U.S. COMMISSION ON CIVIL RIGHTS

The U.S. Commission on Civil Rights is an independent, bipartisan agency established by Congress in 1957.

It is directed to:

■ Investigate complaints alleging that citizens are being deprived of their right to vote by reason of their 

race, color, religion, sex, age, disability, or national origin, or by reason of fraudulent practices.

■ Study and collect information relating to discrimination or a denial of equal protection of the laws 

under the Constitution because of race, color, religion, sex, age, disability, or national origin, or in the 

administration of justice.

■ Appraise federal laws and policies with respect to discrimination or denial of equal protection of the laws 

because of race, color, religion, sex, age, disability, or national origin, or in the administration of justice.

■ Serve as a national clearinghouse for information in respect to discrimination or denial of equal 

protection of the laws because of race, color, religion, sex, age, disability, or national origin.

■ Submit reports, fi ndings, and recommendations to the President and Congress.

■ Issue public service announcements to discourage discrimination or denial of equal protection of 

the laws.

MEMBERS OF THE COMMISSION

Gerald A. Reynolds, Chairman

Abigail Thernstrom, Vice Chairman

Jennifer C. Braceras

Peter N. Kirsanow

Ashley L. Taylor

Michael Yaki

Kenneth L. Marcus, Staff Director

U.S. Commission on Civil Rights

624 Ninth Street, NW

Washington, DC 20425

(202) 376-8128 voice

(202) 376-8116 TTY

www.usccr.gov

This report is available on disk in ASCII and WordPerfect 5.1 for persons with visual impairments. 

Please call (202) 376-8110.
Federal Procurement After Adarand

 iii

Letter of Transmittal 

The President 

The President of the Senate 

The Speaker of the House 

Sirs: 

The United States Commission on Civil Rights transmits this report, Federal Procurement After 

Adarand, pursuant to Public Law 103-419. The Supreme Court’s 1995 decision in Adarand 

Contractor, Inc. v. Pena (Adarand), held that federal programs using racial and ethnic bases in 

decisionmaking must serve a compelling government interest and be narrowly tailored to meet 

that interest. Under this standard, federal agencies must seriously consider race-neutral 

alternatives to race-conscious procurement programs. This report considers federal agencies’ 

compliance with this constitutional requirement. The Commission reviewed relevant aspects of

seven agencies’ procurement programs: the Departments of Defense, Transportation, Education, 

Energy, Housing and Urban Development, and State, and the Small Business Administration. 

Ten years after the Adarand decision, the Commission has found that federal agencies still 

largely fail to consider race-neutral alternatives as the Constitution requires. Although the 

Commission identified some race-neutral programming efforts, agencies do not engage in the 

activities that constitute serious consideration, such as program evaluation, outcomes 

measurement, empirical research and data collection, and periodic review. Significantly, the 

agencies under review neither provide clear recourse for contractors who are the victim of 

discrimination nor guidelines for enforcement. 

Among recommendations, the Commission urges the Department of Justice to offer clear and 

specific guidance on the governmentwide obligation to consider race-neutral alternatives. The 

Commission also asks the White House to assemble a task force to determine what data are 

required to measure the effectiveness of race-neutral alternatives. Finally, the Commission asks 

Congress to enact legislation expressly prohibiting race discrimination in federal contracting and 

establishing effective remedies and enforcement procedures. The report includes a dissenting 

statement from one commissioner. 

For the Commissioners, 

Gerald A. Reynolds 

Chairman 
 v

Contents 

EXECUTIVE SUMMARY.........................................................................................................................IX

CHAPTER 1: FEDERAL CONTRACTING PRACTICES BEFORE AND AFTER ADARAND..............1

Scope and Methodology.........................................................................................................................................2

Federal Contracting with Small and Disadvantaged Businesses: An Historical Perspective.................................5

The Adarand Decision: Establishing Strict Scrutiny..............................................................................................9

Applying Adarand to Federal Contracting Programs...........................................................................................13

Eligibility and Certification...........................................................................................................................15

Benchmark Limits.........................................................................................................................................16

Additional Mechanisms.................................................................................................................................17

Defining and Evaluating Race-Neutral Strategies................................................................................................18

CHAPTER 2: ELEMENTS AND EXAMPLES OF RACE-NEUTRAL CONTRACTING......................21

Elements of a Race-Neutral Contracting System .................................................................................................23

Element 1: Develop Standards and Policies Based on Sound Benchmark Data ...........................................24

Element 2: Identify and Develop a Wide Range of Race-Neutral Alternatives............................................27

Element 3: Routinely Evaluate the Impact of Race-Neutral and -Conscious Strategies...............................27

Element 4: Communication and Coordination: Sharing Information and Best Practices .............................29

Race-Neutral Contracting Strategies....................................................................................................................31

Strategy 1: Antidiscrimination Policy and Enforcement...............................................................................32

Enforcement of Nondiscrimination in Contracting................................................................................32

Subcontractor Compliance Enforcement ...............................................................................................36

Strategy 2: Outreach......................................................................................................................................38

Internet Postings and Searchable Databases..........................................................................................39

Conferences, Meetings, Forums, Media, and Printed Materials............................................................40

Ensuring the Inclusiveness of Outreach.................................................................................................42

Strategy 3: Capacity Building .......................................................................................................................43

Technical Assistance..............................................................................................................................43

Mentor-Protégé Programs......................................................................................................................46

Teaming Efforts .....................................................................................................................................48

Certificates of Competency....................................................................................................................48

Strategy 4: Financial Assistance....................................................................................................................49

Advance Payments/Short-Term Lending Programs...............................................................................50

Bonding Guarantees...............................................................................................................................51

Strategy 5: Expanding Opportunities............................................................................................................54

Contract Unbundling..............................................................................................................................54

The HUBZone Program.........................................................................................................................59

Conclusion............................................................................................................................................................66

CHAPTER 3: FINDINGS AND RECOMMENDATIONS........................................................................69 

Serious Consideration...........................................................................................................................................71

Antidiscrimination Policy and Enforcement ........................................................................................................72

Ongoing Review...................................................................................................................................................73

Data and Measurement.........................................................................................................................................73

Communication and Collaboration.......................................................................................................................75

Outreach ...............................................................................................................................................................76

Conclusion............................................................................................................................................................76
vi 

DISSENTING STATEMENT OF COMMISSIONER MICHAEL YAKI.................................................79

DISSENT APPENDIX A: SMALL BUSINESSES AND FEDERAL CONTRACTING .........................95

Trends in Minority-Owned Businesses and Federal Procurement .......................................................................95

The Growth in Minority-Owned Businesses, 2002 and 1997 Census Figures..............................................95

2002 Census Survey...............................................................................................................................95

Comparison between 2002 and 1997—General Observations ..............................................................97

1997 Survey ...........................................................................................................................................97

Summary .....................................................................................................................................................104

Trends in Federal Contracting............................................................................................................................104

Amounts of Federal Procurement................................................................................................................105

Proportion of Procurement with Disadvantaged Businesses.......................................................................106

New Contracts with Disadvantaged Businesses..........................................................................................109

Procurement by Race/Ethnicity of Firm’s Owner.......................................................................................110

Persistent Disparities in Federal Procurement....................................................................................................112

Individual Financial Circumstances............................................................................................................113

Access to Capital and Credit .......................................................................................................................114

Insurance and Bonding................................................................................................................................115

Size and Administrative Capacity ...............................................................................................................115

Technology and Expertise...........................................................................................................................116

Interpersonal and Business Networks.........................................................................................................116

Design Discretion........................................................................................................................................117

Discrimination.............................................................................................................................................117

The Federal Procurement Process: How Agencies Make Purchases..................................................................118

Summary .....................................................................................................................................................123

DISSENT APPENDIX B: FEDERAL PROGRAMS TO PROMOTE SMALL AND MINORITY 

BUSINESS CONTRACTING ..................................................................................................................125

The Priority of Civil Rights in Contracting........................................................................................................125

Offices of Small and Disadvantaged Business Utilization..........................................................................126

HUD’s Policy Statement .............................................................................................................................128

Programs to Promote Contracting with SDBs....................................................................................................130

The Section 8(a) Program ...........................................................................................................................130

SBA’s 8(a) Mentor-Protégé Program..........................................................................................................133

Small Disadvantaged Business Certification and Programs........................................................................134

Benchmarks for SDB Utilization .........................................................................................................136

SDB Assistance Mechanisms...............................................................................................................138

SBA’s Procurement Goaling Program ...............................................................................................................142

Agency Goal Achievements........................................................................................................................143

U.S. Small Business Administration ....................................................................................................144

U.S. Department of Defense ................................................................................................................144

U.S. Department of Transportation......................................................................................................145

U.S. Department of Energy..................................................................................................................145

U.S. Department of Housing and Urban Development........................................................................147

U.S. Department of Education .............................................................................................................148

U.S. Department of State .....................................................................................................................148

Achievement Summary ...............................................................................................................................153

Conclusion..........................................................................................................................................................153

DISSENT APPENDIX C: SAMPLE INTERROGATORY .....................................................................155
 vii

DISSENT APPENDIX D: SOURCES OF DATA ON MINORITY-OWNED BUSINESSES AND 

FEDERAL CONTRACTING...................................................................................................................163

Census Bureau’s Surveys of Minority-Owned Businesses ................................................................................163

The Federal Procurement Data System ..............................................................................................................164

DISSENT APPENDIX E: SELECTED AGENCIES’ SMALL AND DISADVANTAGED BUSINESS 

GOALS AND ACHIEVEMENTS............................................................................................................167

FIGURES 

2.1 Small Business Administration’s Certifications of HUBZone Firms, Fiscal Years 2000 to 2004.......................61 

2.2 Selected Federal Agencies' Contracting Goals and Achievements for Businesses Located in HUBZones, Fiscal 

Years 2000 to 2005 ..............................................................................................................................................64 

A.1 The Number of Minority-Owned Businesses, 1992 and 1997 .............................................................................99 

A.2 Percent Growth in Numbers and Revenue of Minority-Owned Businesses, 1992 to 1997 ...............................100 

A.3 Revenue of Minority-Owned Businesses, 1992 to 1997 ....................................................................................101 

A.4 Survival Rates of Firms with Paid Employees by Race/Ethnicity of Owner .....................................................103 

A.5 Trends in the Amount of Federal Procurement, 1992 to 2004 ...........................................................................107 

A.6 Trends in the Proportions of Federal Procurement, 1992 to 2004 .....................................................................108 

A.7 Number of New Small Disadvantaged Business Contracts the Federal Government Awarded by Fiscal Year 

(1992 to 2003) ....................................................................................................................................................109 

A.8 Number of New Small Disadvantaged Business Contracts the Department of Defense Awarded by 

Race/Ethnicity and Fiscal Year (1992 to 2003) .................................................................................................111 

B.1 Small Business Administration's Certifications of 8(a) Businesses, Fiscal Years 2000 to 2004 .......................132 

B.2 Small Business Administration's Certifications of SDBs, Fiscal Years 2000 to 2004 .......................................136

B.3 Selected Federal Agencies' Contracting Goals and Achievements for Small Businesses ..................................150 

B.4 Selected Federal Agencies' Contracting Goals and Achievements for Small Disadvantaged Businesses .........151 

B.5 Selected Federal Agencies' Prime Contracting Goals and Achievements for 8(a) and Non-8(a) SDBs ............152 

TABLES 

1.1 Significant Legislative and Regulatory Actions in Federal Contracting for Minority-Owned Businesses............7 

1.2 Adarand Judicial Chronology ..............................................................................................................................11 

2.1 Selected Federal Agencies' Contracting Goals and Achievements for Businesses Located in HUBZones, Fiscal 

Years 2000 to 2005 ..............................................................................................................................................63 

A.1 Summary Statistics for Changes in the Number of U.S. Businesses and Their Receipts, 1997–2002.................96 

A.2 General Purchasing Policy for Non-Exempt Items and Services .......................................................................121 

B.1 Industries in Which Benchmarks Demonstrate Minority Firm Underrepresentation.........................................138 

B.2 Summary of Selected Agencies' Performance Against Prime and Subcontracting Goals for Small Disadvantaged 

Businesses, Fiscal Years 2000 to 2004 ..............................................................................................................149 

E.1 Small Business Administration's Goals and Achievements for Small and Disadvantaged Businesses, Fiscal 

Years 2000 to 2005 ............................................................................................................................................167 

E.2 Department of Defense's Goals and Achievements for Small and Disadvantaged Businesses, Fiscal Years 2000 

to 2005................................................................................................................................................................168 

E.3 Department of Transportation's Goals and Achievements for Small and Disadvantaged Businesses, Fiscal Years 

2000 to 2005.......................................................................................................................................................168 
viii 

E.4 Department of Energy's Goals and Achievements for Small and Disadvantaged Businesses, Fiscal Years 2000 

to 2005................................................................................................................................................................169 

E.5 Department of Housing and Urban Development's Goals and Achievements for Small and Disadvantaged 

Businesses, Fiscal Years 2000 to 2005 ..............................................................................................................169 

E.6 Department of Education's Goals and Achievements for Small and Disadvantaged Businesses, Fiscal Years 

2000 to 2005.......................................................................................................................................................170 

E.7 Department of State's Goals and Achievements for Small and Disadvantaged Businesses, Fiscal Years 2000 to 

2005....................................................................................................................................................................170 
Executive Summary ix

Executive Summary 

The structure of affirmative action in contracting. . .will not be simple to implement and 

will undoubtedly be improved through further refinement. Agencies will have to make 

judgments and observe limitations in the use of race-conscious measures, and make 

concentrated race-neutral efforts that are not required under current practice. The 

Supreme Court, however, has changed the rules governing affirmative action. . . . The 

challenge for the federal government is to satisfy, within these newly-applicable 

constitutional limitations, the compelling interest in remedying the effects of 

discrimination that Congress has identified.1

Thirty years after the Civil Rights Act of 1964 and subsequent executive orders prohibiting 

hiring discrimination by federal contractors and requiring businesses to provide affirmative 

action plans with large bids, the Supreme Court’s 1995 decision in Adarand Constructors, Inc. v. 

Peña (Adarand) clarified the constitutional standard for evaluating race-conscious programs in 

federal contracting.2

 The Court held that all racial classifications imposed by federal, state, or 

local governments must be subjected to “strict scrutiny,”3

 a standard used by the courts in 

deciding whether a law or policy is constitutional. The burden of proof is on the government to 

demonstrate that the classification is the least restrictive way to serve a “compelling public 

interest.” Government programs must be narrowly tailored to meet that interest.4

 In determining 

whether the subcontractor compensation clause in question was narrowly tailored, the Court 

stated that the Court of Appeals did not review it using strict scrutiny “by asking, for example, 

whether there was ‘any consideration of the use of race-neutral means to increase minority 

business participation’.”5

 

Thus, among other requirements, agencies must consider race-neutral strategies before adopting 

any that allow eligibility based, even in part, on race. In general, this report finds that federal 

agencies have not complied with their constitutional obligation, according to the Supreme Court, 

to narrowly tailor programs that use racial classifications by considering race-neutral alternatives 

to redress discrimination. Nor have they made the “concentrated race-neutral efforts” that the 

Clinton administration’s Department of Justice (DOJ) urged, based on the Adarand decision.6

The report highlights government initiatives to expand small and minority-owned firms’ access 

to federal contracts through race-neutral means, such as civil rights enforcement efforts, 

expanded contracting opportunities, financial assistance, and outreach. The last chapter presents 

 

1

 Proposed Reforms to Affirmative Action in Federal Procurement, 61 Fed. Reg. 26,042, 26,050 (May 23, 1996) 

(hereafter cited as DOJ, Proposed Reforms to Affirmative Action in Federal Procurement). 

2

 Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995) (hereafter cited as Adarand). 

3

 Id. at 224. 

4 Id. at 227. 

5 Id. at 237–38. 

6

 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,050. 
x Executive Summary 

recommendations for implementing these strategies and others as part of a comprehensive, 

inclusive federal contracting system. 

Commission staff reviewed government documents, federal procurement data, literature on 

federal contracting, and pertinent statutes, regulations, and court decisions in the completion of 

this report. Staff submitted interrogatories to seven agencies selected for detailed review based 

on their levels of procurement or acquisition policies: the Small Business Administration (SBA) 

and the Departments of Defense, Transportation, Education (DOEd), Energy, Housing and 

Urban Development, and State. Interrogatory responses and analysis thereof form the basis of the 

report. 

 The federal government procures more than $300 billion in goods and services each year. 

Legislation obligates agencies to contract with small business when sufficient numbers of such 

firms bid and the purchase is valued between $2,500 and $100,000. Many agencies promote such 

contracting with small disadvantaged businesses (SDBs) through race-conscious SBA vehicles, 

for example: 

• SBA’s 8(a) Business Development Program helps socially and economically 

disadvantaged business owners through assistance to increase firms’ viability and federal 

contracts agencies award under restricted competition. The program presumes that 

designated minority groups are socially disadvantaged. However, if an individual 

business owner who is a member of another race or ethnic group produces documentation 

that demonstrates he or she is disadvantaged, that person’s firm also may participate. 

• SBA’s 8(a) Mentor-Protégé Program pairs certified firms with successful large 

businesses (mentors), with the objective of helping the SDB become more viable. The 

mentor and protégé cooperate in competing for federal procurement and accessing 

capital. 

• SDB certification, obtained from SBA, is designed to increase firms’ chances of 

subcontracting with government contractors. SDB owners must demonstrate social and 

economic disadvantage. Regulations limit agencies’ use of SDB procurement 

mechanisms to acquisitions in industries in which Department of Commerce data have 

demonstrated government underutilization of qualified SDBs. 

• Legislation also sets procurement goals for government to award, for example, 5 percent 

of contracting to small and disadvantaged firms, divided among 8(a) participants and 

certified SDB businesses. 

Elements of a Race-Neutral Contracting System 

Despite the Supreme Court’s requirement that agencies seriously consider race-neutral strategies 

before implementing race-conscious ones, neither the Supreme Court nor DOJ have offered 

guidance on what agency actions demonstrate such consideration. Thus, agencies remain on their 

own to determine both the extent of their obligations under Adarand and the specific approaches 
Executive Summary xi

that will help them exhibit serious consideration. Moreover, agencies disagree about what factors 

render a program race-conscious or -neutral. One agency, DOEd, offered grantees six practices 

as a guide to demonstrating appropriate actions: identifying and evaluating a wide range of 

policies; articulating underlying facts that will prove whether a race-neutral plan works; 

collecting empirical research to demonstrate success; ensuring such assessments are based on 

current, competent, and comprehensive data; reviewing race-conscious plans periodically to 

determine the need for continuing them; and analyzing data to establish causal relationships 

before concluding that a race-neutral plan is ineffective.7

 

The Commission found that agencies do not demonstrate these actions. Nor do they 

systematically collect data or conduct benchmark studies, implement a wide range of raceneutral alternatives, periodically evaluate the effectiveness of various strategies, or engage in 

interagency communication. As a result, their ability to assess whether their procurement efforts 

extend equal opportunity to all firms is compromised. Recognizing this failure, the Commission 

drew upon DOEd’s helpful framework and its own research to identify four elements that 

underlie serious consideration, ensure an inclusive and fair race-neutral system, and tailor raceconscious programs to meet a documented need. 

Element 1: Standards—Agencies must develop policy, procedures, and statistical standards for 

evaluating race-neutral alternatives. No agency reported having mechanisms for assessing the 

viability of race-neutral alternatives or for determining when to discard race-conscious ones. 

Agencies rely on congressional findings and outdated benchmark data rather than their own 

studies, which should be tailored to their individual acquisition needs. 

Element 2: Implementation—Agencies must develop or identify a wide range of race-neutral 

approaches, rather than relying on only one or two generic governmentwide programs. No 

agency demonstrated efforts to implement innovative alternative tools and strategies. 

Element 3: Evaluation—Agencies must measure the effectiveness of their chosen procurement 

strategies based on established empirical standards and benchmarks. The end goal should be to 

eliminate reliance on race-conscious programs. Most agencies have not established a policy for 

periodic review, and instead rely on Congress, DOJ, and SBA to determine the success of their 

strategies. Furthermore, agencies generally do not isolate the outcomes of specific race-neutral 

approaches, rendering it difficult to assess their effectiveness. 

Element 4: Communication—Agencies should communicate and coordinate race-neutral 

practices to ensure maximum efficiency and consistency governmentwide. Although 

infrastructure for interagency collaboration exists in the form of councils and committees, 

participation varies. Agencies fail to exploit available channels of communication, hindering 

their ability to implement sound race-neutral strategies. 

 

7

 U.S. Department of Education, Office for Civil Rights, Inclusive Campuses: Diversity Strategies for Private 

Colleges, report no. 3, Race-Neutral Alternatives Series, 2005, pp. 11–12. 
xii Executive Summary 

Race-Neutral Contracting Strategies 

The Commission further identified strategies that agencies employ to varying degrees in their 

effort to achieve contracting equity through race-neutral programs. No agencies do so 

comprehensively. The first strategy ensures that all firms have equal opportunities by eliminating 

discrimination and ensuring good faith efforts to include SDBs in procurement. Others enable 

disadvantaged firms to compete without altering the terms of competition, either by providing 

necessary resources, opening previously unattainable opportunities, or expanding economic 

potential in underutilized and distressed geographic regions. 

Strategy 1: Antidiscrimination Policies and Enforcement—The Commission looked for 

enforcement of nondiscrimination. This study did not reveal any enforcement system to identify 

and eliminate discrimination in contracting. Agencies do not develop or apply comprehensive 

nondiscrimination policies, uniform sanctions to redress discrimination, or complaint-processing 

procedures. 

Strategy 2: Outreach—In its post-Adarand guidance, DOJ encouraged agencies to use outreach 

to limit the need for and use of race-conscious measures. Agencies use Internet postings, 

searchable databases, conferences, workshops, printed materials, and the media to disseminate 

information about contracting opportunities, but few departments incorporate outreach in budget 

and planning documents or take other steps to ensure the strategy’s effectiveness. 

Strategy 3: Capacity Building—Agencies vary in their use of technical assistance, mentorprotégé programs and similar teaming efforts, and other approaches to increase small business 

owners’ ability to bid or qualify for awards. Technical assistance can include counseling, 

training, and aid with marketing or other business development; additionally, mentor-protégé 

programs and teaming efforts enable agencies to foster partnerships between large and small 

firms, and among small businesses, to strengthen their ability to compete. Few agencies pursue 

the full range of available capacity-building techniques. Although most have established some 

form of partnering, they do not measure the strategy’s success. 

Strategy 4: Financial Assistance—Assistance to help small businesses overcome monetary 

barriers to competing for contracts has long been an important component of federal 

procurement programs. SBA offers loan and venture capital programs, and along with several 

other agencies has instituted surety bond-guarantee programs. Other financial strategies include 

advance payments and short-term lending programs to help small firms purchase equipment or 

supplies. There is scant evidence that agencies consistently offer a wide array of financial 

assistance programs. 

Strategy 5: Expanding Contracting Opportunities—Agencies can increase the number of 

contracts available to small businesses, for example, by breaking apart large contracts or 

promoting business development in underutilized geographic regions. Although the Bush 

administration has prioritized the need to disaggregate large contracts, few agencies conduct the 

requisite reviews for doing so. Second, despite widespread participation in the Historically 

Underutilized Business Zone (HUBZone) program, which favors bids of contractors located in 
Executive Summary xiii

economically distressed communities, most agencies have failed to attain the statutorily 

established 3 percent contracting and subcontracting goals for these firms. Agencies do not 

measure the effects of breaking apart large contracts, the HUBZone program, or other raceneutral strategies on SDB procurement opportunities. 

Conclusion 

This study finds that, despite the requirements that Adarand imposed, federal agencies fail to 

consider race-neutral alternatives in the manner required by the Supreme Court’s decision.8

Many draw upon SBA-run programs designed to promote procurement with small and minorityowned businesses, rather than developing new programs and conducting their own analysis. 

Agencies rely on Congress, DOJ, and SBA to create and justify inclusive programs; however, 

these entities have not provided the requisite tools. Agencies engage in a few race-neutral 

strategies designed to make federal contracting more inclusive, but do not exert the effort 

associated with serious consideration that the Equal Protection Clause requires. Moreover, they 

do not integrate race-neutral strategies into a comprehensive procurement approach for small and 

disadvantaged businesses. Doing so will best enable agencies to ensure equal access to and fair 

competition for federal contracts. As a result of this study, the Commission urges federal 

agencies and Congress to act to enhance the inclusiveness of federal contracting and compliance 

with the Adarand decision. Critical recommendations include the following: 

• The Commission asks Congress to enact legislation expressly prohibiting discrimination 

based on race, color, religion, sex, national origin, age, and disability in federal 

contracting and procurement. Legislation should include protections for subcontractors 

and establish clear sanctions, remedies, and compliance standards. 

• The Commission recommends that DOJ and SBA facilitate agency development and 

implementation of prominent civil rights enforcement policies for contracting, including 

a means for victims of discrimination to file and resolve complaints. Agencies also 

should adopt clear compliance review standards and delegate authority for these 

functions to a specific, high-level component. 

• Agencies should adopt and follow guidelines to ensure serious consideration of raceneutral alternatives. The Commission recommends that DOJ coordinate the development 

of these guidelines, and effectuate legally compliant agency policies, explaining carefully 

the circumstances under which agencies must seriously consider race-neutral alternatives, 

and establishing a solid framework for how agencies must comport with the Supreme 

Court’s instructions. 

• The Commission recommends that the White House convene a task force to determine 

what data Congress, DOJ, and agencies need to properly implement narrow tailoring in 

contracting and assess (1) whether race-conscious programs are still necessary, and (2) 

 

8 Adarand, at 237–38. 
xiv Executive Summary 

the extent to which race-neutral alternatives are effective. To demonstrate serious 

consideration of race-neutral alternatives, data should be reliable, current, complete, and 

comprehensive. Data should facilitate analyses of causal relationships and relate to the 

effectiveness of agencies’ race-conscious or -neutral programs. The task force’s 

recommendations and data collection advocacy must be grounded in standards emerging 

from widespread practice in social science and case law. 

• The task force should present its recommendations to Congress in a report by March 

2007, and urge the passage of legislation to provide support for the necessary data 

collection, with a schedule for requirements and accountability measures. 

• Agencies must engage in regular, systematic reviews of race-conscious programs, 

including those that presume race-based disadvantage. They should develop and 

document clear policies, standards, and justifications for when race-conscious programs 

are in effect. Agencies should develop and implement standards for the quality of data 

they collect and use to analyze race-conscious and -neutral programs and apply these 

criteria when deciding effectiveness. Agencies should also evaluate whether race-neutral 

alternatives could reasonably generate the same or similar outcomes. Where the answer is 

yes, agencies should implement such alternatives. 

• Agencies should measure the success of race-neutral strategies independently so that they 

can determine these policies’ viability as alternatives to race-conscious measures. For 

example, agencies could track (1) the number and dollar value of contracts broken apart, 

(2) firms to which the smaller contracts are awarded, and (3) the effect of such efforts on 

traditionally excluded firms. 
Chapter 1 1

Chapter 1: Federal Contracting Practices Before and After 

Adarand

For more than 40 years, the federal government has employed various programs designed to 

expand opportunities for minority- and women-owned businesses. In 1965, President Lyndon 

Johnson signed Executive Order 11,246, requiring federal contractors to take affirmative 

measures to recruit, employ, and promote job applicants “without regard to their race, color, 

religion, sex, or national origin.”1

 Except for certain exemptions, the order still applies to all 

government contractors and subcontractors, and federally assisted construction contracts and 

subcontracts in excess of $10,000.2

 The Nixon administration later issued regulations requiring 

federal contractors to develop written affirmative action plans with goals and timetables.3

 

In an attempt to implement these orders, the federal government adopted a variety of 

mechanisms, including: developing affirmative action plans with contracting goals and 

timetables; encouraging prime contractors to establish relationships with small disadvantaged 

businesses (SDBs); providing market advantages through reduced competition, for example, 

designating a proportion of contracts as open only to small and minority-owned business 

participation; and supplementing bids from small disadvantaged firms to enable them to compete 

with larger firms.4

 

The Supreme Court’s 1995 decision in Adarand Constructors, Inc. v. Peña (Adarand) clarified 

the constitutional standard for evaluating many such policies.5

 The Court held that all racial 

classifications imposed by federal, state, or local governments must be subjected to “strict 

scrutiny.”6

 Strict scrutiny is a standard used by the courts in deciding whether a law or policy is 

constitutional. Any law or regulation that categorizes individuals on the basis of a “suspect 

 

1 See Exec. Order No. 11,246, 3 C.F.R. § 339 (1964–1965), amended by Exec. Order No. 11,375, 3 C.F.R. § 684 

(1966–1970); Exec. Order No. 11,749, 3 C.F.R. § 803 (1966–1970); Exec. Order No. 12,086, 3 C.F.R. § 230 

(1978); Exec. Order No. 13,279, 3 C.F.R § 258 (2002). 

2 See Exec. Order No. 11,375, 3 C.F.R. § 684 (1966–1970) (adding gender to protected categories). 

3 See Exec. Order No. 11,478, 34 Fed. Reg. 12,985 (July 2, 1969) reprinted as amended in 42 U.S.C. § 2000e 

(2000); Contractors Ass’n v. Secretary of Labor, 442 F.2d 159 (3d Cir. 1971) (upholding the Nixon proposal, which 

was also known as the Philadelphia Plan); see also U.S. Department of Labor, Office of the Assistant Secretary of 

Policy, “Brief History of DOL: Nixon and Ford Administrations, 1969–1977,” no date, 

<http://www.dol.gov/asp/programs/history/dolchp07.htm> (last accessed July 15, 2005); and Andorra Bruno, 

analyst in American national government, Government Division, Congressional Research Service, U.S. Library of 

Congress, “Affirmative Action: Recent Congressional and Presidential Activity,” updated May 27, 1998. 

4

 George Stephanopoulos, senior adviser to the President for policy and strategy, and Christopher Edley, Jr., special 

counsel to the President, The White House, Affirmative Action Review: Report to the President, July 19, 1995, pp. 

26–27. 

5

 Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995) (hereafter cited as Adarand). 

6 Id. at 224. 
2 Chapter 1

classification” is subject to strict scrutiny, which places the burden of proof on the government 

that the classification is the least restrictive way to serve a “compelling public interest.” 

Government programs must be narrowly tailored to meet that interest.7

 Under the narrow 

tailoring requirement, agencies must first consider race-neutral alternatives before using raceconscious measures.8

 

To implement post-Adarand requirements, the Clinton administration’s Department of Justice 

(DOJ) recommended that agencies pursue race-neutral alternatives and limit the use of racial 

preferences to the “minimum extent necessary to achieve legitimate objectives.”9

 DOJ endorsed 

statutorily established governmentwide goals of 23 percent contracting with small businesses, 5 

percent contracting with business interests owned and controlled by socially and economically 

disadvantaged individuals, and 3 percent contracting with small firms in qualified Historically 

Underutilized Business Zones (HUBZones).10 This report examines federal compliance with 

Adarand in light of the Clinton Administration’s DOJ guidance and subsequent legal 

developments. 

SCOPE AND METHODOLOGY 

This report asks: 

• Do agencies seriously consider workable race-neutral alternatives, as required by 

Adarand? 

• Do agencies sufficiently promote and participate in race-neutral practices such as mentorprotégé programs, outreach, and financial and technical assistance? 

• Do agencies employ and disclose to each other specific best practices for consideration of 

race-neutral alternatives? 

• How do agencies measure the effects of race-neutral programs on federal contracting? 

• What race-neutral mechanisms exist to ensure government contracting is not 

discriminatory? 

This report does not evaluate existing disparity studies or assess the validity of data suggesting 

the persistence of discrimination. It does not seek to identify whether, or which, aspects of the 

contracting process disparately affect minority-owned firms. Rather, the purpose of this study is 

 

7 Id. at 227. 

8 Id. at 237–38. 

9

 Proposed Reforms to Affirmative Action in Federal Procurement, 61 Fed. Reg. 26,042, 26,048 (May 23, 1996) 

(hereafter cited as DOJ, Proposed Reforms to Affirmative Action in Federal Procurement). 

10 Id., p. 26,042 (citing Small Business Act § 15(g), 15 U.S.C. § 644(g) (2000)). Federal agencies also adopted goals 

for contracting with women-owned businesses and firms owned by service-disabled veterans. Different statutory 

provisions and regulations apply to these programs, which are outside the scope of this report. 
Chapter 1 3

to examine the race-neutral programs and strategies agencies implement to meet the 

requirements established by the Supreme Court in the Adarand decision. Moreover, the 

Commission examined whether agencies themselves measure the need for race-conscious 

contracting programs by conducting the requisite disparity studies and other research, and offers 

recommendations for what such studies should accomplish. 

Staff conducted intensive background research, reviewing government documents; federal 

procurement and economic data; federal contracting literature; and pertinent statutes, 

regulations, and court decisions. They selected seven agencies to study in depth and submitted 

interrogatories to assess these agencies’ procurement methods. Agency responses are the bases 

for much of the detail in this report. 

The Commission studied agencies that procure relatively large amounts of goods and services, 

have high numbers of contracts with small businesses, SDBs, or HUBZone firms, or play a 

significant support or enforcement role. As a result, the agencies that are subjects of this study 

are the Small Business Administration (SBA) because of its role in program administration, and 

the Departments of Defense (DOD), Transportation (DOT), Education (DOEd), Energy (DOEn), 

Housing and Urban Development (HUD), and State (DOS). In brief, each agency was selected 

for the following reasons: 

• The SBA plays a unique support role: it administers many federal procurement programs 

that other agencies must use, and offers direct assistance to a key subject of this report, 

small enterprises. SBA fulfills a governmentwide mandate to promote SDB contracting 

and establish agency procurement goals, and provides financial and technical assistance 

to small businesses. Relative to the support it provides to other federal agencies and small 

businesses, however, SBA’s own procurement is miniscule. For instance, in fiscal year 

(FY) 2003, SBA made about 1,100 awards, about one ten-thousandth of federal contracts 

and dollars spent overall.11

• DOD is the government’s largest procurer by far, both in the numbers of contract actions 

and dollars awarded. In FY 2003, DOD’s $191.5 billion represented 69 percent of all 

federal procurement, and its 5.7 million contract awards constituted about half of all 

federal contracts.12 

• DOT’s Disadvantaged Business Enterprise (DBE) program was the focus of the 1995 

Adarand case, and as such has been carefully scrutinized and refined to comply with the 

Court’s ruling. DOT awards more than $20 billion each year, through direct contracts 

with private firms and grants to state and local agencies, to finance transportation projects 

 

11 Federal Procurement Data System, “Report on Annual Procurement Preference Goaling Achievements,” fiscal 

year 2003 through fourth quarter. 

12 U.S. General Services Administration, Office of Governmentwide Policy, Office of Acquisition Policy, 

Governmentwide Information Systems Division, Federal Procurement Data Center, Federal Procurement Report, 

2003, <http://www.fpdc.gov/fpdc/fpr2003.htm> (last accessed Sept. 21, 2004) (hereafter cited as GSA, Federal 

Procurement Report, 2003). 
4 Chapter 1

nationwide. Approximately 85 percent of its procurement funds are for construction; 

highway construction comprises the largest share.13 

• With more than $21 billion in total procurement dollars, DOEn ranks second for 

spending among federal agencies. However, DOEn has struggled to award contracts to 

small businesses and ranks last among 15 Cabinet-level departments in the percentage of 

SDB procurement. In an effort to increase small business contracting, DOEn developed a 

20-year plan and an agencywide small business strategy.14 

• Although HUD spends relatively little in procurement dollars (slightly more than $1 

billion in 2003), a high proportion of its contracts are with small, disadvantaged, and 

minority-owned enterprises. Former HUD Secretary Mel Martinez expressed strong 

support for procurement with SDBs and HUBZone firms, as evidenced by a detailed 

policy statement and internal directives.15

• DOEd also spends about $1 billion annually on approximately 6,000 contract actions, 

constituting a very small portion of overall federal procurement (less than 0.5 percent of 

dollars and less than .001 percent of contract actions in FY 2003).16 The agency largely 

relies on SBA-operated programs to fulfill its contracting obligations to SDBs, rather 

than internal procedures.17

• DOS procured approximately $2.4 billion in 2003 and ranks second only to HUD in the 

percentage of procurement dollars awarded to SDBs. DOS uses SBA-offered programs in 

addition to its own initiatives, such as an internal mentor-protégé program. In 2000 and 

2003, DOS received the SBA’s Gold Star Award. This award recognizes outstanding 

performance in awarding contracts to small businesses.18

Commission staff determined that most federal contracting programs use similar tools, including 

race-conscious and race-neutral combinations. However, the Commission also found that 

agencies do not seriously consider ways in which they might expand their use of race-neutral 

alternatives to replace race-conscious programs. Additionally, the success of existing efforts 

varies across agencies. Thus, the report also identifies best practices for federal contracting 

 

13 U.S. Department of Transportation, Office of Small and Disadvantaged Business Utilization, Marketing 

Information Package, “Federal Financial Assistance for State and Local Transportation Agencies,” no date, 

<http://osdbuweb.dot.gov/osdbu_services/mip/mipOnlineDoc.cfm?seqn=7#TOC31> (last accessed June 28, 2005). 

