of 

Hispanic-owned firms was 238 and they accounted for 

12.7% of all firms. There were a total of 203 Blackowned firms constituting 10.8% of the industry. 

However, the total revenue of Black-owned firms, 

$343.9 million, made up only 7% of total industry 

revenue. In the specialty trades contractor industry, 

Black and Hispanic-owned businesses comprised 15.9% 

and 13.9% of the total number of firms. Four-percent of 

the total number firms were Pacific Asian-owned, while 

4.7% were owned by Native Americans (See Table 12). 

Although the minorities together owned 40% of all firms 

25 

Black Hispanic Native Subcontinent Non-Minority 

Americans Asian SBCs 

9 10 10 11 16 

10 12 11 12 17 

8 11 9 10 17 

8 13 12 13 28 

17 14 17 12 24 

30 14 10 15 24 

11 16 13 13 24 

13 17 15 15 27 

10 12 11 13 18 

8 13 11 10 24 

8 9 6 8 12 

7 7 7 9 10 

8 9 9 10 11 

9 11 11 11 18 

in this industry, their total revenue comprised 28% (See 

Table 14). Over 18.8% of the total 1,313 firms in the 

paper, printing and related manufacturing industry were 

Black-owned. Hispanic-owned firms formed the second 

largest minority group with a total of 176 firms. Asian, 

Native American and Subcontinent firms made up a 

relatively small portion of the number of firms. The 247 

Black-owned firms shared 5% of the total revenue and 

had an average of nine years in business (See Table 15 

also). 
The computer and electronic manufacturing industry 

had more Black (9.2%) and Asian (8.9%) owned firms 

than Hispanic firms (6.5%), followed by Subcontinent 

Asians who owned a relatively high 6% in this industry. 

Black-owned firms received 8% of the total industry 

revenue. In professional, scientific and technical 

services, Black-owned firms were the largest group with 

almost 3,000 firms or about 19.8%. They accounted for 

10% of the total industry revenue. Hispanic-owned firms 

represented 10% of the industry and received 8% of 

total revenue. 

A recurring pattern of disparity exists in virtually all 

industries between the share of revenue received by 

minority firms and their share of all firms in the industry. 

26 

Minority-owned businesses are heavily 

represented among Federal Government 

contractors. However, there is a 

significant gap between the share of 

firms that minorities comprise and the 

share of total revenue they receive. The 

gap is even larger for minority firms that 

have never participated in the SDB 

program. 
Disparities Among Minority CCR Vendors that are not SOB Certified 

This section focuses on minority-owned SBCs that are 

registered with CCR, but have never been SOB 

certified. We focus specifically on the experiences 

of these firms as a way of emphasizing the importance of 

the SOB program to the viability and growth of minorityowned firms. New federal regulations require that all 

firms seeking to engage in contracting with the federal 

government must register with the CCR database. This 

requirement allowed us to determine the total revenue 

that each firm received. This report tracked total firm 

revenue between 2004 and 2006. 

In Section 6 of the report we demonstrated that minority 

contractors are more dependent upon government 

sector revenue than are non-minority contractors. 

In contrast to SOBs, minority firms that 

do not participate in the government's 

SOB program experience significantly 

greater disparities in total revenue when 

compared to non-minority-owned firms. 

More specifically, we found that after holding constant 

the differences between minority and non-minority 

businesses in years of operation, number of employees, 

legal formal business organization, industry of operation 

27 

and success at government contracting, minority 

business owners who do not participate in the SOB 

program received significantly less revenue than nonminority business owners. 

Other things being constant, minority 

business owners that were not SOB 

certified received $554,245 less in yearly 

revenue in comparison to OSBes 

between 2004 and 2006. 

Also, being a successful federal government contractor 

added about $2.4 million to small business revenue 

regardless of the race or ethnicity of the business owner. 

In 2006, there were 10,513 minority-owned small 

business concerns that were not SOB certified (See Table 

16). These businesses had combined annual revenues of 

$10.2 billion in 2006. We compared these firms to Other 

Small Business Concerns (OSBe). That is, firms primarily 

owned by White Males who are not socially or 

economically disadvantaged. In total, there were 27,087 

OSBCs and their combined annual revenue was $82.6 

billion (See Table 16). 
Table 16 

Comparison Between Percent of Total Revenue and Percent of Firms for Minority Firms-not SDBs 

and OSBCs, 2006 

Construction of Buildings 

Heavy Construction 

Specialty Trades Contracting 

Textile and Leather Manufacturing 

Paper, Printing and Related Manufacturing 

Chemical, Non-Metallic Minerals Manufacturing 

Plastics and Rubber Manufacturing 

Primary Metal and Machinery Manufacturing 

Computer and Electronic Manufacturing 

Wholesale Trade (Durable and Non-Durable) 

Publishing, Except Internet 

Internet Publishing, Telecommunications and ISP 

Professional, Scientific and Technical Services 

Total 

Construction of Buildings 

Heavy Construction 

Specialty Trades Contracting 

Textile and Leather Manufacturing 

Paper, Printing and Related Manufacturing 

Chemical, Non-Metallic Minerals Manufacturing 

Plastics and Rubber Manufacturing 

Primary Metal and Machinery Manufacturing 

Computer and Electronic Manufacturing 

Wholesale Trade (Durable and Non-Durable) 

Publishing, Except Internet 

Internet Publishing, Telecommunications and ISP 

Professional, Scientific and Technical Services 

Total 

Total Revenue 

$1,156,946,726 

$478,866,084 

$738,283,137 

$264,634,769 

$570,747,649 

$262,319,508 

$192,920,052 

$1,243,665,766 

$1,520,366,799 

$973,739,009 

$178,878,197 

$1,001,971,072 

$1,615,087,973 

$10,198,426,741 

Total Revenue 

$5,755,347,491 

$3,268,926,920 

$4,426,006,261 

$3,696,693,394 

$2,902,050,368 

$3,878,600,954 

$2,434,651,648 

$22,489,161,877 

$13,326,421,928 

$8,653,258,471 

$1,265,043,857 

$1,824,964,602 

$8,649,633,543 

$82,570,761,314 

Minority Firm Not-SOB 

% of Total SBC No. of Firms % of all SBC 

Revenue Firms 

16.7 1398 41.7 

12.8 344 23.0 

14.3 1281 30.8 

6.7 264 26.6 

16.4 362 33.5 

6.3 214 19.5 

7.3 86 12.2 

5.2 663 12.1 

10.2 672 20.3 

10.1 656 29.0 

12.4 276 25.7 

35.4 474 43.8 

15.7 3823 33.3 

11.0 10513 28.0 

Other Small Business Concerns 

% of Total SBC No. of Firms %ofallSBC 

Revenue Firms 

83.3 1956 58.3 

87.2 1152 77.0 

85.7 2884 69.2 

93.3 730 73.4 

83.6 720 66.5 

93.7 886 80.5 

92.7 618 87.8 

94.8 4835 87.9 

89.8 2645 79.7 

89.9 1607 71.0 

87.6 799 74.3 

64.6 607 56.2 

84.3 7648 66.7 

89.0 27087 72.0 

In Table 17, we record the total revenue percentage 

(utilization) and availability percentage of minority firms 

that are not SDBs. This Table indicates that the revenue 

received by all minorities (that were not SDBs) was 11% 

of total revenue and these firms comprised 28% of all 

vendors. The disparity index is therefore 0.39 (See last 

line ofTable 17). Similarly, a disparity index is calculated 

for minorities in each industry and Internet publishing is 

the only industry whose disparity index is not below the 

0.80 threshold that indicates an inference of 

discrimination by legal standards. 

28 
Table 17 

Utilization, Availability and Disparity Index for Non-SDBs by Industry, 2006 

Utilization Availability Simple 

Disparity Percentage Percentage Index 

Construction of Buildings 16.7 41.7 0.40 

Heavy Construction 12.8 23.0 0.56 

Specialty Trades Contracting 14.3 30.8 0.46 

Textile and Leather Manufacturing 6.7 26.6 0.25 

Paper, Printing and Related Manufacturing 16.4 33.5 0.49 

Chemical, Non-Metallic Minerals Manufacturing 6.3 19.5 0.33 

Plastics and Rubber Manufacturing 7.3 12.2 0.60 

Primary Metal and Machinery Manufacturing 5.2 12.1 0.43 

Computer and Electronic Manufacturing 10.2 20.3 0.51 

Wholesale Trade (Durable and Non-Durable) 10.1 29.0 0.35 

Publishing, Except Internet 12.4 25.7 0.48 

Internet Publishing, Telecommunications and ISP 35.4 43.8 0.81 

Professional, Scientific and Technical Services 15.7 33.3 0.47 

Total 11.0 28.0 0.39 

Note: Simple Disparity Index: Utilization % .;. Availability %. 

Some disparity values may be biased downward in cases where industry revenue data were not available. 