14 See U.S. Department of Energy, Office of Economic Impact and Diversity, Office of Small and Disadvantaged 

Business Utilization, “Strategic Plan for Small Businesses,” May 2003. 

15 Mel Martinez, secretary, U.S. Department of Housing and Urban Development, “HUD Small Business Policy 

Statement,” May 16, 2001, <http://www.hud.gov/offices/osdbu/policy/statement.cfm> (last accessed Jan. 26, 2005). 

16 See U.S. Department of Education, “Doing Business with the Department of Education,” November 2004, 

<http://www.ed.gov/fund/contract/about/booklet1.html> (last accessed Feb. 10, 2005). 

17 U.S. Department of Education’s Response to the U.S. Commission on Civil Rights Interrogatory on Federal 

Contracting, Mar. 11, 2005, p. 2. 

18 U.S. Department of State, “Department of State Wins SBA Gold Star Award,” press release, Sept. 17, 2003, 

<http://www.state.gov/m/a/sdbu/rls/2003/24142.htm> (last accessed Mar. 2, 2005). 
Chapter 1 5

programs relating to race-neutral measures. Race-neutral approaches that federal agencies have 

adopted, and related implementation efforts, form the content of the report. A final chapter 

offering findings and recommendations will help federal agencies and Congress bring about 

additional change necessary to ensure all enterprises fair opportunity to participate in 

government contracting. 

FEDERAL CONTRACTING WITH SMALL AND DISADVANTAGED BUSINESSES: 

AN HISTORICAL PERSPECTIVE 

Vast spending on federal procurement—approximately $300 million in FY 2003 alone—makes 

government contracts a potentially important source of revenue for all businesses, whether large, 

small, or owned by socially and economically disadvantaged individuals.19 The government’s 

interest in promoting small businesses initially emerged in response to the nation’s economic 

pressures during the Great Depression and World War II. In 1932 President Herbert Hoover 

created the Reconstruction Finance Corporation (RFC), a lending program for large and small 

businesses hurt by the depression. During World War II, small businesses suffered as large 

businesses stepped up production to accommodate wartime demands. In response, Congress 

created the Smaller War Plans Corporation in 1942 to provide direct loans to private 

entrepreneurs and promote small businesses to federal procurement agencies.20 The Corporation 

dissolved after the war, and its responsibilities were turned over to RFC and the Office of Small 

Business in the Department of Commerce, which primarily provided educational services and 

conducted management counseling for entrepreneurs.21

In 1952, in response to efforts to abolish RFC, President Dwight D. Eisenhower proposed the 

creation of the Small Business Administration (SBA) to consolidate the government’s 

fragmented small business programs. Congress codified the proposal by passing the Small 

Business Act of 1953, directing SBA to “aid, counsel, assist and protect” small business 

concerns.22 SBA immediately began making direct loans and guaranteeing bank loans to small 

businesses, working to open federal procurement to such firms, and providing technical 

assistance and training.23 

The Small Business Act of 1958 authorized SBA to enter into agreements with other federal 

agencies for the purpose of granting subcontracts to small businesses.24 In 1969, SBA modified 

 

19 In FY 2003, procurement of $305 billion constituted about 14 percent of government outlays reported in the 

President’s budget. See GSA, Federal Procurement Report, 2003, p. 2; and Office of Management and Budget, 

Executive Office of the President, Budget of the United States Government, Fiscal Year 2004, “Summary Tables,” 

no date, <http://www.whitehouse.gov/omb/budget/fy2004/tables.html> (last accessed Feb. 17, 2005). 

20 U.S. Small Business Administration, “Overview and History of the SBA,” no date, 

<http://www.sba.gov/aboutsba/history.html> (last accessed Apr. 19, 2005) (hereafter cited as SBA, “Overview and 

History”). 

21 Ibid. 

22 Small Business Act of 1953, Pub. L. No. 83-163, 67 Stat. 232, Title II, § 202, 15 U.S.C. § 631 (2000). 

23 SBA, “Overview and History.” 

24 See Small Business Act of 1958, Pub. L. No. 85-536, 72 Stat. 384 (codified as amended at 15 U.S.C. § 661 

(2000)) (stating that contracts granted under this authority are subsequently referred to 8(a) subcontracts). 
6 Chapter 1

its regulations to direct federal procurement contracts specifically to minority-owned small 

businesses.25 Congress statutorily authorized this change with the 1978 amendments to the Small 

Business Act and Small Business Investment Act of 1958.26 The 1978 act required federal 

agencies to ensure that small businesses owned and controlled by socially and economically 

disadvantaged individuals (known as small disadvantaged businesses, or SDBs) have maximum 

opportunity to participate in federal contracts.27 

The Small Business Act defines socially disadvantaged individuals as those who belong to 

groups that have been subject to racial or ethnic discrimination or cultural bias.28 It defines 

economically disadvantaged individuals as those whose ability to compete has been 

compromised by diminished credit and capital opportunities compared to those who are not 

disadvantaged.29 To improve opportunities, Congress later established an annual goal for 

participation of small disadvantaged businesses at 5 percent of the total value of all prime 

contract and subcontract awards. Each federal agency is also required to establish its own 

goals.30 

To participate as an SBA-certified SDB, a business must be “small” as defined in SBA 

regulations, and individuals who qualify as economically disadvantaged must own 51 percent.31

The SBA presumes that blacks, Hispanics, Asian Pacific Americans, Subcontinent Asians, and 

Native Americans, as well as members of other groups designated from time to time, are socially 

disadvantaged.32 It also allows individuals who are not members of these groups to assert social 

disadvantage based on evidence. In addition, all program participants must prove economic 

disadvantage according to criteria established in agency regulations.33

 

25 Michael K. Fauntroy, analyst in American national government, Government and Finance Division, 

Congressional Research Service, U.S. Library of Congress, “Disadvantaged Businesses: A Review of Federal 

Assistance,” updated Jan. 14, 2002, p. CRS-3. 

26 See Amendments to the Small Business Act and Small Business Investment Act of 1978, Pub. L. No. 95-507, 92 

Stat. 175 (codified as amended by 15 U.S.C. §§ 631–633, 636–637, 644 (2000)) (hereafter cited as Small Business 

Act of 1978). 

27 Id. 

28 See id. § 637(a)(5). 

29 Id. § 637(a)(6)(A). 

30 Id. § 644(g)(1). 

31 See 13 C.F.R. § 124.105 (2005). 

32 See id. § 124.103. 

33 See id. § 124.104. 
Chapter 1 7

TABLE 1.1 

Significant Legislative and Regulatory Actions in Federal Contracting for Minority-Owned 

Businesses 

1953 Congress first granted authority for a program to help small businesses obtain federal contracts.. 

1958 Congress authorized SBA to enter into agreements with other agencies to grant subcontracts to small 

businesses. 

1969 SBA began operating an 8(a) program to direct federal contracts specifically to small disadvantaged 

businesses. The goal of the program was to develop self-sufficient firms that could eventually compete 

in the marketplace without support. 

1969 Executive Order 11,458 established the U.S. Office of Minority Business Enterprise (MBE) within the 

Department of Commerce to mobilize federal resources to aid minority business owners. 

1971 Executive Order 11,625 authorized the Secretary of Commerce to implement federal policy to aid MBEs; 

provide technical assistance to SDBs; and coordinate federal activities to increase minority business 

development. 

1977 The Federal Works Employment Act required that 10 percent of federal construction grants be awarded 

to minority-owned firms. 

1978 The Small Business Act and Small Business Investment Act Amendments endorsed SBA’s 8(a) program 

to specifically target socially and economically disadvantaged businesses. The act required, 

governmentwide, bidders of contracts in excess of $500,000 for goods and services and $1 million for 

construction to submit a plan with percentage goals for minority business utilization. 

1982 The Surface Transportation Assistance Act established a 10 percent set-aside for SDBs with respect to 

transportation funds appropriated over a four-year period (1982–1986). This was the first statutory DBE 

provision for federal highway and transit programs. 

1983 Executive Order 12,432 directed all federal agencies to develop specific goal-oriented plans for 

expanding minority business opportunities. 

1987 The National Defense Authorization Act required affirmative action efforts by all defense contractors 

toward a three-year goal of 5 percent minority business participation. 

1994 The Federal Acquisition Streamlining Act gave federal agencies authority to conduct race-conscious 

procurement activities to meet SDB participation goals. 

1997 The HUBZone Act created the HUBZone Empowerment Contracting Program and established 

contracting goals for small businesses in economically distressed communities. 

1998 The Transportation Equity Act for the 21st Century extended DOT’s DBE program, maintaining the 

flexible 10 percent goal for disadvantaged business participation in federal highway and transit contracts. 

An added provision assured recipients that if a federal court were to find the program unconstitutional in 

the future, their eligibility for funding would not be affected. 

1999 Congress amended the Defense Authorization Act for Fiscal Year 1999 to condition the use of price 

evaluation adjustments on DOD’s failure to achieve its SDB contracting goals. Since DOD has met or 

exceeded its goals each year since, the agency has discontinued use of this tool. 

Caption: As early as 1969, Congress and the executive branch expressed an interest in promoting federal contracting 

opportunities for small and disadvantaged businesses. Numerous legislative and administrative measures established contracting 

goals, created avenues for business development, and prioritized opening opportunities for minority-owned firms. 

Source: Compiled from numerous sources, including: National Minority Supplier Development Council, Inc., “Legislation Affecting Minority 

Purchasing,” no date, <http://www.nmsdcus.org/infocenter/Legislation%20Affecting%20Minority%20Purchasing.htm> (last accessed Apr. 

25, 2005); U.S. Small Business Administration, “Laws and Regulations,” no date, <http://www.sba.gov/library/lawroom.html> (last accessed 

Apr. 26, 2005); U.S. General Accounting Office, The SBA 8(a) Procurement Program—A Promise Unfulfilled, Apr. 8, 1981. 
8 Chapter 1

The 1978 Small Business Act also established Offices of Small and Disadvantaged Business 

Utilization (OSDBUs) and gave them procurement powers at each federal agency.34 The Act 

charges each agency’s OSDBU director with promoting the interests of small and disadvantaged 

businesses pursuing federal contracts. The legislation assigns several specific responsibilities to 

OSDBUs, including overseeing contracts to ensure that small businesses have the maximum 

practicable opportunity to participate as prime and subcontractors, providing assistance and 

information for firms preparing contract bids, and ensuring timely payment of contractors. 

OSDBU staff consult with SBA to implement these responsibilities.35 

In subsequent years, other legislative and regulatory actions established programs that similarly 

enabled small disadvantaged businesses to better compete with larger and non-disadvantaged 

enterprises (see table 1.1). The Federal Acquisition Streamlining Act of 1994 (FASA) authorized 

all federal agencies to offer race-conscious procurement to meet SDB participation goals 

pursuant to the Small Business Act, and reemphasized the flexible 5 percent target.36 Legislation 

also mandates the use of small businesses, when such bids are competitive, for purchases 

between $2,500 and $100,000.37

Between 1968 and 1998, federal agencies and Congress repeatedly recognized the need for 

measures to make contracting opportunities more accessible to minority-owned firms and 

economically disadvantaged businesses. Significant within the resulting statutory framework are 

the following programs: 

• SBA’s 8(a) Business Development Program, named for the section of law that 

implemented it, acknowledges that certain businesses lack key resources to successfully 

compete for contracts, and offers SDBs assistance. The program promotes development 

through a wide range of mechanisms over a nine-year period (unless a business should 

graduate early).38

• The 8(a) Business Development Mentor-Protégé Program, which was finalized in 1998, 

allows businesses participating in the 8(a) program to receive assistance from a 

successful business, which acts as the mentor. Both mentor and protégé can cooperate in 

competing for federal procurement and accessing capital in the form of equity loans.39 

 

34 See Small Business Act of 1978, 15 U.S.C. §§ 631–633, 636, 637, 644), as cited in U.S. Government 

Accountability Office, Small and Disadvantaged Businesses: Most Agency Advocates View Their Roles Similarly, 

March 2004, p. 1 (hereafter cited as GAO, Most Agency Advocates View Their Roles Similarly). Note: Prior to 

2004, GAO was known as the General Accounting Office. 

35 Small Business Act of 1978, 15 U.S.C § 644(k) (2000). 

36 Federal Acquisition Streamlining Act of 1994, Pub. L. No. 103-355, 108 Stat. 3243 (codified in scattered sections 

of 10, 15, and 41 U.S.C.) (extending the 5 percent goal to women-owned businesses). 

37 See Simplified Acquisition Procedures, 48 C.F.R. § 13 (2004). 

38 See Small Business Act of 1978, 15 U.S.C. § 631 (2000). 

39 U.S. Small Business Administration, “8(a) Business Development Mentor-Protégé Program,” Nov. 3, 2003, 

<http://www.sba.gov/8abd/indexmentor.html> (last accessed May 23, 2005). 
Chapter 1 9

• In addition to participating in the 8(a) program, federal agencies can employ separate, 

supplemental SDB programs that encourage federal contracting with small and minorityowned enterprises. Qualifying for eligibility became somewhat more rigorous with postAdarand requirements that businesses obtain formal certification to participate.40

Additionally, after Adarand, DOJ authorized agencies to use various mechanisms to 

increase SDB participation, such as price evaluation adjustment, which adds up to 10 

percent to the price of offers received from non-SDBs, subject to exceptions. 

THE ADARAND DECISION: ESTABLISHING STRICT SCRUTINY 

In 1995, the Adarand decision prompted federal agencies to reevaluate contracting practices.41

The specific contract in question resulted from the Surface Transportation and Uniform 

Relocation Assistance Act of 1987, which mandated that at least 10 percent of DOT funds be 

expended with SDBs (or disadvantaged business enterprises—DBEs—as they are known in 

transportation procurement), using the same definitions of social and economic disadvantage 

found in the Small Business Act.42 Agency regulations in place at the time of the legal challenge 

stated that a contract applicant should be presumed both socially and economically 

disadvantaged, and thus eligible for the program, if the applicant belonged to a certain racial 

group.43 As with DOT, most federal contracts contained a subcontractor compensation clause, 

which gave prime contractors financial incentive to hire SDB-certified subcontractors.44

In this case, the prime contractor under a DOT-administered highway construction contract, 

which contained such a clause, awarded a subcontract to a certified disadvantaged business, even 

though another business, Adarand Constructors, Inc., submitted a lower bid. The majority of 

Adarand’s work involved constructing guardrails as a subcontractor for federally funded state 

and federal highway projects. To qualify for DOT funds, states must abide by the agency’s 

affirmative action programs and goals. As the only nonminority-owned guardrail contractor in 

Colorado, Adarand frequently lost bids because of prime contractors’ reluctance to forgo 

potential financial incentives for contracting with SDBs.45 Adarand filed suit against federal 

officials claiming that the race-based presumption of disadvantage violated the Fifth 

Amendment’s Due Process Clause, which courts have interpreted to require equal enforcement 

of the laws.46 

 

40 U.S. Small Business Administration, “SBA Details New Certification Process For Small Disadvantaged 

Businesses,” news release 98-78, Sept. 21, 1998, <http://www.sba.gov/news/archive98/98-78.html> (last accessed 

May 23, 2005). 

41 See Adarand, 515 U.S. 200 (1995). 

42 See Surface Transportation and Uniform Relocation Assistance Act of 1987, Pub. L. No. 100-17, § 106(c)(1), 101 

Stat. 132. 

43 49 C.F.R. § 23.62 (1994); 49 C.F.R. pt. 23, subpt. D, app. C (1994). 

44 See Adarand, at 205. 

45 Patrick A. Tolan, Jr., “Government Contracting with Small Businesses in the Wake of the Federal Acquisition 

Streamlining Act, the Federal Acquisition Reform Act, and Adarand: Small Business as Usual?” Air Force Law 

Review, vol. 44 (1998), pp. 89–90. 

46 See Adarand, at 206. 
10 Chapter 1

The United States District Court for the District of Colorado ruled in favor of the government.47

The Court of Appeals for the Tenth Circuit affirmed, holding that DOT’s program complied with 

a lower standard of review,48 known as “intermediate scrutiny,” based on its interpretation of 

previous Supreme Court decisions.49 The appellate court found DOT’s statutes and regulations 

were valid because they were “narrowly tailored” to fulfill the specific purpose of “providing 

subcontracting opportunities for small disadvantaged business enterprises, as required under 

section 502 of the Small Business Act.”50

The plaintiff appealed to the Supreme Court, which held that courts should apply the same strict 

judicial standard of review to both Fifth Amendment and 14th Amendment equal protection 

claims. The Court left unanswered the ultimate question of whether the challenged regulations 

violated the strict scrutiny standard. In a 5-4 decision, the Court sent the case back to the lower 

courts, requiring that they review it using the “strict scrutiny” standard that had previously 

applied to similar state and local government contracting programs.51 Strict scrutiny is the 

highest level of review applicable to equal protection challenges. It requires courts to perform a 

detailed examination of both the ends and means of racial classifications.52 

Writing for the majority, Justice Sandra Day O’Connor stated that government racial 

classifications are subject to three propositions. Courts must review such policies using (1) 

skepticism: subjecting any preference based on race or ethnicity to a “most searching 

examination”; (2) consistency: applying the highest level of scrutiny to all racial classifications 

challenged under the Equal Protection Clause; and (3) congruence: analyzing federal, state, and 

local programs under the same standard.53 She concluded: 

Taken together, these three propositions lead to the conclusion that any person, of 

whatever race, has the right to demand that any governmental actor subject to the 

Constitution justify any racial classification subjecting that person to unequal treatment 

under the strictest judicial scrutiny.54

 

47 Adarand Constructors, Inc. v. Skinner, 790 F. Supp. 240 (D. Colo. 1992). 

48 Adarand Constructors, Inc. v. Pena, 16 F.3d 1537 (10th Cir. 1994). 

49 See id. at 1546 (explaining that the standards of scrutiny the Supreme Court used in Fullilove v. Klutznick and 

reaffirmed in Metro Broadcasting, Inc. v. FCC control the court’s decision); see also Adarand, at 227 (overruling 

the Metro Broadcasting decision). 

50 Adarand Constructors, Inc. v. Pena, 16 F. 3d at 1547 (1994). 

51 See Adarand, at 204–05, 221–23 (discussing Richmond v. J.A. Croson Co., which held that the 14th Amendment 

requires strict scrutiny of all race-based actions by state and local governments, and explaining that the lower 

court’s failure to adhere to this decision was a basis for remand). Croson did not determine what standard of review 

the Fifth Amendment requires for programs of the federal government. However, previous cases, such as Buckley v. 

Valeo and Weinberger v. Wiesenfeld, had established that equal protection analysis is the same for the Fifth and 14th 

Amendments. 

52 Adarand, at 236. 

53 Adarand, at 223–24 (stating that equal protection applies to federal programs under the Fifth Amendment and to 

state and local programs under the 14th Amendment). 

54 See Adarand, at 224. 
Chapter 1 11

TABLE 1.2 

Adarand Judicial Chronology 

1992: A district court decided that DBE programs were constitutional. 

(Adarand Constructors, Inc. v. Skinner, 790 F. Supp. 240 (D. Colo. 1992)) 

1994: The Tenth Circuit Court of Appeals affirmed the lower court’s decision. 

(Adarand Constructors Inc. v. Pena, 16 F.3d 1537 (10th Cir. 1994)). 

1995: The Supreme Court reversed the appellate court’s decision and sent the case back to the lower courts 

to determine whether the programs would survive the strict scrutiny standard. 

(Adarand Constructors Inc. v. Pena, 515 U.S. 200 (1995)). 

1997: The district court found that the subcontracting compensation clause was unconstitutional. 

(Adarand Constructors Inc. v. Pena, 965 F. Supp. 1556 (D. Colo. 1997)). 

1998: The DBE program was reauthorized. 

(Transportation Equity Act for the 21st Century (TEA-21), Pub. L. No. 105-178, 112 Stat. 113 § 

1101(b)(1) (June 9, 1998)). 

1999: The Court of Appeals affirmed in part and reversed in part, finding that the case was moot because the 

plaintiff had been certified as a DBE since the lower court’s finding. The same year, DOT issued 

regulations aimed at ensuring that its program was narrowly tailored. 

(Adarand Constructors, Inc. v. Slater, 169 F.3D 1292 (10th Cir. 1999)). 

2000: The Supreme Court again granted certiorari and reversed. The Court held that the state’s certification of 

the subcontractor as DBE pursuant to its new procedures, adopted in response to subcontractor’s suit, 

did not moot the subcontractor’s cause of action. The Court directed the appellate court to reconsider 

the district court’s 1997 decision. 

(Adarand Constructors, Inc. v. Slater, 528 U.S. 216 (2000)). 

The Tenth Circuit Court of Appeals consequently upheld the constitutionality of the revised DBE 

program, finding that its new structure met the “compelling interest” and “narrowly tailored” 

requirements. 

(Adarand Constructors, Inc. v. Slater, 228 F.3d 1147 (10th Cir. 2000)). 

2001: The Supreme Court agreed to hear the case again. 

(Adarand Constructors, Inc. v. Mineta, 532 U.S. 941 (2001)) 

In October, the Supreme Court heard oral arguments, and in November dismissed the appeal on 

procedural grounds, noting that the petitioner changed its challenge to a program other than the one 

previously reviewed. The Court let stand the DBE program and, consequently, this instance of an 

affirmative action program. 

(Adarand Constructors, Inc. v. Mineta, 534 U.S. 103 (2001)). 

Caption: For nearly a decade, the Adarand case worked its way through the judicial system, beginning in 1992 when a 

district court found Disadvantaged Business Enterprise (DBE) programs constitutional. The petitioner appealed, and in 

1995, the Supreme Court established the strict scrutiny standard under which such challenges are to be reviewed. The 

Court sent the case back to the lower courts for examination under this test. In the interim, the Department of 

Transportation amended the DBE program in question, which an appellate court subsequently upheld. The Supreme Court 

rejected the petitioner’s final appeal in 2001. 
12 Chapter 1

Justice Department interpretations of Adarand identify numerous conditions to fulfill the 

“narrow tailoring” requirement, for example, that (1) the government has considered race-neutral 

alternatives, (2) the scope of the program is contained, and (3) race is just one factor in the 

decision.55 

The concurring justices took the race-neutral argument one step further. In his concurring 

opinion, Justice Scalia wrote, 

In my view government can never have a ‘compelling interest’ in discriminating on the 

basis of race in order to ‘make up’ for past racial discrimination in the opposite 

direction....In the eyes of government, we are just one race here. It is American.56 

Similarly, Justice Thomas stated, 

In my mind, government-sponsored racial discrimination based on benign prejudice is 

just as noxious as discrimination inspired by malicious prejudice. In each instance, it is 

racial discrimination....57

The dissenting justices argued that prior law left open the door for certain affirmative action 

programs to continue or be created, provided they were examined and determined to serve a 

compelling interest, including redressing the lingering effects of past discrimination.58 

In sending the Adarand case back to the district court, the Supreme Court noted that the court of 

appeals had not determined whether the interests served by the subcontractor compensation 

clause in question were compelling, or whether the clause was narrowly tailored and neither 

vague nor over- or under-inclusive.59 The Court noted that the lower courts failed to ask whether 

race-neutral means to increase minority business participation had been considered,60 or whether 

the program was limited in duration so that it would not exist longer than the discriminatory 

effects it was designed to eliminate.61

 

55 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,042. According to DOJ, other 

narrow tailoring criteria require that (1) any numerical target is reasonably related to the number of qualified 

minorities in the applicable pool, (2) the program is limited in duration and subject to periodic review, and (3) only 

minimal burden is imposed on nonbeneficiaries. Id. See also the discussion of narrow tailoring in Adarand 

Constructors, Inc. v. Pena, 965 F.Supp. 1956 (1997); Croson at 507, 510; Fullilove at 513; Metro Broadcasting at 

594; and Wygant v. Jackson Bd. of Educ., 476 U.S. 267, 280 (1980). 

56 Adarand, at 239 (Scalia, J., concurring). 

57 Id. at 240 (Thomas, J., concurring). 

58 Id. at 269, 270 (Souter, Ginsburg, and Breyer, J.J., dissenting). 

59 Id. at 237. 

60 Id. at 238 (citing Croson, 488 U.S. at 507). 

61 Adarand, at 238 (citing Fullilove, 448 U.S. at 513). 
Chapter 1 13

APPLYING ADARAND TO FEDERAL CONTRACTING PROGRAMS 

Acting on the Attorney General’s mission to furnish advice on legal matters to the heads of 

executive departments and agencies of the government,62 DOJ issued guidance on applying 

Adarand to federal contracting programs. In the guidance, Clinton administration officials 

justified the continued use of section 8(a) programs on the basis of congressional findings that 

they are needed to remedy the effects of past discrimination against minority-owned 

businesses.63 Because Adarand left open the possibility that the government can demonstrate a 

compelling state interest if it can show how lingering effects of discrimination have diminished 

contracting opportunities for certain groups,64 DOJ concluded that Congress’ long legislative 

record documenting such discrimination provides sufficient evidence.65 

In crafting its assessment, DOJ reviewed evidence collected post-Adarand by state and local 

governments among other sources, and concluded that, absent affirmative remedial efforts, 

“federal contracting would unquestionably reflect the continuing impact of discrimination that 

has persisted over an extended period.”66 DOJ continued: 

For the purposes of these proposed reforms, therefore, the Justice Department takes as a 

constitutionally justified premise that affirmative action in federal procurement is 

necessary, and that the federal government has a compelling interest to act on that basis 

in the award of federal contracts.67

At DOJ’s direction, after the Adarand decision, federal agencies reexamined contracting 

procedures and began to alter disadvantaged business programs. DOT had already begun to 

modify its SDB contracting program. When the lower court reviewed the case again, it 

determined that DOT’s program did not meet the strict scrutiny standard,68 and during the 

appeals process, DOT altered the definition of “disadvantaged businesses” to include socially 

and economically disadvantaged firms, in addition to those challenged by discrimination, 

regardless of race.69 The new Disadvantaged Business Enterprise program, DOT asserted, is 

open to “everyone, regardless of race or ethnicity, who meets the statutory criteria for social and 

economic disadvantage based on individual experience.”70 

 

62 U.S. Department of Justice, “Organization, Mission and Functions Manual; Office of the Attorney General,” 

September 2004, <http://www.usdoj.gov/jmd/mps/mission.htm> (last accessed May 19, 2005). 

63 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,051. 

64 Adarand, at 237 

65 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,050. 

66 Id., p. 26,042. 

67 Id. 

68 Adarand Constructors, Inc. v. Pena, 965 F. Supp. 1556 (D. Colo. 1997). 

69 See DOT, “The New DBE Regulation.” 

70 Brief for the Respondents at 4, Adarand Constructors, Inc. v. Mineta, 534 U.S. 103 (2001) (No. 00-730) (citing 

49 C.F.R. § 26.61(b)) (stating that the Supreme Court granted review again to determine whether the court of 

appeals was correct when it concluded that the DBE program is consistent with equal protection). The Court 

intended to review the same program addressed by the appellate case. However, rather than focusing on the DBE 

program, the petitioner changed its challenge to include regulations relating to direct procurement, which falls under 
14 Chapter 1

In 1999, DOT issued new regulations that significantly altered the program in response to 

Adarand.

71 The regulations designated 10 percent as a national aspirational goal for 

disadvantaged businesses, but mandated actual participation goals at levels based on the local 

market availability of DBEs, not a set percentage.72 Moreover, the regulations required states to 

use race-neutral measures, including outreach and technical assistance, to meet as much of their 

goals as possible.73

Other agencies similarly revised their SDB programs. They focused largely on the narrow 

tailoring requirement, relying on six factors the courts identified to assess whether a program 

complies: 

(1) whether race-neutral alternatives were first considered and determined to be insufficient 

solutions; 

(2) the scope of the program and whether it is flexible; 

(3) whether race is the sole factor in eligibility or one factor among others; 

(4) whether any numerical target is reasonably related to the number of qualified minorities 

in the applicant pool; 

(5) whether the duration of the program is limited and subject to periodic review; and 

(6) the extent of the burden imposed on nonbeneficiaries of the program.74

DOJ also identified the components of disadvantaged business programs that needed to be 

reformed as a result of Adarand: eligibility criteria and certification procedures, the use of 

benchmark limits to determine contracting areas where discrimination might exist, and 

mechanisms for increasing opportunities for minority-owned firms that would survive strict 

scrutiny.75

 

the purview of SBA, not DOT. Because the appellate court had not yet reviewed SBA’s program under the strict 

scrutiny standard, nor had the petitioner proven that it had the standing to challenge the statute in question, the 

Court dismissed the case. The Court further noted that in the earlier Adarand case, it established that application of 

the strict scrutiny test should first be addressed by the lower courts, adding that the Supreme Court is a court of final 

review. 

71 Participation by Disadvantaged Business Enterprises in Department of Transportation Programs, 64 Fed. Reg. 

5,095 (Feb. 2, 1999). 

72 Id., p. 5,131. 

73 Id., p. 5,112; see also U.S. General Accounting Office, Disadvantaged Business Enterprises: Critical Information 

Is Needed to Understand Program Impact, June 2001, p. 4. 

74 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,042. 

75 Id., p. 26,043. 
Chapter 1 15

Eligibility and Certification 

Adarand did not significantly change the interpretation of SDB eligibility criteria, although it did 

modify certification procedures. Members of designated minority groups continue to be 

presumed economically and socially disadvantaged.76 However, individuals who do not fall 

within the categorical presumptions may in limited instances prove their social and economic 

disadvantage “by a preponderance of the evidence” (i.e., more likely than not).77 Before 

Adarand, the threshold for proof was “clear and convincing evidence.”78 In addition, the 

presumption of disadvantage is theoretically rebuttable, i.e., a firm’s eligibility can be 

challenged.79

Although firms participating in the 8(a) program had to be certified by SBA, prior to Adarand, 

firms could self-certify as small disadvantaged businesses. As a result of the decision, in 1998, 

SBA developed eligibility standards for SDB certification: already-certified 8(a) firms 

automatically qualified, but others had to establish eligibility by submitting required 

documentation. SBA subsequently developed standards and conducted training seminars for 

other federal agencies, instructing them how to make eligibility determinations. DOJ guidelines 

instructed agencies to develop procedures that facilitate quick decisions so that the procurement 

process is not delayed and applicants have a fair opportunity to compete.80 Agencies have 

subsequently transferred responsibility for certification determinations to SBA, with the 

exception of DOT. In 1999, DOT and SBA signed a memorandum of understanding, which 

grants certification reciprocity to 8(a), DBE, and other SDB participants. 

In addition, regulations require applicants to submit certification that the business is owned and 

controlled by socially and economically disadvantaged individuals, as defined by standards 

similar to the 8(a) program.81 State or local governments or other major contractors sometimes 

additionally certified firm ownership. According to DOJ, multiple sources of certification 

allowed agencies to take advantage of the extensive network of certifying entities in place prior 

to Adarand. From the federal government’s perspective, reciprocity could eliminate the need for 

firms to obtain different certifications when they seek private and public contracts. Although 

DOJ highlighted the merits of multiple certification sources, small businesses argued that there 

were too many certifying entities, and the “streamlined” process remained burdensome.82 To 

 

76 See 13 C.F.R. § 124.103 (2005). 

77 Id. § 124.103(c). 

78 The White House, “Procurement Reforms: SDB Certifications and the Price Evaluation Adjustment Program,” 

June 24, 1998, <http://www.clinton6.nara.gov/1998/06/1998-06-24-fact-sheet-on-procurement-reforms.html> (last 

accessed Nov. 18, 2004) (hereafter cited as The White House, “Procurement Reforms”). 

79 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,044. 

80 Id. 

81 Id. (citing 13 C.F.R. §§ 124.103, 124.104). The economic threshold for SDB program participants is higher than 

for 8(a). Owners’ net worth limits are $750,000 and $250,000, respectively. 

82 See Response to Comments to Department of Justice Proposed Reforms to Affirmative Action in Federal 

Procurement, 62 Fed. Reg. 25,648 (May 9, 1997) (hereafter cited as DOJ, Response to Comments to Proposed 

Reforms) (explaining that DOJ received more than 1,000 responses to its 1996 proposed reforms to affirmative 

action. Among the concerns expressed by small businesses were that (1) agencies would make inconsistent 
16 Chapter 1

ensure consistency, DOJ guidelines instructed SBA to conduct periodic audits of certifying 

organizations. However, beginning in 2005, SBA no longer accepts third-party certifications, 

and therefore no longer conducts such audits.83

When an SDB receives a contract, competing bidders, procuring agencies, or SBA can raise 

eligibility challenges. Such parties may protest eligibility on evidence that (1) the owners of the 

firm are not economically or socially disadvantaged, (2) the firm is not owned or controlled by 

individuals who meet the definitions of disadvantaged, or (3) the disadvantaged firm has not 

completed required percentages of the work it was contracted to do. SBA makes the final 

determination of eligibility within 15 days of the challenge.84 The firm may appeal, but there are 

fines and punishments associated with misrepresentation.

Benchmark Limits 

As discussed, the Supreme Court held that all racial classifications of government programs must 

be narrowly tailored. Federal procurement, as a government activity, must conform to this 

requirement. Thus, the measures agencies employ to achieve SDB participation goals, which are 

in many cases statutorily mandated, must also be narrowly tailored. The Clinton Justice 

Department’s post-Adarand proposal called for the development of specific guidelines to limit 

race measures to certain areas of procurement. It established that the Department of Commerce, 

in consultation with the General Services Administration and SBA, would develop benchmarks 

and determine acceptable strategies (including the size of evaluation credits that can be applied) 

for each industry.85 

Under the Clinton DOJ approach, benchmarks represent the level of minority contracting that is 

reasonably expected in a market, absent discrimination or its effects, and provide the basis of 

comparison with actual minority participation in each industry and, for construction, each 

region.86 DOJ stated in its 1997 guidelines that benchmark analyses should include consideration 

of the extent to which discrimination has impeded the efforts of minority-owned firms to grow 

and the ability of minority entrepreneurs to start businesses.87 The benchmark studies were 

supposed to be updated every five years as new Census data on minority firms became available. 

However, Commerce issued the last benchmark study in 1999, using fiscal year 1996 data. Since 

then, Commerce developed a new industry coding scheme, and its efforts to render industry-

 

eligibility determinations; and (2) reliance on state, local, and private organizations for certifications would 

compromise efficiency).

83 U.S. Small Business Administration, “Frequently Asked Questions: Small Disadvantaged Business (SDB),” no 

date, <http://app1.sba.gov/faqs/faqindex.cfm?areaID=22> (last accessed May 10, 2005). The agency’s Web site 

states, “Private Certifiers are no longer available. All applications are being processed by the Office of Small 

Disadvantaged Business Certification and Eligibility in Washington DC.” Agency regulations, however, still 

describe external certification procedures. See 13 C.F.R. § 124 (2004). 

84 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,045 (citing 48 C.F.R. § 19.508). 

85 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,045. 

86 Id. 

87 See DOJ, Response to Comments to Proposed Reforms, p. 25,650. 
Chapter 1 17

specific determinations of the need for SDB programs have focused primarily on developing a 

system for converting codes, rather than on benchmark calculations.88 Furthermore, among other 

criticisms, experts have substantially questioned the studies’ benchmark data, methodology, 

underlying theory of discrimination, and utility. The National Research Council recently 

endorsed these criticisms.89

Additional Mechanisms 

In 1996, the Clinton Justice Department identified several race-conscious contracting 

mechanisms that federal procurement programs could use consistent with its interpretation of 

Adarand: SBA’s 8(a) program; bidding credits for SDB prime contractors, which are statutorily 

permitted; and evaluation credits for nonminority prime contractors that award subcontracts to 

SDBs.90 In accordance with the narrow tailoring requirements, price preference evaluation 

credits cannot exceed 10 percent, at the discretion of the contract officer, and can only be used 

for procurement in industries affected by lingering effects of discrimination against minorityowned firms, as determined by benchmark studies.91 Moreover, while certified SDBs may 

receive credits, they still must compete with other bidders to win contracts.92 Regardless of the 

mechanisms employed, DOJ made clear that in post-Adarand procurement, race must be only 

one factor in the decision to award a contract.93

 To that end, the Court’s parameters on the use of race-conscious measures require agencies to 

apply race-neutral strategies, such as outreach and technical assistance, at all times so that they 

use racial preferences only to the “minimum extent necessary to achieve legitimate objectives.”94

However, DOJ determined that agencies lacked consistency and sufficient effort in 

implementing outreach and other race-neutral programs. DOJ outlined several specific strategies, 

including the following: 

 

88 Jeffrey Mayer, Economic Statistics Administration, Department of Commerce, electronic correspondence to Anna 

Maria Ortiz, civil rights analyst, U.S. Commission on Civil Rights, Apr. 7, 2005. Note also that the most recent 

economic census was in 2002. However, the Census Bureau’s publication of many reports from this survey, 

including certain series related to industries and minority-owned businesses, is not scheduled until 2006. The 

Bureau plans to publish a bridge between industrial codes used in 1997 and 2002 in mid-2005. See U.S. Census 

Bureau, “Guide to the 2002 Economic Census: Schedule and Geographic Coverage for Reports, by Sector,” Apr. 

25, 2005, <http://www.census.gov/econ/census02/guide/g02sch3.htm> (last accessed May 6, 2005). 

89 See, e.g., National Research Council of the National Academies, Analyzing Information on Women-Owned Small 

Businesses in Federal Contracting, 2005, pp. 59–60, citing George R. La Noue, “To the ‘Disadvantaged’ Go the 

Spoils?” The Public Interest, no. 138 (Winter 2000), pp. 91–98.

90 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,046. Authority to allow bidding 

credits for prime contractors and subcontractors exists for the Department of Defense in 10 U.S.C. § 2323 and for 

all other federal agencies under the Federal Acquisition Streamlining Act, Pub. L. No. 103-355 § 7102, 108 Stat. 

3243 (codified as amended at 15 U.S.C. § 644 (2000)). 

91 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,046. 

92 The White House, “Procurement Reforms.” 

93 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,046. 

94 Id., p. 26,048. 
18 Chapter 1

• pursue race-neutral mentor-protégé programs that do not guarantee the award of 

subcontracts on a noncompetitive basis; 

• eliminate the impact of surety costs from bids, as higher bond costs are a barrier to 

minority success in contracting; 

• establish a minimum goal for including SDBs on agency mailing lists of bidders; 

• establish a uniform system for publishing agency procurement forecasts;95

• target outreach and technical assistance toward industries in which SDB participation 

traditionally has been low; 

• increase participation of Historically Black Colleges and Universities in research and 

development contracts;96 and 

• review contracting procedures and solicitations to identify practices that 

disproportionately affect opportunities for SDBs and do not serve a valid procurement 

purpose.97

DOJ reasoned that these measures would minimize the need for race-conscious strategies in the 

government’s effort to welcome SDB participation.98

DEFINING AND EVALUATING RACE-NEUTRAL STRATEGIES 

Adarand requires agencies to consider, and employ, race-neutral strategies before resorting to 

race-conscious ones. As DOEd explained in another context, serious consideration entails (1) 

identifying and evaluating a wide range of policies, rather than considering only one or two 

alternatives; (2) documenting the underlying facts, rather than relying on casual observation or 

assumptions; (3) demonstrating an empirical basis for determining whether race-neutral plans 

will be effective, rather than relying on speculation; (4) ensuring that assessments are supported 

by current, competent, and comprehensive data; and (5) periodically reviewing any raceconscious plans to determine whether they remain necessary.99 

 

95 Each agency currently posts procurement opportunities on its own Web site or through SBA Online. 

96 Although contracts with Historically Black Colleges and Universities are, by definition, race-conscious, 

Executive Order 12,876 directs federal agencies to enter into such contracts, thus granting presumptive legal 

authority. 

97 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,049. 

98 Id., p. 26,046. 

99 U.S. Department of Education, Office for Civil Rights, Inclusive Campuses: Diversity Strategies for Private 

Colleges, report no. 3, Race-Neutral Alternatives Series, 2005, pp. 11–12. 
Chapter 1 19

The Commission has identified four elements that, if used more effectively, would enable raceneutral strategies to meet this requirement. 

(1) Agencies should develop policy, procedures, and standards for evaluating race-neutral 

alternatives. 

(2) Agencies should develop or identify a variety of race-neutral approaches and implement 

programs based on identified needs, as determined by baseline data. 

(3) Agencies should continuously review the need for race-conscious programs and 

independently measure the success of race-neutral strategies. 

(4) Agencies should engage in regular interagency communication to foster information 

sharing and to identify best practices and workable race-neutral strategies. 

The Commission finds that these four elements will facilitate a fair and legally sound contract 

award system, provided agencies implement strong civil rights enforcement to identify and 

eliminate discrimination. Each element will be discussed in greater detail in the following 

chapter. Chapter 2 also catalogs race-neutral strategies agencies use to assist all small businesses, 

as well as those that target economically disadvantaged firms. And, finally, chapter 3 offers 

recommendations for agencies and Congress to ensure equal access to and fair competition for 

federal contracts. 
20 Chapter 1
Chapter 2 21

Chapter 2: Elements and Examples of Race-Neutral Contracting 

As noted in Chapter 1, in its 1995 Adarand decision, the Supreme Court stated that courts must 

ask whether agencies have given “any consideration [to] the use of race-neutral means to 

increase minority participation in government contracting” to determine whether a raceconscious program is legally permissible.1

 Department of Justice (DOJ) guidance explains that, 

drawing on an earlier case, the Court reasoned that because minority businesses tend to be 

smaller and less established, providing financial and technical assistance to all small and new 

firms irrespective of race might also increase contracting opportunities for minority-owned 

businesses.2

 Thus, Adarand’s narrow tailoring aspect requires agencies to explore race-neutral 

approaches to remedying discrimination and improving contracting opportunities for small and 

disadvantaged businesses before resorting to race-conscious measures.3

 This directive coincides 

with the government’s interest in advancing small businesses generally. 

In recent cases, the Supreme Court has held that narrow tailoring requires “serious good faith 

consideration” of race-neutral alternatives.4

 Despite this directive, agencies neither share a 

common understanding of what constitutes serious consideration, nor a definition for “raceneutral” contracting. At least one agency, the Department of Education (DOEd), interprets this to 

mean that institutions (or agencies) must consider “in a careful and professional manner” the 

applicability of reasonable alternatives.5

 

DOJ generally views programs that benefit disadvantaged individuals, but do not presume racial 

groups are disadvantaged, as race-neutral. DOJ characterizes statutes that establish a 

presumption that members of a racial group are disadvantaged as race-conscious.6

 According to 

one scholar, in general, race-neutral laws and regulations are those worded in such a way as to 

offer equal protection to everyone. Race-neutral programs and policies, which result from the 

laws, might include, for example, strategies to eliminate barriers affecting disadvantaged 

 

1

 Adarand Constructors, Inc. v. Pena, 515 U.S. 200, 238 (1995) (hereafter cited as Adarand) (citing Richmond v. 

J.A. Croson Co., 488 U.S. 469, 507 (1989)). See also Grutter v. Bollinger, 539 U.S. 306, 339 (2003) (hereafter cited 

as Grutter). 

2

 U.S. Department of Justice, “Legal Guidance on the Implications of the Supreme Court’s Decision in Adarand 

Constructors, Inc. v. Pena,” June 28, 1995, p. 27 (hereafter cited as DOJ, “Adarand Guidance”) (citing Croson, at 

510). 

3 Adarand, at 238. 

4 Grutter, at 339, emphasis added. 

5

 U.S. Department of Education, Office for Civil Rights, Inclusive Campuses: Diversity Strategies for Private 

Colleges, report no. 3, Race-Neutral Alternatives Series, 2005, p. 11 (hereafter cited as DOEd, Inclusive Campuses). 

6

 DOJ, “Adarand Guidance,” p. 47. DOJ has not revised its definition of neutrality in light of more recent case 

precedent, such as the Supreme Court cases of Grutter and Gratz v. Bollinger, 539 U.S. 244 (2003). 
22 Chapter 2

competitors, but include all persons defined by income, geographic location, age, or other raceneutral criteria.7

Federal agencies disagree among themselves about what factors render a program race-conscious 

or -neutral. Without formal guidance, agencies struggle with how to define targeted procurement 

programs within the legal parameters of Adarand and subsequent cases. DOEd, for example, 

relying on DOJ’s post-Adarand definitions, identifies Small Business Administration (SBA)-

offered disadvantaged business programs, such as the 8(a) business development program and 

small disadvantaged business (SDB) certification mentioned in the previous chapter, as raceconscious, but does not consider race or socioeconomic status in its own procurement 

initiatives.8

 

Other agencies, such as the Department of Transportation (DOT), the Department of State 

(DOS), and the Department of Housing and Urban Development (HUD), do not consider SBA 

programs race-conscious, even though they include a race-based presumption of disadvantage as 

one eligibility factor.9

 These three agencies assert that SDB, 8(a), and other programs have been 

tailored to comport with federal procurement regulations. HUD officials further stated that they 

do not consider 8(a) to be race-conscious because it does not preclude nonminority participation, 

and eligibility is governed only partly by race. Moreover, they note that the program has been 

upheld under Adarand standards.10 In policy documents, HUD refers to small and disadvantaged 

business initiatives, including 8(a) and the Historicially Underutitilized Business Zone 

(HUBZone) strategy, as socioeconomic programs.11 Indeed, federal regulations also classify 8(a), 

HUBZone, and SDB as socioeconomic programs.12 

SBA, although acknowledging that the 8(a) initiative includes a race element, notes that the 

program focuses on disadvantaged status rather than race or ethnicity, and is therefore consistent 

 

7

 George R. La Noue and John C. Sullivan, “Race Neutral Programs in Contracting,” Public Administration Review, 

vol. 55, no. 4 (July/August 1995), p. 348 (hereafter cited as La Noue and Sullivan, “Race Neutral Programs”). 

8

 U.S. Department of Education’s Response to the U.S. Commission on Civil Rights Interrogatory on Federal 

Contracting, Mar. 11, 2005, p. 1 (hereafter cited as DOEd Interrogatory). 

9

 U.S. Department of State’s Response to the U.S. Commission on Civil Rights Interrogatory on Federal 

Contracting, Mar. 1, 2005, cover letter, pp. 1–2, 4 (hereafter cited as DOS Interrogatory); U.S. Department of 

Transportation’s Response to the U.S. Commission on Civil Rights Interrogatory on Federal Contracting, Mar. 17, 

2005, p. 18 (hereafter cited as DOT Interrogatory); and U.S. Department of Housing and Urban Development’s 

Response to the U.S. Commission on Civil Rights Interrogatory on Federal Contracting, Mar. 21, 2005, p. 1 

(hereafter cited as HUD Interrogatory). 

10 David Enzel, senior counsel, Office of General Counsel; Valerie Hayes, acting director, Office of Small and 

Disadvantaged Business; Bernard Morton, supervisory procurement analyst, Policy and Field Operations Division, 

Office of the Chief Procurement Officer; and Edward Girovasi, director, Policy and Field Operations Division, 

Office of the Chief Procurement Officer, U.S. Department of Housing and Urban Development; interview in 

Washington, DC, Apr. 19, 2005 (statement of Edward Girovasi), transcript p. 24 (hereafter cited as HUD follow-up 

interview). 

11 U.S. Department of Housing and Urban Development, Procurement Policies and Procedures, Handbook 2210.3 

REV-9, p. 3-1 (hereafter cited as HUD, Procurement Policies and Procedures). 

12 Small Business Programs, 48 C.F.R. § 19 (2004). 
Chapter 2 23

with Adarand.

13 SBA additionally argues that these programs are statutorily mandated and that 

agencies have little discretion with regard to implementation.14 However, SBA and other 

agencies also consider as valid for goal purposes many race-neutral programs that target small 

businesses generally, but which have no mechanisms to ensure equal participation of minorityowned businesses.15 

Without a clear understanding of what constitutes race-conscious programming, agencies do not 

demonstrate practices that prove they seriously considered race-neutral alternatives or ensure 

that such demonstrations are comprehensively incorporated. DOT’s program is, in part, an 

exception. The agency amended its Disadvantaged Business Enterprise (DBE) program postAdarand and now requires contract recipients to obtain as much DBE participation as possible 

through race-neutral measures, including training, technical assistance, bonding assistance, 

business development programs, contract unbundling, and prompt payment.16 This chapter 

examines these among other frequently used race-neutral strategies. However, DOT, like other 

agencies studied, has not established a system to measure the effectiveness of its race-neutral 

strategies or to determine the ongoing need for race-conscious programs, both of which are 

necessary to demonstrate serious consideration. Before agencies can fully integrate race-neutral 

alternatives into their procurement programs, they must have in place elements that ensure 

serious consideration of such measures. 

ELEMENTS OF A RACE-NEUTRAL CONTRACTING SYSTEM 

One agency, DOEd, recently began to translate the law for its funding recipients, and specified 

demonstrations suited to a higher education context.17 DOEd’s example is important because 

both legal guidance and literature on race-neutral alternatives in federal contracting are sparse; 

most of the related discussion has focused on higher education and not procurement per se. 

Neither the Supreme Court nor DOJ have provided guidance on what specific activities agencies 

 

13 U.S. Small Business Administration’s Response to the U.S. Commission on Civil Rights Interrogatory on Federal 

Contracting, Mar. 10, 2005, pp. 3, 8 (hereafter cited as SBA Interrogatory). 

14 U.S. Small Business Administration, Affected Agency Review of U.S. Commission on Civil Rights Draft Report, 

July 21, 2005 (hereafter cited as SBA Affected Agency Review). See also Edward Girovasi, director, Policy and 

Field Operations Division, Office of the Chief Procurement Officer, U.S. Department of Housing and Urban 

Development, electronic correspondence to Eileen Rudert, social science analyst, U.S. Commission on Civil Rights, 

July 7, 2005, re: affected agency review (hereafter cited as Girovasi correspondence) (noting that agencies operate 

within the bounds of the specific socioeconomic procurement programs authorized by Federal Acquisition 

Regulations and rooted in statute). 

15 SBA Interrogatory, pp. 1–2; DOD explains that it employs a wide range of the strategies described in this chapter 

as part of its race-neutral Service-Disabled Veteran-Owned Small Business Program, which does not aim 

specifically to increase procurement with SDBs. Frank Ramos, Director, Office of Small and Disadvantaged 

Business Utilization, U.S. Department of Defense, letter to U.S. Commission on Civil Rights, July 7, 2005, pp. 2–3. 

16 U.S. Department of Transportation, “What’s New in the Department of Transportation’s Disadvantaged Business 

Enterprise Rule,” 1999, <http://library.findlaw.com/1999/Mar/11/129709.html> (last accessed May 19, 2005). 

17 See DOEd, Inclusive Campuses, p. 11. As noted in chapter 1, DOJ issued guidance to agencies after Adarand, 

which instructed them to consider race-neutral alternatives before adopting race-conscious measures. DOJ, 

“Adarand Guidance,” pp. 27–28. 
24 Chapter 2

may demonstrate to meet serious consideration obligations. DOEd identified six practices, based 

on federal case law and other sources, that could demonstrate serious consideration of raceneutral alternatives: 

(1) Identifying and evaluating a wide range of initiatives, rather than considering only one or 

two alternatives. This includes considering institutional impediments to achieving goals 

and all possible avenues for meeting them. 

(2) Documenting the underlying facts that demonstrate whether a race-neutral plan will 

work, rather than relying on casual observation or undocumented assumptions. 

(3) Demonstrating an empirical basis for determining whether race-neutral plans will be 

effective, rather than relying on speculation. 

(4) Ensuring data to demonstrate such assessments are current, competent, and 

comprehensive. 

(5) Periodically reviewing race-conscious plans, perhaps annually or biennially, to determine 

the need for continuing them and the viability of implementing race-neutral plans. 

Reviewing race-conscious programs periodically will also ensure that they are narrowly 

tailored. 

(6) Analyzing data to establish causal relationships, rather than relying on broad 

assumptions, particularly before concluding that a race-neutral plan is ineffective.18 

Although articulated by DOEd in the education context, each of these practices could be applied 

to the procurement setting. Using the DOEd model as a gauge, agencies do not give serious 

consideration to race-neutral contracting measures. Indeed, with the exception of DOT (in part), 

none of the agencies comply with these practices. That is, agencies do not systematically collect 

data, conduct disparity studies, measure the effectiveness of various strategies, or review 

contracting programs. Agencies fail to seriously consider and utilize a full range of race-neutral 

alternatives. Thus, the Commission developed and offers the following framework, representing 

actions agencies could undertake to meet this obligation. Drawing from agency interrogatories, 

academic literature, DOJ guidance, federal court opinions, and its own research, the Commission 

determined that essential elements of a race-neutral procurement framework include: (1) 

standards, (2) implementation, (3) evaluation, and (4) communication. 

Element 1: Develop Standards and Policies Based on Sound Benchmark Data 

Serious consideration of race-neutral alternatives requires agencies to regularly assess the basic 

assumptions they apply and the policies and practices they employ in the establishment of 

procurement programs, especially those designed to improve access. Such standards entail not 

only identifying areas of over- or under-inclusiveness, but also policies for ensuring the quality 

 

18 DOEd, Inclusive Campuses, pp. 11–12. 
Chapter 2 25

of the underlying science upon which such assumptions are based and determining when specific 

initiatives should be activated or discontinued. Such policy must include a framework for 

baseline metrics to identify strong and weak procurement areas both within specific agencies and 

governmentwide. 

No agency reported having policy, procedures, or statistical standards for assessing the viability 

of race-neutral contracting, for determining when to discard such strategies in favor of raceconscious programs, or for ensuring the quality of evaluations forming the basis of such 

decisions.19 Several agencies did not consider the programs they operate, even those that use race 

as one criterion for participation, such as SBA’s 8(a) program, race-conscious and thereby 

needing justification.20 For the most part, agencies are bound by legislation and regulations that 

define the parameters of their contracting methods and provide justifications for using existing 

SBA-administered race-conscious programs, rather than individual agency policies.21 As listed 

above, DOEd offers extensive guidance to recipients of federal assistance (namely, educational 

institutions) on the empirical standards that could be used to examine the utility of race-neutral 

procedures, but does not apply similar internal procedures to its own procurement program. 

SBA cited congressional findings that support legislated procurement mechanisms as a 

justification for governmentwide race-conscious programs. The agency related narrowly tailored 

aspects of the 8(a) and other SDB programs and referenced disparity studies and other research 

showing lower contracting rates and receipts among minority firms.22 In reauthorizing these 

programs, Congress cited the lingering effects of discrimination as justification for their 

continued need.23 DOJ stated that congressional findings carry weight and offer sufficient 

justification. However, after Adarand, DOJ also charged the Department of Commerce with 

conducting benchmark studies to limit the industries in which race-conscious measures could be 

used and to determine acceptable strategies. Commerce, using 1996 data, has released only one 

such study, in 1999, and therefore agencies and prime contractors cannot rely on it to justify 

goals or other race considerations. 

 

19 DOT Interrogatory, p. 18; HUD Interrogatory, p. 1; U.S. Department of Energy’s Response to the U.S. 

Commission on Civil Rights Interrogatory on Federal Contracting, Mar. 7, 2005, pp. 4, 8 (hereafter cited as DOEn 

Interrogatory). SBA argues that agencies are not required to measure the effectiveness of race-neutral contracting 

strategies and that such direction should come from Congress. See SBA Affected Agency Review. 

20 DOS Interrogatory, pp. 9, 11; DOT Interrogatory, p. 18; HUD Interrogatory, pp. 1, 3; DOEn Interrogatory, p. 4. 

SBA also notes that Congress alone has the power to amend or discontinue legislated programs. See SBA Affected 

Agency Review. 

21 DOS Interrogatory, p. 9; DOT Interrogatory, p. 18; HUD Interrogatory, p. 1; DOS Interrogatory, p. 8; DOEn 

Interrogatory, p. 4. See Spencer Abraham, secretary, U.S. Department of Energy, memorandum for all departmental 

elements, re: policy statement on supporting small businesses in implementing DOEn missions, Sept. 23, 2002. See 

also Girovasi correspondence (stating that it is not the role of any individual federal agency to depart from 

socioeconomic programs defined in regulations; nor may they create new ones). 

22 SBA Interrogatory, pp. 2–4. 

23 For a listing of congressional hearings on challenges facing minority-owned firms, see Proposed Reforms to 

Affirmative Action in Federal Procurement, 61 Fed. Reg. 26,042, 26,051, note 12 (May 23, 1996) (hereafter cited as 

DOJ, Proposed Reforms to Affirmative Action in Federal Procurement). 
26 Chapter 2

In addition to identifying the empirical framework for evaluating procurement, agencies should 

implement standards for determining which types of contracting programs hold the most 

potential to reach out to small and disadvantaged firms given their acquisition needs. To 

demonstrate serious consideration of all appropriate alternatives, agencies must first collect and 

analyze performance and operational information in relevant industries (transportation, 

education, science, banking, etc.) To do so, agencies could institute multiple social science 

methods, including focus groups, surveys, literature reviews, and testing, with a goal to 

benchmark or establish areas in which procurement is over- or under-inclusive. 

To ensure validity and longitudinal utility, agencies must develop precise standards for baseline 

data collection. Data should be (1) based on quantitative, rather than qualitative, demonstrations 

to reduce the potential for interpretive bias; (2) consistent, so that agencies can aggregate 

findings across studies to enable broader analysis and increase reliability; and (3) inclusive of all 

aspects of the procurement process, to include, for example, data on unsuccessful bids. Agencies 

should also identify measures that would support determinations of whether disparities can be 

attributed to discrimination. Finally, inferences drawn from the data should be statistically 

significant, meaning that the outcomes are unlikely to be due to chance. 

Resulting benchmarks would represent the level of minority contracting an agency would 

reasonably expect to find in a given industry absent discrimination or its effects. Such 

representations would provide baselines against which individual agencies’ actual minority 

procurement could be measured. Thus, agencies would periodically compare actual utilization of 

minority firms against the benchmark to determine when the effects of discrimination have been 

overcome and minority-owned firms can compete equally. Without such data, agencies can not 

determine whether the continuation or addition of race-neutral or -conscious programs will solve 

the problem. 

Such benchmarks could be applied internally to compare procurement between various program 

offices of the same agency and thereby identify best practices. Furthermore, benchmarks could 

offer opportunities for agencies to compare their levels of procurement with those of other 

similarly situated federal offices. Internal benchmarks, in combination with those conducted 

federally, would enable agencies to identify and share governmentwide best practices. No 

agency reported establishing standards by which it compared its minority contracting 

performance against specific industries. 

Agencies justify not collecting empirical data on the assertion that they have not developed their 

own race-conscious programs.24 This statement highlights the significance of how agencies 

define and structure their contracting programs: they employ programs characterized by DOJ as 

race-conscious, but because they did not construct these programs independently, they find it 

unnecessary to develop evaluation standards. DOT, whose DBE program is a partial exception, 

provided a list of state and local disparity studies and stated that the department relies on these 

data “in an effort to justify the application of race-conscious measures.”25 However, the most 

 

24 DOS Interrogatory, p. 11; DOT Interrogatory, p. 18; DOEn Interrogatory, pp. 4, 8. 

25 DOT Interrogatory, p. 26. 
Chapter 2 27

recent such study was conducted in 1999, and many were pre-Adarand or used flawed 

methodology.26 As a Government Accountability Office (GAO) report noted about DOT 

contracting, “Without explicit guidance on what makes a disparity study reliable, states and 

transit authorities risk using...[inaccurate] information in setting their DBE goals.”27 Moreover, 

DOT has not indicated that it has developed the requisite methodologies to review race-neutral 

alternatives. As with governmentwide benchmarks, current data do not exist to demonstrate the 

necessity of race-conscious programs, and if or why race-neutral alternatives are insufficient for 

expanding contracting opportunities to all qualified firms. 

Element 2: Identify and Develop a Wide Range of Race-Neutral Alternatives 

Serious consideration requires agencies to develop or identify a wide range of approaches, rather 

than considering only one or two alternatives (see practice 1 of the DOEd serious consideration 

practices), such as a few governmentwide programs. This should entail the development of a 

broad array of creative, innovative solutions tailored to the unique mission, strategic goals, and 

challenges of each agency. 

Despite this critical principle, the Commission found that no agencies demonstrated serious 

efforts to identify or develop alternative tools and strategies. Instead, they have primarily 

implemented generic SBA programs. SBA programs are not a sufficient substitute for policies 

and programs tailored to the needs and experiences of particular agencies and based on actual 

agency data. To the extent that agencies continue to depend exclusively on others rather than 

developing their own approaches, they may forgo strategies with greater potential for enhancing 

the inclusiveness of their own contracting in the long run.

Element 3: Routinely Evaluate the Impact of Race-Neutral and -Conscious 

Strategies 

Once agencies have determined, through valid data analyses, to use particular procurement 

strategies, they must then measure the effectiveness of such approaches. As DOEd identified 

under serious consideration practices 2 and 3, agencies should establish empirical standards for 

determining whether a race-neutral approach will be effective. Then they should collect and 

analyze data (practice 4), and establish causal relationships (practice 6), before concluding that 

such an approach is ineffective.28 However, most agencies reported that they rely on 

congressional findings, DOJ, and SBA regulations and guidance, rather than their own analysis, 

to measure the success of both race-neutral and -conscious strategies.29 Furthermore, they do not 

take the steps articulated in element 1 to ensure that programs are evaluated using appropriate 

benchmarks and policies for when to employ SDB procurement initiatives are followed. 

 

26 See Ibid., exhibit 4; U.S. General Accounting Office (now the Government Accountability Office), 

Disadvantaged Business Enterprises: Critical Information Is Needed to Understand Program Impact, June 2001, 

pp. 30–32 (hereafter cited as GAO, DBEs: Critical Information is Needed). 

27 GAO, DBEs: Critical Information Is Needed, p. 32. 

28 DOEd, Inclusive Campuses, pp. 11–12. 

29 See, e.g., DOT Interrogatory, p. 15. 
28 Chapter 2

In its post-Adarand guidance, DOJ stated that periodic reviews should consider not only the 

immediate need for race-conscious programs, but also whether these approaches should be 

further limited. Indeed, DOJ said the Court’s narrow tailoring standard requires programs that 

consider race to be neither over- nor under-inclusive.30 DOJ explained that, ideally, as barriers to 

minority contracting are removed and the use of race-neutral means succeeds, the need to 

consider race in decisionmaking will reduce and, eventually, be eliminated.31 Despite this clear 

guidance, agencies have generally not established procedures to regularly review race 

considerations, including presumptions of disadvantage, in their contracting programs. 

The review process need not be cumbersome. With respect to higher education, DOEd has stated 

that annual or biennial reviews would be sufficient to determine whether race-conscious plans 

remain necessary and whether sunset provisions should be established (practice 5).32 Agencies 

must continually re-evaluate their procurement programs against benchmarks discussed under 

element 1, and adjust policies, targets, objectives, and goals in light of the standards they have 

established. In the course of evaluation, federal officials should ask: Does discrimination affect 

the agency’s contracting? If so, what is its source and what will eliminate it? Have barriers 

declined over time? What policies or practices have reduced disparities the most? How effective 

are different policy interventions? Would race-neutral alternatives be equally effective? Such 

assessments are not possible without comparative data on the effectiveness of different 

approaches. Moreover, the same standards of review must be applied to race-neutral and 

-conscious programs so that neither is favored and results can be objectively compared. 

The absence of policies, standards, and procedures indicates that agencies have not given 

consideration to the review process. They do not evaluate regularly the overall success of their 

contracting programs or measure separately the effects of race-neutral efforts such as unbundling 

or small business financial assistance. Nor is it currently possible to isolate the outcomes of these 

strategies because they are offered in conjunction with race-conscious programs. Most agency 

officials say they rely on statutorily established goals for federal contracting with SDBs, first 

authorized in the Small Business Act of 1978,33 and federal procurement data to measure overall 

effectiveness and ensure that minority-owned businesses receive a fair share of government 

contracts. Thus, they compare contracts awarded to small, disadvantaged, and HUBZone-located 

businesses against agency-specific annual goals negotiated with SBA, which retains 

responsibility for implementing the goaling program.34 Agencies may also, as DOEd reported, 

compare annual achievements against prior years to identify cause and effect, and target specific 

areas for improvement.35 

 

30 See DOJ, “Adarand Guidance,” pp. 35–38. 

31 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26, 048. 

32 DOEd, Inclusive Campuses, p. 12. 

33 Amendments to the Small Business Act and Small Business Investment Act of 1978, Pub. L. No. 95-507, 92 Stat. 

175 (codified as amended by 15 U.S.C. §§ 631–633, 636–637, 644 (2000)) (hereafter cited as Small Business Act of 

1978). 

34 SBA Interrogatory, p. 9; HUD Interrogatory, p. 4; DOEn Interrogatory, p. 5; DOS Interrogatory, p. 8; DOT 

Interrogatory, p. 14; DOEd Interrogatory, cover letter, p. 3. 

35 DOEd Interrogatory, cover letter, p. 3. 
Chapter 2 29

As DOS explained, agencies collect data by a firm’s status as SDB, 8(a), or HUBZone certified 

to gauge progress toward statutory goals. They do not collect information on the ethnicity of the 

firm’s owner. Thus, the procurement data system can measure SDB achievements, but not 

minority-owned firm achievements.36 Furthermore, the Commission contends that the SBAnegotiated goals for 8(a) and SDBs measure the success of race-conscious programs, not raceneutral ones. Data for the HUBZone program measure contracting with businesses located in the 

designated areas, but not contracting with minority-owned enterprises, except perhaps when the 

firms qualify for both HUBZone and SDB preferences. Even then, however, there is no way to 

distinguish between minority- and nonminority-owned SDB firms. Thus, there is no accurate 

measure of whether the HUBZone program increases contracting with SDBs, or more 

specifically, minority-owned businesses. 

The same is true of other programs at most agencies; they generally do not collect data on the 

number of nonminority SDB participants, nor have they established policy for periodic review of 

the continuing necessity of race-conscious measures.37 SBA justifies this failure by stating that 

Congress, in authorizing its 8(a) and other SDB programs, conducts the requisite analysis to 

determine the continuing need for the programs provided under the Small Business Act.38 The 

Department of Defense (DOD) is the only agency that keeps contract data on awards to SDBs 

that are not based on race in addition to those awarded through race-conscious programs such as 

8(a) and, as such, can compare the success of both types of approaches.39 The agency reports that 

its “non-preference awards” to SDBs surpassed 8(a) awards in FY 2000 and represent more than 

one-half of all of the dollars it awarded to SDBs in FY 2004.40 However, DOD does not have a 

mechanism to specifically track whether race-neutral methods increase opportunities for SDBs, 

nor is there a way to compare expected and actual effects.41 

Element 4: Communication and Coordination: Sharing Information and Best 

Practices 

The absence of consensus as to what constitute race-neutral versus race-conscious procurement 

initiatives, and how to enforce nondiscrimination laws with respect to contracting, as will be 

discussed below, suggests a lack of interagency communication. Such failure to communicate 

has grave implications for the potential of innovative strategies to enhance the inclusiveness of 

federal contracting. Agencies that fail to communicate race-neutral best practices miss 

opportunities to reduce the need for race-conscious procurement programs. Agencies also miss 

opportunities to focus efforts on those strategies with the greatest potential for increasing federal 

contracting prospects for small and minority-owned businesses. 

 

36 DOS Interrogatory, p. 8. 

37 SBA Interrogatory p. 7; DOT Interrogatory p. 17; HUD Interrogatory p. 3. See also, e.g., DOT Interrogatory, p. 

12; DOS Interrogatory, p. 8; DOEn Interrogatory, p. 4. 

38 SBA Interrogatory, pp. 7–8. 

39 U.S. Department of Defense’s Response to the U.S. Commission on Civil Rights Interrogatory on Federal 

Contracting, Mar. 10, 2005, pp. 4, 11 (hereafter cited as DOD Interrogatory). 

40 DOD Interrogatory, p. 5 and attachment C, “Small Disadvantaged Business Program History,” Feb. 16, 2005. 

41 DOD Interrogatory, p. 6. 
30 Chapter 2

Despite this apparent lack of communication, infrastructure for developing and sharing best 

practices exists. Agencies themselves identified several government channels or councils 

through which they may consult with other federal agencies to develop strategies that comply 

with narrow tailoring requirements or implement race-neutral alternatives to improve the 

competitiveness of minority-owned firms. However, agencies also indicated varied participation 

in and commitment to such mechanisms, thus curtailing the potential benefits of these channels 

of communication. 

• First, many agencies reported that they consult SBA about aspects of contracting with 

small and disadvantaged businesses.42

• Second, Offices of Small Disadvantaged Business Utilization (OSDBUs), which are 

individual agency units dedicated to promoting procurement with such firms, have 

formed a Directors’ Interagency Council. Several agencies—DOT, DOD, the Department 

of Energy (DOEn), and DOS—reported membership in this council, although its Web 

site includes all agencies the Commission queried except SBA.43 

• Third, a statutorily established Chief Acquisition Officers Council has a Small Business 

Committee that might also serve as a venue for sharing information on race-neutral 

strategies. Three agencies—DOT, HUD, and DOEn—reported involvement with the 

council or its committee.44

• Fourth, the Federal Acquisition Streamlining Act45 provides for a Small Business 

Procurement Advisory Council. Two agencies—DOT and DOD—claimed membership 

in this council.46 SBA chairs the group that considers proposed procurement regulations 

that affect the small business community.47

• Finally, one federal agency suggested that, in addition to its own efforts to share best 

practices with other procurement officials, the Office of Federal Procurement Policy 

(OFPP) within the Office of Management and Budget (OMB) retains primary 

responsibility for such communications, and SBA should coordinate information on small 

business matters in particular.48

 

42 DOT Interrogatory, p. 7; DOD Interrogatory, p. 6. 

43 DOT Interrogatory, p. 7; DOD Interrogatory, p. 6; DOEn Interrogatory, p. 3; DOS Interrogatory, p. 5. 

Information about the OSDBU Directors’ Interagency Council can be found at <http://www.osdbu.gov/>. 

44 DOT Interrogatory, p. 8; DOEn Interrogatory, p. 3; U.S. Department of Housing and Urban Development, 

Affected Agency Review of U.S. Commission on Civil Rights Draft Report, July 7, 2005, p. 1 (hereafter cited as 

HUD Affected Agency Review). 

45 Federal Acquisition Streamlining Act of 1994, Pub. L. No. 103-355, 108 Stat. 3243 (codified in scattered sections 

of 10, 15, and 41 U.S.C.). 

46 DOT Interrogatory, p. 8. 

47 DOD Interrogatory, p. 6. 

48 HUD Interrogatory, p. 3; HUD Affected Agency Review, p. 1. 
Chapter 2 31

Despite the many channels of communication that agencies could use to learn about or share best 

practices to improve contracting with minority-owned firms, including race-neutral alternatives, 

no agency reported making efforts to compile or distribute such information, or to coordinate 

program activities. DOS officials, however, reported benefiting from interagency sharing. The 

agency borrowed heavily from a Treasury Department initiative to create a mentor-protégé 

program that pairs large experienced businesses with smaller inexperienced firms.49 Although 

SBA provides assistance to other agencies, it does not report engaging in any internal or 

interagency collection and sharing of information on the workability or effectiveness of raceneutral strategies for federal contracting.50 Overall, agencies’ failure to compile and distribute 

information and share best practices hinders efforts to decrease reliance on race-conscious 

contracting programs. 

RACE-NEUTRAL CONTRACTING STRATEGIES 

Federal agencies use many race-neutral mechanisms to enable all small businesses to compete. 

The premise is that race-neutral small business strategies, if implemented fairly, should similarly 

assist minority-owned firms. In conducting this study, the Commission reviewed agency 

regulations and public information about specific contracting programs and asked the selected 

agencies what race-neutral strategies they employ in their procurement programs. Although, as 

inquiries uncovered, agencies work under different definitions of what race-neutral measures are, 

several common strategies emerged. For example, the Commission identified strategies to: 

(1) enforce nondiscrimination and subcontractor compliance; 

(2) increase knowledge about opportunities to contract with the federal government; 

(3) provide education or technical assistance to improve business skills and knowledge of 

federal procurement and how to win contracts; 

(4) give financial assistance or adjustments to offset the difficulties struggling firms 

encounter; and 

(5) expand contracting opportunities and promote business development in underutilized 

geographic regions. 

These strategies are available to all businesses meeting size and income criteria, and are 

therefore race-neutral. 