To eliminate the possibility that other factors might 

account for the disparity that exists between minority 

firms that are not SDBs and aSBCs, we used a regression 

analysis. The dependent variable was average income 

over a three-year period, 2004 through 2006. The 

explanatory variables included the age of the business, 

the number of employees, the legal form of business 

organization, the industry that the business operated in, 

and a dummy variable indicating whether the firm 

received government contracting revenue. Also 

included among the explanatory variables was a variable 

that indicated whether the firm being observed was a 

minority-owned firm (not a SDB) or whether it was an 

aSBC (i.e., other small business concerns). The results 

revealed that firms' average revenue increased by 

29 

$43,732 for each additional year of operation; it 

increased by $92,666 for each additional employee; and 

average revenue was much greater for a corporation 

($1,074,656) as opposed to a regular proprietorship (See 

Table 18). The most important variable observed was 

whether average revenue increased or decreased for 

minority-owned firms that were not SDBs. The results 

indicated that these firms experienced a $544,245 

decrease in average revenue. This result provides an 

even more compelling inference of discrimination since 

it is statistically significant (See regression results in 

Table 18). The regression results also show that firms 

that successfully received government contracts had 

average revenues of $2.4 million greater than those who 

were unsuccessful. 
Table 18 

Regression Equation: Three-Year Revenue is Estimated for Minority Firms Not-SDB and OSBCs after 

Controlling for Business Attrihutes 

Dependent Variable = Three Year Average Revenue 

Explanatory Variables Unstandardized Standardized t- Significance 

Coefficients Coefficients Statistic Level 

B Std. Error Beta 

Constant -37987 427195 -0.089 0.929 

Age of Business 43732 5712 0.050 7.657 0.000 

Number of Employees 92666 1577 0.356 58.775 0.000 

Legal Form of Business Organization 

Proprietorship: Reference Category 

Regular Corporation 1074656 325004 0.034 3.307 0.001 

S Corporation or LLC 836545 314404 0.026 2.661 0.008 

Partnership 958701 745459 0.008 1.286 0.198 

Industry 

Construction of Buildings = Reference Category 

Construction: Heavy -613493 541502 -0.008 -1.133 0.257 

Construction: Specialty Trades -1282749 419434 -0.025 -3.058 0.002 

Manufacturing: Textiles -671051 657450 -{).007 -1.021 0.307 

Manufacturing: Paper 968851 666050 0.009 1.455 0.146 

Manufacturing: Chemical 278721 614459 0.003 0.454 0.650 

Manufacturing: Plastic -38795 740819 0.000 -0.052 0.958 

Manufacturing: Metals 705802 400968 0.016 1.760 0.078 

Manufacturing: Computer Electronics 954588 434219 0.018 2.198 0.028 

Wholesale Trade 2656977 478711 0.041 5.550 0.000 

Publishing Except Internet -999751 635723 -0.010 -1.573 0.116 

I nternet/ISP /Telecom 60780 618582 0.001 0.098 0.922 

Professional, Scientific & Technical -1033015 356988 -0.030 -2.894 0.004 

Minority Not SDB (versus OSBCs) -544245 223807 -0.015 -2.432 0.015 

Received Government Contract (Versus Did Not) 2390033 319713 0.044 7.476 0.000 

Degrees of Freedom 25037 

Adjusted R Square 0.159 

Mean Value of Dependent Variable 3,705,283 

Standard Error of Estimate 14,506,960 

30 
The Small Disadvantaged Business (SOB) Program 

Eligibility Requirements and Operation of the SDB 

Program 

There are two business assistance programs 

administered by the SBA for Small Disadvantaged 

Businesses. The 8(a) Business Development 

Program offers a broad range of assistance to socially 

and economically disadvantaged firms. 

The Small Disadvantaged Business 

Certification Program (SDB Program) 

offers benefits to SDBs in federal 

procurement and provides incentives to 

corporate priine contractors to the 

government to encourage their use of 

SDBs as subcontractors. 

The SDB program is currently structured so as to: 

1) Use federal procurement to overcome the effects of 

discrimination. 

2) Ensure that the benefits of federal procurement are 

used in a fair and effective manner. 

3) Ensure that the operation of the program conforms 

to the U.S. Supreme Court's 1995 Adarand Decision. 

The SBA (or an independent organization designated by 

SBA) certifies small firms to make sure that they meet 

specific social, economic and ownership criteria, in 

addition to other eligibility criteria. SDB certification 

remains effective for three years. Large business 

concerns that pursue government prime contracting 

opportunities use the CCR on-line to identify potential 

SDB suppliers and subcontractors. The benefits of the 

SDB program are as follows: 

• When bidding as prime contractors, SDBs are 

eligible for price evaluation adjustments of up to 

10%. This is accomplished by adding up to 10% to 

31 

the price of bids received from non-SDBs. 21 The U.S. 

Department of Commerce uses a benchmarking 

procedure to determine the under-representation 

of SDBs in particular industries. Identified industries 

are eligible for price evaluation of adjustments: 

Price credits are not applied to industries that 

do not reflect under-representation. 22 

Price credits are not applied to acquisitions 

below $100,000. 

Price credits are not applied to procurements 

set aside for small businesses. 

Price credits do not apply to procurement 

under the SBA 8(a) Program. 

• Large prime contractors are eligible for evaluation 

credits for reaching SDB's subcontracting targets. 

This is accomplished by awarding the highest points 

to the bid proposal with the most targeted dollars, 

to SDB subcontractors in authorized industries. This 

credit is available only on negotiated acquisitions 

greater than $500,000 or construction projects 

greater than $1 million. Credits are not applied to 

contracts performed outside of the United States, or 

to contracts in industries outside of those that are 

benchmarked. The government-wide goal for SDB 

participation in prime contracts is 5%. 

• Monetary incentives can be provided to prime 

contractors for exceeding SDB subcontracting 

targets on negotiated contracts. This can be up to 

10% of the difference between the actual and target 

amount. 

• The HUBZone program allows small businesses to 

engage in sole-source contracting in HUBZones 

(Historically Under-utilized Business Zones). SDBs 

21 The co-author, T. D. Boston assisted the U.S. Department of 

Commerce in developing the current benchmarking procedure. 

22 This provision of the SOB Program expired in 2004 and has 

not been reauthorized. However, 000 and NASA still use price 

incentives. 
located in these zones are eligible for benefits under 

both programs. 

Eligibility for the SDB program and the 8(a) Business 

Development Program are the same, with the exception 

that 8(a) participants cannot have personal adjusted net 

worth of greater than $250,000 when entering the 

program. All 8(a) certified firms are automatically SDB 

certified. To become certified businesses: 

• Must meet size standards for small businesses in 

their industry. The SBA office of size standards 

develops and recommends small-business size 

standards that vary by industry group. For example, 

in manufacturing, the standard generally varies 

between 500 to 1,000 employees. In general 

construction the size standard is $31 million 

revenue and in architectural, engineering and 

professional industries it is $6.5 million. 

• Must be at least 51% owned and controlled by a 

socially and economically disadvantaged 

individual/s. Blacks, Hispanic Americans, Asian 

Pacific Americans, Subcontinent Asian Americans 

and Native Americans are presumed to qualify 

within this category. Other individuals can qualify 

Table 19 

by showing a preponderance of evidence that they 

are disadvantaged. 

• Owners must have a personal net worth of less than 

$750,000 excluding the equity in their business and 

primary residence. 

SDB Certification is conducted electronically by SBA or a 

designated independent contracting organization. 

Applicants must complete SBA form 10lD-personal 

information and business profile, SBA form 413-personal 

financial statement, provide two years' personal tax 

returns, provide three years' business tax returns and 

provide updated business financial statements. Table 19 

gives the number of SDBs and OSBCs with their 

associated total revenue by industry. The table shows 

that SDBs comprised 20% of small business concerns' 

(their availability) and received 18.9% of total revenue 

received by these firms (utilization). A simple Disparity 

Index for the SDBs yields 0.95 (18.9%/20%). This 

indicates that firms that participated in the SDB program 

did not experience significant disparities. In contrast, 

the Disparity Index was 0.39 for minority firms that did 

not participate in the SDB program. We can therefore 

conclude that the program is achieving its intended 

purpose, to remedy the effects of discrimination. 

Number, Revenue, Availability and Utilization ofSDBs and OSBCs, 2006 

Industry category 

Construction of Buildings 

Heavy Construction 

Specialty Trades Contracting 

Textile and Leather Manufacturing 

Paper, Printing and Related Manufacturing 

Chemical, Non-Metallic Minerals Manufacturing 

Plastics and Rubber Manufacturing 

Primary Metal and Machinery Manufacturing 

Computer and Electronic Manufacturing 

Wholesale Trade (Durable and Non-Durable) 

Publishing, Except Internet 

Internet Publishing, Telecommunications and ISP 

ProfeSSional, Scientific and Technical Services 

Total 

Number of 

SDBs 

1,841 

304 

581 

74 

131 

53 

49 

336 

444 

259 

189 

357 

2,140 

6,75B 

32 

Small Disadvantage Businesses (SOBs) 

Availability: Utilization: SDB 

SDB percent of Revenue of SDBs percent of SBC 

SBCs total revenue 

48.5 $7,592,748,388 56.9 

20.9 $902,419,353 21.6 

16.8 $915,455,451 17.1 

9.2 $149,284,536 3.9 

15.4 $182,985,539 6 

5.6 $332,921,440 7.9 

7.4 $111,183,298 4.4 

6.5 $1,280,108,097 5.4 

14.4 $2,606,881,317 16.4 

13.9 $885,483,366 9.3 

19.1 $464,216,277 26.8 

37 $1,172,286,467 39.1 

21.9 $2,696,568,004 23.8 

20 $19,292,541,533 18.9 

CONTINUED _ .... _-_ ................... _-_. __ . __ . __ ._-..... __ .. 
Table 19 Continued 

Other Small Business Concerns (OSBCs) 

Number of Availability: Utilization: aSBC 

Industry Category aSBCs percent Revenue of aSBCs percent of SBC Non-SBCs ofSBCs total revenue 

Construction of Buildings 1,956 

Heavy Construction 1,152 

Specialty Trades Contracting 2,884 

Textile and Leather Manufacturing 730 

Paper, Printing and Related Manufacturing 719 

Chemical, Non-Metallic Minerals Manufacturing 886 

Plastics and Rubber Manufacturing 617 

Primary Metal and Machinery Manufacturing 4,833 

Computer and Electronic Manufacturing 2,644 

Wholesale Trade (Durable and Non-Durable) 1,607 

Publishing, Except Internet 799 

Internet Publishing, Telecommunications and ISP 607 

Professional, Scientific and Technical Services 7,647 

Total 27,081 

How Goals and Objectives of the SDB Program are 

Achieved 

The SBA works with each agency's procurement 

authority to establish its goals for SBCs, and it is 

responsible for tracking and reporting on these agencies 

attainment. Goals are set for all categories of small 

business concerns separately (See Table 20 below). A 

procurement award can be counted in more than one 

sub-category, except the 8(a) and the SOB categories as 

they are reported separately. Together, they form the 

achievement of the government's SOB goals. 