 

49 DOS Interrogatory, p. 5. 

50 SBA Interrogatory, p. 8. 
32 Chapter 2

Strategy 1: Antidiscrimination Policy and Enforcement 

The most important race-neutral strategy for any fair procurement system is the development of 

clear, widely disseminated antidiscrimination policies, supported by an effective enforcement 

program. Strong civil rights enforcement not only prevents agencies from perpetuating patterns 

of discrimination in government contracting, but also would largely obviate the need for 

procurement preference programs.51 In other contexts, the Commission has long urged agencies 

to promote enforcement by committing staff and other resources; disseminating a 

nondiscrimination policy to staff, recipients, and beneficiaries, including procedures for filing 

and investigating complaints; and developing methods for identifying discrimination. Agencies 

can also—but typically do not adequately—conduct compliance reviews and develop efficient 

systems for processing complaints, and identify and resolve any questionable practices with 

technical assistance and appropriate sanctions.52 

The Commission finds that the federal government lacks an appropriate framework for enforcing 

nondiscrimination in procurement. Indeed, agencies report an absence of statutory or regulatory 

guidance in this area.53 Consequently, most agencies do not have standard nondiscrimination 

policies or procedures for federal contracting and fail to conduct outreach and technical 

assistance on discrimination. Even after directing specific questions to agencies, the Commission 

had difficulty identifying where a contractor or subcontractor would file a discrimination 

complaint, or what remedies would be available. 

Beyond nondiscrimination, agencies are also responsible for ensuring that prime contractors 

comply with plans to meet subcontracting goals with small and disadvantaged businesses. Thus, 

civil rights enforcement tools are necessary in procurement: those that ensure nondiscrimination 

in contracting (which includes both discrimination by procurement officials and by prime 

contractors), and those that assess compliance with subcontracting plans. 

Enforcement of Nondiscrimination in Contracting 

Significantly, no agency was able to identify any statute or regulation that effectively prohibits 

all discrimination in federal procurement. Indeed, it appears that little guidance exists in this 

area, particularly with respect to subcontractors. For this reason, it is not surprising agencies 

have not implemented effective enforcement mechanisms to protect victims of discrimination. 

 

51 La Noue and Sullivan, “Race Neutral Programs,” p. 348. 

52 U.S. Commission on Civil Rights, Ten-Year Check-Up: Have Federal Agencies Responded to Civil Rights 

Recommendations? Volume I: A Blueprint for Civil Rights Enforcement, September 2002, pp. 11–42 (hereafter cited 

as USCCR, Ten-Year Check Up: Blueprint). 

53 The lack of attention to civil rights concerns is evident even in DOJ guidance, which has a section titled 

“Enforcement.” The discussion concerns individuals falsely claiming status as a small disadvantaged business to 

obtain federal contracts, not potential victims of discrimination. See DOJ, Proposed Reforms to Affirmative Action 

in Federal Procurement, p. 26,045. 
Chapter 2 33

Title VI of the Civil Rights Act of 1964 prohibits discrimination based on race, color, or national 

origin in all federally funded programs and activities.54 However, these provisions do not apply 

to federal procurement at fair market value, government loan guarantees, or insurance contracts, 

because they are not considered federally funded activities.55 Therefore, the regulations and 

operating procedures governing Title VI enforcement programs do not apply in the contracting 

context. Nor is Executive Order 11,246 applicable to discrimination against contractors. The 

executive order, which is enforced by the Office of Federal Contract Compliance Programs 

(OFCCP) at the Department of Labor (DOL), prohibits federal contractors and federally assisted 

construction contractors and subcontractors from discriminating in employment (emphasis 

added) decisions based on race, color, religion, sex, or national origin.56 The order does not, 

however, expressly prohibit discrimination in contractor or subcontractor selection. 

The only mechanisms available for addressing discrimination in contractor selection appear to be 

limited to contractors who have complaints about the bidding process. A disappointed bidder 

may file an administrative claim directly with the contracting officer or GAO and may sue in the 

U.S. Court of Claims for any procedural violation of the full and open competition requirement 

under procurement statutes.57 However, these procurement mechanisms do not explicitly identify 

racial discrimination as grounds on which complainants may protest bids so long as the specific 

elements of full and open competition are satisfied. 

A disappointed bidder may file a claim directly against an agency under the equal protection 

component of the Fifth Amendment’s Due Process Clause, but will likely find significant 

drawbacks to seeking relief from racial discrimination in contract selection under such an 

argument. Equal protection claims under the Fifth Amendment are difficult to prove as long as 

facially neutral fair and competitive processes exist to ensure that the lowest and most qualified 

bidder receives the award. Proving that a facially neutral action has a discriminatory effect on a 

protected class would be difficult without the disparate impact provisions under Title VI. 

Additionally, unlike Title VI, which requires each federal agency to promulgate regulations to 

enforce nondiscrimination provisions, the Fifth Amendment places no statutory enforcement 

obligation on agencies. Accordingly, federal agencies lack systems to handle preliminary claims 

of racial discrimination under the equal protection component of the Due Process Clause. 

 

54 Title VI of the Civil Rights Act of 1964, Pub. L. No. 88-352, 78 Stat. 24 (codified as amended at 42 U.S.C. § 

2000d (2000)). 

55 See U.S. Department of Justice, Civil Rights Division, Title VI Legal Manual, Jan. 11, 2001, pp. 10, 17. DOJ also 

states that “a distinction must be made between procurement contracts at fair market value and subsidies; the former 

is not Federal financial assistance although the latter is.” Ibid., p. 17. 

56 Equal Employment Opportunity, Exec. Order No. 11,246, 3 C.F.R. 339 (1964–1965). 

57 Bid protests may be filed with GAO under the Competition in Contracting Act. The disappointed bidder must file 

a timely protest, be an “interested party” in line for award, and submit substantiating evidence. GAO limits its 

reviews to a determination of whether the prospective vendor received fair and equal treatment compared to the 

selected contractor. Moreover, GAO decisions are not binding on the offending agency. To present a claim before 

the U.S. Court of Federal Claims, an aggrieved bidder would have to make a claim that discriminatory conduct 

violates the requirement for full and open competition under 10 U.S.C. § 2304 and 41 U.S.C. § 253. Under the 

Tucker Act, the Court of Federal Claims has jurisdiction to render judgment on an action alleging a violation of 

statutes or regulations in connection with procurement. See 28 U.S.C. § 1491(b)(1) (1998). 
34 Chapter 2

Subcontractors face even greater challenges and lack the same constitutional protection against 

racial discrimination by non-government actors. To some extent, private subcontractors may 

seek recourse for contractors’ intentional discrimination under section 1981 of the Civil Rights 

Act of 1991, which guarantees equal protection of the laws in making and enforcing contracts.58

Nevertheless, section 1981 claims must overcome the same barriers described above for equal 

protection claims under the Due Process Clause. Additionally, the high cost of litigation and the 

potential for alienating future clients or employers limit subcontractors’ willingness to wage 

discrimination claims under section 1981.59

Although these limited protective mechanisms provide potential relief for some aggrieved bid 

protesters, none incorporates what have become standard civil rights protections in other areas. 

Asked how they enforce nondiscrimination in procurement, most agencies said they do not, nor 

have they considered doing so.60 Agency responses thus underscore a significant void in civil 

rights law: no uniform standards currently exist regarding monitoring or enforcement for 

contractors or subcontractors alleging discrimination. 

Only one agency, DOT, utilizes conventional civil rights enforcement mechanisms for 

addressing contractor complaints. DOT’s unique contracting system may drive its enforcement 

procedures: grant and award recipients, in the form of states and local transit authorities, conduct 

most procurement activities, and Title VI presumably encompasses contractors receiving these 

funds. Consequently, DOT claims that its procurement program fully incorporates Title VI 

requirements.61 In practice, DOT places responsibility for Title VI enforcement on the operating 

administration that granted the award, and enforcement of nondiscrimination by prime 

contractors on state and local transportation agencies receiving grants.62 

In general, however, agencies disagree on what a business should do to file a discrimination 

complaint against a procurement officer or prime contractor. For example, a DOT Web page on 

civil rights suggests that its OSDBU and Office for Civil Rights provide services to businesses 

for civil rights violations under the DBE program.63 However, DOT’s statements to the 

 

58 Civil Rights Act of 1991, Pub. L. No. 102-166, 105 Stat. 1071 (codified as amended at 42 U.S.C.S. § 1981 

(2005)). The relevant section states, “All persons within the jurisdiction of the United States shall have the same 

right in every State and Territory to make and enforce contracts...as is enjoyed by white citizens.” Id. 

59 See Robert E. Suggs, “Racial Discrimination in Business Transactions,” Hastings Law Journal, vol. 42 (1991), 

pp. 1257, 1262–88. According to Suggs, only a small number of cases have addressed discrimination in business 

practices under § 1981, including only one single instance where a claim of racial discrimination in public 

procurement resulted in an award of damages to the plaintiff. See Brant Constr. Co. v. Lumen Constr. Co. Inc., 515 

N.E.2d 868 (Ind. App. 1987). But see also Roscoe v. Aetna Cas. & Sur. Co., 1988 WL 88-Ar-0882-S, 214511, at 2 

(N.D. Ala. Nov. 8, 1988) (the district court ruled that the plaintiff could not assert a § 1981 claim for discrimination 

in employment practices because he was not an employee as required by statute). 

60 See, e.g., HUD follow-up interview, pp. 19–22; U.S. Department of Defense’s Follow-up Response to the U.S. 

Commission on Civil Rights, May 6, 2005, pp. 3–4 (hereafter cited as DOD follow-up response). 

61 DOT Interrogatory, p. 18; HUD Interrogatory, p. 2; DOS Interrogatory, p. 16; DOEd Interrogatory, p. 5; SBA 

Interrogatory, p. 5; DOD Interrogatory, p. 5; and DOEn Interrogatory, p. 7. 

62 Operating administrations include: the Federal Aviation Administration (FAA), Federal Highway Administration 

(FHA), and the Federal Transit Administration (FTA). DOT Interrogatory, pp. 18–20. 

63 See U.S. Department of Transportation, “My Civil Rights,” no date, <http://www.hotcr.ost.dot.gov/asp/MyCR.asp>
Chapter 2 35

Commission do not directly indicate where businesses subjected to such discrimination should 

file complaints, and instead imply that SBA regulations cover these issues.64

SBA denies, however, that it bears responsibility for ensuring contracting nondiscrimination 

both governmentwide and in its own procurement, noting that the Small Business Act does not 

charge the agency with responsibility for monitoring racially discriminatory practices in federal 

contracting. SBA did not conduct any compliance reviews concerning discrimination in federal 

contracting from FY 2000 to 2004.65 This is notable given DOT’s apparent reliance on SBA 

regulations for antidiscrimination guidance. 

Other agencies also lack uniform, codified complaint procedures. DOEn states that if a 

procurement officer’s decisions evidence bias, it would refer the matter to the internal Office of 

Inspector General and apply sanctions according to agency guidance on employee misconduct.66

However, DOEn does not have procedures to anticipate or prevent instances of discrimination by 

prime contractors. Instead, the aggrieved party (i.e., prospective subcontractor) is responsible for 

notifying the agency. DOEn cites its contract award process and built-in subcontracting 

standards as ways by which it ensures fair competition. Should complaints arise, DOEn suggests 

the aggrieved party could notify the contracting officer or OSDBU.67

Similarly, DOEd does not have a system to identify discrimination by prime contractors. Were a 

potential subcontractor to file a complaint, the agency’s internal office of Contract Acquisition 

and Management (CAM) would investigate. Complaints against a procurement officer would be 

investigated by the CAM director in consultation with DOEd’s Office of General Counsel.68

Legal advisers at DOS similarly contend that neither federal law nor acquisition regulations 

establish procedures for investigating discrimination complaints against prime contractors.69

However, DOS states that were an allegation of discrimination by a procurement officer to arise, 

it would likely be investigated by the agency’s Office for Civil Rights. Discipline measures 

would be proposed by the Office of Employee Relations of the Bureau of Human Resources.70

Officials at several agencies, including DOD, are unaware of any action involving discrimination 

by a procurement officer.71 DOD states that its procurement system “was designed to ensure 

equal opportunity and equal treatment,” and if an incident of discrimination were to occur, it 

 

(last accessed Mar. 16, 2005). 

64 DOT Interrogatory, p. 18. 

65 SBA Interrogatory, p. 5. 

66 U.S. Department of Energy’s Follow-up Response to the U.S. Commission on Civil Rights, May 12, 2005, p. 1 

(hereafter cited as DOEn follow-up response). 

67 Ibid., p. 2. 

68 U.S. Department of Education’s Follow-up Response to the U.S. Commission on Civil Rights, Apr. 22, 2005, pp. 

1–2 (hereafter cited as DOEd follow-up response). 

69 U.S. Department of State’s Follow-up Response to the U.S. Commission on Civil Rights, Apr. 19, 2005, p. 4 

(hereafter cited as DOS follow-up response). 

70 Ibid., p. 3. 

71 DOD follow-up response, p. 3; HUD follow-up interview, pp. 22, 27–28. 
36 Chapter 2

would be referred to management.72 The agency similarly states that it has seen no evidence of 

prime contractor discrimination against subcontractors, nor does it make efforts to anticipate or 

prevent such misconduct.73

In contrast to other agencies, HUD expressly states its antidiscrimination policy in its 

Procurement Policies and Procedures Handbook: “Sources [prospective contractors] shall not be 

included or excluded on the basis of race, creed, color, sex, age, disability or national origin.”74

HUD officials stated that, although they know of no such instances, a subcontractor who feels he 

or she has been discriminated against could file a complaint with the agency’s Inspector General 

or OSDBU.75 HUD also indicated that a disappointed bidder may activate the GAO review 

process described above. Procurement officials concede that this is “a gray area when it comes to 

the law” and that jurisdictional and procedural areas are unclear.76

In short, inconsistent agency responses and actions illustrate weaknesses in systems for 

processing discrimination complaints in contracting. Moreover, confusion over the locus of 

enforcement efforts indicates agencies’ immediate need for guidance. 

Subcontractor Compliance Enforcement 

The procurement goaling program Congress established in the Small Business Act of 1978, 

mentioned above, aims to ensure that agencies offer small and socially and economically 

disadvantaged enterprises the “maximum practicable opportunity” to compete for federal 

contracts.77 The program entails governmentwide goals for both prime contracting and 

subcontracting utilization of small businesses, SDBs, and certain other firms.78 Agencies exhibit 

much greater consistency in their approaches to subcontracting compliance enforcement than to 

contracting discrimination complaints. Most agencies report checking prime contractors’ 

achievement of small business, SDB, HUBZone, and other goals against initial subcontracting 

plans on a quarterly or yearly basis, or in HUD’s case, monthly. DOEn initiated a pilot program 

of OSDBU audits to validate data prime contractors submit as part of their subcontracting 

efforts, and DOD also conducts periodic reviews of subcontracting data to determine whether 

 

72 DOD follow-up response, p. 3. 

73 Ibid., p. 4. 

74 HUD, Procurement Policies and Procedures, pp. 1–7, as cited in HUD Interrogatory, p. 1. 

75 HUD follow-up interview, pp. 17–18. 

76 Ibid. (statement of Girovasi), pp. 17, 27–28. 

77 See Small Business Act of 1978, 15 U.S.C. 644(g)(1) (2000). 

78 Small Business Administration (SBA), Office of Government Contracting, Goaling Guidelines for the Small 

Business Preference Programs for Prime and Subcontract Federal Procurement Goals & Achievements, July 3, 

2003, p. 1 (hereafter cited as SBA, Goaling Guidelines for the Small Business Preference Programs); see also

Small Business Act of 1978, 15 U.S.C. § 644(g) (2000). 
Chapter 2 37

SDBs are offered “the maximum practical opportunity to participate.”79 DOD does not, however, 

make a determination of “appropriate” SDB utilization.80

To comply with procurement goaling regulations, agencies require prime contractors to make 

“good faith efforts” to employ minority and SDB subcontractors. DOD guidance for acquisition 

personnel defines good faith effort as “honest intent to act without taking an unfair advantage 

over another person or to fulfill a promise to act, even when some legal technicality is not 

fulfilled.”81 DOD interprets failure to make a good faith effort as willful or intentional failure to 

perform in accordance with a subcontracting plan or an attempt to obstruct the plan. There is no 

objective legal standard for good faith; rather, it is based on the facts and circumstances of each 

case. Therefore, the guidance notes, parties must define at the outset what will satisfy contract 

performance requirements.82 DOT similarly emphasizes that good faith determinations are 

contract-specific. Agency regulations also make clear that state and local grant recipients cannot 

presume summarily that a bidder failed to make a good faith effort simply because another 

bidder was able to meet its subcontracting goal.83

HUD explains that prime contractors must submit semiannual reports of contract-specific 

subcontracting achievements and annual reports summarizing such accomplishments in all 

contracts. OSDBU analyzes these reports to ensure that prime contractors meet their stated 

subcontracting goals. In addition, the agency conducts compliance reviews on a percentage of 

prime contractors each year. HUD officials stated that if they do not meet their goals, contractors 

must provide adequate justification.84 In such instances, rather than pursuing punitive measures, 

HUD’s OSDBU assists prime contractors in locating capable small businesses.85 Other agencies 

do not report any use of punitive measures in response to failure to make good faith efforts.86

Also, like other agencies, HUD did not explain what standards it uses to gauge good faith efforts 

to secure or maintain participation of disadvantaged businesses.87 

Although compliance reviews, including on-site visits, are primarily SBA’s responsibility, 

regulations authorize SBA to enter into agreements with other agencies to carry them out.88

None of the agency statements indicates the existence of such agreements. Additionally, DOD 

 

79 DOEn Interrogatory, p. 7; DOD Interrogatory, pp. 5–6. 

80 DOD Interrogatory, p. 5. 

81 DOD follow-up response, p. 5. 

82 Ibid. 

83 See 49 C.F.R. § 26, app. A (2004); DOT Interrogatory, p. 17. 

84 HUD follow-up interview, p. 29. 

85 HUD Interrogatory, p. 4. 

86 See, e.g., DOS follow-up response, p. 4; DOT Interrogatory, p. 17; DOEn follow-up response, p. 3; and DOEd 

follow-up response, p. 2. DOD stated that there is no central database for the application of liquidated damages, and 

therefore each buying command would have to manually review contract files to determine if punitive measures 

have been taken. DOD follow-up response, p. 5. 

87 HUD Interrogatory, p. 4. 

88 See 13 C.F.R. § 125.3(f)(7) (2004). The regulations list a Web site where compliance review agreements are 

supposed to be published, <http://www.sba.gov/GC>; however, as of May 18, 2005, no such agreements were 

posted. 
38 Chapter 2

and DOEn interrogatories fail to clarify whether verification processes, discussed above, include 

on-site audits to check that prime contractors use the small businesses, SDBs, HUBZones, and 

other targeted subcontractors that they report. In its interrogatory, DOS notes that budget 

constraints prohibit regular subcontracting compliance reviews, but adds that it will investigate 

specific complaints from subcontractors about “bait and switch” techniques whereby a prime 

contractor does not follow through on its proposed subcontracts with targeted firms.89 According 

to GAO, the Defense Contract Management Agency conducts on-site reviews with the majority 

of its prime contractors, prioritizing such reviews by the risk of noncompliance. GAO reports 

that civilian agencies rely on SBA to do similar reviews, and that while SBA prioritizes these 

investigations, it does not actually conduct them in order because of staff and travel constraints.90 

Effective March 2005, SBA issued a list of factors agencies should consider in evaluating a 

prime contractor’s good faith efforts.91 The final rule states that prime contractors can 

demonstrate good faith by doing any one of the following: breaking out contract work into 

smaller units; conducting market research to identify small business subcontractors and 

suppliers; soliciting small business concerns early in the acquisition process; providing interested 

small businesses adequate and timely information about a contract’s requirements and plans; 

directing small businesses that need assistance to SBA; assisting such firms in obtaining 

bonding, credit, insurance, equipment, and supplies; and/or participating in a formal mentorprotégé program.92 It is noteworthy that all of these strategies for showing good faith are raceneutral. Good faith can also be demonstrated where a contractor fails to achieve its goal in one 

category of subcontracting goals, but overachieves its goal in another category by an equal or 

greater amount. One agency, DOEn, indicated that it circulated the new guidelines to 

procurement offices.93

In sum, agencies have procedures for reviewing subcontractor compliance, but until recently 

there were no uniform standards for determining whether a good faith effort has been made when 

prime contractors fail to achieve goals. Because agencies make such determinations case by 

case, conducting regular on-site audits and formal compliance reviews is critical. If goals are 

realistic and good faith efforts are race-neutral, enforcement of contracting plans will ensure that 

small and disadvantaged firms are in fact given the maximum practical opportunity to 

participate. 

Strategy 2: Outreach 

Outreach is an essential strategy for creating an inclusive contracting system. The Commission 

has made many recommendations about how to achieve effective outreach in its past reports, 

 

89 DOD Interrogatory, p. 10. 

90 David E. Cooper, director, Acquisition and Sourcing Management, U.S. General Accounting Office, Dec. 13, 

2001, letter to Senator Christopher S. Bond, Committee on Small Business and Entrepreneurship, United States 

Senate, re: small business subcontracting report validation can be improved, p. 3. 

91 DOEn follow-up response, exhibit B, “Policy Flash 2005-16,” p. 2. See 13 C.F.R. § 125.3(b)(3) (2004). 

92 13 C.F.R. § 125.3(b)(3) (2004). 

93 DOEn follow-up response, p. 3. 
Chapter 2 39

many of which concern enforcement under Titles VI and VII of the Civil Rights Act, but which 

apply equally well to informing disadvantaged business owners about federal contracting 

opportunities. For effective outreach, agencies could develop an outreach program targeting 

small and disadvantaged businesses. Agencies can include outreach in budget and planning 

documents, establish goals for conducting outreach activities, track the events and characteristics 

of the audience to ensure diversity, and train staff in presentation skills.94 

Outreach consists of the activities through which agencies reach and target eligible program 

participants or beneficiaries about available government opportunities. The next step, to educate 

them about the participation process through capacity building such as technical assistance, is 

discussed below. Outreach takes many forms. For example, it includes formal training programs 

(conferences, workshops, or presentations to professional organizations, business owners, or 

advocacy groups), information dissemination through literature (e.g., factsheets, pamphlets, and 

booklets), Internet postings, the media, or public service announcements.95 

Internet Postings and Searchable Databases 

A 1996 DOJ assessment concluded that agencies lacked consistency and sufficient effort in 

implementing outreach to achieve race-neutral program outcomes. In particular, DOJ asked 

agencies to establish a uniform system for publishing agency procurement forecasts on the SBA 

Web site known as “SBA Online” and target outreach and technical assistance efforts toward 

industries in which participation of small disadvantaged businesses traditionally has been low.96

This recommendation follows the Supreme Court’s determination that the federal government 

has a compelling interest to redress past discrimination.97 Since DOJ recommended publishing 

forecasts, government use of the Internet has grown tremendously both for informing agencies of 

certified small businesses and informing small businesses of contracting opportunities.98 In 

particular, in 2000, DOEn made plans to create a new data entry system to forecast small 

business contracting opportunities. The agency expected the database to facilitate quick updating 

 

94 USCCR, Ten-Year Check Up: Blueprint, pp. 31, 33, 34; U.S. Commission on Civil Rights, Overcoming the Past, 

Focusing on the Future: An Assessment of the U.S. Equal Employment Opportunity Commission’s Enforcement 

Efforts, September 2000, pp. 200–261, 290–299 (hereafter cited as USCCR, EEOC Enforcement Efforts). 

95 USCCR, EEOC Enforcement Efforts, p. 220. 

96 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, pp. 26,042–63. This Web site is now 

accessed through FedBizOpps Team, “Federal Business Opportunities,” no date, <http://www.fedbizopps.gov> (last 

accessed May 25, 2005). 

97 See discussion in chap. 1. 

98 See, e.g., U.S. Department of Defense, “Central Contractor Registration,” no date, <http://www.ccr.gov> (last 

accessed June 1, 2005) (hereafter cited as DOD, “CCR”); U.S. Department of Education, “FY 2005 Forecast of ED 

Contract Opportunities,” Apr. 8, 2005, <http://www.ed.gov/fund/contract/find/forecast05.doc> (last accessed June 

1, 2005); U.S. Department of State, “Office of the Procurement Executive (A/OPE) Acquisition Web Site,” no date, 

<http://www.statebuy.state.gov/> (last accessed June 1, 2005); U.S. Small Business Administration, “U.S. Small 

Business Administration Subcontracting Network,” Nov. 23, 2004, <http://web.sba.gov/subnet/> (last accessed June 

1, 2005). 
40 Chapter 2

of program and field information and help small business owners search for contracting 

opportunities.99

During outreach, agencies such as DOD, HUD, and DOS, also encourage eligible small and 

minority-owned businesses to register in DOD- or SBA-maintained Internet databases of 

potential contractors and subcontractors, including the Central Contractor Registration (CCR), a 

DOD-maintained database of vendors seeking federal contracts.100 Registration in such databases 

expands small businesses’ opportunities because agencies and prime contractors may use them to 

identify firms from which to solicit procurement bids.101 Searchable databases also offer a way 

for small and disadvantaged businesses to gain recognition as potential federal contractors and 

identify subcontracting opportunities. In addition to DOD’s CCR, SBA maintains SUB-Net, a 

subcontracting database.102 

Based on interrogatory responses, most agencies have not created their own supplemental 

databases of vendors and contractors, but instead rely on the CCR and SUB-Net. DOEn is one 

exception. It recently established an internal small business database, derived from the CCR, 

which includes approximately 3,500 firms with the capacity to compete for energy contracts.103 

DOEd and HUD do not maintain small business databases, but use the CCR.104 Likewise, DOD 

does not maintain its own small business database, but rather “encourages potential 

subcontractors to market themselves to prime contractors directly.”105 The agency encourages 

prime contractors to use SBA’s SUB-Net independently. In addition to the CCR, DOS also uses 

the Department of Veterans’ Affairs VIP access database, which includes veteran-owned small 

businesses.106

Conferences, Meetings, Forums, Media, and Printed Materials 

Agencies should conduct race-neutral outreach for all small and disadvantaged businesses, 

though they may specially target areas where data show some groups are not participating in 

federal contracting because of lack of information and technical assistance. Some agencies deny 

 

99 U.S. Department of Energy, Office of Economic Impact and Diversity, Annual Report, FY 2000, January 2001, p. 

14 (hereafter cited as DOEn, OEID, Annual Report FY 2000). 

100 DOD, “CCR.” 

101 DOD Interrogatory, p. 3; U.S. Department of Housing and Urban Development, OSDBU Small Business 

Outreach Session, presented by Ozema Moore, senior business utilization development specialist, and Meishoma 

Hayes, program specialist, no date, p. 24 (hereafter cited as HUD, OSDBU Small Business Outreach Session); DOS 

follow-up response, attachment on sample outreach, p. 2. 

102 U.S. Small Business Administration, “What is SUB-Net,” no date, <http://web.sba.gov/subnet/dsp_what_is_subnet.cfm> 

(last accessed Mar. 7, 2005). 

103 DOEn Interrogatory, p. 2. 

104 DOEd Interrogatory, enclosure 1, p. 1, enclosure 2, p. 17; U.S. Department of Housing and Urban Development, 

“Small Business Policy,” Mar. 21, 2005, p. 2 (hereafter cited as HUD, “Small Business Policy”). 

105 DOD Interrogatory, p. 3. 

106 DOS Interrogatory, p. 3. 
Chapter 2 41

that their outreach efforts have changed either as a result of narrow tailoring requirements or 

emphasis on race-neutral alternatives.107 For example, DOS officials stated that the agency’s 

limited travel budget and ability of a small staff to cover many events had a larger effect on the 

number and scope of outreach activities than Adarand.

108 

Notably, DOT explained that the agency’s OSDBU and the Minority Resource Center continue 

to offer myriad outreach initiatives designed to improve transportation-related business 

opportunities for small disadvantaged firms. Thus, the agency claims the narrow tailoring 

requirement has not affected its targeted outreach.109 SBA, on the other hand, noted some 

changes it had made in outreach efforts since Adarand. For example, it eliminated raceconscious wording from some of its outreach program materials. The agency does not measure 

the effects of its outreach such that it can determine the results of these changes, that is, whether 

or not nonminority owners apply to or enter the program at higher rates.110

Other agencies do not target outreach to minority groups. For example, DOD officials stated that 

the agency provides the same type of outreach and counseling assistance to SDBs as it does to all 

small businesses.111 HUD officials also reported that the agency’s outreach programs target all 

small businesses and did not indicate whether or how minority-owned businesses might be 

included. HUD has, however, made efforts to conduct outreach throughout the country, 

including, for example, participating in a small business conference in Alaska.112 

DOT sponsors events clearly targeted to minority-owned firms, such as a National 

Disadvantaged Business Enterprise Conference.113 Other agencies reported hosting their own 

events, such as (1) networking sessions between (a) agency officials and small businesses 

regarding current contracting opportunities,114 or (b) large prime contractors and small 

businesses; (2) annual industry days;115 and (3) pre-bid conferences to identify qualified small 

 

107 Ibid., p. 4; DOD Interrogatory, p. 1; DOEn Interrogatory, p. 1; DOT Interrogatory, p. 2. 

108 DOS Interrogatory, p. 4. 

109 DOT Interrogatory, p. 2. 

110 The Small Business Administration has marketed its 8(a) program more aggressively as business development 

for disadvantaged firms, at the same time emphasizing that the program is open to all socially and economically 

disadvantaged individuals regardless of race. It developed more inclusive outreach presentations and materials, 

particularly to include women-owned businesses; revised a Web page to promote greater inclusiveness; and 

changed the name of the “Office of Minority Enterprise Development” to the “Office of Business Development.” 

SBA Interrogatory, pp. 5–6. 

111 DOD Interrogatory, pp. 3, 7. DOD officials further reported that the agency’s Office of Small and Disadvantaged 

Business Utilization rarely organizes outreach conferences; they are generally coordinated by small business 

specialists within individual defense agencies. DOD follow-up response, p. 1. 

112 HUD Interrogatory, p. 2; HUD follow-up interview (statements of Valerie Hayes), pp. 8, 11. 

113 DOT Interrogatory, p. 2. 

114 DOEd Interrogatory, cover letter, p. 3; DOEn, OEID, Annual Report FY 2000, pp. 12, 14. 

115 DOS Interrogatory, p. 4. 
42 Chapter 2

businesses.116 The agencies did not identify any activities related to these events that were 

designed to ensure participation of minority-owned firms. 

In serving a broad constituency of small businesses with outreach, two agencies reported contact 

with many associations, including those that target the ethnic groups the Small Business Act 

identifies as having been subject to historic discrimination. For example, DOS and DOEn staff 

support or participate in annual conferences sponsored by minority group associations, often 

state and national black, Hispanic, or Asian American Chambers of Commerce.117 In September 

2000, the Secretary of Energy signed a memorandum of understanding with a coalition of 15 

minority business organizations to encourage disadvantaged, 8(a), and minority-owned business 

participation in agency contracting.118 DOEn also reported contact with minority journalists, 

legislators, and scientists through numerous conferences.119

DOEn reported extensive use of news media, including minority-targeted publications. In 

addition to general circulation publications, DOEn also (1) issues press releases about outreach 

to disadvantaged businesses; and (2) places news articles and ads in magazines and journals with 

minority business audiences (e.g., Black Enterprise, Latina Style Magazine, Minority Business 

Entrepreneur, Indian Country National Newspaper, and Tribal Advocate Newsletter). The 

agency also places advertisements on Web pages of minority media (e.g., 

www.blackenterprise.com). DOEn additionally employs other media sources, including Hispanic 

network radio and Internet chat rooms.120

Ensuring the Inclusiveness of Outreach 

Even though agencies engage in outreach, little specific evidence exists that their efforts reach 

small and disadvantaged businesses. Only two agencies provided annual planning or reporting 

documents on outreach. For example, DOEn requires its programmatic components to submit an 

“Annual Small Business Plan” to its OSDBU each November 15. The plans report on outreach in 

 

116 DOEd Interrogatory, cover letter, p. 3. 

117 DOS Interrogatory, p. 4 and tab 5; DOEn Interrogatory, attachment 2; U.S. Department of Energy, Office of 

Economic Impact and Diversity, Office of Small and Disadvantaged Business Utilization, Report to the Secretary 

on the U.S. Department of Energy’s Small Business Programs, Fiscal Year 2001, September 2002, pp. 11–13 

(hereafter cited as DOEn, OSDBU, Report to the Secretary FY 2001); U.S. Department of Energy, Small Business 

Marketing Outreach 2002 and 2003, no date (hereafter cited as DOEn, Outreach 2002 and 2003); U.S. Department 

of Energy, Small Business Marketing Outreach 2004, no date (hereafter cited as DOEn, Outreach 2004). Note that 

DOT also has contact with several similar organizations, although it did not name chambers of commerce and does 

not appear to so broadly represent Hispanic businesses. See DOT Interrogatory, p. 2 and exhibit 2. 

118 DOEn, OEID, Annual Report FY 2000, p. 13. 

119 For example, the agency’s contacts were through the Hispanic Business Magazine Board of Economists at the 

U.S. Hispanic Economic Summit, the Latino Journal Legislators Reception and Small Business Conference, the 

Latina Style Magazine Business Conferences held in several cities, the National Summit of Hispanic State 

Legislators, the National Hispanic Engineering, Science and Technology (HESTEC) Week, and New Mexico 

Mathematics, Engineering, Science Achievement (MESA) Program. DOEn, OSDBU, Report to the Secretary FY 

2001, pp. 11–13; DOEn, Outreach 2002 and 2003; DOEn, Outreach 2004. 

120 DOEn, Outreach 2002 and 2003; DOEn, Outreach 2004. 
Chapter 2 43

addition to program and field offices’ strategies, performance, and contracting opportunities. 

Outreach objectives include establishing and strengthening partnerships with minority-owned 

business coalitions to promote full participation in the annual Small Business Conference, 

regional outreach meetings, and other activities. The 2000 report showed the department’s intent 

to develop a comprehensive strategy for increasing 8(a) and minority business participation in 

agency contracting opportunities and submit it to the Office of Management and Budget.121

Additionally, one agency asserts that its achievements of statutory goals for procurement 

evidence the success of outreach efforts in reaching SDBs.122

Beyond planning, having staff dedicated to outreach also makes a difference in the effectiveness 

of race-neutral strategies. DOEn’s outreach may be more comprehensive than that of other 

agencies because it formed a small business advisory team to support OSDBU outreach goals. 

This team helped conduct meetings, promote outreach activities, and place advertisements in 

minority media.123 However, the agency consistently fails to meet its reduced goals for 

procurement with SDBs. Because DOEn does not measure the effects of outreach, it is 

impossible to determine whether the efforts actually reach small and disadvantaged firms or 

whether stepped-up efforts could move the agency closer to its goals. 

As with DOEn, agencies do not have methods for tracking the number of activities, expenditures, 

or other resources used for outreach, or the numbers and types of beneficiaries.124 Such a system 

might help determine whether program information reaches minorities to ensure their 

participation in contracting programs. DOD, for example, elaborated that its decentralized 

buying commands determine the nature of outreach, allocate funds to conduct the activities, and 

evaluate the effectiveness of such efforts on specific audiences. DOD has no uniform 

requirement that individual defense agencies obtain or analyze such information.125

Strategy 3: Capacity Building 

Technical Assistance 

While the purpose of outreach is to provide access points for small and disadvantaged 

businesses, technical assistance provides the tools and knowledge necessary to compete for 

contracts. SBA administers several programs to assist individuals and small businesses, with 

emphasis on reaching members of socially and economically disadvantaged groups, veterans, 

women, and individuals with disabilities. The programs include training and education, advisory 

 

121 DOEn, OEID, Annual Report FY 2000, pp. 12, 14. 

122 HUD Affected Agency Review, p. 1. 

123 DOEn, Outreach 2004, pp. 4–5. 

124 See, e.g., SBA Interrogatory, pp. 5–6; DOD Interrogatory, pp. 2, 10. 

125 DOD Interrogatory, p. 2. 
44 Chapter 2

services, publications, financial assistance, and contract guidance.126 For example, SBA conducts 

workshops on bid and proposal preparation, contract negotiation techniques, and contract cost 

estimations.127

The Small Business Development Center (SBDC) program is one of SBA’s main technical 

assistance offerings. SBDC, administered in cooperation with the private sector, the educational 

community, and federal and state governments, provides information and guidance to individuals 

and small businesses in accessible branch locations. There are 63 lead centers located throughout 

the United States: four in Texas, six in California, and one in each remaining state, including the 

District of Columbia, Guam, Puerto Rico, Samoa, and the Virgin Islands. The lead centers 

coordinate small business program services through a network of sub-centers and satellite 

locations in each state or territory. There is currently a network of more than 1,100 service 

locations. SBA provides approximately 50 percent of the funding for operating costs for this 

program; sponsors cover the remainder.128

Specifically, the SBDC program provides the following to small businesses: 

• counseling, training, and technical assistance in all aspects of management; 

• assistance with financial, marketing, production, organization, engineering, and technical 

problems, and feasibility studies; and 

• assistance with applying for federal Small Business Innovation and Research Grants.129

In addition, SBA’s Office of Small Business Development, in compliance with section 7(j) of the 

Small Business Act, administers the 7(j) Management and Technical Assistance Program to 

assist SBA program participants, businesses operating in high unemployment or low-income 

areas, and businesses owned by low-income individuals to become competitively viable in the 

marketplace. To implement this program, SBA enters into grants and cooperative agreements or 

contracts with public or private organizations that can provide technical assistance to eligible 

businesses or individuals.130 

Four of the federal agencies in this report rely heavily on SBA’s technical assistance programs 

for small businesses. All of them have Web sites that provide technical guides to individuals and 

small businesses on bidding for contracts and subcontracts, identifying contracting opportunities, 

and locating technical assistance centers. In addition to direct links, every agency links to 

 

126 See U.S. Small Business Administration, Small Business Development Center Program, “Starting Your 

Business,” no date, <www.sba.gov/starting_business/index.html> (last accessed Mar. 15, 2005) (hereafter cited as 

SBA, “Starting Your Business”). 

127 U.S. Small Business Administration’s Follow-up Response to the U.S. Commission on Civil Rights, May 6, 

2005, p. 1 (hereafter cited as SBA follow-up response). 

128 SBA, “Starting Your Business.” 

129 Ibid. 

130 U.S. Small Business Administration, Office of Business Development, “7(j) Management and Technical 

Assistance Program,” no date, <http://www.sba.gov/gcbd/7j.html> (last accessed May 24, 2005). 
Chapter 2 45

FedBizOpps, a governmentwide Web site, where vendors can access information on contract 

bidding and business opportunities.131 Another helpful governmentwide Web site, not directly 

linked to agencies’ Web sites, is Business.gov. Business.gov is an e-government initiative under 

the President’s Management Agenda that provides assistance to small businesses interested in 

contracting with the federal government. SBA manages this site in collaboration with other 

federal agencies, including DOEn and DOT.132

Individual technical assistance can also be provided through counseling sessions and customized 

instruction, but this strategy remains largely unused. Federal regulations require all agencies to 

provide, upon request, post-award debriefings to unsuccessful bidders, but DOS was the only 

agency to report such debriefings.133 DOS offers general counseling to small businesses about 

doing business with the agency, as well as more specific advice to firms competing for a specific 

contract.134 While DOS contracting personnel reported conducting post-award debriefings, the 

agency does not have a specific policy outlining its debriefing procedures, nor does it collect 

data on success rates for future contracts after counseling.135

HUD offers customized technical assistance to potential contractors through some of its outreach 

programs. For example, the agency’s OSDBU recommends that small businesses market their 

services by preparing “elevator speeches,” i.e., very brief presentations with pertinent 

information: the company’s name, core competencies, certifications, number of employees, 

number of years in business, agencies with which the company has done business, descriptions 

of major business accomplishments, and how the firm can help HUD. OSDBU, through its 

outreach programs, also provides instructions on how to prepare for contract negotiations and 

how to develop proposals.136

DOEn indicated that it does not provide assistance on how to prepare offers or attain awards, but 

contract officers frequently provide individual assistance to small firms with specific 

procurement issues or seeking marketing advice. Outreach conferences generally provide 

information on contracting opportunities, procurement procedures, program changes, and the 

like.137

 The Defense Logistics Agency (DLA), on behalf of the Secretary of Defense, administers the 

DOD Procurement Technical Assistance (PTA) Cooperative Agreement Program. Through this 

program, a network of offices assists businesses in marketing goods and services to federal, 

state, and local governments. To establish the network, DLA awards cost-sharing cooperative 

agreements to state and local governments, private nonprofit and tribal organizations, and Indian 

 

131 See FedBizOpps Team, “Federal Business Opportunities.” 

132 See Business.gov, “About Us,” no date, <http://www,business.gov/general/about.html> (last accessed May 2, 

2005). 

133 Postaward Debriefing of Offerors, 48 C.F.R. § 15.506 (2004); DOS Interrogatory pp. 7–8. 

134 DOS follow-up response, p. 2. 

135 DOS Interrogatory, pp. 7–8, 11. 

136 HUD follow-up interview (statement of Valerie Hayes), p. 8; HUD, OSDBU Small Business Outreach Session, 

pp. 20–25. 

137 DOEn follow-up response, p. 1. 
46 Chapter 2

economic enterprises. Recipients provide technical assistance relating to bid opportunities, bid 

proposal preparation, pre-award surveys, quality assurance, and accounting systems. Like SBA’s 

SBDC program, the network comprises centers throughout the United States.138

Similarly, DOT administers technical assistance through its nationwide program. The program, 

based on partnership agreements between DOT’s OSDBU and chambers of commerce, trade 

associations, and minority education institutions, delivers services, including training and 

counseling, to DBEs and other small businesses through regional centers.139 

Some agencies use another technical assistance vehicle, mentor-protégé programs, which foster 

business relationships between small businesses and large prime contractors. Like other capacity 

building strategies, such efforts seek to enable small and disadvantaged businesses to compete 

for contracts.140

Mentor-Protégé Programs 

In its post-Adarand guidance, DOJ recognized partnering as an effective strategy, and 

recommended that agencies actively pursue race-neutral mentor-protégé programs that do not 

guarantee contract awards on a noncompetitive basis.141 Mentor-protégé programs may or may 

not be race-neutral depending on whether they are open to all firms based on objective economic 

or social data. Mentor-protégé efforts should attempt to make small and disadvantaged firms 

more competitive, without altering standards for competition or establishing award preferences. 

Moreover, a nonminority-owned or non-SDB firm, acting as mentor, can benefit by sharing 

contract work requirements and at the same time receiving credit toward small business 

subcontracting goals. 

Most Cabinet-level agencies model their individual mentor-protégé efforts after a program SBA 

runs for 8(a) participants, with some eligibility and administrative distinctions. For example, 

DOEn and DOD open protégé opportunities to other small businesses, including SDBs, womenowned small businesses, HUBZone firms, Historically Black Colleges and Universities, other 

minority institutions of higher learning, and service-disabled veteran-owned small businesses—

providing they self-certify that they meet eligibility requirements.142 

DOEn’s program is race-neutral because it does not pre-select protégés based on minority status. 

Unlike other agencies’ procedures, mentors select protégés based on internal needs.143 DOEn 

requires that mentor firms be performing at least one agency contract. Firms may earn award 

 

138 U.S. Department of Defense, “Procurement Technical Assistance Centers,” updated May 5, 2005, 

<http://www.dla.mil/db/procurem.htm> (last accessed May 24, 2005). 

139 DOT Interrogatory, p. 1. 

140 DOS Interrogatory, tab 4, p. 3. 

141 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,049. 

142 Acquisition Regulations: Mentor-Protégé Program, 65 Fed. Reg. 21,367 (Apr. 21, 2000) (codified at 48 C.F.R. 

§§ 919.70, 952.219.70); DOD Interrogatory, p. 8. 

143 DOEn Interrogatory, p. 5.
Chapter 2 47

fees associated with their performance as a mentor, as well as credit toward goals for 

subcontracts resulting from their agreements.144 

DOD formed one of the first formal mentor-protégé programs. To provide incentives for prime 

contractors to subcontract with SDBs, Congress mandated the creation of the DOD MentorProtégé Pilot Program in 1990.145 Full implementation of the program was delayed for a year 

because Congress did not provide specific funds for reimbursements, and DOD did not adopt an 

aggressive implementation strategy.146 Later, in 1992, Congress rescinded $30 million from the 

pilot program, eliminating cash reimbursement for costs incurred providing assistance to protégé 

firms, and thus limiting participation to mentors seeking credit for subcontracting goals.147 

Despite early setbacks, more than a decade later, in fiscal year 2004, the program served 184 

participants and reimbursed mentor businesses for costs totaling more than $26 million.148

Participation as a mentor or protégé cannot exceed three years.149 DOD also requires that mentor 

firms have at least one active DOD subcontracting plan.150 Although DOD emphasizes that the 

program provides no preferential treatment to participating firms with respect to contract awards, 

it recognizes the mentor-protégé program as “an effective way of increasing participation of 

minority-owned firms in federal contracting,” as DOJ also concluded after the Adarand

decision.151

Unlike DOD’s long-established program, the DOS mentor-protégé program, which took effect in 

April 2005, is in the developmental stage.152 DOS will require protégé firms to register in the 

CCR as small businesses. The agency expects 98 percent of initial mentor-protégé arrangements 

to be with SDBs and women-owned businesses, and will reach HUBZone and other eligible 

firms through outreach.153 DOT’s program is also in development. The agency describes the 

program as race-neutral; however, applicants must be either a DBE or certified through one of 

SBA’s programs with racial components.154 Some agencies have not used this strategy; DOEd, 

for example, does not operate a mentor-protégé program.155

 

144 Ibid., pp. 2–3. 

145 DOD Interrogatory, p. 8 (citing National Defense Authorization Act for Fiscal Year 1991, Pub. L. No. 101-510, 

104 Stat. 1485, 1607).

146 U.S. General Accounting Office, Defense Contracting: Interim Report on Mentor-Protégé Program for Small 

Disadvantaged Firms, March 1992. 

147 Ibid., p. 3. 

148 DOD Interrogatory, p. 13. 

149 U.S. Department of Defense, “Policy and Procedures for the DOD Pilot Mentor-Protégé Program,” DFAR 

Supplement, 1998, <http://www.acq.osd.mil/sadbu/mentor_protege/> (last accessed June 1, 2005). 

150 DOD Interrogatory, p. 8. 

151 Ibid., pp. 8–9 (citing Response to Comments to Department of Justice Proposed Reforms to Affirmative Action 

in Federal Procurement, 62 Fed. Reg. 25,648 (May 9, 1997)). 

152 DOS Interrogatory, p. 3. 

153 Ibid., pp. 6–7. 

154 DOT Interrogatory, p. 10. 

155 See generally, DOEd Interrogatory; HUD follow-up interview, pp. 38–39. 
48 Chapter 2

Teaming Efforts 

Distinct from mentor-protégé programs, teaming emphasizes partnership for business purposes 

rather than learning. Some teaming efforts involve two or more small businesses working 

together and consolidating resources to meet contract demands. The OMB Office of Federal 

Procurement Policy (OFPP) recommends small-business teaming to compete for consolidated 

contracts as a strategy to counter potential limitations of bundling.156 Other teaming efforts 

involve collaborations between large and small businesses in a relationship that is less formal 

than in the mentor-protégé context, but allows the small business to benefit from the large firm’s 

resources and capabilities nonetheless. 

Three agencies identify teaming as a strategy to improve small business competition. DOS 

encourages teaming efforts between large and small businesses, using both formal and informal 

methods. The agency pairs mentors and protégés, as discussed earlier, and hosts an annual 

workshop to introduce small business prospects to large prime contractors.157 DOEn identifies 

teaming as a strategy to both increase opportunities for small businesses and expand the skill mix 

of the team.158 When contracting opportunities are not suitable for small businesses, DOEd 

includes teaming evaluation credits in solicitations for large businesses.159 

Certificates of Competency 

SBA identifies its Certificate of Competency (COC) program as a great enhancement to its 

procurement assistance efforts, particularly for those businesses new to federal contracting.160

Unlike technical assistance or mentor-protégé programs, SBA’s COC program provides a formal 

procedure for demonstrating, rather than building, capacity. If a small business submits the 

lowest bid but loses a government contract because a procurement official deems the firm 

incapable of executing its terms, the company can apply to SBA for a COC. In response, SBA 

sends financial and industrial specialists to conduct a detailed evaluation of the firm’s technical 

and managerial ability to fulfill the requirements. The specialists also consider past performance, 

credit ratings, integrity, tenacity, and perseverance in their decision. 

A COC Review Committee, which includes legal as well as financial and technical 

representatives, decides whether a firm demonstrates the capacity to perform the specific 

contract. A firm’s acceptance of a COC obligates it to undertake the contract. SBA makes COC 

 

156 Executive Office of the President, Office of Management and Budget, Office of Federal Procurement Policy, 

Contract Bundling: A Strategy for Increasing Contracting Opportunities for Small Business, October 2002, p. 10 

(hereafter cited as OFPP, Contract Bundling). 

157 DOS Interrogatory, p. 3; DOS follow-up response, p. 5. 

158 U.S. Department of Energy, Acquisition Letter, acquisition regulation no. 2004-03, May 5, 2004, p. 8 (hereafter 

cited as DOEn, Acquisition Letter). 

159 DOEd Interrogatory, p. 2. 

160 U.S. Small Business Administration, “Certificate of Competency Program,” last modified Apr. 18, 2002, 

<http://www.sba.gov/GC/indexprograms-coc.html> (last accessed May 25, 2005). 
Chapter 2 49

decisions case by case for both firms and contracts. A business cannot apply for a COC prior to a 

procurement officer’s assessment that it is ineligible for or incapable of completing a contract.161

Strategy 4: Financial Assistance 

Agencies engage in a variety of race-neutral financial assistance strategies that overcome 

specific monetary barriers to government procurement with small and disadvantaged businesses. 

Financial assistance can be direct or indirect, depending on its goal. For example, several loan 

programs directly compensate for difficulties firms face in obtaining credit in commercial 

markets. In contrast, other programs provide indirect support for community development to 

foster a hospitable business environment. 

Small business owners may experience difficulty securing loans because of commercial banks’ 

reluctance to lend less than a minimal amount.162 The SBA MicroLoan program, which offers 

entrepreneurs loans of up to $35,000 to grow nascent businesses, addresses this hurdle. 

Nonprofit community-based lenders administer the SBA-financed loans. 

While some firms require microfinance, others require greater influxes of capital. Small Business 

Investment Companies (SBICs) and the New Markets Venture Capital (NMVC) program help 

firms in critical stages of growth. Under the SBIC program, management teams with venture 

capital experience apply to SBA for licensing. The SBIC then reviews small business 

applications for financing, extends loans and venture capital to firms it selects, and may offer 

ancillary benefits such as management advice. In exchange, SBA guarantees SBIC-issued 

debentures and provides favorable interest rates. Under NMVC, SBA does not license venture 

capital organizations but instead partners with them to meet business needs in specific 

underserved communities. SBA also guarantees NMVC debentures and provides operational 

grants to supplement private equity investments.163 

 SBA offers two race-neutral loan programs—504 and 7(a)—that provide capital to firms for 

general business purposes and procurement-related needs.164 SBA’s 504 loan program provides 

long-term, fixed-rate financing for small businesses within a community to purchase assets such 

as land, buildings, and machinery; to make street and infrastructure improvements; and to 

modernize or upgrade facilities. SBA prohibits businesses from using 504 loan money for 

working capital, purchasing inventory, consolidating or repaying debt, or refinancing. SBA 

works with private-sector lenders and Certified Development Companies (CDCs), which are 

nonprofit corporations dedicated to community economic development, to provide 504 loans. 

SBA requires small businesses to contribute at least 10 percent of the equity for each loansponsored project, and expects private lenders to issue a lien securing up to 50 percent of costs. 

 

161 Ibid. 

162 Patrick D. O’Hara, SBA Loans: A Step-by-Step Guide, Fourth Edition (New York: John Wiley and Sons, 2002), 

p. 56. 

163 U.S. Small Business Administration, “Small Business Investment Companies (SBIC) Program,” no date, 

<http://www.sba.gov/INV/overview.html> (last accessed May 24, 2005). 

164 SBA Interrogatory, p. 7. 
50 Chapter 2

In turn, SBA offers 100 percent guaranteed debentures to CDCs that issue liens to secure up to 

40 percent of the remainder of each project’s costs. Project assets and small business owners’ 

personal guaranties act as loan collateral.165 

SBA’s 7(a) loan program guarantees portions of loans to small businesses that would otherwise 

have difficulty finding financing. Businesses may use 7(a) loans for a broader variety of needs 

than 504 financing, such as for refinancing debt or purchasing existing businesses. Though 7(a) 

does not require 8(a) or SDB certification, it does require that firm owners lack “excessive” 

personal and business financial resources. It also requires participating banks to apply for SBA 

approval to administer 7(a) loans. Depending on the business type and loan offered, SBA caps its 

guaranty rate at 50 to 75 percent and the maximum eligible loan at $2 million, leaving SBA with 

a maximum exposure amount of $1.5 million. SBA’s 7(a) loans enable companies to purchase 

fixed assets and obtain working capital for limited time periods. 166 

In addition to SBA’s loan programs, regulations authorize seven agencies to grant contractors 

loan guarantees for operating costs related to national defense production.167 Under the 

regulations, Federal Reserve Banks work with agencies to provide guarantees of up to 100 

percent on loans made by independent financial institutions. Before applying to an agency for a 

guarantee, businesses must locate a private sector lender willing to extend a loan conditional on 

government backing.168 Defense-production loan guarantees apply to both prime and 

subcontracting firms but do not expressly target small businesses.169

 While the foregoing programs directly target challenges facing small businesses, their influence 

on small and disadvantaged firms’ federal procurement opportunities is indirect. Bonding 

guarantees and short-term working capital programs more directly overcome procurement 

barriers. 

Advance Payments/Short-Term Lending Programs 

Advance payments facilitate contract execution by enabling businesses to purchase equipment or 

supplies, or pay subcontractors.170 These payments aid firms with too few resources to 

independently finance the start-up costs of a government project, those that expect large cash 

flow fluctuations through a contract’s duration, or companies facing other barriers. Acquisition 

 

165 U.S. Small Business Administration, “Certified Development Company (504) Loan Program,” no date, 

<http://www.sba.gov/financing/sbaloan/cdc504.html> (last accessed Mar. 15, 2005). 

166 U.S. Small Business Administration, “Basic 7(a) Loan Program,” no date, <http://www.sba.gov/financing/sbaloan/7a.html> 

(last accessed Feb. 25, 2005). 

167 See Loan Guarantees for Defense Production, 48 C.F.R. 32.302 (2004). The seven agencies are the Departments 

of Defense, Energy, Commerce, the Interior, and Agriculture; and the General Services and National Aeronautics 

and Space Administrations. 

168 48 C.F.R. § 32.303. 

169 Id. § 32.301. 

170 See generally id. § 32.2; Advance Payments for Non-Commercial Items, 48 C.F.R. § 32.4 (2004). 
Chapter 2 51

regulations advise agencies to use advance payments sparingly, but recognize that businesses 

may seek such assistance for many reasons: 

...[A]dvance payment is the least preferred method of contract financing and generally 

they should not be authorized if other types of financing are reasonably available to the 

contractor in adequate amounts. Loans and credit at excessive interest rates or other 

exorbitant charges, or loans from other Government agencies, are not considered 

reasonably available financing.171 

Agencies did not report using advance payments, despite their potential to help firms, as a raceneutral approach to increase contracting with SDBs. 

Small business cash flow problems stemming from late payment on the part of agencies or prime 

contractors underlie congressional and SBA efforts to promote more timely payments. The 

Prompt Payment Act (PPA) of 1988 prescribes interest penalties for federal agencies and prime 

contractors that fail to pay vendors or subcontractors within 30 days of receipt of goods or 

services.172 Along with registration in the CCR database, PPA enables faster compensation for 

work completed by establishing an electronic payment protocol for federal agencies. PPA also 

allows procurement officials to pay small businesses more rapidly than other types of firms, and 

to pay contractors before goods arrive when the product has been shipped.173 DOS, for example, 

promotes an “Accelerated Pay Program” to expedite payments to existing small-business 

contractors beyond standard commercial compensation practice.174 

Many procurement officers and government suppliers view short-term lending programs 

(STLPs) as feasible alternatives to advance payments. Under STLPs, a small business can use its 

accounts receivable as security for a loan to pay for supplies and labor associated with a project, 

effectively turning the contract’s proceeds into collateral. Private sector lenders often administer 

these programs in coordination with agency offices. For example, DOT works with six specific 

banks to offer prime interest rate loans of up to $750,000 in its STLP; DOT’s OSDBU and 

Minority Resource Centers sponsor the program. With the approval of the lending bank and 

procurement officer, a small business can renew an STLP loan repeatedly over the course of 

several years. 175

Bonding Guarantees 

Firms’ inability to secure bonding at reasonable costs represents another barrier to securing 

federal contracts. Federal construction contracts exceeding $100,000 (and many other federal 

 

171 48 C.F.R. § 32.402(b). 

172 Prompt Payment Act of 1998, Pub. L. No. 100-496, 102 Stat. 2455 (codified as amended at 31 U.S.C. § 3901 et 

seq); Prompt Payment, 48 C.F.R. § 32.9. 

173 Payment Without Evidence that Supplies Have Been Received (Fast Payment), 5 C.F.R. § 1315.6 (2004). 

174 DOS Interrogatory, p. 2. 

175 DOT Interrogatory, p. 6; see also, U.S. Department of Transportation, Office of Small and Disadvantaged 

Business Utilization, “Capital Access– Short Term Lending Program,” no date, 

<http://osdbuweb.dot.gov/mrc_services/shortTermLendingProgram.cfm> (last accessed May 24, 2005). 
52 Chapter 2

contracts over $25,000) require vendors to secure payment and performance bonds.176 Payment 

bonds guarantee that a vendor will pay its labor, suppliers, and subcontractors. Performance 

bonds guarantee that a business will execute the terms of its contract fully. Some procurement 

scenarios and officials require other ancillary bonds, such as bid bonds to require a vendor to 

enter a contract if government grants it the award.177 

According to the Surety Association of America, bonding differs from traditional insurance in 

that it acts more as a line of credit than as a means of spreading risk across entities. While a 

surety bond protects the interests of the procurer by ensuring project completion and minimizing 

the risk of loss, the contractor covered by the bond posts its own collateral and is responsible for 

compensating a surety company for defaulting on payment obligations.178 As with many forms of 

credit, the financial prospects of a firm, its management and structure, and its experience greatly 

influence a bonder’s decision to offer surety.179

Surety bond companies have vast discretion when deciding to extend coverage, and some allege 

that bonding choices are potentially arbitrary and even racially discriminatory.180 In addition to 

factors discussed above, surety companies consider a firm’s “reputation,” its owner’s “personal 

history,” and other characteristics when determining whether to extend bond coverage. A 1994 

GAO survey of small business owners found that surety bond firms were more likely to deny 

applications from minority-owned companies, state “requirements had changed” or to fail to 

justify denial of surety, and require extra documentation of these business owners.181 Surety 

firms were also more likely to require higher collateral from minority-owned companies, and to 

demand “annual service fees” of these businesses.182 Some have suggested that federal 

antidiscrimination laws do not apply to surety bond providers in several states.183 DOS suggests 

that these problems pale in comparison to surety companies’ reluctance to provide overseas 

bonding, limiting foreign contract opportunities for small and disadvantaged business.184

 

176 Though bonds normally cover the full cost of an award, regulations allow less than 100 percent bonding for 

some non-construction. See Bid Guarantee, 48 C.F.R. § 52.228-16 (2004). 

177 48 C.F.R. § 28.101-2 (2004). 

178 The Surety Association of America, “Surety,” no date, <http://www.surety.org/content.cfm?lid=70&catid=2> 

(last accessed May 24, 2005). 

179 María Enchautegui, Michael Fix, Pamela Loprest, Sarah von der Lippe, and Douglas Wissoker, “Do MinorityOwned Businesses Get a Fair Share of Government Contracts?” (Washington, D.C.: The Urban Institute, 1997), pp. 

34–40.

180 See bonding discussion in DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,060. 

181 U.S. General Accounting Office, Small Business: Responses to Survey on Construction Firms’ Access to Surety 

Bonds, June 1995. These results do not control for size or age of firm nor for other potentially relevant factors in the 

decision to grant bonding. 

182 Ibid. 

183 Margaret Simms, statement before the U.S. Commission on Civil Rights, briefing on “Civil Rights Implications 

of Regulatory Obstacles Confronting Minority Entrepreneurs,” Sept. 5, 1996, transcript, p. 83; Pennsylvania 

Advisory Committee to the U.S. Commission on Civil Rights, Barriers Facing Minority- and Women-Owned 

Businesses in Pennsylvania, August 2002, p. 19. 

184 DOS Interrogatory, p. 3. 
Chapter 2 53

Congress and SBA have experimented with several programs to mitigate difficulties small and 

disadvantaged businesses face in obtaining surety bonding. A pilot program in the early 1990s 

sought to grant exemptions from bonds for certain classes of businesses. Despite DOD’s attempt 

to offer 30 of these exemptions, and several civilian agencies’ participation, only 13 contracts 

(nine awarded by DOD) used bond waivers from fiscal years 1989 to 1991.185 DOJ’s discussion 

of post-Adarand race-neutral approaches to increasing procurement with small and 

disadvantaged businesses mentions another initiative that apparently failed to garner 

Congressional support: a DOD proposal to eliminate the cost of obtaining surety costs from bid 

evaluations.186 However, in its response to Commission inquiries about race-neutral bonding 

assistance, DOD stated that it has no record of such proposal and expressly asserted that it does 

not subsidize or waive surety bonding requirements.187 

Unlike other bonding initiatives, surety bond guarantee programs have been more successful in 

extending race-neutral assistance to businesses seeking federal contracts. These programs 

capitalize on existing private sector bonding infrastructure by using non-government firms to 

issue bonds to businesses that would otherwise have difficulty obtaining coverage at a 

reasonable price. In turn, government agencies guarantee a portion of these bonds, generally up 

to 80 percent. DOT’s program, for example, guarantees up to 80 percent of losses on contracts 

less than $1 million, while SBA’s bonding guarantee program covers up to 80 percent on bonds 

less than $2 million and 90 percent of bonds less than $100,000.188 Guarantee programs shift 

large portions of the risk of bonding to government, which enables surety providers to extend 

coverage to inexperienced, small, or otherwise “risky” firms, knowing that they will not lose the 

full cost of a bond if a company defaults on its contract obligations. 

Surety bond guarantee programs often extend technical assistance to companies to prepare 

applications or documentation. SBA provides forms and reviews bond guarantee applications 

directly.189 DOT, however, recommends that firms seek application assistance from other 

government resources such as the Commerce Department’s Minority Business Development 

Centers and Procurement Technical Assistance Centers.190

Although some small and disadvantaged companies may be able to obtain surety bonding 

without government guarantees or technical assistance, they may find the costs of standard bonds 

(for service fees, collateral, bond insurance, or other requirements) prohibitive. In some 

circumstances, federal acquisition guidelines allow companies to instead seek irrevocable letters 

of credit (ILCs) from federally insured investment-grade banks as collateral or as a substitute for 

 

185 U.S. General Accounting Office, Small Business: Use of the Surety Bond Waiver Has Been Limited, July 1992. 

186 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, appendix, “The Compelling Interest for 

Affirmative Action in Federal Procurement: A Preliminary Survey,” p. 26,049. 

187 DOD Interrogatory, p. 3; DOD follow-up response, p. 7. 

188 DOT Interrogatory p. 6; U.S. Small Business Administration, “Financing Your Business: General Information,” 

no date, <http://www.sba.gov/financing/bonds/osgprogram.html> (last accessed May 24, 2005). 

189 See U.S. Small Business Administration, Office of Surety Guarantees, <http://www.sba.gov/osg/> (last accessed 

May 24, 2005). 

190 U.S. Department of Transportation, “Capital Access–Bonding Assistance Program,” no date, 

<http://osdbuweb.dot.gov/mrc_services/bondingAssistance.cfm> (last accessed May 24, 2005). 
54 Chapter 2

surety bonds.191 An ILC allows the government to draw credit from the issuing bank against a set 

dollar amount if a company fails to fulfill its contract obligations. Presumably because ILCs 

involve less discretion and potential cost savings, DOJ identifies ILCs as potential race-neutral 

means of expanding procurement opportunities.192 

In 2004, the District of Columbia delegate to the U.S. House of Representatives proposed 

legislation banning discrimination in bond provision and establishing penalties for companies 

that discriminate. The statement accompanying the legislation cited GAO’s findings of 

disparities between minority- and nonminority-owned businesses in their ability to secure 

bonding and the costs of doing so.193 The proposal was nearly identical to one offered but 

unpassed in 1993 that boasted the support of the National Association of Surety Bond Producers, 

and like its predecessor, the legislation did not go beyond the committee level.194 

Strategy 5: Expanding Opportunities 

Contract Unbundling 

The Small Business Reauthorization Act of 1997 requires federal agencies to structure 

contracting requirements to facilitate small business competition and to eliminate obstacles to 

their participation. Bundling—the consolidation of multiple contracts into a single large one—

counters this effort as it can have an exclusionary effect on small businesses. The 1997 act 

defines bundling as: 

[C]onsolidating two or more procurement requirements for goods or services previously 

provided or performed under separate smaller contracts into a solicitation of offers for a 

single contract that is likely to be unsuitable for award to a small-business concern due to 

(A) the diversity, size, or specialized nature of the elements of the performance specified; 

(B) the aggregate dollar value of the anticipated award; (C) the geographical dispersion 

of the contract performance sites; or (D) any combination of the factors described in 

subparagraphs (A),(B), and (C).195

Contract bundling gained prominence in the 1990s, a byproduct of efforts to streamline the 

government acquisition process.196 While in some ways more efficient, bundling has had a 

negative effect on small businesses, which often do not have the means to compete for large 

projects. According to SBA estimates, for every $100 awarded on a bundled contract, small 

businesses lose $33.197 Moreover, even though overall dollars spent on small business contracts 

 

191 Sureties and Other Security for Bonds, 48 C.F.R. § 28.204-3 (2004). 

192 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, appendix, p. 26,049. 

193 See 150 CONG. REC. E952 (daily ed. May 21, 2004) (statement of Rep. Norton). 

194 La Noue and Sullivan, “Race Neutral Programs,” p. 348. 

195 Small Business Reauthorization Act of 1997, 15 U.S.C. § 632(o) (2000). 

196 U.S. Small Business Administration, “SBA Announces Accomplishment in Effort to Unbundle Contracts,” press 

release, Oct. 21, 2003, <http://www.sba.gov/news/03-76.pdf> (last accessed May 24, 2005). 

197 OFPP, Contract Bundling, p. 3. 
Chapter 2 55

remained constant over the years when bundling was prominent (between 1990 and 2001), new 

contract awards and the number of small businesses receiving federal contracts both declined 

sharply.198 

Data estimates suggest that although bundled contracts comprise a small proportion of all 

procurements, they represent a large share of expenditures: between 1990 and 2001, bundled 

contracts represented 8.5 percent of all active contracts, but 44.5 percent of all prime contract 

dollars.199 The larger the contract value, the more likely it is bundled, and the less likely small 

businesses can successfully compete. Analysts estimate that during the same 10-year period, 

SDBs and other small businesses combined accounted for only 7.4 percent of all bundled 

contracts and 13.3 percent of all bundled contract dollars. Ultimately, a bundled contract is 74 

percent more likely to go to a large firm than a small one.200 Small businesses competing for 

defense contracts are particularly vulnerable to bundling. DOD accounted for 65.6 percent of 

bundled contracts active between 1992 and 2001, representing 80.8 percent of bundled dollars.201

 To counteract these outcomes and concerns expressed by small business advocates, the Small 

Business Reauthorization Act of 1997 required SBA to (1) review all proposed acquisition 

consolidations that small firms were providing at the time, but that would unlikely be awarded to 

them in the future; and (2) recommend alternate procurement methods.202 Subsequent SBA 

regulations required agencies that intend to bundle contracts to provide justification. By 

definition, consolidated contracts suitable for small businesses are not bundled.203

 The George W. Bush administration built upon these restrictions, making contract unbundling a 

priority in its Small Business Agenda. In response, OFPP developed a strategy for eliminating 

unnecessary contract bundling and mitigating the effects of necessary bundling.204 OFPP also 

mandated that agencies conduct annual reviews and document efforts to avoid unjustified 

bundling.205 Federal agencies have subsequently revised regulations governing the use of 

bundled contracts. 

In October 2003, SBA, among 23 other agencies, issued a final rule on bundling to revise the 

definition to include task and delivery orders under governmentwide or multi-agency 

 

198 Ibid., p. 4. 

199 Eagle Eye Publishers, Inc., The Impact of Contract Bundling on Small Businesses, FY 1992–2001, report 

prepared for U.S. Small Business Administration, Office of Advocacy, October 2002, p. 17. 

200 Ibid., pp. 19–20, 24. 

201 Ibid., p. 25. 

202 Small Business Reauthorization Act of 1997, § 413, 15 U.S.C. § 644 (2000); see also U.S. General Accounting 

Office, Small Businesses: Limited Information Available on Contract Bundling’s Extent and Effect, March 2000, p. 

7. 

203 DOEn, Acquisition Letter, p. 11. See also 13 C.F.R. § 125.2(b)(2) (2004). 

204 Angela B. Styles, administrator, Executive Office of the President, Office of Management and Budget, Office of 

Federal Procurement Policy, letter to President George W. Bush, Oct. 29, 2002. 

205 DOT Interrogatory, p. 8. 
56 Chapter 2

contracts.206 The new regulations also require agencies to coordinate procurement activities with 

small business specialists, revise the threshold and documentation required for substantial 

bundling, and mandate that small business specialists notify the agency’s OSDBU when 

strategies include unnecessary or unjustified bundling.207 OSDBUs must identify proposed 

solicitations that involve significant bundling requirements and work with SBA and contracting 

officers on strategies to increase small business participation as contractors and 

subcontractors.208

Regulations require agencies to conduct market research to determine and justify the necessity of 

bundling. However, most agencies are not doing this; instead, they rely on internal reviews of 

large contracts for potential breakout opportunities to avoid bundling.209 Bundling can be 

justifiable if it results in a substantial benefit, such as cost savings, improved quality, or quicker 

acquisition cycles.210 DOD developed a benefit analysis framework, which includes market 

research, identification of anticipated benefits, notification responsibilities, and documentation of 

results.211 

Where bundling is necessary and justified, agencies must take actions to mitigate its effects by 

increasing small business subcontracting opportunities.212 Federal regulations require firms that 

receive contracts of $500,000 for products and services or $1 million for construction to prepare 

subcontracting plans.213 Amended regulations require that these plans, and compliance with 

subcontracting requirements, serve as evaluation factors for future awards.214 In other words, by 

enforcing subcontracting requirements, agencies can mitigate the impact of bundling and ensure 

open avenues for small businesses. 

Asked about their efforts to unbundle contracts, agencies generally indicated that they try to 

determine whether large contracts can be apportioned to make them more accessible for small 

businesses. However, few of the agencies inaugurated specific unbundling policies or 

procedures.215 Moreover, discrepancy exists in how agencies define and identify bundled 

contracts. For instance, DOEn stated that it has no bundled contracts that fit the administration’s 

criteria. However, it is valuating large contracts to “identify breakout opportunities for small 

businesses,”216 a task that may prove difficult given the large and complex nature of energy 

 

206 Small Business Government Contracting Programs, 68 Fed. Reg. 60,006 (Oct. 20, 2003) (codified at 13 C.F.R. § 

125) (hereafter cited as Small Business Contracting Programs). 

207 See 13 C.F.R. § 125.2 (2004). 

208 Small Business Contracting Programs, pp. 60,007–08. 

209 See, e.g., DOEn Interrogatory, p. 3; DOD follow-up response, pp. 6–7; DOT Interrogatory, pp. 8–9. 

210 OFPP, Contract Bundling, p. 2. 

211 U.S. Department of Defense, Office of Small and Disadvantaged Business Utilization, Benefit Analysis 

Guidebook: A Reference to Assist Department of Defense Acquisition Strategy Teams in Performing a Benefit 

Analysis Before Bundling Contract Requirements, 2002 (hereafter cited as DOD, Benefit Analysis Guidebook). 

212 OFPP, Contract Bundling, p. 9. 

213 See 48 C.F.R. § 19.702 (2004). 

214 See 13 C.F.R. § 125.3(g) (2005). 

215 See, e.g., DOEn Interrogatory, p. 3; DOD follow-up response, pp. 6–7; DOT Interrogatory, pp. 8–9. 

216 DOEn Interrogatory, p. 3. 
Chapter 2 57

contracts. The agency noted that these efforts could have a measurable effect on the number of 

small and disadvantaged businesses receiving contracts, although it has not assessed outcomes. 

The nature and structure of many DOEn contracts, such as those for management and operation 

of DOEn laboratories and facilities, often preclude small businesses from participating, resulting 

in low goals and participation rates, thus making it imperative that the agency take proactive 

steps to unbundle contracts.217 In 2004, the agency created an “Advanced Planning Acquisition 

Team” (APAT) to act as the focal point for reviewing bundled acquisitions. The APAT, which is 

comprised of the agency’s Office of Procurement and Assistance Management, its OSDBU, an 

SBA representative, and a representative of the DOEn element seeking an acquisition, reviews 

all proposed contracts over $3 million to prevent unnecessary bundling and to maximize small 

business procurement.218

DOD procures more than 80 percent of total bundled federal contract dollars. In 2002, the Under 

Secretary of Defense issued a statement requiring all service acquisition directors to avoid 

unnecessary and unjustified bundling and to make efforts to mitigate the negative effects on 

small businesses.219 In addition, as noted above, DOD developed the Benefit Analysis 

Guidebook, a reference for acquisition specialists to determine whether contract bundling is 

justifiable and necessary.220 The guide includes best practices for avoiding bundling. 