33 

51.5 $5,755,347,491 43.1 

79.1 $3,268,926,920 78.4 

83.2 $4,426,006,261 82.9 

90.8 $3,696,693,394 96.1 

84.6 $2,885,050,368 94 

94.4 $3,878,600,954 92.1 

92.6 $2,434,651,648 95.6 

93.5 $22,453,063,761 94.6 

85.6 $13,326,421,928 83.6 

86.1 $8,653,258,471 90.7 

80.9 $1,265,043,857 73.2 

63 $1,824,964,602 60.9 

78.1 $8,649,633,543 76.2 

80 $82,517,663,198 81.1 

Large business concerns that operate as prime 

contractors to the government must submit form SF294, the Subcontracting Report for Individual Contracts, 

on a semi-annual basis. Subcontracts are reported on 

SF-295 SOB the "Breakout of Subcontracting Awards to 

SOBs.,,23 This is required at the end of the fiscal or 

calendar year. Optional Form 312 may be submitted at 

the end of a contract. It allows the contracting officer to 

determine the extent to which the subcontracting target 

was met in a particular industry. This form includes only 

contract activity involving SOBs in bench marked 

industry. 

23 Effective January 1, 1999 the SF-295 50S breakout report 

was required for all government contracts, not just those 

associated with evaluation factors. 
Table 20 

Matrix ofthe Small Business Administration's Programs 

Program Name Small Business Concerns Small Disadvantaged Business [Non-S(a)) 

Prime Contract Utilization 23% 5% combined goal (split evenly with S(a) contractors) Goal 

Sub-contract Utilization None 5% combined goal (split evenly with S(a) contractors) Goal 

~ Certification strictly pertains to benefits in Federal 

~ Small Business Development Centers (SBDCs) procurement. 

~ SBA certifies SDBs to make them eligible for 

Description of Program ~ SCORE Association (Service Corps of Retired special bidding benefits. Executives) provide management and technical ~ Evaluation credits and monetary incentives 

assistance. available to prime contractors who boost 

subcontracting opportunities for SDBs. 

~ Must be at least 51% owned and controlled by a 

socially and economically disadvantaged individual or 

individuals. 

~ Other individuals can qualify if they show by a 

"preponderance of the evidence" that they are 

~ Independently owned and operated. disadvantaged. 

Eligibility Criteria ~ Not dominant in its field of operation. ~ Must have a net worth of less than $750,000, 

~ Meets employment and industry size standards. excluding the equity of the business and primary 

residence. 

~ Successful applicants must also meet applicable 

size standards for small businesses in their industry. 

~ S(a) concerns automatically qualify for SDB 

certification. 

Net Worth limitation None Net worth must be less than $750,000 after taking 

into account certain exclusions applicable by law. 

Self Certify or Independent Self SBA or approved Independent Organization must 

Organization certify 

Overall Objective Help small businesses gain access to Federal Expand economic opportunity for disadvantaged 

Procurement businesses. 

CONTINUED 

34 
Table 20 Continued 

Matrix ofthe Small Business Administration's Programs 

Program Name SOB 8(a) Contractors HUBZone Contractors 

Prime Contract Utilization 5% combined goal (split evenly with SDB-non-S(a) 3% Goal contractors) 

Sub-contract Utilization Goal 5% combined goal (split evenly with SDB-non-S(a) 3% contractors) 

-7 SBA program for small business concerns owned 

by socially and economically disadvantaged 

persons_ 

-7 Admitted firms can receive Federal contracts -7Program encourages economic development in 

Description designated for S(a) Business Development Program historically underutilized business zones, 

participants, as well as management and technical 'HUBZones', through the establishment of 

assistance. preferences. 

-7 Participation is divided into two phases over nine 

years: a 4-year developmental stage and a 5-year 

transition stage. 

-7 Must be located in a "historically underutilized 

business zone" or HUBZone. 

-7 All SDB criteria are applicable -7 Must be owned and controlled at least 51% by 

U.S. Citizens, a Community Development -7 Small businesses owned and controlled by a Corporation, an agricultural cooperative or an socially and economically disadvantaged individual. Indian tribe; 

Eligibility Criteria -7 To enter program, owners must have a net worth 

-7 Its principal office must be located within a of less than $250,000, excluding the value of the "Historically Underutilized Business Zone," which business and personal residence and net worth includes lands considered 'Indian Country' and 

cannot exceed $750,000 during program military facilities closed by Base Realignment and matriculation. Closure Act; and 

-7 At least 35% of its employees must reside in a 

HUBZone. 

Entering net worth less than $250,000 after taking 

Net Worth Limitation into account certain exclusions applicable by law. None For continued S(a) eligibility after admission to the 

program, net worth must be less than $750,000. 

Self Certify or Independent Online application submitted and subject to four 

Same as for SDB rounds of review, three of which are by HUBZone Organization Analysts. 

To teach S(a) and other small companies how to 

compete in the Federal contracting arena and how Expand economic opportunity for disadvantaged Overall Objective to take advantage of greater subcontracting businesses in economically distressed areas. opportunities available from large firms as the result 

of public-private partnerships. 

CONTINUED 

35 
Table 20. Continued 

Matrix ofthe Small Business Administration's Programs 

Program Name Women-owned Small Business Service Disabled Veterans/Veterans 

Prime Contract 5% 3% Utilization Goal 

Sub-contract Utilization 5% 3% Goal 

~ Offers unique opportunities and guidance for women 

entrepreneurs through special programs and services. ~ Provides entrepreneurial development services ~ Provides business development, management and 

technical assistance to emerging, intermediate and such as business training, counseling and mentoring 

Description advance-stage women entrepreneurs for running to eligible veterans owning or considering starting a 

small business. successful businesses. ~Also provides assistance with financing a ~ The Office of Women's Business ownership also 

provides access to credit and capital, federal contracts, business and business development. 

and international trade opportunities. 

~ At least 51 percent owned by one or more 

~ A small business concern that is at least 51 percent 

service-disabled veterans (a veteran with a 

owned by one or more women; or, in the case of any disability that is service-connected, I.e., the 

publicly owned business, at least 51 percent of the stock disability was incurred in the line of duty while 

Eligibility Criteria of which is owned by one or more women; serving in the u.s. active military, naval or air 

~ Whose management and daily bUSiness operations are service); or in the case of a publicly owned small 

business, at least 51 percent of the stock is owned controlled by one or more women. by one or more service-disabled veterans. Does not 

require a minimum disability rating. 

Net Worth Limitation None None 

Self Certify or 

Independent Self Self, Veterans' Administration 

Organization 

Designed to assist women start and grow small 

businesses. Women's Business Centers operate with the Expand economic opportunities for service disabled Overall Objective mission to level the playing field for women 

entrepreneurs, who still face unique obstacles in the veterans and other veterans. 

world of business. 

Note: See Office of Government Contracting 2003 "Goaling Guidelines for the Small Business Preference Programs: For Prime and Subcontract 

Federai Procurement Goals and Achievements" July 3, 2003 [29). 

36 
The Impact of the Adarand Decision on the Small Disadvantaged 

Business (SOB) Program 

As a result of the U.S. Supreme Court's Adarand 

Decision, in 1995 President Clinton ordered the 

Justice Department to review all federal racebased affirmative action programs. 24 A race conscious 

program is one that "confers a benefit or imposes a 

burden on individuals." 

Major changes to the SOB Program 

following Adarand included the use of 

industry benchmarks to establish SOB 

utilization goals, to determine industries 

where the benchmarks should be 

applied, and the establishment of a 

$750,000 personal net worth ceiling for 

individuals participating in the SOB 

Program. 

The revIsions also require SBA certification or 

independent certification of all SDBs, implementation of 

price evaluation adjustments, subcontractor evaluation 

factors and monetary incentives, to encourage the use 

of SDBs in specified industries. In September 2000, the 

10th Circuit Court of Appeals found that the Federal 

Transportation Program that was previously challenged 

had been revised and amended in 1997. Also, it was 

narrowly tailored to meet a compelling government 

interest and it passed constitutional muster. In 2001, 

the U.S. Supreme Court agreed with this decision. The 

new SDB regulations complied with Adarand, by applying 

*The legal analysis in this section was prepared by Attorney 

Keith Wiener of the law firm of Holland and Knight, llP. 

However, the authors takes full responsibility for any errors or 

omissions in summarizing his analysis. 

24 United States Supreme Court decision in Adarand 

Construction, Inc. v. Pena, 515 U.S. 200 (1995). 

37 

preferences to specific industries only instead of to all 

federal procurement and by requiring all companies to 

be certified, limiting preferences to only those who were 

truly disadvantaged. 

In Adarand, the u.S. Supreme Court ruled 

that all federal government programs 

that use racial or ethnic criteria as 

factors in procurement decisions must 

pass a test of strict scrutiny in order to 

survive constitutional muster. 

Legal Background 

Adarand involved a Federal highway construction project 

awarded by the U.S. DOT, Federal Highway 

Administration, and Central Federal Lands Highway 

Division (CFLHD). This Federal contract contained a 

provIsion referred to as the "Subcontracting 

Compensation Clause" (Scq. The SCC authorized an 

additional payment to the prime contractor as an 

incentive to award subcontracts to minorities and 

females. The SCC clause implemented a DOT 

requirement under the Surface Transportation and 

Uniform Assistance Act (STURAA) that established a SDB 

goal of 10 percent for federally-funded transportation 

programs. The prime contractor solicited bids for the 

guardrail portion of the project from Adarand 

Constructors, Inc. ("Adarand"), a non-minority 

subcontractor, and a DBE subcontractor. Despite the 

fact that Adarand submitted the lowest bid, the prime 

contractor awarded the subcontract to the DBE. 25 The 

prime contractor testified that it would have awarded 

the guardrail subcontract to Adarand were it not for the 

monetary bonus that it received by hiring a DBE. & 

25 llh at 2102. 
Adarand filed suit in the U.S. District Court for the 

District of Colorado arguing that the SCC violated 

Adarand's constitutional right to Equal Protection under 

the law. The District Court granted summary judgment 

in favor of DOT and Adarand appealed to the U.S. Court 

of Appeals for the Tenth Circuit. The Tenth Circuit 

determined that Federal Government affirmative action 

programs need only satisfy a standard of "intermediate 

scrutiny" and held that the CFlHD disadvantaged 

business preference program withstood Constitutional 

review under the lesser intermediate scrutiny standard. 

The Supreme Court, in a 5-4 decision, ruled that all racebased classifications must now withstand "strict 

scrutiny." The Court stopped short of declaring the 

CFlHD program unconstitutional and, instead, returned 

the case to the lower Court for further proceedings. The 

10th Circuit, found the Subcontractor Compensation 

Clause to be constitutionally satisfactory and found this 

aspect of the DOT's program to have a compelling 

interest and to meet the narrowly tailored test. Thus, 

the program withstood the strict scrutiny standard. 26 

The Adarand Decision evolved out of issues regarding 

disadvantaged, minority and female business enterprise 

participation programs as considered, developed and 

adopted by local, state and federal governmental 

entities in connection with their contracting and 

procurement activities. These decisions date to the 

landmark United States Supreme Court decision in Qrl 

of Richmond v. J.A. Croson, 488 U.S. 469 (1989). They 

apply the strict scrutiny analysis set forth in Croson to 

Federal Programs. 

In Croson, the U.S. Supreme Court struck down a City 

affirmative action set-aside program as unconstitutional 

because it did not satisfy the strict scrutiny analysis 

applied to "race based" governmental programs. J.A. 

Croson Co. ("Croson") challenged the City of Richmond's 

minority contracting preference plan, which required 

prime contractors to subcontract at least 30 percent of 

the dollar amount of contracts to one or more Minority 

Owned Business Enterprises (MBEs). The City defined 

MBEs as "business[es] at least 51 percent of which [are] 

owned and controlled . . . by minority group 

members.,,2? Minority group members were defined as 

26 ADARAND CONSTRUCTION, INC. V. PENA, 515 U.S. 200 

(1995) and 2000 u.s. APP. Lexis, pp 23725, 10th Circuit, Sep. 25, 

2000. 

27 488 U.S. at 478. 

38 

"[c]itizens of the United States who are Blacks, Spanishspeaking, Oriental, Indians, Eskimos, or Aleuts.,,2s In 

enacting the plan, the City cited past discrimination and 

intent to increase minority business participation in 

construction projects as motivating factors. 

The Supreme Court held the City of Richmond's 

affirmative action plan violated the Equal Protection 

Clause of the Fourteenth Amendment. The Court 

applied the "strict scrutiny" standard, generally 

applicable to any race-based classification, which 

requires a governmental entity to have a "compelling 

governmental interest" in remedying past identified 

discrimination, and that any program adopted by a local 

or state government must be "narrowly tailored" to 

achieve the goal of remedying the identified 

discrimination. 

The Court determined that the plan neither served a 

"compelling governmental interest" nor offered a 

"narrowly tailored" remedy to prior discrimination. The 

Court found no "compelling governmental interest" 

because the City had not provided "a strong basis in 

evidence for its conclusion that [race-based] remedial 

action was necessary.,,29 The Court held the City 

presented no direct evidence of any race discrimination 

on its part in awarding construction contracts or any 

evidence that the City's prime contractors had 

discriminated against minority-owned subcontractors. 

The Court concluded that this was insufficient evidence 

to demonstrate a compelling interest in awarding public 

contracts on the basis of race. 

Similarly, the Court held the City failed to demonstrate 

that the statute was "narrowly tailored" for several 

reasons, including the fact that there did not appear to 

have been any consideration of race-neutral means to 

increase minority business participation in city 

contracting. The Court found the City's 30 percent quota 

could not be said to be narrowly tailored to any goal, 

except perhaps outright "racial balancing.,,30 In 

particular, the Court found it rested upon the 

"completely unrealistic" assumption that minorities will 

choose a particular trade in lockstep proportion to their 

representation in the local population. !!!:. The Court 

also noted that the City of Richmond's minority 

population was predominately Black. The Court held it 

28 488 U.S. at 469. 

29 488 U.S. at 499. 

30 488 U.S. at 507. 
could not find the "set-aside" program narrowly tailored 

because of the over inclusiveness of other minorities in 

the preference programs (for example, Aleuts) without 

any evidence they suffered discrimination in Richmond. 

Despite its analysis of the City of Richmond's affirmative 

action plan, the Supreme Court noted that it did not 

intend its decision to preclude a State or local 

government from "taking action to rectify the effects of 

identified discrimination within its jurisdiction.,,31 

The Meaning ofthe COMPELLING GOVERNMENTAL 

INTEREST REQUIREMENT 

Statistical evidence of discrimination is the primary 

method used to determine whether there is or is not a 

strong basis for a remedial program, i.e. that there is a 

compelling governmental interest. Statistical evidence is 

used to compare the government's utilization of 

An important component 0/ statistical 

evidence 0/ discrimination is the 

disparity index.:t The disparity index 

consists 0/ the percentage 0/ minority 

contractor participation in government 

contracts divided by the percentage 0/ 

available minorities. Id. 

Minority-and Women-owned Business Enterprises 

(MFBE) to the availability of qualified, willing and able 

MFBEs.32 

This equation yields a percentage figure which is then 

multiplied by 100 to generate a number between 0 and 

100, with 100 consisting of full participation by minority 

contractors. 33 Disparity indices are considered by the 

Courts as highly probative evidence of discrimination 

because they ensure that the "relevant statistical pool" 

of minority contractors is being considered. A disparity 

greater than two or three standard deviations has been 

held to be statistically significant and may create a 

presumption of discriminatory conduct. 34 

31 488 U.S. at 509. 

32 Croson, 448 U.s. at 509; see Drabik. 214 F.3d 730, 2000 Wl 

703031 at *5. 

33 6 F.3d at 1005. 

34 Peightal v. Metropolitan Dade Countv. 26 F. 3d 1545, 1556 

(11th Cir. 1994); see Dade Countv. 122 F.3d at 917. 

39 

The Meaning of the NARROWLY TAILORED 

LEGISLATION REQUIREMENT 

The Courts require that race or ethnic based legislation 

to remedy past identified discrimination must be 

"narrowly tailored." The Courts analyze several criteria 

or factors in determining whether a program or 

legislation satisfies the narrowly tailored requirement. 

The Sixth Circuit Court of Appeals in Drabik stated the 

following: 

Adarand teaches that a court called upon to address 

the question of narrow tailoring must ask, "for 

example, whether there was 'any consideration of the 

use of race-neutral means to increase minority business 

participation' in government contracting, Croson, [488 

U.S.] at 507, 109 S. Ct. 706 ... or whether the program 

was appropriately limited such that it 'will not last 

longer than the discriminatory effects it is designed to 

eliminate,' Fullilove, [448 U.S.] at 513, 100 S. Ct. 

2758 .... " Adarand, 515 U.S. at 237-38, 115 S. Ct. 2097. 

A narrowly-tailored set-aside program must be "linked 

to identified discrimination." Croson, 488 U.S. at 507, 

109 S. Ct. 706. Its criteria and measures of success 

must be particularized, not reduced to rigid quotas 

driven by "simple administrative convenience." Id. at 

508, 109 S. Ct. 706. It must also not suffer from 

"overinclusiveness.,,35 

Federal Government's Response to Adarand 

In 1998 the Government revised the eligibility criteria for 

participating in the SDB Program in response to the u.s. 

Supreme Court's 1995 Adarand Decision. Major changes 

to the SDB Program involved the use of industry 

benchmarks to establish SDB utilization goals, to 

determine the industries where the goals should be 

applied, and the establishment of a $750,000 personal 

net worth (PNW) ceiling for individuals participating in 

the SDB Program. 

The benefits of SDB status were expanded to include a 

Price Evaluation Adjustment (PEA) for SDBs bidding as 

prime contractors, Subcontracting Evaluation Factors, 

and Monetary Subcontracting Incentives to improve SDB 

subcontracting opportunities. The new regulation 

~ Id. at 506, 109 S. Ct. 706.Dade Countv. 122 F.3d at 926. 214 

F.3d 730, 2000 Wl 703031 at *6. 
modified the Federal Acquisition Streamlining Act of 

1994 (Pub. l. 103-355, Sec. 7102) under which incentives 

were originally implemented. New benchmarking 

criteria were developed to determine the specific 

industries where incentives would apply. 

SOBs are eligible to receive a price benefit of up to 10% 

in industries where benchmarks applied. This policy was 

accomplished by adding up to 10% to the price of bids or 

offers received from non-SOBs. To apply Subcontracting 

Evaluation Factors, the contracting officer awards the 

highest points to the bidder with the most dollars 

targeted to SOB subcontractors in authorized industries. 

Monetary Subcontracting Incentives allow contracting 

officers to provide a monetary incentive to the prime 

contractor of up to 10% of the value by which SOB 

utilization exceeds the authorized industry target {See 

also, U.S. SBA America's Small Business Resource, 

Federal Acquisition Regulation (FAR) Council Rules, final 

rule published on July 2, 1999).36 The benefits of the 

SOB program accrue to firms that have met the 

certification criteria. 

36 See, Office of Management and Budget, Office of Federal 

Procurement Policy, SOB Procurement: Reform of Affirmative 

action in Federal Procurement. Accessed electronically on June 

15,2007 at: 

http://www.whitehouse.qov/omb/tedreq/sdb-re(html. 

tCode of Federal Regulations, TItle 13, Volume 1, Revised as of 

January 1, 2005. From the U.S. Government printing office via 

GPO access [CITE: 13CFR124j. Available electronically at: 

http://SBAs.qov/library/c(rs/13c(r124.html. 

Available electronically at: www.sba.qov. 