Notwithstanding these initiatives, the agency stated in its interrogatory response that, to date, it 

has not unbundled contracts to expand small business prime and subcontracting opportunities, 

citing the relative newness of the regulatory definition of bundling.221 The agency cites as 

normal practice, however, review of all contracts over $100,000 to determine whether they can 

be broken into smaller contracts. In some cases, contracts have been broken apart, and in others 

bundled requirements have been set-aside for small businesses.222 In still other instances, small 

businesses have formed teaming arrangements to compete for bundled contracts. 

On January 12, 2005, DOS issued its first annual assessment of contract bundling. The agency 

OSDBU reviewed all acquisitions exceeding $100,000 (more than 100 contract actions totaling 

$2.4 billion) and found that none were bundled.223 The assessment report noted that in several 

instances, contracts previously awarded to large firms after open competition are now reserved 

 

217 See U.S. Department of Energy, Office of Economic Impact and Diversity, Office of Small and Disadvantaged 

Business Utilization, “Report to the Secretary of Energy on the U.S. Department of Energy’s Small Business 

Programs, Fiscal Year 2002 and 2003,” Mar. 31, 2004, pp. 4–6. 

218 DOEn follow-up response, attachment C, Acquisition Letter 2004-03, May 5, 2004, pp. 10–11. 

219 E.C. Aldridge, Jr., under secretary of defense acquisition, technology, and logistics, U.S. Department of Defense, 

memorandum for service acquisition executives, directors, defense agencies, re: small business participation in 

consolidated contracts, Jan. 17, 2002. 

220 DOD, Benefit Analysis Guidebook, p. 3-1. 

221 DOD Interrogatory, p. 4; DOD follow-up response, p. 6. Contracts that fall under the definition of “bundled” are 

those solicited on or after Dec. 27, 1999. 

222 DOD follow-up response, pp. 6–7. 

223 Durie White, operations director, Office of Small and Disadvantaged Business Utilization, U.S. Department of 

State, letter to Hector Barreto, administrator, U.S. Small Business Administration, re: contract bundling, Jan. 12, 

2005 (hereafter cited as White letter). 
58 Chapter 2

for small businesses or 8(a) set-asides upon expiration of existing contracts.224 The department 

also noted that small businesses have had success using an “electronic reverse auction process.” 

The reverse auction is characterized as the opposite of bundling because it involves small 

purchase contracts and as such favors small business competition.225 

In a reverse auction, buyers (including federal agencies) interested in purchasing commercial 

items solicit and collect bids on the Internet; sellers submit real-time bids, in decreasing 

increments, on the sales contract.226 In FY 2004, small businesses won 76 percent of DOS 

auction dollars, totaling $27 million.227 Overall, of the 10,000 transactions completed using 

FedBid, the government’s on-line procurement auction provider, more than 68 percent of the 

$200 million in purchases were awarded to small businesses.228 FedBid began as a pilot program 

with DOS in 2001. Other agencies, including DOD, DOEn, and DOT, now participate as well.229

DOT established a policy that requires procurement staff to review proposed acquisitions above 

$2 million for unnecessary bundling. The agency also relies on prime contractor compliance with 

subcontracting plans to mitigate the potential effects of bundling.230 By parceling out portions of 

large, consolidated contracts to small and disadvantaged businesses, prime contractors open 

opportunities to firms that otherwise might not be able to compete. Each operating 

administration must follow agency procedures and regulations. Although DOT indicates that, 

after implementation of these policies, the number of contracts awarded to small and 

disadvantaged businesses increased, it does not offer concrete evidence that unbundling is 

responsible for the change.231 

Similarly, HUD cites its successful small business award record as evidence of its commitment 

to unbundling.232 In a small business policy statement, the agency identifies specific procurement 

strategies, such as modular contracting and a “cascading” approach of bid solicitations, as means 

to avoid unjustified bundling.233 Cascades invoke tiers of restricted competition to prioritize 

certain types of small businesses; bidding opens to all firms only if too few targeted enterprises 

submit responses to a contract solicitation. HUD developed its system in response to difficulties 

small businesses suffered accessing large and bundled contracts, and the agency allows 

procurement officers substantial discretion in choosing when to invoke cascades and which 

 

224 Ibid., p. 1. 

225 DOS follow-up response, pp. 4–5. 

226 FedBid, “Frequently Asked Questions,” no date, <http://www.fedbid.com> (last accessed Apr. 21,2005). FedBid 

is a third-party service provider specializing in online reverse auction procurement services for the federal 

government. 

227 White letter, p. 2. 

228 FedBid, “About FedBid,” no date, <http://www.fedbid.com> (last accessed Apr. 21, 2005). 

229 Ibid. 

230 DOT Interrogatory, p. 8. 

231 Ibid., p. 9. 

232 HUD Interrogatory, p. 3. 

233 HUD, “Small Business Policy,” p. 4. 
Chapter 2 59

businesses may bid in each tier.234 The range of offers received determines whether cascades 

result in outcomes similar to unbundling. HUD reviews procurement proposals and pre-contract 

awards to identify bundled contracts.235 

Rather than unbundling contracts per se, in 2001, DOEd began using Multiple-Award TaskOrder (MATO) contracts to streamline acquisitions. Contractors compete for individual tasks 

under MATO contracts, such as research and policy analysis, program assessments, and data 

collection and analysis. Thus, businesses compete for a portion of a larger contract. The number 

of small businesses participating in MATO contracts increased from 19 to 47 (of a total of 104 

businesses) between 2001 and 2004.236 

Agencies acknowledge unbundling as a necessary administrative strategy, but have difficulty 

identifying bundled contracts. In 2004, two years after the OMB report on bundling and six 

months after agencies issued regulations, GAO examined the impact of strategies to mitigate the 

effects on small businesses.237 GAO found that fewer contracts were bundled than suspected due 

to faulty reporting and coding. GAO also noted that the revised regulations do not establish 

guidelines to measure the extent to which bundling occurs or impacts small businesses. Thus, 

GAO concluded that it will be difficult to gauge efforts to identify and eliminate bundling and 

subsequently increase small business opportunities.238 Moreover, it is difficult to measure how 

many small disadvantaged or minority-owned firms have benefited from contract unbundling. 

The HUBZone Program 

In addition to opening individual contracts to small and disadvantaged businesses, all agencies 

participate, to varying degrees, in an effort to create contract opportunities in economically 

distressed communities. Title VI of the Small Business Reauthorization Act of 1997 created the 

HUBZone Empowerment Contracting Program (the “HUBZone Program”) to encourage federal 

agencies to contract with small businesses in historically underutilized business (HUB) zones. 239

The HUBZone program is race-neutral; eligibility for benefits is based on geographic location in 

a low-income area and business size, not on race or ethnicity. Procurement officers can grant 

evaluation preferences to HUBZone enterprises or restrict competition by setting aside contracts 

when there is a reasonable expectation two or more qualified HUBZone firms will bid. The 

program is not directed toward developing individual business owners or their firms, but to 

foster community development. It does so through requirements that qualified small businesses 

 

234 HUD Affected Agency Review, pp. 1–2. 

235 Ibid., p. 2. 

236 DOEd Interrogatory, p. 2. 

237 See U.S. Government Accountability Office, Contract Management: Impact of Strategy to Mitigate Effects of 

Contract Bundling on Small Businesses Is Uncertain, May 2004. 

238 Ibid., p. 3. 

239 Small Business Reauthorization Act of 1997, Pub. L. No. 105-135, 111 Stat. 2592 (codified as amended at 15 

U.S.C. §§ 631–657 (2000)); HUBZone Empowerment Contracting Program Agency, 63 Fed. Reg. 31,896 (June 11, 

1998) (codified at 13 C.F.R. pts. 121, 125, and 126) (hereafter cited as SBA, HUBZone Empowerment Contracting 

Program). 
60 Chapter 2

maintain a principal office in the HUBZone and employ staff who live in a designated distressed 

area.240

A HUBZone is a non-metropolitan or metropolitan area characterized by high unemployment 

and low income, or a federally recognized Native American reservation.241 To be eligible for the 

program, a business must be located in a HUBZone; owned and operated by a U.S. citizen, an 

Indian tribal government, Alaska Native Corporation, or community development corporation; 

small relative to industry size standards; and/or staffed with 35 percent of its employees residing 

in the HUBZone. Congress determined that 3 percent of federal contracts should go to such 

businesses, though neither legislation nor congressional testimony document a rationale for this 

target.242 

SBA certifies firms for the HUBZone program and places them on a list that federal agencies use 

in procurement.243 A certified firm remains on the list to obtain federal contracts for one year, 

and can apply for recertification every year thereafter.244 Certified businesses in the program 

qualify for certain set-asides and preferences in bid evaluation. Regulations also permit noncompetitive awards when only one qualified HUBZone enterprise submits an offer. Prime 

contractors receive credit towards subcontracting goals for using HUBZone businesses.245

 

240 SBA, HUBZone Empowerment Contracting Program, p. 31,900. Also see Small Business Administration, 

“HUBZone: ‘Historically Underutilized Business Zone,’” Aug. 3, 2002, <http://www.sba.gov/hubzone/> (last 

accessed Feb. 9, 2005). 

241 The economic criteria for a HUBZone are a median household income of less than 80 percent of the state median 

household income or an unemployment rate of not less than 14 percent of the statewide average. U.S. Small 

Business Administration, “Who We Are,” June 24, 2004, 

<https://eweb1.sba.gov/hubzone/internet/general/whoweare.cfm#3> (last accessed June 1, 2005). 

242 Ibid. 

243 SBA maintains a list of qualified HUBZone firms on its Web site. It now includes more than 4,700 certified 

small business concerns expressing interest in working with the federal government as HUBZone contractors. One 

can identify such contractors through a simple state-by-state listing or a comprehensive search capability. See U.S. 

Small Business Administration, “Frequently Asked Questions,” no date, p. 9, 

<https://eweb1.sba.gov/hubzone/internet/general/faqs.cfm> (last accessed Feb. 9, 2005) (hereafter cited as SBA, 

“HUBZone FAQs”); for state-by-state searches, see U.S. Small Business Administration, “Certified HUBZone 

Concerns – Search,” no date, <https://eweb1.sba.gov/hubzone/internet/general/approved-firms.cfm> (last accessed 

June 2, 2005); for complex searching, see U.S. Small Business Administration, “HUBZone Contractor Gateway 

Search,” Apr. 17, 2005, <http://dsbs.sba.gov/dsbs/dsp_searchhubzone.cfm> (last accessed June 2, 2005). Before 

2004, SBA also maintained an on-line database, known as PRO-Net, containing profiles of more than 200,000 small 

businesses with varying eligibility for SBA programs. SBA updated the PRO-Net profile to reflect HUBZone 

certification. See U.S. General Accounting Office, Small Business: HUBZone Program Suffers from Reporting and 

Implementation Difficulties, October 2001, p.3 (hereafter cited as GAO, Small Business: HUBZone Program 

Suffers). On Jan. 1, 2004, SBA and other agencies jointly integrated PRO-Net into DOD’s contractor database—the 

“CCR” at <http://www.ccr.gov>— providing all previously available capabilities. See U.S. Small Business 

Administration, “SBA, OMB, GSA and DOD Work Together to Integrate Pro-Net and CCR Database and Simplify 

Contracting Process for Small Businesses,” Aug. 13, 2004, <http://pro-net.sba.gov/> (last accessed June 1, 2005); 

and DOD, “CCR.” Thus, today, federal contracting officers use both the HUBZone list and CCR for procurements. 

244 SBA, HUBZone Empowerment Contracting Program, p. 31,900. 

245 SBA, “HUBZone FAQs.” 
Chapter 2 61

The government implemented the HUBZone program gradually. With the ultimate goal of 

awarding 3 percent of federal prime contracts to certified HUBZone firms, the targets for fiscal 

years 1999 through 2002 were 1 percent, 1.5 percent, 2 percent, and 2.5 percent, respectively. 

Also, the 1997 statute designated 10 agencies to implement the HUBZone program through the 

end of FY 2000; another act added three more in November 1999.246 Since FY 2001, the 

program has applied to all major federal agencies.247 

Program implementation was difficult. First, government officials had difficulty contracting with 

HUBZone firms because SBA had certified a relatively small number of eligible enterprises 

(290) by the start of FY 2000. 248 Currently, SBA processes many program applications denying 

relatively few HUBZone status. The agency received increasing numbers of HUBZone 

applications: from more than 1,500 in FY 2000 to near 2,700 in FY 2002, then decreasing 

thereafter, ending at about 2,300 in FY 2004 (see figure 2.1). SBA officials claim the agency 

processed all the applications within a 30-day regulatory timeframe and withdrew only nonresponsive firms. Withdrawals were fairly common in recent years (see figure 2.1). The number 

of denials was less than 100 in FYs 2000 to 2002, increasing to between 200 and 400 in FYs 

2003 and 2004 (see figure 2.1). SBA denied applications of firms that did not meet eligibility 

requirements, such as for HUBZone location and small size.249

A second reason procurement officers had difficulty contracting with HUBZone firms when the 

program started was because they could not locate enterprises providing the needed goods and 

services based on overly general statements of capabilities.250 Since then some agencies have 

offered firms technical assistance on writing specific capability statements.251

In other startup difficulties in 2000, agencies did not report HUBZone achievements accurately. 

Guidance on how to submit data was insufficient and resulted in overcounting some 

achievements (particularly firms that were certified during the term of the contract) and 

undercounting others. Because of the above and other issues (for example, program priorities 

and procedures appeared to favor serving small businesses through the 8(a) program rather than 

HUBZone), agencies failed to meet goals.252 

FIGURE 2.1 

Small Business Administration’s Certifications of HUBZone Firms, Fiscal Years 2000 to 2004 

 

246 See 15 U.S.C. § 657(a) (2000). 

247 GAO, Small Business: HUBZone Program Suffers, p. 3. 

248 Ibid., pp. 4–8. 

249 SBA follow-up response, pp. 2–3. 

250 GAO, Small Business: HUBZone Program Suffers, pp. 4–8. 

251 See, e.g., HUD, OSDBU Small Business Outreach Session, p. 29. 

252 GAO, Small Business: HUBZone Program Suffers, pp. 4–8. In 2001, SBA clarified that contracting offices 

should show no preference for the 8(a) program over HUBZone when firms qualify under both. Fred C. 

Armendariz, associate deputy administrator for government contracting and business development, U.S. Small 

Business Administration, memorandum to district directors, deputy district directors, area directors, procurement 

center representatives, assistant district directors for business development, and business opportunity specialists, re: 

clarification of the interaction between HUBZone and 8(a) programs, Oct. 10, 2001. 
62 Chapter 2

Note: The number approved exceeds the number received because of backlogs in processing applications.

Source: U.S. Small Business Administration, Follow-up Interrogatory Reponse, May 6, 2005, p. 3.

Caption: The number of HUBZone applications SBA received increased in fiscal years 2000 to 2002, from more than

1,500 to 2,700, then fell to about 2,300. The number of HUBZone firms' applications denied was small until fiscal year 

2003 when SBA rejected nearly 400. The agency rejected more than 200 in fiscal year 2004.

18 27 65 0

500

1000

1500

2000

2500

3000

2000 2001 2002 2003 2004

Fiscal year

Number of applications

Received

Withdrawn

Approved

Denied

Data on the use of HUBZone mechanisms reflect these start-up difficulties. The 10 federal 

agencies initiating the program awarded only 52 HUBZone contracts during FY 2000.253 By FY 

2003, governmentwide federal procurement data showed 22,433 actions involving HUBZones 

amounting to $3.4 billion, just 1.2 percent of federal procurement.254 

 

253 GAO, Small Business: HUBZone Program Suffers, p. 8. 

254 U.S. General Services Administration, Office of Governmentwide Policy, Office of Acquisition Policy,

Governmentwide Information Systems Division, Federal Procurement Data Center, Federal Procurement Report,

2003, p. ix, <http://www.fpdc.gov/fpdc/fpr2003.htm> (last accessed Sept. 21, 2004). 
Chapter 2 63

TABLE 2.1 

Selected Federal Agencies' Contracting Goals and Achievements for Businesses Located in 

HUBZones, Fiscal Years 2000 to 2005 

2000 2001 2002 2003 2004a 2005a

Goals Actual Goals Actual Goals Actual Goals Actual Goals Goals

Small Business Administration 

Prime -- 0.0% 2.0% 0.2% 2.5% 0.0% 3.0% 1.0% 3.0% 3.0%

Subcontracting -- -- -- -- 2.5% -- 3.0% -- -- -- 

Department of Defense 

Prime 1.5% 0.4% 2.0% 0.7% 2.5% 0.5% 3.0% 1.2% 3.0% 3.0%

Subcontracting 0.0% -- 0.0% 0.5% 2.5% 0.7% 3.0% 1.0% 3.0% 3.0%

Department of Transportation 

Prime 1.5% 0.0% 2.0% 3.1% 2.5% 2.6% 3.0% 2.5% 3.0% 3.0%

Subcontracting 1.5% -- 1.5% 0.0% 2.5% 0.2% 3.0% 0.6% 3.4% 3.4%

Department of Energy 

Prime 1.5% 0.1% 2.0% 0.1% 2.5% 0.0% 3.0% 0.2% 1.5% 1.5%

Subcontracting 1.5% -- 1.5% 0.7% 2.5% 1.2% 3.0% 1.7% 3.0% 3.0%

Department of Housing and Urban Development 

Prime 1.5% 0.1% 2.0% 0.3% 2.5% 1.5% 3.0% 5.6% 3.0% 3.0%

Subcontracting 0.5% -- 0.5% 0.1% 2.5% 0.9% 3.0% 2.0% 3.0% 3.0%

Department of Education 

Prime 0.0% 0.0% 2.0% 0.1% 2.5% 0.1% 3.0% 1.0% 3.0% 3.0%

Subcontracting 1.5% -- 1.5% 0.0% 2.5% 0.8% 3.0% 0.3% 3.0% 3.0%

Department of State 

Prime 0.0% 0.1% 2.0% 0.4% 2.5% 2.2%b 3.0% 1.5% 3.0% 3.0%

Subcontracting 1.5% -- 1.5% 0.3% 2.5% 0.1% 3.0% 0.9% 3.0% 3.0%

Caption: Goals were gradually incremented during early years of the HUBZone program, 2000 to 2003. All the selected 

agencies had prime and subcontracting HUBZone goals of 2.5 percent in fiscal year 2002 and 3 percent in 2003. All except

DOEn had goals of 3 percent or higher in fiscal years 2004 and 2005. DOT exceeded its 2002 prime HUBZone goal; HUD 

was the only agency to exceed it in 2003. 

a Agencies' 2004 achievements are unavailable because of problems with a newly implemented data system. This report was

published before fiscal year 2005 ended. See General Services Administration, facsimile to U.S. Commission on Civil Rights, July 8, 

2005, p. 1. 

b Despite the Small Business Administration's published 2002 achievement shown above, Department of State officials claim the

HUBZone actual was 3.4 percent, indicating that the agency exceeded its goal. See U.S. Department of State's Response to the 

U.S. Commission on Civil Rights Interrogatory on Federal Contracting, Mar. 1, 2005, tab 2. 

Source: Compiled by USCCR using U.S. Small Business Administration, "Government-wide Procurement Preference Goaling

Program," no date, <http://www.sba.gov/GC/goals/> (last accessed June 1, 2005). 
64 Chapter 2

FIGURE 2.2 

Selected Federal Agencies' Contracting Goals and Achievements for Businesses Located in 

HUBZones, Fiscal Years 2000 to 2005 

Source: Compiled by USCCR using U.S. Small Business Administration, "Government-wide Procurement Preference Goaling Program," 

no date, <http://www.sba.gov/GC/goals/> (last accessed June 1, 2005).

Caption: Although DOEn HUBZone subcontracting has

increased through fiscal years 2000 to 2003, prime 

contracting has been nearly nonexistent.

Caption: DOT has had more success increasing prime 

contracting in HUBZones than subcontracting, and 

exceeded its prime contract goals in 2002 and 2003.

Summary caption: From fiscal years 2000 through 2005, HUBZone prime and subcontracting goals were generally unmet by all

six agencies. However, in 2001 and 2002, DOT met its prime contracting goals; and in 2003, HUD greatly exceeded its prime

contracting goals.

Caption: HUD contracting with HUBZone enterprises 

increased dramatically from fiscal years 2001 to 2003, and

now exceeds the agency’s prime contract goals.

Caption: DOEd contracting and subcontracting with

HUBZone enterprises remains well below the agency’s

goals.

Caption: Although DOS increased its contracting with

HUBZone enterprises from fiscal years 2000 to 2003, agency

achievements remain below goals.

Caption: DOD HUBZone contracting has increased slightly

since fiscal year 2000, but the agency has never met its 

goals.

Department of Defense

0.0%

2.0%

4.0%

6.0%

2000 2001 2002 2003 2004 2005

Fiscal year

Percent of total 

procurement

Prime Contract Goals Prime Contract Achievements

Subcontracting Goals Subcontracting Achievements

Department of Education

0.0%

2.0%

4.0%

6.0%

2000 2001 2002 2003 2004 2005

Fiscal year

Percent of total 

procurement

Department of Energy

0.0%

2.0%

4.0%

6.0%

2000 2001 2002 2003 2004 2005

Fiscal year

Percent of total 

procurement

Department of Housing and Urban Development

0.0%

2.0%

4.0%

6.0%

2000 2001 2002 2003 2004 2005

Fiscal year

Department of State

0.0%

2.0%

4.0%

6.0%

2000 2001 2002 2003 2004 2005

Fiscal year

Department of Transportation

0.0%

2.0%

4.0%

6.0%

2000 2001 2002 2003 2004 2005

Fiscal year
Chapter 2 65

By 2003, most agencies in this study shared a 3 percent goal for HUBZone awards. However, 

individual agencies vary greatly in their actual contracting with businesses in these areas; for 

example, while 5.6 percent of FY 2003 HUD procurement went to these enterprises, DOEd 

awarded only 1.0 percent of its contracts to HUBZone program participants that year. 

Furthermore, DOEn negotiated a low HUBZone contracting goal of 1.5 percent for FYs 2004 

and 2005 after awarding just 0.2 percent of contracts to these firms in FY 2003 (see table 2.1 and 

figure 2.2). No agency has yet reported attaining HUBZone subcontracting goals, which have 

generally stood at 3 percent since FY 2003. However, despite subcontract awards of only 0.6 

percent in FY 2003, DOT ambitiously increased its HUBZone subcontracting goal to 3.4 percent 

for FYs 2004 and 2005 (see table 2.1 and figure 2.2). FY 2004 goaling achievements were still 

unavailable nearly a year after the period ended because of difficulties with a new electronic data 

system.255

Agency officials reported some efforts to increase procurement with HUBZone businesses. SBA 

identified several initiatives and strategies to assist other agencies. First, the agency has two 

Internet links: one familiarizes contract officers with statutory and regulatory provisions 

governing the program; the other allows contracting officials to search for qualified firms (i.e., 

through a specialized searchable database similar to that for small businesses).256 

Second, SBA staff routinely conducts and participates in seminars and workshops with federal 

contracting officials to facilitate understanding of the program and encourage creating more 

opportunities for HUBZone participants. SBA’s outreach efforts include conferences and 

briefings for procurement officials and program managers, offered through technical assistance 

centers. For example, a partnership with the Air Force provides for such training at bases 

throughout the country.257 

Third, SBA’s HUBZone Office developed a system to advise contracting officers of solicitations 

appropriate for HUBZone set-aside requirements, provide education about the program’s 

statutory requirements, assist with market research, and encourage the redirection of 

procurement to HUBZone companies. An SBA analyst sends contracting officers lists of capable 

HUBZone companies for their solicitations.258

Among other agencies, DOD officials reported that they are sponsoring outreach and training 

efforts targeted to HUBZone small businesses.259 DOS has designated an HUBZone advocate. 

The individual organized an exposition in 2004, resulting in acquisitions that were set aside for 

HUBZones.260 DOEn, in a strategic plan, promises to include representatives of HUBZone 

enterprises on its small business advisory team and HUBZone outreach in its annual small 

 

255 U.S. General Services Administration, facsimile to the U.S. Commission on Civil Rights, July 8, 2005, p. 1. 

256 SBA follow-up response, p. 1. 

257 Ibid., pp. 1–2. 

258 Ibid., p. 2. 

259 DOD follow-up response, p. 2. 

260 DOS follow-up response, p. 3. 
66 Chapter 2

business conference.261 Finally, DOD proposed legislation to qualify small HUBZone businesses 

to participate in its mentor-protégé program and thereby increase contracting opportunities.262

Because the intent of the HUBZone program is to promote community development, SBA does 

not collect race-based data on the effects of this race-neutral approach, and thus the program’s 

effectiveness at helping minority-owned firms participate in federal contracting opportunities is 

unproven.263 Furthermore, because the program is race-neutral, one agency reported that it does 

not view HUBZone as a means to expand opportunities for minority businesses.264 Although 

other agencies may not share this view,265 their ability to collect data on an effect different from 

the legislated program purpose is no doubt impaired. 

As for the program’s success at economic development, among SBA’s duties is to report to 

Congress on the effects of investment in HUBZone areas; agencies have reported economic 

improvements.266 For example, the economic conditions in some HUBZone sites so improved as 

a result of the initiative that special solicitations and incentives for contracting in these areas 

were no longer needed.267 Furthermore, in January 2005, SBA announced improvements to the 

HUBZone program that, among other things, will create more jobs in economically distressed 

communities.268 

CONCLUSION 

The race-neutral strategies discussed in this chapter, including strong enforcement of 

nondiscrimination policies, are designed to open contracting opportunities to all small 

businesses. Some intend to enable disadvantaged firms to compete without altering the terms of 

competition (e.g., outreach, technical assistance, and mentor-protégé programs). Others provide 

small and disadvantaged businesses the resources necessary to compete (e.g., financial 

assistance). Still other strategies open previously unattainable contracting opportunities to small 

 

261 U.S. Department of Energy, FY 2005 Strategic Plan for Small Business, no date, p. 19 (hereafter cited as DOEn, 

FY 2005 Strategic Plan). 

262 DOD follow-up response, p. 2. 

263 See, e.g., DOEn Interrogatory, p. 8. As DOS explains, dual status as HUBZone firms and 8(a) eligible ones (or 

tribally owned or Alaska Native-owned enterprises) would give a partial estimate. DOS Interrogatory, pp. 4, 11. 

DOT explains that its Offices of Small Disadvantaged Business Utilization and Minority Resource Center observes 

the impact of the HUBZone program indirectly when it provides business counseling and technical assistance to 

improve performance against the HUBZone goals. See DOT Interrogatory, p. 4. 

264 DOD Interrogatory, p. 10. 

265 For example, DOEn uses the HUBZone program as a vehicle to expand its contracting opportunities with small 

businesses, including minority-owned firms. DOEn Interrogatory, p. 2 

266 DOEn, FY 2005 Strategic Plan, p. 18. 

267 Recent changes guarantee HUBZone firms’ eligibility to participate in the program until the results of the next 

census data collection, scheduled for 2010, are analyzed and publicly released. U.S. Small Business Administration, 

“SBA Improves HUBZone Program to Help Small Businesses Create More Jobs,” news release 05-04, Jan. 27, 

2005. 

268 Ibid. 
Chapter 2 67

businesses (e.g., unbundling), or expand economic potential in underutilized and distressed 

geographic regions (e.g., the HUBZone program). 

Despite reliance on these common strategies, the Commission found that federal agencies do not 

seriously consider, much less implement, basic elements of race-neutral contracting systems. For 

example, the Clinton Justice Department directed agencies to regularly review race-conscious 

programs to determine their continued need, but agencies do not do so in a consistent or 

systematic manner. Instead, agencies rely upon congressional analysis, legislation, and 

regulation to justify the existence of race-conscious programs. In addition, DOJ stated that 

agencies should consider race-neutral alternatives to the maximum extent practicable. However, 

agencies offer no evidence that they examine the viability of a wide range of alternatives. Rather, 

they utilize many of the same race-neutral strategies, without measuring their impact and without 

rigorously exploring the prospect that existing race-conscious programs could be replaced with 

an expanded array of race-neutral initiatives. 

DOEd pointed to systematic, timely, and comprehensive data collection as necessary to 

demonstrate serious consideration of race-neutral alternatives. Agencies generally do not 

develop policy, procedures, data, or statistical standards for when to use race-neutral versus raceconscious approaches, but rather rely on statutory provisions and SBA guidance. Yet, SBA 

expressly denies that it is responsible for providing formal assistance with implementation of 

independent race-neutral programs to other federal agencies. Only DOEn reported routinely 

assessing the effect of procurement procedures and policies on small disadvantaged businesses. 

Moreover, agencies do not measure the effects of race-neutral efforts on minority-owned firms, 

nor do they collect appropriate data from which they can determine impact. Only DOD measures 

the success of race-neutral approaches in awarding contracts to minority-owned businesses or 

compares it to that of race-conscious ones. Agencies do not consciously or strategically use raceneutral measures as substitutes for race-conscious ones. Rather, they use race-neutral strategies 

to supplement their small business programs, which include racial elements to some extent. 

Although several interagency committees and councils bring officials together, most agencies do 

not compile or distribute information to improve the effectiveness of race-neutral approaches. 

Despite guidance to target minority groups with outreach to ensure their participation in 

contracting opportunities, only two agencies included targeted outreach in planning documents, 

and none had tracking systems to determine whether small and disadvantaged businesses 

benefited. 

Perhaps most alarming, this study did not find any enforcement system that would identify and 

eliminate discrimination. Agencies gave many and varied answers about how and where a 

contractor or subcontractor subjected to discrimination would file a complaint or receive 

resolution. However, they do not have comprehensive policies or procedures for processing 

complaints. Nor do they have uniform mechanisms or sanctions to redress discrimination. The 

absence of legal channels and remedies for discrimination in contracting is a serious omission in 

civil rights law. Failure to enforce nondiscrimination has the potential to undermine all other 

federal efforts to improve access to government contracts for enterprises historically 

discriminated against and, indeed, to ensure that procurement programs are inclusive. 
68 Chapter 2
Chapter 3 69

Chapter 3: Findings and Recommendations 

The effort to overcome discrimination in federal procurement began with the conviction that all 

Americans should be able to enter into contracts to provide goods and services for the federal 

government “without regard to their race, color, religion, sex, or national origin.”1

 To combat 

discrimination on these bases, the executive and legislative branches made deliberate efforts to 

open opportunities to minority- and women-owned businesses. Forty years ago, President 

Lyndon Johnson signed Executive Order 11,246, which required federal contractors to eliminate 

discrimination in their employment decisions. The Nixon Administration supplemented this 

approach with specific race-conscious goals and timetables. Later, the federal government 

developed various programs intended to make contracting more inclusive. Some of these 

programs are race-neutral, while others are race-conscious. 

Ten years ago, in the landmark case of Adarand Constructors, Inc. v. Peña (Adarand), the 

Supreme Court held that programs that use racial classifications must be subject to strict 

scrutiny, in that they must serve a compelling government interest and be narrowly tailored to 

meet that interest. 2 Citing Richmond v. J. A. Croson Co., the Court explained that, among other 

things, narrow tailoring requires that agencies must first explore race-neutral strategies and 

determine whether such alternatives would be adequate before resorting to race-conscious 

programs.3

 The Clinton Justice Department, applying the Adarand decision, instructed federal 

agencies to “make concentrated race-neutral efforts” and to limit the use of racial factors to the 

“minimum extent necessary to achieve legitimate objectives.”4

Congress continues to authorize, and the federal government continues to administer, programs 

to ensure small and disadvantaged businesses (SDBs) have opportunities to compete. The Small 

Business Administration (SBA) conducts several programs that pursue this purpose, including 

race-conscious ones. In the authorizing legislation for the Small Business Act section 8(a) and 

SDB programs, for example, Congress decided that minority business owners would be 

presumed disadvantaged, and only had to prove economic need to participate.5

 In its 8(a) 

business development program, SBA certifies firms as disadvantaged according to statutorily set 

income thresholds and social criteria. SBA also administers an SDB certification program, in 

 

1 See Exec. Order No. 11,246, 3 C.F.R. § 339 (1964–1965), amended by Exec. Order No. 11,375, 3 C.F.R. § 684 

(1966–1970); Exec. Order No. 11,749, 3 C.F.R. § 803 (1966–1970); Exec. Order No. 12,086, 3 C.F.R. § 230 

(1978); Exec. Order No. 13,279, 3 C.F.R § 258 (2002). See also 42 U.S.C. § 1981. 

2

 Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995). 

3 Id., at 237–38. 

4

 U.S. Department of Justice, Proposed Reforms to Affirmative Action in Federal Procurement, 61 Fed. Reg. 

26,042, 26,048, 26,050 (May 23, 1996). 

5 See Amendments to the Small Business Act and Small Business Investment Act of 1978, Pub. L. No. 95-507, 92 

Stat. 175 (codified as amended at 15 U.S.C. § 631(f) (2000)). 
70 Chapter 3

which businesses that meet eligibility criteria may enlist a variety of procurement mechanisms, 

such as weighted bid evaluations and monetary incentives for prime contractors that subcontract 

with SDBs. 

These two programs are the primary mechanisms by which federal agencies consign SDBs for 

contracting and subcontracting opportunities. SBA measures agencies’ efforts against statutorily 

established goals for 8(a) and SDB contract awards. The measurements are not satisfactory 

indicators of the government’s overall commitment to SDB contracting; they generally reflect 

only race-conscious efforts and not other small business strategies. 

The 8(a) program’s presumption that minority business owners are disadvantaged supports the 

Department of Justice’s (DOJ) characterization of this program as race-conscious. Other 

agencies, however, disagree with DOJ’s position on the basis that procedures exist which enable 

nonminority owners, who demonstrate they are disadvantaged, to participate. This disagreement 

is characteristic of the confusion and lack of communication that typifies the government’s 

efforts to prevent discrimination in contracting. 

During the decade since Adarand, agencies have largely failed to apply the Supreme Court’s 

requirements, or DOJ’s guidelines, to their contracting programs. Specifically, they have not 

seriously considered race-neutral alternatives, relying instead on SBA-run programs, without 

developing new initiatives or properly assessing the results of existing programs. Demonstration 

of serious consideration could include exploration of a variety of alternatives, systematic and 

comprehensive data collection, timely research (such as disparity studies and other forms of 

research), outcomes measurement, and periodic review of both race-conscious and race-neutral 

programs. Most agencies do not follow these practices, nor do they provide persuasive 

justification for their failure to do so. 

Rather than developing and assessing race-neutral alternatives to their race-conscious programs, 

most agencies rely upon the same established programs. For example, agencies conduct some 

outreach and provide technical assistance to small businesses, but do not measure the effects of 

such efforts. They offer financial assistance, such as loans and advance payments, to small 

businesses to help them overcome monetary barriers to competing for contracts, but they do not 

adequately assess the results of these programs. The same is true of efforts to break apart, or 

unbundle, large contacts. Lack of data collection rendered impossible the efforts this study made 

to measure the effectiveness of race-neutral and -conscious programs independently. In general, 

agencies do not seriously consider whether new race-neutral initiatives could provide adequate 

alternatives to current race-conscious programs, nor do they appropriately assess the results of 

their existing programs. 

Best contracting practices may involve a wide range of strategies, such as (1) increasing 

awareness of solicitations for procurement, (2) providing technical assistance to small 

businesses, and (3) expanding opportunities to compete for contracts. Effective race-neutral 

procurement systems would include elements that ensure nondiscriminatory access, build in 

measurement indicators, reach a wide audience, and maintain flexibility. In addition, clearly 

written, widely disseminated, and effectively enforced antidiscrimination laws, policies, and 

procedures should regulate all procurement decisions, including the selection of subcontractors. 
Chapter 3 71

The Commission, therefore, offers findings and recommendations in the following key 

categories (1) serious consideration of race-neutral alternatives, (2) antidiscrimination policy and 

enforcement, (3) ongoing review of procurement programs, (4) data and measurement, (5) 

communication and collaboration, and (6) outreach. 

SERIOUS CONSIDERATION 

Finding: Most agencies could not demonstrate that they consider race-neutral alternatives before 

resorting to race-conscious programs. Although DOJ offered post-Adarand guidance, agencies 

generally do not adhere to it. Moreover, DOJ has not provided specific guidance regarding what 

actions constitute serious consideration of race-neutral alternatives. As a result, agencies appear 

to give little thought to their legal obligations and disagree both about what the law requires and 

about the legal ramifications of their actions. One agency, the Department of Education (DOEd), 

has provided useful guidance regarding serious consideration of race-neutral alternatives in the 

context of higher education. 