40 

On December 9, 2004 the SBA's 

authority to use PEAs for civilian 

agencies expired and was not renewed 

as part of the SBA Reauthorization Act of 

2004 (Pub.L.I08447, Division K). The 

expiration covers all non-Department of 

Defense agencies with the exception of 

the National Aeronautics and Space 

Administration (NASA) and the Coast 

Guard.t 
Determining the Capacity of Firms but for Discrimination 

Major Findings 

F

or almost a decade, the personal net worth ceiling 

has been capped at $750,000. By failing to adjust 

the net worth ceiling for inflation, the 2007 real 

value of $750,000 (1998 dollars) is $558,070. The 

unadjusted ceiling has made it more difficult for SOBs to 

win awards in corporate supply chains because global 

competitive pressures have forced corporations to 

greatly reduce the number of suppliers they use. This 

means that suppliers must have larger capacities today. 

At the same time, government agencies have 

increasingly "bundled" procurement solicitations as a 

way of cutting administrative expenses and performance 

costS. 37 These changes mean that SOBs must have 

significantly greater capacity to enter core areas of 

supply chains or compete as government prime 

contractors. 

This section determines what the capacity of SOBs would 

be in a market free of discrimination. In the next 

section, we explain our findings that the elasticity or 

responsiveness of personal net worth to changes in firm 

capacity is 40%. This means that when the capacity of a 

firm increases by 100%, personal net worth of the owner 

increases by 40%. Therefore, when a ceiling is placed on 

the personal net worth of individuals in the SOB 

Program, that ceiling also limits the capacity of firms that 

are eligible for the program (See Figure 2). 

We find that the PNW ceiling is set too low. Therefore 

firms that should be eligible to participate in the SOB 

program are barred by the ceiling cap. This report finds 

37 House of Representative bill H.R 1813, "Small Business 

Fairness in Contracting Act" calls for a scale back of "contract 

bundling" - the practice of grouping small government 

contracts together and awarding them as one large contract. 

House Small Business Committee Chairwoman Nydia 

Velazquez, D-N.Y., said the bill was needed to help small 

businesses gain more opportunities, because the federal 

government has been "bundling" individual contracts into 

mega-contracts out of the price range for small businesses to 

place bids. This bill is currently in committee. 

41 

that the ceiling is low because, it has not been adjusted 

for inflation in nine years. Second, it is not consistent 

with the level of capacity that SOBs would be expected 

to achieve in the absence of discrimination. 38 This report 

argues that any net worth ceiling must at a minimum, 

allow SOBs to achieve the capacity that they would in 

the absence of discrimination. Any ceiling set below this 

level is a burden on small disadvantaged business 

owners. Third, the PNW ceiling does not consider that 

different industries require greater capacities. 

Summary of how the New PNW Ceiling was 

Determined 

Had the appropriate inflationary adjustment been made 

to PNW, the 2006 real value of $750,000 (1998) would 

have been $916,294. 39 In addition, the study used 

regression analysis and a decomposition methodology to 

estimate the average capacity of non-SOBs on an 

industry by industry basis. The estimated coefficients 

were then applied to SOBs to determine their average 

capacity assuming they were treated the same as nonSOBs. This yielded an estimate of what their capacity 

would be in a nondiscriminatory environment. Actual 

SOB capacity across all industries between 2004 and 

2006 was $3.4 million. SOB capacity in the absence of 

discrimination was estimated at $4.3 million, or 27% 

higher. We shall see that personal net worth increases 

by 40% for every 100% increase in business capacity. 

Therefore the personal net worth ceiling must be 

increased overall by 11% (or 40% x 27%) to allow SOBs to 

achieve a non-discriminatory level of capacity. 

38 The Department of Commerce's benchmarks for setting SDB 

goals are based on evaluating seventy major industry groups to 

determine how the share of federal contracts SDBs actually 

receive compares to the share they would be expected to 

receive in the absence of discrimination. 

39 We used the S. Morgan Friedman Inflation Calculator, 

between 1998 and 2006, see electronically at: 

http://www.westeqq.comlinf/atian/ 
This report calculates the capacity but for discrimination 

on an industry basis for all Construction industries, all 

Figure 2 

Effect of Firm Capacity on Personal Net Worth 

A 100% Change in 

Firm Capacity 

(i.e. Average Revenue over 

3 years) 

Detailed Explanation of Results 

This section explains in detail the methodology and 

results used in determining a new PNW for participating 

in the SOB Program. To estimate what the capacity of 

SOB firms would be without discrimination, we used the 

technique of decomposition pioneered by economists 

Blinder and Oaxaca. For each industry we defined one 

regression equation describing the relationship between 

average total revenue (2004-2006) and the following set 

of explanatory variables: age of firm, number of 

employees, legal form of organization and government 

award indicator variable. This equation was then 

applied to two separate groups; OSBCs, a group which is 

presumed to operate without the presence of 

discrimination, and active-SOB firms, a group presumed 

to be adversely affected by discrimination. In the next 

step, we assigned SOB firms the coefficient estimates 

from the OSBC regression equation. This equation 

predicted the average revenue (or capacity) of active 

SOB firms, if they received the same return on attributes 

as their non-SOB counterparts. A regression equation 

was estimated for each industry. The overall average 

SOB capacity was determined by weighting each industry 

average by the number of firms in the industry. 

42 

Manufacturing industries and all Professional, Scientific 

services and IT services. 

. 40% Change in 

Owner's Personal 

Net Worth 

Average Revenue 

In the first step of this analysis we limited the set of 

firms to those that reported positive revenue over the 

years 2004 to 2006. This reduced the original list of over 

47,000 firms to 32,072. The dependent variable used 

was the average revenue of firms between 2004 and 

2006. 40 

Explanatory Variables 

Number of Employees 

There is a positive linear relationship between the 

number of employees and the average revenue of firms; 

this value is 0.343. The correlation between the number 

of employees and average revenue depends heavily on 

the industry being analyzed. Table 21 details the 

industry specific correlations and is organized from 

weakest to strongest relationship. Manufacturing 

industries had the strongest relationship between 

revenue and employment; professional, scientific and 

technical industries had the weakest relationship. 

Clearly, an industry variable should be included in the 

regression equation predicting average revenue. 

40 Although the structure of the dependent variable suggested 

the use of a log transformation, in the final results we did not 

transform the variable, this made the results easier to 

interpret. 
Table 21 

Correlation between Number of Employees and Average Revenue, by Industry 

Industry 

Professional, Scientific and Technical Services 

Wholesale Trade In Durable / Non-durable Goods 

Computer and Electronic Manufacturing 

Primary Metals and Machinery Manufacturing 

Internet Publishing, Telecommunication and ISP 

Specialty Trades Contractors 

Construction of buildings 

Textile and Leather Manufacturing 

Chemical, Non-metallic minerals Manufacturing 

Heavy and Civil Engineering Construction 

Publishing except internet 

Plastic Manufacturing 

Paper, Printing and Related Manufacturing 

Legal Form of Organization 

The overall set of data exhibits the expected relationship 

between the average revenue of a firm and their legal 

form of organization; C-corporations have the highest 

mean average revenue, followed by the category which 

includes both S-corporations and Limited Liability 

Companies. General partnerships have the third highest 

mean average revenue and Sole proprietorships have 

the lowest mean average revenue. 

Age of Business 

The overall correlation between log of average revenue 

and age is about 0.1. 

Government Contract Award 

The final explanatory variable is a binary indicator. It has 

a value of one for firms that received a government 

contract over the years 2004 to 2006 and a value of zero 

otherwise. Its inclusion in the regression model 

predicting revenue indicated that it has a large impact 

43 

Correlation 

0.1428 

0.3172 

0.3323 

0.4248 

0.4499 

0.5513 

0.5537 

0.6229 

0.6716 

0.7421 

0.7445 

0.7540 

0.7795 

on the average revenue of a firm. For the entire 32,072 

firms, the average revenue of firms that received a 

government contract was $8.1 million dollars; the 

average revenue of firms that did not receive a 

government contract was $3.2 million dollars. For 

active-SDB companies these averages were $4.9 million 

for those receiving government contracts, and $2.6 

million for firms that did not receive government 

contracts. 

The results indicate the importance of government 

contracts on small business performance. 

Regression Analysis 

All of the explanatory variables described were included 

in the regression equations. For each industry we have 

the following set of variables in Figure 3. 
Figure 3 

Structure of Regression Analysis 

Dependent Variable 

Average Revenue (2004-2006) 

This leads to two versions of the same equation: 

Legal Form = 

[

Corporation J 

S-Corp or LLC 

Partnership 

Proprietorship 

G C t t (

No Government contract) ov on rac = Government Contract 

Equation 1: (For Other Small Business Concerns, i.e. 

Non-Minority/Non-SOB firms) 

• Avg Rev Non-SOB = 130 + 131 (Number of Employees Non-SoB) 

• • 

Explanatory Variables 

Number of Employees 

Legal Form of Organization (4 categories) 

Age of Business 

Government Contract (Binary indicator) 

Table 22a gives the overall average revenue predicted 

for each industry The Table shows that SDS weighted 

average revenue before removing the effects of 

discrimination was $3.39 million. Adjusting for the 

effects of discrimination yields a SOS revenue of $4.31 

million, which is a 27% increase over the unadjusted 

average_ In summary, the average revenue we would 

expect SOB to have in a non-discriminatory market place 

is $4.31 million. 

+ 132 (Legal Form Non-SOB) + 133 (Age of 

Table 22b provides the same information showing the 

weighted averages for each of the three industry groups. 

The current average capacity of Construction industry 

firms is $3,373,283. Estimated capacity but for 

discrimination is $4,096,613. Current average capacity 

of Manufacturing industry firms is $4,829,245 . 

Estimated capacity but for discrimination is $6,075,465. 

Finally current estimated capacity for firms in the IT 

industry and Professional and Scientific services is 

$1,868,793. Capacity but for discrimination is 

$2,588,477. 

• Biz Non-SoB) + 134 (Gov Contract Non-SOB) 

Equation 2: (For Active-SOB firms) 

Avg Rev Act-SOB = 130 + 131 (Number of Employees Act-SOB) + 

132 (Legal Form Act-SOB) + 133 (Age of Biz 

Act-SOB) + 134 (Gov Contract Act-SOB) 

A final equation predicting SOS revenue, using 

coefficients of OSBe: 

Equation 3: (For Active-SOB firms) 

• Avg Rev Act-SOB = 130 + 131 (Number of Employees Act-SOB) + 

• • • 132 (Legal Form Act-SOB) + 133 (Age of Biz Act-SOB) + 134 (Gov 

Contract Act-sos) 

44 
Table 22a 

Regression Eguation for Adjusting the Net Worth Limitation 

Equation 1 Equation 2 Equation3 

Estimated Estimated 

Revenue for Revenue for 

Industry Estimated SDB SDB if equally Revenue (unadjusted compensated for OSBC 

reg. (adjusted reg. 

coefficient) coefficient) 

Construction of Buildings $4,386,229 $4,527,025 $5,418,646 

Heavy Construction $3,723,151 $3,511,359 $4,442,770 

Specialty Trades Contracting $2,259,319 $1,877,789 $2,303,133 

Textile and Leather Manufacturing $7,349,291 $2,816,689 $6,221,612 

Paper, Printing and Related Manufacturing $6,625,686 $2,010,830 $2,194,476 

Primary Metal and Machinery Manufacturing $6,706,953 $4,655,826 $6,272,618 

Computer and Electronic Manufacturing $6,651,858 $7,365,581 $7,947,379 

Wholesale Trade (Durable and Non-Durable) $7,222,252 $4,061,850 $5,049,229 

Publishing, Except Internet $2,391,387 $2,994,944 $4,326,501 

Internet Publishing, Telecommunications and ISP $4,273,641 $3,781,569 $4,934,376 

Professional, Scientific and Technical Services $1,683,093 $1,640,279 $2,308,218 

SOB Average 

Total increase in SDB average revenue without discrimination = $4,305,919 - $3,391,047 = $914,873 

Percentage change in SDB average revenue = 27% 

Table 22b 

Observations 

4,101 

1,399 

3,293 

722 

737 

4,207 

2,887 

1,897 

876 

1,131 

9,467 

30,717 

Estimated SOB Ca~acity (i.e. 3 year Average Revenue) But for Discrimination 

Mean 

Mean Reven'Je of Revenue of Estimated Non-SDBs SDBs after Mean Revenue Number of Industry after controlling of SDBs but for Observations controlling for business discrimination for business attributes Attributes 

Construction of Buildings $4,386,229 $4,527,025 $5,418,646 4,101 

Heavy Construction $3,723,151 $3,511,359 $4,442,770 1,399 

Specialty Trades Contracting $2,259,319 $1,877,789 $2,303,133 3,293 

Total Construction Industries 8,793 

Textile and Leather Manufacturing $7,349,291 $2,816,689 $6,221,612 722 

Paper, Printing and Related Manufacturing $6,625,686 $2,010,830 $2,194,476 737 

Primary Metal and Machinery Manufacturing $6,706,953 $4,655,826 $6,272,618 4,207 

Computer and Electronic Manufacturing $6,651,858 $7,365,581 $7,947,379 2,887 

Wholesale Trade (Durable and Non-Durable) $7,222,252 $4,061,850 $5,049,229 1,897 

Publishing, Except Internet $2,391,387 $2,994,944 $4,326,501 876 

Total Manufacturing Industries 11,326 

Internet Publishing, Telecommunications and iSP $4,273,641 $3,781,569 $4,934,376 1,131 

Professional, Scientific and Technical Services $1,683,093 $1,640,279 $2,308,218 9,467 

Total ProfeSSional, Scientific & IT Services 10,598 

45 

Unadjusted Adjusted 

SDB SDB 

Weights Weighted Weighted 

Average Average 

Revenue Revenue 

0.134 $604,339 $723,439 

0.046 $159,924 $202,345 

0.107 $201,307 $246,906 

0.024 $66,206 $146,238 

0.024 $48,246 $52,653 

0.137 $637,662 $859,098 

0.094 $692,269 $746,951 

0.062 $250,849 $311,827 

0.029 $85,411 $123,385 

0.037 $139,237 $181,684 

0.308 $505,535 $711,394 

1.000 $3,391,047 $4,305,919 

Estimated 

Observation Current Revenue of 

Weights Revenue of SDBs but for SDBs Discrimination 

0.466 $2,111,376 $2,527,222 

0.159 $558,670 $706,861 

0.375 $703,236 $862,528 

100% $3,373,283 $4,096,613 

0.064 $179,555 $396,609 

0.065 $130,847 $142,797 

0.371 $1,729,389 $2,329,940 

0.255 $1,877,488 $2,025,788 

0.167 $680,322 $845,699 

0.077 $231,641 $334,629 

100% $4,829,244 $6,075,465 

0.107 $403,562 $526,587 

0.893 $1,465,231 $2,061,889 

100% $1,868,793 $2,588,476 
Determining the Relationship between SDB Capacity and the New 

Personal Net Worth 

This section of the report examines the relationship 

between firm capacity and personal net worth 

(PNW). More specifically, a regression equation is 

used to predict the influence of firm capacity on PNW. 

We found that the elasticity or responsiveness of 

personal net worth to changes in firm capacity is 40%. 

This means that when the capacity (or average revenue) 

of a firm increases by 10%, personal net worth of the 

owner increases by 4%. We determined in the last 

section that average SDB capacity but for discrimination 

is 27% higher than the unadjusted capacity. Capacity in 

Construction Industries would be 21% higher but for 

discrimination, 26% higher in Manufacturing Industries 

and 39% higher in Professional, Scientific and IT services. 

Therefore, we need to determine the level of PNW that 

is consistent with the higher levels of capacity. 

Data 

The purpose of this section is to investigate the 

relationship between the adjusted net worth of a 

Figure 4 

Plot of Net Worth 

1:) 

• .. 

: 15.00 

-• z 

1 

.. 

=010L~ " 

-< 

1: 

~ 

" (.) 

.,,5.00 

o 

oJ 

X'{ Plot of Assets 

o 

o 

o 

o 

firm's owner/s and the firm's average revenue over a 

three-year period, a proxy for firm capacity. These data 

come from firms that were certified in the 8(a) program 

from 1995 to 1997. This period is convenient because 

the $750,000 PNW was not yet implemented. 

Methodology 

A Weighted linear least Squares Regression was used to 

adjust personal net worth for the fact that the variation 

between unadjusted net worth and adjusted net worth 

increases at higher levels of firm revenue. The following 

chart gives the logarithm of adjusted net worth on the Yaxis and unadjusted net worth on the X-axis. It 

demonstrates that as unadjusted net worth increases, so 

does the variation in the log of adjusted net worth. 

Weighted least Squares Regression adjusts for this 

variation, by decreasing the importance of observations 

with high net assets and implicitly, high variation. 

o 

ooo~~------------------,---------,----------,-" 

10,(0),000 20,000,(00 ~,OOJ,(OJ '0.000,(0) 

Unadjusted Net A$$ets 

46 
Exploratory Data Analysis 

Adjusted Net Worth 

Adjusted net worth is the value of net worth after 

removing the value of the owner's primary residence 

and the value of the business. 

To account for the heavily right-skewed nature of 

adjusted net worth, the natural logarithmic 

transformation was applied to this variable. After 

applying the natural log, the distribution becomes more 

normal. Any observations that had untransformed 

Figure 5 

values equal to or below zero were dropped from this 

analysis, a total of 65 observations. Figure 5 illustrates 

that partnerships had the highest adjusted net worth, 

followed by corporations, and proprietorships. 

Average Revenue 

This report uses the average annual revenue of firms 

over a three-year period from 1995 to 1997. Again, the 

heavily right-skewed distribution of this variable 

suggests the use of a natural logarithmic transformation. 

Boxplot of Organization Type on Log Average Total Revenue 

20.00 

~ 

0 0 

15 .00 

:;? 

IX 

-= 

.., 

.. 

~ 

10 .00 

~ I 

go 

c( 

"" 8 co 

-' 0 0 

5.00 ., 

oo ..l-.----r--------r-------~-- --1 

Corporll:ion Pr prieto ~p 

Organl2.ltlon Type47 
Table 23 

Firm Count and Average Revenue by Industry, 1995·97 (Industry Variables used in the Regression) 

Industry 

Computer and Electronic Equipment Manufacturing 

Construction of Buildings and Heavy Engineering Construction 

Internet Publishing 

Light Manufacturing 

Primary Metal and Machinery Manufacturing 

Professional, Scientific and Technical Services 

Publishing (non internet) 

Specialty Trade Contractors 

Wholesale Trade 

Other Explanatory Variables 

Industry Categories 

Table 23 gives counts of businesses in a particular 

industry as well as gives the mean value of average 

revenue for that industry. The Table also shows that 

businesses in the Computer and Electronic 

Manufacturing industry have the highest average 

revenue over the years 1995 to 1997. Conversely, the 

category with the smallest average revenue is the 

Professional, Scientific and Technical services industry. 

This industry also contains the greatest number of 8(a) 

firms. 41 

Age of Business 

Proprietorships, with a value of 10.02 years, had the 

highest average age of business. Corporations had the 

second highest average age followed by partnerships, at 

9.4 and 8.3 years respectively. 

41 Note that we considered using an employment variable in 

the regression. However, it was dropped as an explanatory 

variable in the final equation because it introduced multicollinearity. 