Recommendation: Agencies must adopt and follow guidelines to ensure serious consideration 

of race-neutral alternatives. Such a system could entail (1) identifying and evaluating a wide 

range of alternatives, (2) articulating the underlying facts that demonstrate whether race-neutral 

plans work, (3) collecting empirical research to evaluate success, (4) ensuring such assessments 

are based on current, competent, and comprehensive data, (5) periodically reviewing raceconscious plans to determine their continuing need, and (6) establishing causal relationships 

before concluding that a race-neutral plan is ineffective. Best practices may also include (1) 

statistical standards by which agencies would determine when to abandon race-conscious efforts; 

(2) ongoing data collection, including racial and ethnic information, by which agencies would 

assess effectiveness; and (3) policies for reviewing what constitutes disadvantaged status and the 

continued necessity for strategies to increase inclusiveness. 

DOJ should coordinate the development of these guidelines, and effectuate legally compliant 

agency policies, by issuing clear definitions of race-neutral and -conscious programs, explaining 

carefully the circumstances under which agencies must seriously consider race-neutral 

alternatives, and establishing a solid framework for how agencies comport with the Supreme 

Court’s instructions. A team of legal advisors, procurement specialists, and social scientists, 

coordinated by DOJ, should work together to develop clear guidelines and workable race-neutral 

contracting strategies in a manner similar to DOEd’s effort in the higher education context. The 

guidelines should at least specify standards for data collection and analysis; measurement 

techniques; how, and with what frequency, agencies must review strategies; and examples 

representing a wide range of acceptable race-neutral alternatives. 

Once agencies share an understanding of available race-neutral options, they will be better able 

to integrate them into comprehensive procurement systems. An integrated race-neutral approach 

would also ensure less reliance on race-conscious programs and greater access to federal 

contracting opportunities for all small businesses. 
72 Chapter 3

ANTIDISCRIMINATION POLICY AND ENFORCEMENT 

Finding: The Commission has found that the federal government lacks an appropriate 

framework for enforcing nondiscrimination in procurement. Indeed, agencies reported that 

statutory or regulatory guidance in this area is lacking. Limited causes of action are available to 

contractors and subcontractors, but the most accessible mechanisms are restricted to procedural 

complaints about bidding processes. 

Recommendation: The Commission asks Congress to enact legislation expressly prohibiting 

discrimination based on race, color, religion, sex, national origin, age, and disability in federal 

contracting and procurement. Legislation should include protections for both contractors and 

subcontractors and establish clear sanctions, remedies, and compliance standards. Congress 

should delegate enforcement authority to each federal agency that has contracting capabilities.

Finding: Most agencies do not have in place policies or procedures to prevent discrimination in 

contracting. For example, some agencies could not identify who has authority to investigate and 

resolve contracting discrimination complaints, and they appear to have given little thought to 

basic questions of antidiscrimination policy. In general, agencies are either unaware of or 

confused about whether federal law protects government contractors from discrimination. 

Recommendation: DOJ and SBA should, without delay, facilitate agency development and 

implementation of civil rights enforcement policies for contracting. Agencies must establish 

strong enforcement systems to provide individuals a means to file and resolve complaints of 

discriminatory conduct. They also must adopt clear compliance review standards and delegate 

authority for these functions to a specific, high-level component. Doing so will help ensure that 

potential contractors and subcontractors have an opportunity to compete for federal funds 

without fear of discrimination. 

Once agencies adopt nondiscrimination policies, they should conduct regular compliance 

reviews of prime and other large contract recipients, such as state and local agencies. Agencies 

should widely publicize complaint procedures, include them with bid solicitations, and codify 

them in acquisition regulations. Civil rights personnel in each agency should work with 

procurement officers to ensure that contractors understand their rights and responsibilities and 

implement additional policies upon congressional action. 

Finding: Agencies generally employ systems for reviewing compliance with subcontracting 

goals made at the bidding stage, but do not establish norms for the number of reviews they will 

conduct, nor the frequency with which they will do so. Only recently did SBA release guidelines 

for agencies to evaluate when contractors have made a good faith effort to employ SDB 

subcontractors. 

Recommendation: Good faith effort policies should be rooted in race-neutral outreach. 

Agencies should set standards for and carry out regular on-site audits and formal compliance 

reviews of SDB subcontracting plans to make determinations of contractors’ good faith efforts to 

achieve established goals. Agencies should develop and disseminate clear regulations for what 

constitutes a good faith effort, specific to individual procurement goals and procedures. Agencies 

should also ensure that all prime contractors are subject to audits. They should require prime 
Chapter 3 73

contractors to demonstrate all measures taken to ensure equal opportunity for SDBs to compete, 

paying particular attention to contractors that have not achieved goals expressed in their offers. 

ONGOING REVIEW 

Finding: One requirement of narrow tailoring involves regular review of race-conscious 

programs to determine their continued necessity and to ensure that they are focused enough to 

serve their intended purpose. No agency reported policies, procedures, or statistical standards for 

when to use race-conscious instead of race-neutral strategies. Agencies have not established 

procedures to reassess presumptions of disadvantage. 

Recommendation: Agencies must engage in regular, systematic reviews (perhaps biennially) of 

race-conscious programs, including those that presume race-based disadvantage. They should 

develop and document clear policies, standards, and justifications for when race-conscious 

programs are in effect. 

Agencies should develop and implement standards for the quality of data they collect and use to 

analyze race-conscious and -neutral programs and apply these criteria when deciding 

effectiveness. Agencies should also evaluate whether race-neutral alternatives could reasonably 

generate the same or similar outcomes. Where the answer is yes, agencies should implement 

such alternatives. 

Agencies should develop and publish draft review procedures by September 2007. 

DATA AND MEASUREMENT 

Finding: Agencies have neither conducted race disparity studies nor collected empirical data to 

assess the effects of procurement programs on minority-owned firms. Congress charged the 

Department of Commerce with conducting benchmark studies of minority participation in 

standard industries every five years, yet it has not done so since 1999, based on 1996 data. 

Consequently, agencies and prime contractors lack current data to determine whether SDB 

contracting in those industries has improved or whether any further race-conscious procurement 

is warranted. 

Recommendation: Congress should enforce its earlier mandate that the Department of 

Commerce conduct regular benchmark studies. In addition, the National Academy of Sciences 

should develop standards for the data’s scope and reliability. The Department of Commerce 

should adhere to an established schedule for the release of data by industry and geographic 

region. Other federal agencies should work with the Commerce Department to produce timely 

studies relevant to their specific contracting needs, and utilize the results in setting procurement 

goals. 

Finding: Federal procurement data do not evaluate the effectiveness of or continuing need for 

programs, either race-neutral or -conscious. Nor have agencies developed such measures. The 

1999 Commerce benchmark study, using 1996 data, is obsolete and its methodologies 
74 Chapter 3

controversial. In addition, the outcomes of race-neutral strategies cannot be isolated because 

agencies measure them in combination with race-conscious programs. Furthermore, most 

agencies rely on achievements of SBA-negotiated goals to demonstrate program effectiveness 

and ensure that minority-owned firms receive a specified share of contracts. The Department of 

Defense was the only agency that reported analyzing the success of race-conscious programs 

compared to race-neutral ones. 

Recommendation: The White House should form a task force to determine what data Congress, 

DOJ, and agencies need to properly implement narrow tailoring in contracting and assess 

whether (1) race-conscious programs are still necessary, and (2) the extent to which race-neutral 

strategies are effective as an alternative to race-conscious programs. As a first order of business, 

the task force, with the weight of the Office of the President behind it, should audit all current 

and delinquent studies and reports. It should examine existing data sources, their strengths and 

inadequacies; recommend how to collect better, more timely data; and identify resources that 

must be devoted to this task. The task force should issue a report by March 2007, presenting its 

recommendations to Congress. It should urge the passage of legislation to provide support for 

the necessary data collection, with a schedule for requirements and accountability measures. 

The task force should: 

(1) evaluate the adequacy and frequency of surveys of minority-owned businesses for 

determining disparities nationally or in specific industries, and suggest what evidence 

from these surveys or other data sources (both in measures and level of outcomes) would 

enable agencies to improve contracting programs to meet present-day needs; 

(2) examine the feasibility of disparity studies, including their cost and resultant quality, to 

determine if they support race-conscious programs, and whether they should be 

conducted governmentwide or by individual agencies; 

(3) recommend changes in the measurement of contracting goals that better capture the 

success of race-neutral initiatives; and 

(4) suggest measures of the success of race-neutral programs agencies might use until 

Congress offers guidance. 

To apply information to serious consideration of race-neutral alternatives, data should be 

reliable, current, complete, and comprehensive. Data should facilitate analyses of causal 

relationships and relate to the effectiveness of agencies’ race-conscious or -neutral programs.6

The first step of the task force’s review should identify standards, such as these, for data quality 

and articulate the degree to which they should be met, for example, how up-to-date data must be. 

The task force’s recommendations and data collection advocacy must be grounded in standards 

emerging from widespread practice in social science and case law. 

 

6 See, e.g., U.S. Department of Education, Office for Civil Rights, Inclusive Campuses: Diversity Strategies for 

Private Colleges, report no. 3, Race-Neutral Alternatives Series, 2005, p. 12. 
Chapter 3 75

Finding: Agencies do not assess the effectiveness of individual race-neutral strategies. For 

example, even though contract unbundling is a priority of the current administration, and 

agencies follow policies to determine whether large contracts can be broken apart, they do not 

conduct the market research necessary to determine and justify bundling. Few agencies 

inaugurated specific unbundling policies or procedures, and agencies offer different definitions 

for bundled contracts. Thus, the government cannot readily measure how many SDBs have 

benefited from unbundling. 

Recommendation: Agencies should measure the success of race-neutral strategies 

independently so that they can determine viability as alternatives to race-conscious measures. 

For example, agencies could track the number and dollar value of contracts broken apart, firms 

to which the smaller contracts are awarded, and the effect of such efforts on traditionally 

excluded firms. 

Finding: Although the Historically Underutilized Business Zone (HUBZone) program is one of 

the few statutorily mandated race-neutral programs, agencies experience implementation 

problems, and most fall short of their contracting goals. None has attained HUBZone 

subcontracting goals. SBA does not collect race data on HUBZone participants, thus agencies 

cannot determine whether this strategy has resulted in contracts with minority-owned firms. 

Recommendation: Given the federal government’s poor record in HUBZone contracting, SBA 

should evaluate strategies agencies use and determine what additional efforts are needed, 

perhaps public education, improved outreach, or technical assistance to potential contractors. 

SBA should develop creative outreach approaches in consultation with HUBZone firms. SBA 

should also determine whether agencies appropriately prioritize HUBZone awards, for example, 

by a cascading approach or set-asides. 

SBA could hire an external consultant to conduct a thorough audit of the HUBZone program, 

including an assessment of whether goals are aligned with implementation efforts. Where there 

is a disconnect, SBA should work with agencies and prime contractors to develop strategies for 

reaching HUBZone firms and strengthening incentives for participants. Congress should 

reevaluate the feasibility of the 3 percent contracting goal based on the availability and capacity 

of firms in economically distressed communities and revise required statutory goals and 

eligibility criteria accordingly. 

COMMUNICATION AND COLLABORATION 

Finding: Agencies do not communicate effectively with one another about efforts to strengthen 

procurement practices. For example, agencies do not engage in consistent information sharing or 

exchange of best race-neutral practices. Agencies that fail to communicate best practices miss 

opportunities to re-tool and improve programs. 

Recommendation: Agencies should capitalize on existing infrastructure to share information 

and best practices, coordinate outreach, and develop measurement strategies. Regular meetings 

of the Offices of Small and Disadvantaged Business Utilization Interagency Directors’ Council, 

the Small Business Procurement Advisory Council, and the Small Business Committee of the 
76 Chapter 3

Chief Acquisition Officers Council provide opportunities for agencies to discuss, develop, plan, 

and assess race-neutral and -conscious contracting strategies. However, meetings should focus 

on federal strategic issues, rather than how to carry out ministerial duties. Beyond the exchange 

of ideas and information, interagency communication would foster sharing of resources. For 

example, agencies could collaborate on the development of new strategies, as well as outreach 

and technical assistance where there is overlap in industries, geographic regions, and specific 

contracting needs. 

OUTREACH 

Finding: Even though agencies engage in outreach, there is little evidence that their efforts to 

reach small and disadvantaged businesses are successful. They largely do not produce planning 

or reporting documents on outreach activities, nor do they apply methods for tracking activities, 

expenditures, or the number and types of beneficiaries. 

Recommendation: The Commission regards widely broadcast information on the Internet and in 

popular media as only one of several steps necessary for a comprehensive and effective outreach 

program. Agencies could use a variety of formats—conferences, meetings, forums, targeted 

media, Internet, printed materials, ad campaigns, and public service announcements—to reach 

appropriate audiences. In addition, agencies should capitalize on technological capabilities, such 

as listservs, text messaging, audio subscription services, and new technologies associated with 

portable listening devices, to circulate information about contracting opportunities. Agencies 

should include outreach in budget and planning documents, establish goals for conducting 

outreach activities, track the events and diversity of the audience, and train staff in outreach 

strategies and skills. 

CONCLUSION 

In 1995, Adarand’s strict scrutiny requirements compelled agencies to narrowly tailor reliance 

on race-conscious programs and to seriously consider race-neutral alternatives that would 

effectively redress discrimination. Ten years later, the agencies in this study have still largely 

failed to satisfy this requirement. Indeed, no agency reviewed in this report engages in serious 

consideration of race-neutral alternatives. While agencies employ some, largely off-the-shelf, 

race-neutral strategies, they do not engage in the basic activities that are the hallmarks of serious 

consideration, such as program evaluation, outcomes measurement, reliable empirical research 

and data collection, and periodic review. 

Agencies’ mutually contradictory assessments, collective confusion, and failure to communicate 

effectively with one another hamper them from undertaking initiatives other than those that 

Congress has codified. Indeed, most agencies have not implemented even the most basic raceneutral strategy to ensure equal access, i.e., the development, dissemination, and enforcement of 

clear, effective antidiscrimination policies. Significantly, most agencies do not provide clear 

recourse for contractors who are victims of discrimination or guidelines for enforcement. The 

Supreme Court has acknowledged the importance of this objective, while recognizing the need 

for government programs that reduce reliance on racial classifications. To achieve that goal, 
Chapter 3 77

federal agencies should demonstrate sincere efforts to expand minority-owned firms’ access to 

federal contracts through race-neutral procedures. 
78 Chapter 3

 
Dissent 79

Dissenting Statement of Commissioner Michael Yaki 

Preface 

The Commission Majority’s report entitled Federal Procurement After Adarand is neither an 

enforcement report as mandated by Congress nor a document that stands up to legal and policy 

scrutiny. 

(1) It is a document fatally flawed in process, and fatally flawed in its interpretation of

existing law and policy. 

(2) Relying upon department policies that have no application to procurement and 

contracting, the Majority Report recommends that race-neutral programs and policies for 

minority-owned businesses seeking federal procurements and contracts should prevail 

over, and indeed replace, existing race-conscious programs that have been in place for 

the past 30 years. 

(3) The Majority Report dismisses the existence of historical discrimination and the need for 

remedial action by the federal government and would instead place “nondiscrimination” 

legislation in place of affirmative action by the federal government as the only means by 

which minority-owned businesses, denied opportunity because of race, color, or national 

origin, could avail themselves of protection and relief. 

(4) The Dissent argues that the Majority Report is built upon a theoretical house of cards that 

creates burdensome duties on federal agencies and does not stand up to rigorous review. 

(5) The Dissent asserts that comprehensive studies of state and local procurement and 

contracting programs would provide better models and best practices for federal 

procurement programs, and would be in keeping with the Commission’s historic mandate 

of fact-finding and making recommendations on how best to eliminate discrimination in 

our nation. 

I 

The Commission today takes a radical step backwards from the race-progressive policies this 

nation has undertaken for the last half-century by recommending, under the cloak of “race 

neutrality,” the termination of all race-conscious programs and remedies from federal 

government contracting and procurement. By summarily concluding, without any supporting 

evidence, that federal agencies have disregarded constitutional duties, they seek to justify 

adoption of Trojan Horse “nondiscrimination” policies and burdensome compliance mechanisms
80 Dissent 

which will completely neuter federal agencies’ efforts to remedy past discrimination and 

enhance equal opportunity for people of color. 

Our nation was founded on the principle that all Men are created equal, though this lofty goal 

went largely unrealized for African Americans and minorities, even with the adoption of the 13th 

and 14th Amendments in the late 19th century. Worse, the Supreme Court in Plessy v. Ferguson 

construed the meaning of the 14th Amendment to bestow “equal but separate” status for persons 

of color which, as we know, seldom meant equal, but always meant separate.1

 

The United States Commission on Civil Rights was founded in 1957, in the wake of the 

landmark Supreme Court decision in Brown v. Board of Education.

2 Brown provided the first 

legal framework for tearing down the walls and back doors separating the races. The 

Commission was envisioned by President Eisenhower, a Republican, as a bipartisan fact-finding 

panel charged with investigating and making recommendations to the executive and legislative 

branches on how to end all forms of race discrimination in this country. Brown lit the fire of

racial change; the Commission became the entity to fuel it even further. 

Over the past half-century, the Civil Rights Commission has taken its fact-finding and 

recommendation powers seriously and substantively. Its 1961 report was considered by the 

Congress and the Supreme Court as the intellectual and factual grounding for the provisions of 

the landmark 1964 Civil Rights Act. Its hearings on the blatant, deliberate disenfranchisement of 

African Americans in southern precincts and parishes formed the basis of the Voting Rights Act 

of 1965. 

The Commission has not remained static as American society has changed. In 1978 a 

Commission report challenging law enforcement agencies to recognize domestic violence as a 

crime put the issue on the national agenda. By the late 1980s Congress mandated the Law 

Enforcement Assistance Administration to focus on the “role of the criminal justice system in 

preventing and controlling violence and abusive behavior in the home.” Moreover, Congress 

relied on a 1983 Civil Rights Commission report on the challenges disabled persons faced in 

their daily lives in enacting the Americans with Disabilities Act. 

Today, racial discrimination persists. In testimony before this Commission as recent as this year, 

commentators and scholars, both liberal and conservative, conceded that discrimination persists. 

Barriers to equal opportunity remain.3

 The challenge for this Commission today is to continue 

the work begun nearly 50 years ago, understanding that society, mores, cultures, and technology 

have changed far more and yet far less than any could have envisioned from the first day of 

school at Little Rock Central High in September 1957. The challenge for this Commission today 

is to recognize that invidious, discreet, and intentional discrimination persists, and that our role is 

to engage in fact-finding and recommend ways and means to continue to combat this subtle evil 

 

1

 163 U.S. 537 (1896). 

2

 347 U.S. 483 (1954). 

3 See, e.g., NAACP Legal Defense and Educational Fund, Inc., “Closing the Gap: Moving from Rhetoric to Reality 

in Opening Doors to Higher Education for African American Students,” June 23, 2005. 
Dissent 81

until it is eradicated from our society. By the action of the Commission Majority today, we 

utterly fail to meet this challenge. 

To the contrary, it is a travesty that this same Commission should choose to use its platform as 

the moral watchdog for civil rights in this country to endorse the dismantling of a system that has 

brought countless minorities and women economic opportunity. It does so by utilizing faulty 

logic, suspect reasoning, and an erroneous interpretation and complete misreading of Adarand 

Constructors v. Pena4

 and Grutter v. Bollinger.

5

 It does so by completely ignoring data received 

from federal agencies—data received in response to interrogatories propounded by Commission 

staff—that would substantiate the need for continued vigilance and use of race-conscious 

programs. It ignores data that suggests that federal agencies continue to fall short of promoting 

equal opportunity in our society, and, therefore, turns a blind eye to possible recommendations 

and policies that would sharpen our attack on persistent discrimination. 

For these reasons, I respectfully dissent. 

II 

The Commission Majority’s flawed report begins with its examination of Adarand. In Adarand, 

the Supreme Court ruled that strict scrutiny must be applied to all Fifth Amendment Equal 

Protection challenges to racial classifications. The Supreme Court ruled that federal programs 

which use racial criteria must also serve a compelling government interest (i.e., have a specific 

underlying purpose), and the program must be narrowly tailored to serve that interest. 

The Adarand standard is rigorous, but race-conscious programs are still acceptable.6

 The 

Commission Majority states that Adarand requires agencies to “consider, and employ raceneutral strategies before resorting to race-conscious ones.”7

 This is a reading of Adarand that 

simply does not exist in the text of the decision,8

 nor is it a reading that has gained any 

prominence, save by the current administration. 

 

4

 515 U.S. 200 (1995). 

5

 539 U.S. 306 (2003). 

6

 Ironically, for many scholars, the concept of affirmative action grew out of the government contracting context. In 

the face of rampant discrimination against African Americans in the construction trades in Philadelphia, President 

Nixon offered the "revised Philadelphia plan," which included goals and timetables for hiring specific ethnic and 

racial classes in the construction industry. And, in a final twist of irony to the report ratified by the Majority, it was 

Arthur Fletcher, a Republican and former chair of this very Commission, who claimed authorship for this first foray

into affirmative action in federal contracting dollars. A majority of the circuit courts have continued to approve 

federal and state race-conscious programs in government contracting. In 2001, the Supreme Court let stand a 10th 

Circuit decision, brought by the Adarand plaintiffs, that upheld the constitutionality of the Disadvantaged Business 

Enterprise programs reworked since the original Adarand decision. 

7

 U.S. Commission on Civil Rights, Federal Procurement After Adarand, September 2005, chap. 1, p. 18 (emphasis 

added) (hereafter “the Majority Report”). 

8

 The only mention of the term “race-neutral” in Justice O’Connor’s decision comes in a discussion of the types of 

questions that could be asked in addressing whether a remedy was narrowly tailored. In this case, she cited two

cases, one which asked “whether there was ‘any consideration of the use of race neutral means to increase minority 
82 Dissent 

Contrary to the Commission Majority’s claim, Justice O’Connor in Adarand wrote: 

The unhappy persistence of both the practice and the lingering effects of racial 

discrimination against minority groups in this country is an unfortunate reality, and 

government is not disqualified from acting in response to it....When race based action is 

necessary to further a compelling interest, such action is within constitutional constraints 

if it satisfies the ‘narrow tailoring’ test....9

Yet, the Majority Report simply ignores Justice O’Connor’s statement. 

Adarand provoked a wide-reaching and searching examination of existing federally based raceconscious programs by the Clinton administration. The Majority Report seeks to state as fact that 

“concentrated race-neutral efforts” are the standard for all federal agencies. In fact, by lifting one 

phrase from a multi-page document,10 the Majority Report misreads the true intent of the reforms 

implemented by the Department of Justice (DOJ) during the Clinton administration. DOJ 

concluded: 

Indeed, the survey of currently available evidence conducted by the Justice Department 

since the Adarand decision, including the review of numerous specific studies of 

discrimination conducted by state and local governments throughout the nation, leads to 

the conclusion that, in the absence of affirmative remedial efforts, federal contracting 

would unquestionably reflect the continuing impact of discrimination that has persisted 

over an extended period. For purposes of these proposed reforms, therefore, the Justice 

Department takes as a constitutionally justified premise that affirmative action in federal 

procurement is necessary, and that the federal government has a compelling interest to 

act on that basis in the award of federal contracts.11 

As with the Supreme Court’s holding in Adarand, DOJ’s post-Adarand guidelines do not square 

with the Majority Report’s agenda: to eliminate all traces of affirmative action from federal 

procurement and contracting. It is as if these efforts, enacted by federal regulation to hew to the 

dictates of Adarand, did not exist. The Commission Majority simply acts as though these reform

efforts were misplaced, misguided, or worse, contrary to law. The Majority Report is less a factfinding, analytical report than an ideological tract whose mission is to provide the proverbial fig 

leaf to efforts intended to roll back all the gains that minorities have made, and return us to a 

system where minority businesses have been the victims of historical discrimination. The root 

 

business participation’ in government contracting,” (Adarand, supra, at 237, 238) (citing Richmond v. J.A. Croson 

Co., 488 U.S. 469, 507 (1989)), and another “whether the program was appropriately limited such that ‘it will not 

last longer than the discriminatory effects it is designed to eliminate’.” (Adarand, supra, at 238) (citing Fullilove v. 

Klutznick, 448 U.S. 448, 513 (1980) (Powell, J., concurring)). 

9 Adarand, supra, at 237. 

10 “Agencies will have to make judgments and observe limitations in the use of race-conscious measures, and make 

concentrated race-neutral efforts that are not required under current practice.” Proposed Reforms to Affirmative 

Action in Federal Procurement, 61 Fed. Reg. 26,042, 26,050 (May 23, 1996) (hereafter cited as DOJ, Proposed 

Reforms to Affirmative Action in Federal Procurement). In the context of the overall proposed rule, as will be 

demonstrated, infra, this isolated statement hardly makes the case for race-neutral efforts to the exclusion of all else. 

11 DOJ, Proposed Reforms to Affirmative Action, p. 26,042 (emphasis added). 
Dissent 83

and branch of the Majority Report’s foliage, however, is provided by a stretched and tortured 

reading of a case that dealt with affirmative action in the field of education, Grutter v. Bollinger. 

III 

In Grutter, the Supreme Court held that the narrowly tailored use of race in admissions decisions 

by the University of Michigan Law School was in furtherance of a compelling interest and did 

not violate the Equal Protection Clause. In Grutter, the Court majority rejected the claim by the 

Bush administration that the mere existence of race-neutral means was sufficient reason to 

nullify the use of race-conscious procedures in admissions.12

Nonetheless, the Majority Report erroneously reinterprets Justice O’Connor’s language in 

Grutter to insist that a “serious consideration of race-neutral alternatives”13 requires federal 

agencies to (1) assume substantial regulatory and reporting burdens to eliminate a problem that 

may not exist, and (2) have DOJ become a “race-neutral cop” for the federal government. 

Grutter does no such thing. To the contrary, the Supreme Court held that student body diversity 

is a compelling state interest that can justify using race in university admissions.14 Grutter

recognizes the need for colleges and universities to use a broad array of tools, which includes 

race-conscious policies, and gives schools the deference and flexibility to take steps to close 

admissions gaps. The Court stated that “[n]arrow tailoring does not require exhaustion of every 

conceivable race neutral alternative.”15 While it requires a “serious, good faith consideration of 

workable race-neutral alternatives” there is no mandate to employ them.

16

The need to give deference and flexibility to federal agencies does not exist in the Majority 

Report. Rather, a cookie-cutter, one-size-fits-all approach would be a more accurate 

characterization of the Commission Majority’s conclusions. The Majority Report conveniently 

ignores the need and ability of federal agencies to utilize their own experience obtained from

long years toiling in the fields of contracting and affirmative action. Although the fact that each 

agency has its own contextual history is irrelevant to the Majority Report, it is not to the 

Supreme Court. Justice O’Connor wrote that “[c]ontext matters when reviewing race-based 

governmental action under the Equal Protection Clause.... Not every decision influenced by race 

is equally objectionable.”17

Having dismissed the validity of the legal theories underlying the Commission Majority 

conclusion, we must now turn to the underlying data relied upon in the report. 

 

12 Grutter, at 340. 

13 The Majority Report, p. 23. 

14 Grutter, supra, at 329. 

15 Id., at 335. 

16 Id. 

17 Id., at 327. 
84 Dissent 

IV 

The Commission Majority’s insistence on a misplaced, and erroneous, reading of Grutter has led 

it to rely disproportionately upon the Department of Education’s (DOEd) misapplication of 

Grutter to its own review through its Office of Civil Rights. Despite the lack of attention to the 

relevant differences between university admissions and federal contracting and procurement, the 

report continually relies on DOEd’s suggested policies for schools, colleges, and universities as 

though they were easily transferable to all other agencies of the federal government.18 The 

inherent difficulty in applying these policies to federal contracting programs, as the Majority 

Report does mention, is epitomized by the fact that DOEd does not employ these policies for its 

own internal procurement processes.19

For example, the Majority Report utilizes DOEd’s “six practices” as the talisman for determining 

whether federal agencies, such as the Department of Transportation (DOT) and the Small 

Business Administration (SBA), are meeting the “serious consideration” test. Indeed, the 

Majority Report uses the DOEd model as a “gauge”20 for concluding that none of the agencies 

comply with the serious consideration test. This is a leap of logic that defies the imagination 

given the complexity and size of the other programs. There is no data from DOEd showing that 

any of these “six practices” have any effectiveness for educational institutions, let alone in the 

realm of procurement. 

Further, the Commission Majority boldly asserts that annual or biennial reviews are not 

cumbersome. Even assuming this to be true in the context of university admissions, the 

admission process is a limited phenomenon; data from an applicant class of individual 

universities and multi-year procurement contracts that may or may not be broken down into 

multiple sub-contracts from a nationwide pool of applicants are hardly comparable. Yet no 

attempt is made in the report to account for, or explain how, relevant comparisons can be made 

across agencies and industries. 

Compare the tautology the Commission Majority offers to the guidance provided by DOJ in its 

post-Adarand instructions: 

In addition to calculating the capacity of existing minority firms, the proposed system

will examine evidence, if any, demonstrating that minority business formation and 

operation in a specific industry has been suppressed by discrimination. This evidence 

may include direct evidence of discrimination in the private and public sectors in such 

areas as obtaining credit, surety guarantees and licenses. It may also include evidence of 

discrimination in pricing and contract awards. In addition, the evidence may include the 

results of regression analysis techniques similar to those used in state studies of 

 

18 See, e.g., U.S. Department of Education, Office for Civil Rights, Inclusive Campuses: Diversity Strategies for 

Private Colleges, report no. 3, Race-Neutral Alternatives Series, 2005, which is cited throughout the Majority 

Report.

19 The Majority Report notes that DOEd relies on DOJ's post-Adarand definitions. The Majority Report, chap. 2, p. 

23. Indeed, the DOEd pamphlet “Doing Business with the U.S. Department of Education” cites the 8(a) set-aside program

as an opportunity for potential contractors. See http://www.ed.gov/fund/contract/about/camdoingbusiness.pdf>. 

20 The Majority Report, p. 24. 
Dissent 85

discrimination in procurement. That form of analysis holds constant a variety of variables 

that might affect business formation so that the effect of race can be isolated.21 

The extent to which the Commission Majority has strayed from reality is illustrated by the 

continued criticism of DOT procurement and contracting processes in the Majority Report. DOT 

has, by the Commission Majority’s own admission, amended its Disadvantaged Business 

Enterprise (DBE) program post-Adarand and now requires extensive race-neutral measures in 

addition to its race-conscious programs. The fact that DOT has relied upon state and local 

disparity studies, as well as a Department of Commerce benchmark study—more data by one 

agency alone than has been offered by the Commission Majority in defense of its conclusions—

is apparently not enough. Nor, apparently, is the fact that the Supreme Court has upheld a ruling 

by the 10th Circuit that its program complies with constitutional principles persuasive to the 

Commission Majority.22 Other courts have also upheld challenges to federal government DBE 

programs.23 The lack of recognition of direct legal precedent bolstering DOT’s post-Adarand

compliance efforts is yet another example of the Commission Majority’s faulty, skewed 

reasoning in the Majority Report. 

Perhaps the most disturbing part of this report is its utter silence with regard to the very existence 

of data from the federal government. It is hypocrisy, at best, and deliberate obscurantism, at 

worst, when the Majority Report bemoans the lack of alleged data in federal agencies, for the 

very interrogatories propounded—with the exception of the DOEd policy interpretation of 

Grutter24—are, for the most part, not utilized in the report. In February of this year, 

interrogatories were submitted to seven different federal agencies: SBA; DOT; the Department 

of Defense (DOD); the Department of Housing and Urban Development; the Department of 

State; the Department of Energy; and DOEd. The interrogatories25 asked for detailed information 

that included, among other things: (1) whether agencies achieved statutory goals for 

subcontracting with small disadvantaged businesses (SDBs); (2) data on the number and 

percentage of contracts going to SDBs as a whole, and to minority- and nonminority-owned 

firms as a subset, as well as the dollar value of those contracts for various fiscal years; and (3) 

data on SDB certification criteria.26 

 

21 DOJ, Proposed Reforms to Affirmative Action, p. 26,046. 

22 Adarand Constructors, Inc. v. Mineta, 534 U.S. 103 (2001). 

23 See, e.g., Concrete Works of Colorado v. City and County of Denver, 321 F.3d 950 (2003); Sherbrooke Turf, 

Inc., v. Minn. DOT, 345 F.3d 964 (2003); Gross Seed Co. v. Nebr. Dept. of Roads, 345 F.3d 964 (2003); Northern 

Contracting, Inc. v. Illinois, 2004 U.S. Dist. LEXIS 3226; No. 00-CV-4515; Western States Paving Co. v. Wash. 

State Dept. of Transp., 03-35783, 2005 U.S. App. LEXIS 8061 (9th Cir. 2005). 

24 It is interesting that the Department of Education is cited so frequently in the Majority Report, since it is hardly a 

major player in the delivery of contracts in the federal government. It would also be interesting to know how the 

department characterized its $241,000 contract to commentator Armstrong Williams to publicize the No Child Left 

Behind Act in relation to the interrogatories. 

25 As will be noted, infra, the interrogatories were substantially changed from their original without the consent of 

the Commission.

26 See appendix C.
86 Dissent 

The results and analysis of these interrogatories are contained in appendices A, B, and E of my

dissenting statement; they were deleted from the original version of the draft received by all 

Commissioners.27 

What does the suppressed data reveal? To start, there is significant data demonstrating that 

socially and economically disadvantaged firms continue to lag well behind where they should be 

in proportion to the country’s demographic composition or labor force representation.28 In data 

represented in appendix A, African American-owned firms remain significantly 

underrepresented and also demonstrate the slowest growth in number, revenue, and survival 

rates.29 Yet, rather than dealing with this data in the context of its conclusions, the Majority 

Report simply ignores it and avoids any attempt to reconcile the data with race neutrality.30 It is 

as if the Commission Majority has lost the will to do battle with contrary data and, by deletion, 

clears the pathway for its own logic to run unimpeded. 

The Majority Report also excludes all data offered by federal agencies in support of continuing 

race-conscious programs. SBA, for example, has faced multiple lawsuits alleging that its 8(a) 

business development program does not pass muster under Adarand. To date, however, SBA and 

the 8(a) program have survived all challenges on a facial and as applied basis.31

The Majority Report also dismisses the role that Congress plays in legislating and making 

findings. Again, the 8(a) program is a significant example of a program that explicitly has raceconscious elements yet remains viable, even in today’s Congress. 

The Commission Majority also fails to recognize significant legislative and regulatory changes 

since Adarand that make it impossible to isolate the direct effects of the decision or demonstrate 

causal relationships. The Majority Report seems to believe that the all the programs for 

procurement and contracting in the federal government should be dancing on the head of the 

proverbial Adarand pin. Even if so, they present no evidence to refute the earlier statement by 

the Department of Justice that discriminatory barriers are “real and concrete, and reflect ongoing 

patterns and practices of exclusion, as well as the tangible lingering effects of prior 

discriminatory conduct.”32

One of the most important discussions that this report could have had concerns the data provided 

to the Commission by SBA with regard to its “goaling” program.

33 While the Small Business 

 

27 They were originally chapters 2 and 3 in the June 17, 2005 draft distributed to Commissioners. 

28 No doubt the Commission Majority will trumpet the latest Census findings, released on July 28, 2005, one day 

before this dissent was due, to state that African American firms, for example, have shown gains. While this is true, 

it does not detract from the other data regarding the fact that many departments did not reach their statutory goals of 

awards to small disadvantaged businesses. 

29 Appendix A, pp. 97-104. 

30 The Commission Majority dismisses the deleted sections and accompanying data as “biased” or “incomplete” or 

“not rigorous enough.” No analytical, intellectual, or specific points of criticism were raised by the Majority. 

31 Appendix B, p. 130. 

32 DOJ, Proposed Reforms to Affirmative Action, p. 26,051. 

33 In 1978 Congress enacted a program to encourage federal agencies to award a designated proportion of their 
Dissent 87

Act of 1978 established goals for small businesses in general, over time Congress amended its 

original goals and added goals for firms facing social and economic disadvantage and for 

subcontracts in addition to other categories. Congress charged SBA with implementing the 

goaling program to meet governmentwide goals. However, the Small Business Act recognized 

that different departmental missions and procurement needs affect the maximum practical 

contracting opportunities for small business concerns, and as such SBA negotiates annual 

agency-specific goals and reviews results.34

Given that SBA adapts goaling targets to each agency’s needs, one might presume that agencies 

always meet these goals. However, the Commission’s research shows decidedly mixed results in 

attaining procurement targets for 8(a), non-8(a) SDBs, and Historically Underutilized Business 

Zone (HUBZone) enterprises. The absence of this data, both positive and negative, speaks 

volumes about the Commission Majority’s inability to deal with data that would detract from its 

theories and speculation. 