48 

Count Average Revenue 

38 $2,617,180 

69 $7,187,009 

52 $2,421,519 

39 $4,552,931 

70 $2,556,568 

1,454 $1,736,343 

599 $2,463,513 

430 $1,738,203 

79 $1,994,897 

Regression Results 

Table 24 presents the results of the weighted least 

squares regression which includes all of the variables 

discussed above. The coefficient for log average 

revenue (0.395) represents the impact of a 100% 

increase in average revenue on the adjusted net worth 

of a firms owner. Specifically, a 100% increase in 

average revenue implies an estimated 39.5% increase in 

adjusted personal net worth). Since the log of adjusted 

PNW is evaluated against the log of revenue, the 

resulting coefficient expresses the elasticity of 

responsiveness. 
Table 24 

Regression Equation: The Influence of Three-Year Average Revenue on Net Worth is Estimated 

Controlling for Attributes ofSDBs of Firms in 8(a) Program, 1995 to 199742 

Dependent Variable = logarithm of adjusted SDB Net Worth, 1998 

Explanatory Variables 

Constant 

Age of Business in 1998 

Legal Form of Business Organization 

Corporation: Reference Category 

Proprietorship 

Partnership 

Industry 

Specialty Trades Contracting= Reference Category 

Construction: Heavy, Buildings, Civil Engineering 

Manufacturing: Computer and Electronics 

Manufacturing: Primary Metals and Machinery 

Manufacturing: Light 

Wholesale Trade 

Publishing 

Internet Publishing 

ProfeSSional, Scientific & Technical 

Log of Average Revenue 1995 - 1997 

Degrees of Freedom 

Adjusted R-Square 

42 We have the following linear regression equation: 

In (Adj Net Worth) = ~O+~l * In(Avg Tot Revenue) + ~2 * 

(Industry)+ ~3*(Age of Biz) + ~4*(Legal 

Organization)+ ~s* (Employment) 

With this categorical variable: 

Industry = Specialty Trade Contracting 

Computer and Electronic Manufacturing 

Unstandardized 

Coeffidents 

B 

1.235396 

-0.038682 

-3.624141 

4.073837 

-6.030172 

-1.042354 

4.040937 

4.410867 

2.859084 

1.886179 

3.191651 

-1.666426 

0.394871 

2484 

0.9296 

Where the coefficient estimates minimize the sum of residuals 

in this equation: 

S = i:;w,(y, - xjJ) x+=J 

WI = 1/ (Net Worthl)2 YI = In(Adj Net Worth) 

Xi = [1 Xil Xi2 XI3 xi4 XiS] 

49 

Std. Error t-Statistic Significance Level 

0.300830 4.106000 0.001000 

0.006352 2.643000 0.001000 

0.073175 -49.527000 0.001000 

1.374708 2.963000 0.003070 

0.122738 -49.131000 0.001000 

2.016023 -0.696000 0.486740 

4.268144 0.947000 0.343850 

6.668735 0.661000 0.508400 

1.081763 2.704000 0.006904 

2.907062 0.649000 0.516510 

3.713439 0.859000 0.390160 

0.124722 -13.361000 0.001000 

0.022593 17.478000 0.001000 
Using this information, the report derives the new 

recommended level of PNW for three industry groups. If 

an inflationary adjustment is made to the PNW, the 

value would have been $916,294 in 2006. Our empirical 

results have shown that in a non-discriminatory 

environment, SOB capacity would be 21%, 26%, and 39% 

Table 25 

Recommended Industry Specific PNW Ceiling 

Estimated Revenue of SDBs but for Discrimination 

Current Revenue of SDBs 

Disparity in SDB Revenue (Estimated - Current) 

Percent by which Current Revenue of SDBs must increase to eliminate 

Disparity 

Estimated Percentage Relationship between PNW and SDB Revenue (i.e. 

Elasticity) 

Current PNW ceiling (Established by Regulation in 1998) 

PNW ceiling if adjusted for inflation between 1998 and 2006 

Method for calculating the increase in PNE ceiling required to eliminate 

Disparity 

Amount by which PNW ceiling must increase so that Disparity may be 

Eliminated 

PNW ceiling with Inflation Adjustment and Disparity Adjustment 

Recommended Industry Specific PNW ceiling 

so 

higher in Construction, Manufacturing and Professional, 

Scientific and IT services respectively. 

Table 25 outlines the method used to derive the new 

PNW ceiling for each industry group. This ceiling is 

$979,000 in Construction, $1,043,000 in Manufacturing, 

and $1,026,000 in Professional, Scientific and IT services. 

Construction Manufacturing Professional Svc. 

$4,096,613 $6,075,465 $2,588,477 

$3,373,283 $4,829,245 $1,868,794 

$723,330 $1,246,220 $719,683 

21% 26% 39% 

40% 40% 40% 

$750,000 $750,000 $750,000 

$916,294 $916,294 $916,294 

(0.4*0.21 *723,330) (0.4*0.26*1,246,220) (0.4 *0.26*1,246,220) 

61,266 127,030 109,476 

977,560 1,043,324 1,026,000 

$979,000 $1,043,000 $1,026,000 
The Economic Impact of the Small Disadvantaged 

Business (SDB) Program 

A casual observation reveals that the capacity of 

minority-owned and disadvantaged businesses is 

increased significantly by participating in the SOB 

program. For example, records show that the average 

revenue of SOBs is twice that of minority-owned firms 

that are registered with CCR, but have never participated 

in the SOB Program. Similarly, the average revenue of 

graduates of the SOB program (that are still registered 

with CCR) is more than twice that of SOBs. But, how 

much of the difference in revenue is due to the SOB 

Program itself and how does this difference affect 

national output and employment? Answering these 

questions is the primary objective of this section. 

While the objective of the SOB program is to use federal 

procurement to overcome the effects of discrimination, 

it is important from a policy standpoint to know how this 

program affects national well-being. For example, in 

2006 minority-owned small business concerns that were 

not SOBs had total receipts of $10.2 billion. In 

comparison, total receipts of active SOB were $19.3 

billion while receipts of graduated SOBs were $14.0 

billion. The challenge however is to determine how 

much of the net difference in receipts is caused by their 

participation in the SOB program. 

Several steps are required to measure the total impact 

of the SOB program on national output and 

employment. First, we measured the difference in 

average revenue between minority firms that have never 

participated in the SOB Program and those that have 

participated. Second, we measured the average 

difference in firm revenue between SOBs and firms that 

have graduated from the SOB program. Finally, we 

applied industry-specific multipliers to the differences in 

average revenue to determine the impact of the average 

gained in revenue on final demand and final 

employment in the U.s. economy. The multipliers were 

obtained from the Bureau of Economic Analysis (BEA) 

Regional Input-Output Modeling System (RIMS II). 

51 

The logic behind the multiplier approach is well-known. 

The model replicates how spending in one industry 

sector of the economy is linked to spending in all other 

sectors. The model replicates how additional revenue 

that a company receives and then pays to workers, 

households and other bUSinesses, ripples through the 

economy in subsequent rounds of spending creating 

even more income, jobs and economic activity. The 

multiplier expresses the cumulative impact of all rounds 

of spending on final demand and final employment in 

the economy.43 For example, a final demand output 

multiplier of 3.1 indicates that for every one dollar of 

additional revenue spent by a company, $3.10 of final 

demand is generated in the economy. likewise, a final 

demand employment multiplier of 26.7 indicates that 

approximately 27 jobs are created for every $1.0 million 

in new final demand. But to apply the multipliers, we 

first had to isolate the amount of the change in revenue 

that was attributable to the SOB Program. To do so we 

used the following steps. First, we determined the 

difference in revenue between firms in the SOB Program 

and minority firms that were not SOBs. To do this we 

used a multivariate propensity score matching 

procedure. This procedure allowed us to match minority 

firms and SOBs that were identical on a variety of firm 

attributes. 44 We then measured the difference in 

revenue between identically matched firms that 

participated in the SOB program and those that did not 

participate in the program. The matching procedure 

paired firms that had identical characteristics, thereby 

controlling for difference in management characteristics. 

We generated pairs by matching firms on the following 

business attributes: age of business, employment size, 

43 See U.S. Department of Commerce, 1997. Regional 

Multipliers: A User's Handbook for Regional Input - Output 

Modeling Systems (RIMS II). 

44 R version 2.5 software with the additional matching program 

was used. The matching algorithm was developed by Jasjeet 

Sekhon. 
industry of operation, legal form of business 

organization and whether or not they had been awarded 

a government contract. 45 

After matching firms, we measured the difference in 

average revenue between minority firms that were not 

SOBs and those that were active SOBs. Likewise; we also 

generated pairs to measure the difference in revenue 

between active SOBs and firms that have graduated 

from the SOB Program. This procedure isolated the 

impact on revenue of a minority firm participating in the 

SOB Program and graduating from the SOB program in 

comparison to firms that did not. 

To determine the total impact of the SOB Program on 

the revenue of firms in each industry, we multiplied 

average estimated revenue (derived in the procedure 

above) by the number of firms in the industry. A similar 

procedure was followed to derive the impact on total 

industry revenue associated with firms that graduated 

from the SOB program. 

Table 26 

Finally, to determine the total effect on final demand 

and employment in the economy, we used the finaldemand multipliers for industry output and finaldemand multipliers for industry employment. 46 

Tables 26 to 29 show that the SOB program has a 

significant impact on national output and employment. 

In 2006, the SOB program caused $5.5 billion to be 

added to final demand; $3.7 billion was added by active 

SOBs (See Table 26) and $1.8 billion was added by SOB 

graduates (See Table 27). Additionally, the SOB program 

added over 124,000 jobs that would not have existed in 

its absence (see Tables 28 and 29). 

Impact on Industry Final Demand of Minority Firms Participating in the SDB Program 

Industry Number of Estimated Revenue Final Demand Total Output ActiveSDBs Increase per firm Output Multiplier 

Construction of buildings 1,678 460,404 3.1748 $2,452,716,859 

Specialty Trades Contractors 487 53,506 3.1748 $82,727,103 

Textile and Leather Manufacturing 53 671,594 3.2719 $116,461,586 

Paper, Printing and Related Manufacturing 487 170,043 3.1422 $260,208,539 

Chemical, Non-metallic minerals Manufacturing 43 587,242* 2.9216 $73,774,508 

Primary Metals and Machinery Manufacturing 278 915,962 2.7375 $697,069,981 

Computer and Electronic Manufacturing 355 147,431 3.1725 $166,042,321 

Wholesale Trade In Durable / Non-durable Goods 218 -97,838 2.57% ($55,019,473) 

Internet Publishing, Telecommunication and ISP 310 -156,335 2.924 ($141,708,297) 

Totallmeact on Final Demand $3,652,273,126 

• The Average Treatment Effect was used to calculate the revenue increase. 

45 Statistical output from the matching procedure is available 

upon request. 

52 

46 These multipliers released by the U.S. Department of 

Commerce's Bureau of Economic Analysis account for inter 

industry relationships in the whole economy. Regional 

Multipliers derived using the Regional Input-Output Modeling 

System (RIMS It) are based on 2004 national annual inputoutput data. 
Table 27 

Impact on Industry Final Oemand of Firms Graduating from the SOB Program 

Number of Estimated Revenue Final Demand 

Industry Graduated Increase per firm Output Multiplier SOBs 

Construction of buildings 253 $2,458,057 3.1748 

Heavy and Civil Engineering Construction 56 $1,425,492 3.1748 

Specialty Trades Contractors 97 $170,284' 3.1748 

Paper, Printing and Related Manufacturing 97 $191,173 3.1422 

Primary Metals and Machinery Manufacturing 162 $-1,018,280- 2.7375 

Computer and Electronic Manufacturing 127 $-402,377" 3.1725 

Publishing except internet 30 $1,207,835- 2.9777 

Professional, Scientific and Technical Services 460 -$180,325 3.0383 

Totallmeact on Final Demand 

, The Average Treatment Effect was used to calculate the revenue increase. 

Table 28 

Impact on Industry Jobs of Minority Firms Participating in the SOB Program 

Industry 

Construction of buildings 

Specialty Trades Contractors 

Textile and Leather Manufacturing 

Paper, Printing and Related Manufacturing 

Chemical, Non-metallic minerals Manufacturing 

Primary Metals and Machinery Manufacturing 

Computer and Electronic Manufacturing 

Wholesale Trade In Durable / Non-durable Goods 

Internet Publishing, Telecommunication and ISP 

Total Jobs 

Table 29 

Total Revenue 

Effect of 

Partldpatlon 

$2,452,716,859 

$82,727,103 

$116,461,586 

$260,208,539 

$73,774,508 

$697,069,981 

$166,042,321 

-$55,019,473 

-$141,708,297 

Final Demand Employment 

Multiplier (=no. jobs per $1.0 million 

In final demand) 

26.7564 

26.7564 

21.6294 

18.4304 

14.7532 

14.9916 

19.4322 

18.6324 

20.1571 

Impact on Industry Jobs of Firms Graduating from the SOB Program 

Total Revenue Final Demand Employment 

Industry Effect of Multiplier (=no. jobs per $1.0 

Graduation million in final demand) 

Construction of buildings $1,974,371,359 26.7564 

Heavy and Civil Engineering Construction $253,436,512 26.7564 

Specialty Trades Contractors $52,439,911 26.7564 

Paper, Printing and Related Manufacturing $58,268,269 18.4304 

Primary Metals and Machinery Manufacturing -$451,581,723 14.9916 

Computer and Electronic Manufacturing -$162,120,711 19.4322 

Publishing except internet $107,897,108 19.7584 

Professional, Scientific and Technical Services -$252,025,466 24.643 

Total Jobs 

53 

Total Output 

$1,974,371,359 

$253,436,512 

$52,439,911 

$58,268,269 

($451,581,723) 

($162,120,711) 

$107,897,108 

($252,025,466) 

$1,832,710,725 

Total 

employment 

Uobs) 

65,626 

2,213 

2,519 

4,796 

1,088 

10,450 

3,227 

(1,025) 

(2,856) 

86,038 

Total 

employment 

Uobs) 

52,827 

6,781 

1,403 

1,074 

(6,770) 

(3150) 

2,132 

(6,211) 

48,086 
13 

Spatial Impact of Minority-Owned Firms 

I

n major central cities, minorities are more likely than 

non-minorities to locate their businesses in high 

poverty areas. This creates the potential for enhancing 

economic opportunity and revitalization of some of the 

nation's most distressed urban communities. 

Paul Ong and Anastasia loukaitou-Sideris observed that 

globalization and economic restructuring have placed 

minority communities in a vicious circle of concentrated 

poverty and inequality. They note that spatial 

restructuring has been accompanied by an increasing 

Figure 6 

Percent of Businesses in High Poverty Areas 

35% 

31% 

25% VI 

QJ 

VI 

VI 

QJ 

c 20'% 

'iii 

:J 

co 

- 15% 0 

'* 

10'% 

Minority Bu in~s Owners 

Number of Minority Businesses examined = 3,832 

Number of Non-Minority Businesses examined = 3,011 

In the final section of the report, we selected fourteen 

central city locations and examined the location pattern 

of CCR firms in these cities. Our results document the 

validity of Ong's observation. Figure 6 indicates that 

31% of minority businesses listed in CCR are located in 

54 

geographic separation of people from jobs. "Caught in a 

vicious circle, disadvantaged communities concentrate 

poverty and accentuate inequality as they segregate and 

isolate poor people of color. Their location often denies 

residents access to employment and business 

opportunities and may hinder civic and political 

participation." (Jobs and Economic Development in 

Minority Communities (Philadelphia: Temple Univ: 1). 

However, the authors also note that minority-owned 

businesses are counterweights to this tendency. 

24% 

Non-Minority Busi~s Owners 

high poverty areas of large central cities. High poverty 

areas are defined as census tracts where 20% or greater 

of the 2000 population lived in poverty. In contrast, only 

24% of the businesses owned by non-minority persons 

were located in high poverty areas. 
Table 30 shows that the percent of minority-owned 

businesses in high poverty areas of central cities varies 

significantly. The concentration is highest in Baltimore 

(69%) and Philadelphia (60%) and lowest in Chicago 

(17%) and Atlanta (18%). 

Table 30 

Number and Percent of Minority-Owned Businesses in High and Low Poverty Areast of Central Cities 

High Poverty Area Low Poverty Area 

City Total Number 

Number Percent Number Percent 

Atlanta 65 17.6% 304 82.4% 369 

Baltimore 78 69.0% 35 31.0% 113 

Boston 15 48.4% 16 51.6% 31 

Chicago 71 17.4% 338 82.6% 409 

Cleveland 47 40.9% 68 59.1% 115 

Dallas + Houston 190 23.3% 624 76.7% 814 

Detroit 77 50.3% 76 49.7% 153 

District of Columbia 174 41.7% 243 58.3% 417 

Miami 66 25.1% 197 74.9% 263 

New York City 109 38.0% 178 62.0% 287 

Philadelphia 49 59.8% 33 40.2% 82 

San Francisco+ Los Angeles 242 31.1% 537 68.9% 779 

Group Total 1,183 30.9% 2,649 69.1% 3,832 

t High Poverty Area = Poverty Rate of 20% or Higher, Low Poverty Area = Poverty Rate less than 20%. 

Figure 7 

Median Income of Neighborhoods by Race and Ethnicity, 1999 

$80,000 

$70,033 

$70.000 $62,847 .", 

0 

0 $60.000 ~ ..::. 

-f2, 

~ $50.000 z: 

... 

0 $10,000 

E '" 

0 

u 

.: $30.000 .:: 

'" '§ $20.000 ::E 

$10,000 

$0 

Asian Pacific Blad< Hispanic Native SubcontinentNon-Minority Total 

American Asian 

Rile. or Ethnitlty of Business Owner 

Among all racial and ethnic groups, Black-owned 

businesses are located in central city neighborhoods 

with the lowest median family income. Subcontinent 

Asians locate their businesses in the highest income 

neighborhoods. 

5S 

While minorities are more likely than non-minorities to 

locate low skilled businesses in high poverty areas, they 

are even more likely to locate high skilled businesses 

(such as Information Technology, Professional, Scientific 

and Technical Businesses) in High Poverty areas. Both 

types of businesses are critical for stimulating economic 
development in distressed areas. Numerous studies 

have documented a spatial mismatch (or significant 

geographic imbalance) between where minorities lives 

Figure 8 

and where jobs are located; both low skilled and high 

skilled jobs. 

Percent of High Skilled Businesses in High Poverty Neighborhoods 

40% 

35% 

21% 

Minority Business Owners Non-Minority Business Owners 

This report found that in central cities, minorities are 

more likely than non-minorities to locate low skilled 

businesses (such as construction and wholesale) in high 

poverty areas. This has the potential for creating jobs 

for local residents. Figures 8 and 9 show that 3S% and 

37%, of high and low skilled businesses, owned by 

minorities, are located in high poverty areas. In 

contrast, 21% and 27% of high skilled and low skilled 

businesses owned by non-minorities are located in these 

areas respectively. 

S6 

On an average, Black-owned businesses are located in 

Central City areas where the population is 44% Black. 

Hispanic-owned businesses locate in neighborhoods that 

are 37% Hispanic (See Figure 10). 
Figure 9 

Percent of Low Skilled Businesses in High Poverty Neighhorhoods 

40% 37% 

35% 

30% 27% 

2~% 

20% 

15% 

10% 

5% 

0% 

Minority Busin~s Owners Non-Minority Busilless Owners 

Figure 10 

Race/Ethnic Composition of Central City Areas where Businesses are Located 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

Asian P aellic Blade Hispanic 

Overall, the spatial analysis indicates that minorityowned businesses registered with CCR have the 

potential to make a significant economic impact in 

distressed central city areas. Not only are minority 

business owners more likely to locate both high skilled 

and low skill businesses in high poverty areas, Blacks 

57 

Sub('ontinent 

Asian 

65% 

Non-Minority 

and Hispanic business owners tend to locate their 

business in neighborhoods where there are higher 

concentrations of their own ethnic group. Given the 

disproportionate unemployment and poverty among 

Blacks and Hispanics, these businesses represent a 

valuable resource to the nation's well-being.