V 

We turn now to the most objectionable parts of the Majority Report: the so-called findings and 

recommendations made by the Commission Majority. While some parts of these have been 

discredited in parts II, III, and IV, it is instructive to go through some of them individually to 

show their utter lack of root and foundation. 

Serious Consideration: The Majority Report, turning Adarand and Grutter on their heads, 

believes that the only way to implement this requirement is to create a six-prong test to “ensure” 

serious consideration is occurring.35 The Commission Majority waxes on about a “team of legal 

advisors, procurement specialists, and social scientists” working together in harmony (no doubt 

of diverse ethnicities and gender, one would hope) to issue clear guidelines. The question 

remains: if DOJ has specifically provided guidance beforehand, and, according to the 

Commission Majority, agencies have ignored it, why not recommend that agencies work better 

to comply with the existing DOJ guidance? And, again, why rely upon the Department of 

Education admissions standards for guidance, which are irrelevant, not to mention the fact that 

DOEd plays such a relatively small role in federal contracting and procurement compared to 

DOD, DOT, and SBA?

Antidiscrimination Policy and Enforcement: The Majority Report recommends that Congress 

enact legislation “expressly prohibiting discrimination based on race, color, religion, sex, 

national origin, age, and disability in federal contracting and procurement. Legislation should 

include protections for both contractors and subcontractors....” 

 

prime contracts to small businesses. Congressional intent was to ensure that the government’s procurement process 

is fair and unbiased and to open opportunities for small businesses to provide goods and services. See appendix B,

pp. 142–43. 

34 Ibid. 

35 Interestingly enough, nowhere did the interrogatories propounded by the Commission ask an agency or 

department (a) to define “serious consideration,” or (b) whether it considered this the standard. See appendix C.
88 Dissent 

This is, obviously, the ultimate Trojan Horse ploy. By stating that this kind of legislation would 

help enforce nondiscrimination in procurement, facially it appears neutral. In practice, however, 

it would, with one stroke, eliminate all race-conscious programs in federal contracting and 

provide private rights of actions to aggrieved majority-owned contractors against the federal 

government.36 This turns antidiscrimination enforcement in the context of contracting on its 

head. It is one thing to recommend that the government act as an ally to minority firms which 

believe they suffer from discrimination; in so doing, agencies could set up more effective 

avenues for firms to lodge discrimination complaints, initiate investigations, and sanction 

offending firms. It is another to recommend that government be statutorily prohibited from

providing for race-conscious remedies. This would be the inevitable result even if an agency 

were to comply with the twisted, cumbersome, near-impossible procedures for race-neutral 

alternatives and still found a need for race-conscious measures. Surely this is not the result 

intended by the Commission Majority.37 Or is it? 

Ongoing Review: As stated, supra, the idea that “ongoing review” can be an easy, ongoing 

procedure does not comport with the real world of federal procurement and contracting. Time

frames, such as the suggested “biennial,” obviously have no historic memory of the deliberate 

nature of change when it comes to racial discrimination. The absence of any compelling 

argument to contradict the Clinton administration reforms on affirmative action, especially 

benchmark studies and the reliance on state and local disparity studies, renders this suggestion 

moot from a policy and practical perspective. 

Data and Measurement: As with Ongoing Review, supra, there is a surprising lack of heft to 

the arguments in this section. The suggestion that the National Academy of Sciences be 

employed to analyze and create benchmarks is also very unusual. The criticism of the 1996 

Commerce benchmark study is deemed “controversial” because a ferocious critic of affirmative 

action in general and disparity studies in specific, Professor George La Noue, was hired by the 

Commission Majority to “evaluate” the final version of the Majority Report. Professor La 

Noue’s comments included in the Majority Report described the 1996 Commerce study as 

“obsolete” and “its methodologies controversial.”38 Given that Mr. La Noue has published such 

articles as “To the ‘Disadvantaged’ Go the Spoils?”

39 and “Race Neutral Programs in Public 

Contracting,”40 the conclusions are hardly unexpected. However, Professor La Noue even 

 

36 María Enchautegui, Michael Fix, Pamela Loprest, Sarah von der Lippe, and Douglas Wissoker, “Do MinorityOwned Businesses Get a Fair Share of Government Contracts?” (Washington, D.C.: The Urban Institute, 1997), < 

http://www.urban.org/url.cfm?ID=307416> (hereafter cited as Enchautegui et al., “Do Minority-Owned Businesses 

Get a Fair Share?”) (the results do not support claims of widespread reverse discrimination in contracting at the 

state and local government levels). 

37 Again, there is no evidence cited anywhere in the Majority Report that reverse discrimination exists in any of the 

federal programs examined. 

38 It bears pointing out that Professor La Noue is cited in the criticism of the benchmark study by the National 

Academy of Sciences. 

39 George R. La Noue, “To the ‘Disadvantaged’ Go the Spoils?” The Public Interest, no. 138 (Winter 2000). 

40 George R. La Noue and John C. Sullivan, “Race Neutral Programs in Contracting,” Public Administration 

Review, vol. 55, no. 4 (July/August 1995). 
Dissent 89

acknowledges the difficulty faced by the Commission Majority’s blithe bows to the ease of 

obtaining data when he testified before Congress and said: 

A federal disparity study would face formidable challenges in data gathering and 

analysis. The federal government makes purchases of almost every “particular service” 

imaginable, so there would have to be many disparity ratios calculated and it would be 

unlikely that the results would be consistent. For example, in the recent Texas state 

disparity study, women were found to be underutilized in the general and special trades 

construction category, but overutilized in the heavy and highway category. Making a 

single category of construction would have obscured that reality.

41

If the Commission Majority were to also recommend full funding for civil rights enforcement, 

including the type of disparity and benchmark studies that scholars from both sides of the 

ideological divide would advocate, perhaps a middle ground could be sought. In the meantime, I 

believe that congressional authority under section five of the 14th Amendment should suffice to 

keep intact those programs still utilizing race as a means of promoting economic opportunity. 

The remaining two recommendations—“Communication and Collaboration” and “Outreach”—

can be dismissed by stating the obvious. Of course, agencies should communicate better. Regular 

meetings could help. But at the same time, the “relevant differences,” as Justice O’Connor has 

said, may make many of those meetings irrelevant. The individual peculiarities of contracting 

between DOT and DOD are unique and perhaps irreconcilable. Differences of size and scale and 

departmental culture are formidable. Standardization is always the Holy Grail of the bureaucratic 

mind, but it can be the hobgoblin as well. Outreach is and should be a given in any scenario 

involving minority business programs. But there is a difference between “outreach” meaning 

“here is a program you should apply for” and “outreach” meaning “tell us what your problems 

are in applying for this program so we can fix it to better serve you and your constituency.”42

This distinction is lost on the Commission Majority. 

VI 

Finally, it must be noted that the procedure used to produce the Majority Report was fatally 

flawed from the outset and out of compliance with what the Commission approved. 

In 2003, the Commission unanimously approved for its 2005 statutorily mandated enforcement 

report “Ten Years After Adarand: The Effect of Changed Federal Procurement Standards on 

Women- and Minority-Owned Businesses.”43 The original scope of the project, again passed 

unanimously, was to review the decision’s effect on contracting levels of women- and minorityowned businesses. In sum, there was a concern that the aftermath of Adarand might have had 

 

41 Testimony of George La Noue before the House Committee on the Judiciary, Subcommittee on the Constitution,

Oct. 19, 1995. 

42 The Commission Majority is hardly an exemplar of outreach given that it would not allow the public to review the 

Majority Report as it was being discussed at the Commission. 

43 See appendix C.
90 Dissent 

undue and perhaps adverse impacts on the gains that women- and minority-owned businesses 

had made since the creation and implementation of federal SDB programs. 

In March 2005, it was revealed at a meeting of the Commission that, in fact, the scope of the 

project had been changed without the consent of the Commission. It was further revealed that in 

February the Staff Director, with the consent of the Chair, revised the scope of the report to a 

“Race-Neutral Federal Contracting” project.44 To his credit, the Chair of the Commission 

assumed responsibility for the error, called the process “tortured”45 and acknowledged that 

mistakes had been made and would not be again. The final motion, adopted in April, stated that: 

[The Office of Civil Rights Evaluation (OCRE)] reshape the scope of the Adarand

enforcement study to include information on federal agencies’ use of race-neutral 

contracting vehicles, in addition to elements of the original project proposal. The 

resulting study will, one, report the amount of federal procurement funds going to small, 

disadvantaged, and HUBZone businesses; two, analyze continuing barriers facing 

socially and economically disadvantaged firs [sic]; and, three, examine the role of federal 

agencies, including SBA in implementing procurement programs for these firms 

following the Supreme Court decision that government procurement activity involving 

racial classification be subject to strict scrutiny. Specifically, OCRE will research if and 

how federal contract or federal agencies changed procurement practices to fulfill the 

compelling interest and narrow tailoring components of the Adarand v. Pena decision.46

It is clear from the final version of the Majority Report that the motion on April 8 to correct the 

scope of the report was completely disregarded in the final draft. Indeed, there was never a vote 

taken by the Commission to exclude the data which had previously been found in chapters 2 and 

3 of the June 17, 2005 draft.47 Now, in the Majority Report as it currently stands, nowhere to be 

found is any data on the amount of procurement funds going to small and disadvantaged 

businesses (only to HUBzone businesses which, coincidentally, is the only race-neutral program

examined in the Majority Report); nowhere to be found is an analysis of continuing barriers 

facing socially and economically disadvantaged firms. Only lip service was paid to if and how 

federal agencies changed procurement practices to fulfill the requirements of Adarand except, as 

noted before, to erroneously interpret the mandates of the reform efforts of the Clinton 

administration. 

Instead, not coincidentally, the final version of the Majority Report adheres to the original, 

unapproved concept paper sent out by the Staff Director and the Chair, which stated: 

[T]he project will consider the following: 

• Do agencies engage in race-neutral practices such as mentor-protégé programs, 

outreach, and financial and technical assistance as means to increase opportunities for 

small and disadvantaged businesses to win federal contracts?

 

44 U.S. Commission on Civil Rights, Mar. 15, 2005 meeting, transcript p. 139 (hereafter cited as USCCR, March 

transcript). 

45 Ibid., p. 146 

46 U.S. Commission on Civil Rights, Apr. 8, 2005 meeting, transcript, pp. 70, 72. 

47 Now incorporated as appendices A and B. 
Dissent 91

• Do agencies employ specific, best practices for such consideration?

• Are agencies developing and utilizing additional promising practices for race-neutral 

means of achieving statutory goals?48

Realizing that the report deviates substantially from the amended scope, the Commission 

Majority cannot cure its deficiency by passing a revised scope post hoc49 to track the current 

version. For the federal agencies that spent considerable time and effort answering the 

interrogatories propounded to them in February, it was time and effort wasted.50 For a Congress 

awaiting a mandated enforcement report, a volume on theory that is light on enforcement data is 

a similar waste. 

VII 

What, then, should the Federal government be doing post-Adarand with regard to public 

contracting and procurement? The Commission Majority, in ignoring the charter of this 

Commission, would have the Federal government engage in endless navel gazing in an attempt 

to find race-neutral means that, in practice, would paralyze existing efforts to combat 

discrimination. Despite the denials (or burials) of the Commission Majority, there remains 

consistent evidence that discrimination against minorities exists.51

We should, instead, turn the analysis on its head—as the scope of the report was supposed to 

do—and ask the question: what is the federal government doing, and is it enough to promote 

economic opportunity and remedy past and current discrimination?52

Unfortunately, because of the changed scope from the original goals of the report, and because 

the interrogatories propounded (which were also changed from their original version53) were not 

adequate to cover the data and policies needed for a full report, it is impossible to extrapolate 

from the data at hand. 

What can be extrapolated is that federal agencies, particularly SBA and DOT, continue with 

efforts to promote economic opportunity and remediate past discrimination through a 

 

48 See U.S. Commission on Civil Rights, Race-Neutral Federal Contracting Project Concept, appendix C. 

49 The Commission “revised” the scope of the report back to the Chairman's preferred version, by motion at the 

teleconference meeting of the Commission on July 22, 2005. I voted against revising the scope of the project. 

50 Perhaps the only consolation prize for all those hours spent is that the data resides in appendices A, B, and E. 

51 See, e.g., David G. Blanchflower, Phillip B. Levine, David J. Zimmerman, “Discrimination in the Small Business 

Credit Market,” Oct. 7, 1998 (“Quantitative evidence supports a conclusion of discrimination.”); Timothy Bates, 

“Minority Business Access to Mainstream Markets,” Journal of Urban Affairs, vol. 23, no. 1 (2001), pp. 41–56 

(empirical evidence supports conclusion of discriminatory barriers to government contracting); Enchautegui et al., 

“Do Minority-Owned Businesses Get a Fair Share?” (repealing affirmative action policies would limit the tools 

available to government to rectify wide disparities). 

52 If you read the opening paragraph of the Majority Report, it is as if the federal government has been employing 

“various programs designed to expand opportunities” in a policy vacuum. There is no acknowledgement of the 

historical discrimination against minorities in federal contracting and procurement. 

53 USCCR, March transcript, pp. 140, 163. 
92 Dissent 

combination of race-conscious and race-neutral means. I see no deviation, on its face, from the 

Supreme Court’s mandate in Adarand. Federal agencies have been working, post-Adarand, with 

instructions from DOJ to consider race-neutral alternatives, but DOJ does not require agencies to 

(a) eliminate programs that have race-conscious elements, or (b) exhaust all race-neutral 

remedies before proceeding to race-conscious remedies. The Commission Majority offers no 

compelling evidence (indeed, no evidence at all) to find that any of the current programs are 

unconstitutional or illegal. 

What is clear, however, is that a comprehensive study of federal contracting and procurement 

programs would be extremely time-consuming, unwieldy, and, ultimately, subject to the kind of 

scrutiny that gives rise to the old axiom about sausage-making. It is doubtful that, in a resourcelimited time, sufficient resources would be appropriated by Congress for a thorough study. There 

certainly are not enough resources in our Commission’s already meager budget to do justice to 

such a report. 

I suggest that a good study would start with state and local governments. If the states are, as 

Justice Brandeis once said, the “laboratories of democracy,”54 there are many states and 

municipalities that continue to promote economic policies that include race-conscious programs 

in contracting and procurement. These states, counties, and cities have more manageable 

procurement budgets and more clearly defined sample sizes, which make it relatively easier to 

draw conclusions, lessons, and best practices. More importantly, unlike the Commission 

Majority’s reliance on DOEd admission policy manuals, any best practices would emanate from

a practical platform with far greater application to federal contracting and procurement. 

I would also suggest that there are good studies already in place for examination. No doubt the 

Commission Majority is ready to cast skepticism, aspersion, and conservative scholars by the 

thousands upon these studies. Yet, the sheer number and volume of these studies, and the 

consistency of the results, at least should give one pause to the fact that perhaps these states and 

municipalities may have done something right. 

In my dozen-plus years in public service, I have met many people who have benefited from the 

existence of such programs at the local level. They have become leaders in construction 

management and the construction trades, owners of office supply companies and copy service 

stores, principals in accounting, law, and public affairs firms. All have told me, without 

hesitation, that government contracts have been instrumental in creating a solid financial footing 

for their companies. It has enabled them to grow to scale to survive and finally compete on their 

own, without regard to race, national origin, or gender. But, in the beginning, a helping hand—

the hand that elevates someone from the basement of opportunity in which historical 

discrimination placed so many—was needed, and that assistance came from race-conscious 

minority business enterprise and women business enterprise programs. 

We cannot simply turn away from this history of success; turn away from the legacy of 

discrimination; turn away from our responsibility as a Commission and a nation to ensure that 

 

54 New State Ice Co. v. Liebmann, 285 U.S. 262, 311 (1932) (Brandeis, J., dissenting). 
Dissent 93

we are doing all that we can to create a more equal and just society. Yet that is what the 

Commission Majority report would recommend, and why I cannot join in its findings. 
94 Dissent 
Dissent Appendix A 95

Dissent Appendix A: Small Businesses and Federal Contracting 

TRENDS IN MINORITY-OWNED BUSINESSES AND FEDERAL PROCUREMENT 

Like other policy changes, those that came about after the Adarand decision should be 

periodically reviewed to assure their effectiveness at fulfilling their stated purpose. This section 

evaluates the amount of contracts agencies awarded to minority-owned businesses over the past 

decade or more—starting in 1992 before Adarand through the most recently available data. The 

analysis first examines growth in the numbers of minority-owned businesses and their revenues. 

It then briefly discusses concurrent program changes that may affect small businesses’ 

opportunities to compete for federal government contracts and could mask Adarand effects. 

Finally, the appendix examines trends in procurement data against the backdrop of Adarand and 

other changes. 

Information on minority-owned businesses is derived from economic counts that the Census 

Bureau conducts. Trends in federal procurement are developed from data the General Services 

Administration collected and reported until recently hiring a contractor to perform the task. Both 

databases and the problems inherent in them are described in appendix D. 

The Growth in Minority-Owned Businesses, 2002 and 1997 Census Figures

2002 Census Survey 

The Census Bureau, on July 28, 2005, released new figures on minority small business growth in 

the United States current for 2002. The number of minority-owned businesses grew between 

1997 and 2002 from an estimated 2.8 million to 4.1 million, a 68 percent increase. Specifically, 

Hispanic-owned businesses grew from more than 1.1 million to 1.57 million; African Americanowned businesses grew from approximately 823,000 to 1.2 million; and Asian American-owned 

businesses grew from 893,000 to over 1.1 million.1

 (See table A.1.) 

 

1

 U.S. Census Bureau, 2002 Survey of Business Owners, released July 28, 2005. Due to the late nature of the 

release, there was no time to put together bar graphs to illustrate. The raw table is incorporated in its entirety as 

table A.1. 
96 Dissent Appendix A 

TABLE A.1 

Summary Statistics for Changes in the Number of U.S. Businesses and Their Receipts, 1997–2002 

Receipts ($billions)

Average 

Receipts

1997 2002 Change 1997 2002 Change 2002

Total U.S. Businesses 20,821,934 22,977,164 +10% $ 18,553 $ 22,635 +22% $ 985,103

 Female 5,417,034 6,492,795 +20% $ 819 $ 951 +16% $ 146,408

 Male 11,374,194 13,185,703 +16% $ 6,635 $ 7,096 +7% $ 538,194

Hispanic or Latino 1,199,896 1,574,159 +31% $ 186 $ 226 +22% $ 143,866

White 18,422,070 19,894,823 +8% $ 7,942 $ 8,304 +5% $ 417,395

Black 823,499 1,197,988 +45% $ 71 $ 93 +30% $ 77,426

American Indian and 

Alaska Native 197,300 206,125 * $ 34 $ 26 * $ 128,057

Asian American 893,590 1,105,329 +24% $ 303 $ 343 +13% $ 310,606

Native Hawaiian and 

Other Pacific Islander 19,370 32,299 +67% $ 4 $ 5 +26% $ 161,640

Receipts ($billions)

Average 

Receipts

1997 2002 Change 1997 2002 Change 2002

Total U.S. Businesses 5,295,151 5,526,111 +4% $ 17,908 $ 21,867 +22% $ 3,957,102

 Female 846,780 917,946 +8% $ 718 $ 813 +13% $ 885,878

 Male 3,485,921 3,525,524 +1% $ 6,270 $ 6,599 +5% $ 1,871,772

Hispanic or Latino 211,884 199,725 -6% $ 159 $ 184 +16% $ 921,090

White 4,573,528 4,712,168 +3% $ 7,405 $ 7,629 +3% $ 1,619,000

Black 93,235 94,862 ** $ 56 $ 70 +24% $ 735,586

American Indian and 

Alaska Native 33,277 25,101 * $ 29 $ 21 * $ 847,492

Asian American 286,976 319,911 +11% $ 275 $ 308 +12% $ 961,379

Native Hawaiian and 

Other Pacific Islander 3,023 4,333 +43% $ 4 $ 4 +16% $ 998,481

Receipts ($billions)

Average 

Receipts

1997 2002 Change 1997 2002 Change 2002

Total U.S. Businesses 15,526,783 17,451,053 +12% $ 645 $ 767 +19% $ 43,979

 Female 4,570,254 5,574,850 +22% $ 101 $ 137 +36% $ 24,648

 Male 7,888,273 9,660,179 +22% $ 365 $ 497 +36% $ 51,499

Hispanic or Latino 988,012 1,374,434 +39% $ 28 $ 43 +54% $ 30,925

White 13,848,542 15,182,655 +10% $ 536 $ 675 +26% $ 44,426

Black 730,264 1,103,126 +51% $ 15 $ 23 +54% $ 20,761

American Indian and 

Alaska Native 164,023 181,024 * $ 5 $ 5 * $ 28,299

Asian American 606,614 785,418 +29% $ 28 $ 36 +27% $ 45,537

Native Hawaiian and 

Other Pacific Islander 16,347 27,966 +71% $ 0 $ 1 +116% $ 31,981

1/ Includes firms with paid employees and firms with no paid employees

* = Not directly comparable ** = Not statistically significant

Note: Race groups are for the group alone or in combination with some other race. Hispanics may be of any race.

Firms with no paid employees 

Counts

Source: U.S. Bureau of the Census, "Summary Statistics for Changes in the Number of U.S. Businesses and their Receipts, 1997-

2002," no date. See < http://www.census.gov/Press-Release/www/releases/archives/business_ownership /005477.html> (last accessed 

Aug. 4, 2005).

All Firms

1 

Counts

Firms with paid employees 

Counts
Dissent Appendix A 97

Comparison between 2002 and 1997—General Observations 

While the data analyzed from 1997 are presented in detail, there are some general observations 

about the 2002 data that bear discussion. 

First, for African American-owned businesses, the growth in businesses with paid employees 

had virtually no change, tracking trends spotted in 1997 (discussion below). The same lack of 

growth in paid-employee businesses was seen in the American Indian/Alaska Native category as 

well. 

Second, while the growth pattern for minority-owned businesses is impressive, it does not 

answer the question of whether these businesses are comparable to similar nonminority-owned 

businesses in scale and creditworthiness. The data, and analysis, do not exist at this time. 

Finally, the data cannot speak for the success or failure of federal procurement programs in the 

post-Adarand world. The data do not detail how many of these businesses avail themselves of 

the 8(a) or small disadvantaged business (SDB) programs at the federal level. They do not detail 

whether small and disadvantaged businesses are in industries that can find competitive sourcing 

for contracts from federal agencies. Nor do the data speak to whether any of these firms 

encountered the historic, persistent discrimination that continues to exist in our society. 

What we do know, however, is that states and localities throughout this country, particularly in 

large metropolitan areas, have continued to pursue aggressive minority and women business 

enterprise programs. Many localities, such as San Francisco, Los Angeles, New York, Phoenix, 

and Chicago, among others, still have robust programs for minority and women business owners 

to participate in local government contracting and procurement.2

 With further study, we may find 

that these thriving programs, no doubt whose existence is infuriating to the Commission 

Majority, are a major source of minority business growth. 

1997 Survey 

The number of minority-owned businesses grew between 1992 and 1997 from an estimated 2.1 

to 2.8 million (see figure A.1). Specifically, Hispanic-owned businesses grew from more than 

860,000 to 1.1 million; African American-owned, from about 620,000 to 780,000; Asian 

American and Pacific Islander-owned, from 600,000 to more than 785,000; and American Indian 

and Alaskan Native enterprises, from roughly 100,000 to almost 190,000.3

 Minority-owned 

 

2 Summaries and information can be found on the cities’ Web sites: <http://www.sfgov.org/site/oca_page.asp?id=26537> (San 

Francisco, CA); <http://oaac.co.la.ca.us/WomMin.shtml> (Los Angeles, CA); <http://www.nyc.gov/html/sbs/html/mwbe.html> 

(New York City, NY); <http://phoenix.gov/CERTIFY/whodir.html> (Phoenix, AZ); and 

<http://egov.cityofchicago.org/city/webportal/portalEntityHomeAction.do?entityName=Procurement%20Services&entityNameE

numValue=34> (Chicago, IL).

3

 U.S. Census Bureau, 1997 Economic Census: Company Statistics Series, Company Summary, 1997, EC97CS-1, 

September 2001, pp. 10, 15 (hereafter cited as Census Bureau, 1997 Economic Census—Company Summary); U.S. 

Census Bureau, 1997 Economic Census: Survey of Minority-Owned Business Enterprises; Company Statistics 

Series, Summary, 1997, EC97CS-7, July 2001, p. 14; U.S. Department of Commerce, Economics and Statistics 

Administration, Bureau of the Census, 1992 Economic Census: Survey of Minority-Owned Business Enterprises, 
98 Dissent Appendix A 

businesses as a whole grew by 30 percent, as did those owned by Hispanics as well as Asian 

Americans and Pacific Islanders. American Indian and Alaskan Native-owned businesses grew 

in number by a tremendous 83.7 percent. In comparison, the number of African American-owned 

businesses grew 25.7 percent. (See figure A.2.) 

For the period 1992–1997, the 30 percent growth in the numbers of minority-owned businesses 

looks high compared to the growth in U.S. firms generally, which grew 6.8 percent from about 

17.3 million to 18.4 million. (See figures A.1 and A.2.) However, the growth is slow compared 

to the increase in minority-owned business between 1987 and 1992. For example, minorityowned businesses grew 62 percent from 1987 to 1992. African American-owned businesses 

grew 46 percent; Asian American- or Pacific Islander-owned businesses, 61 percent; and 

Hispanic-owned businesses, 83 percent during that period.4

 

The 68 percent growth tracks, as shown above, the more robust periods of growth in minorityowned businesses from 1987–1992. 

In 1997, minority-owned businesses constituted 15.3 percent of all firms. Hispanic-, Asian 

American and Pacific Islander-, African American-, and Native American-owned firms were 5.9, 

4.5, 4.0, and 1.0 percent of all enterprises, respectively.5

 In comparison, in 1997, Hispanics and 

African Americans comprised about 9 percent each of the employed civilian labor force; Asian 

Americans were over 3 percent.6

 Recent statistics from 2004 show that Hispanics, Asian 

Americans and Pacific Islanders, and African Americans are 13, 4.3, and 11 percent, 

respectively, of the employed civilian labor force.7

 Thus, for example, only Asian Americanowned businesses are as common as the group’s representation in the work force. The low 

 

Summary, MB92-4, September 1996, pp. 5, 6, 13 (hereafter cited as Bureau of the Census, 1992 Economic

Census—Minority-Owned Business Summary). Note that 1992 and 1997 statistics were not comparable, and the 

original sources applied adjustments to make comparisons. For minority groups, adjustments are applied to the 1997 

figures and exclude "C" corporations. See, e.g., U.S. Census Bureau, 1997 Economic Census—Company Summary, 

pp. 6–7. 

4

Bureau of the Census, 1992 Economic Census—Minority-Owned Business Summary, pp. 5, 13. 

5

 Figures calculated from data in Census Bureau, 1997 Economic Census—Company Summary, pp. 10, 15. Also see

U.S. Small Business Administration, Office of Advocacy, Dynamics of Minority-Owned Employer Establishments, 

1997–2001, February 2005 (hereafter cited as SBA, Dynamics of Minority-Owned Employer Establishments). 

Because this report uses establishments with paid employees, its statistics differ slightly. It shows that in 1997, 15.1 

percent of businesses were minority-owned; and 6.1, 4.3, 4.2, and 1.0 percent were Hispanic-, Asian and Pacific 

Islander-; black-, and American Indian and Alaska Native-owned. Ibid, p. 5. 

6 Figures are calculated from U.S. Department of Commerce, Statistical Abstract of the United States, 1998,

October 1998, pp. 51, 52, 54. 

7

 Current figures are computed from the Bureau of Labor Statistics data for October 2004. See U.S. Department of 

Labor, Bureau of Labor Statistics, “Table A-1. Employment status of the civilian population by sex and age,” Nov. 

5, 2004, <http://www.bls.gov/news.release/empsit.t01.htm> (last accessed Nov. 23, 2004); U.S. Department of 

Labor, Bureau of Labor Statistics, “Table A-2. Employment status of the civilian population by race, sex, and age,” 

Nov. 5, 2004, <http://www.bls.gov/news.release/empsit.t02.htm> (last accessed Nov. 23, 2004); U.S. Department of 

Labor, Bureau of Labor Statistics, “Table A-3. Employment status of the Hispanic or Latino population by sex and 

age,” Nov. 5, 2004, <http://www.bls.gov/news.release/empsit.t03.htm> (last accessed Nov. 23, 2004). 
Dissent Appendix A 99

numbers of minority-owned businesses thereby limit the potential small disadvantaged business 

contractors federal agencies use.8

FIGURE A.1 

The Number of Minority-Owned Businesses, 1992 and 1997 

 

Caption: The number of businesses grew between 1992 and 1997 for each group: Hispanics, African 

Americans, Asian Americans and Pacific Islanders, and American Indians and Alaskan Natives. 

Source: U.S. Census Bureau, 1997 Economic Census: Company Statistics Series, Company Summary, 1997, 

EC97CS-1, September 2001, pp. 10, 15; U.S. Census Bureau, 1997 Economic Census: Survey of MinorityOwned Business Enterprises; Company Statistics Series, Summary, 1997, EC97CS-7, July 2001, p. 14; U.S. 

Department of Commerce, Economics and Statistics Administration, Bureau of the Census, 1992 Economic 

Census: Survey of Minority-Owned Business Enterprises, Summary, MB92-4, September 1996, pp. 5, 6, 13.

Caption: The number of both minority-owned businesses and all U.S. firms grew between 1992 and 

1997.

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000

Minorities All U.S. Firms

Number of businesses

1992

1997

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

Hispanics AfricanAmericansAsian Americans

and Pacific

Islanders

American Indians

and Alaskan

Natives

Number of businesses

1992

1997

8

 Elsewhere, the Small Business Administration’s Office of Advocacy contends that the growth in minority-owned 

businesses is unimpressive given increases in the proportion of minority population. See SBA, Dynamics of

Minority-Owned Employer Establishments, pp. 4–8. 
100 Dissent Appendix A 

FIGURE A.2 

Percent Growth in Numbers and Revenue1

 of Minority-Owned Businesses, 1992 to 1997 

Source: U.S. Census Bureau, 1997 Economic Census: Company Statistics Series, Company Summary, 1997, EC97CS-1,

September 2001, pp. 10, 15; U.S. Census Bureau, 1997 Economic Census: Survey of Minority-Owned Business

Enterprises; Company Statistics Series, Summary, 1997, EC97CS-7, July 2001, p. 14; U.S. Department of Commerce,

Economics and Statistics Administration, Bureau of the Census, 1992 Economic Census: Survey of Minority-Owned 

Business Enterprises, Summary, MB92-4, September 1996, pp. 5, 6, 13.

Caption: Between 1992 and 1997, the number of minority-owned businesses increased about 30 percent, more than

all U.S. firms generally. Revenue of minority-owned businesses grew 60 percent, also more than that of all U.S.

firms. However, the revenue of African American-owned firms grew only half as much as minority-owned 

businesses generally, and less than all U.S. firms.

1

Growth in revenue is not adjusted for inflation.

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

180.0%

200.0%

Number Revenue

Minorities Hispanics

African-Americans Asian Americans and Pacific Islanders

American Indians and Alaskan Natives All U.S. Firms

Revenue 

Other indicators also show smaller growth patterns for black-owned firms. For example, 

minority-owned firms’ revenue grew between 1992 and 1997 (see figure A.3). Sales and receipts 

of minority-owned businesses increased from $200 million to $300 million. Hispanic-owned 

businesses grew in revenue from $76,842 million to $114,431 million; African American-owned 

businesses from $32,197 million to $42,671 million; Asian American and Pacific Islander-owned 

businesses from $95,714 million to $161,142 million; and Alaskan Native/American Indianowned businesses from $8,057 million to $22,441 million (see figure A.3). 
Dissent Appendix A 101

FIGURE A.3

Revenue of Minority-Owned Businesses, 1992 to 19971 

Caption: The revenue of minority-owned businesses grew between 1992 and 1997, but was small 

relative to that of all U.S. firms and their growth.

Caption: The revenue of businesses owned by each minority group grew between 1992 and 1997. 

However, the revenue of African American-owned businesses is much less than that of Hispanic- or

Asian and Pacific Islander-owned firms.

1

Revenues are shown as reported and have not been adjusted for inflation.

Source: U.S. Census Bureau, 1997 Economic Census: Company Statistics Series, Company Summary, 1997, 

EC97CS-1, September 2001, pp. 10, 15; U.S. Census Bureau, 1997 Economic Census: Survey of MinorityOwned Business Enterprises; Company Statistics Series, Summary, 1997, EC97CS-7, July 2001, p. 14; U.S. 

Department of Commerce, Economics and Statistics Administration, Bureau of the Census, 1992 Economic 

Census: Survey of Minority-Owned Business Enterprises, Summary, MB92-4, September 1996, pp. 5, 6, 13.

$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

$4,500,000

$5,000,000

Minorities All U.S. Firms

Millions of Dollars

1992

1997

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

Hispanics AfricanAmericansAsian Americans

and Pacific

Islanders

American Indians

and Alaskan

Natives

Millions of Dollars

1992

1997
102 Dissent Appendix A 

The percentage growth in revenue between 1992 and 1997 was 60 percent for minorities. 

Revenue of American Indian- and Alaskan Native-owned businesses grew 178 percent; Asian 

American and Pacific Islander-owned businesses increased 68 percent; and Hispanic-owned 

businesses 49 percent. However, revenue of African American-owned businesses increased only 

32 percent. Notably the growth in sales and receipts of all U.S. firms was 40 percent between 

1992 and 1997 (see figure A.2). Thus, revenue growth of black-owned businesses was less than 

the average for all firms, despite the existence of government programs to increase awareness of 

contracting opportunities. Low overall revenue may effectively constrain the capability of small 

firms to bid for contracts in ways discussed more fully later in this appendix. 

The growth in revenue between 1992 and 1997 is less impressive when viewed against increases 

in sales and receipts from the previous era—1987 to 1992. For example, during the earlier 

period, revenue of minority-owned firms increased 160 percent. Sales and receipts for firms 

owned by Hispanics, Asian Americans and Pacific Islanders, and Native Americans nearly 

doubled (about 194 percent increases). African American-owned businesses experienced revenue 

increases of 63 percent, only slightly below the 67 percent revenue growth of all U.S. firms.9

Additionally, the sales and receipts of minority-owned businesses are meager proportions of 

business revenue generally. In 1997, the revenues of minority-owned businesses account for only 

7.1 percent of all U.S. firms’ revenue. Businesses owned by Hispanics, African Americans, 

Asian American and Pacific Islanders, and Native Americans and Alaskan Natives are 2.2, 0.8, 

3.7, and 0.4 percent, respectively.10 Thus, minority-owned businesses must greatly expand their 

sales and receipts to reach parity with other U.S. enterprises. 

Paid Employees 

The majority of minority-owned businesses do not have paid employees. In 1997, only 20.1 

percent of minority-owned businesses had paid employees. The proportion varied somewhat by 

race or ethnic group. For example, 31.8 percent of Asian American and Pacific Islander-owned 

businesses had paid employees, but only 11.3 percent of African American-owned firms did.11 

As the number of minority-owned businesses has grown, so too has the proportion with paid 

employees. For example, in 1992, 15.9 percent of minority-owned and 10.4 percent of African 

American-owned businesses had paid employees, compared to the 20.1 and 11.3 percent, 

respectively, shown for 1997.12 Again, the growth for black-owned businesses was both meager 

and less than for other groups. 

 

9

 Bureau of the Census, 1992 Economic Census—Minority-Owned Business Summary, p. 5. 

10 Figures calculated from data in Census Bureau, 1997 Economic Census—Company Summary, pp. 10, 15. 

11 Ibid., p. 15. 

12 Figures calculated from data in Bureau of the Census, 1992 Economic Census—Minority-Owned Business 

Summary, p. 13, and Census Bureau, 1997 Economic Census—Company Summary, p. 15. Growth in the proportion 

of paid employees grew from 14.9 to 17.7 percent for Hispanic-owned businesses, and 22.5 to 31.8 percent for 

Asian/Pacific Islander ones from 1992 to 1997. Ibid. 
Dissent Appendix A 103

FIGURE A.4 

Survival Rates of Firms with Paid Employees by Race/Ethnicity of Owner 

Caption: Minority-owned firms with paid employees were much less likely to survive from 1997 to 2001

than from 1992 to 1996. However, African American-owned enterprises were less likely to survive than 

other groups in either period.

Source: U.S. Small Business Administration, Office of Advocacy, Minorities in Business, 1999, p. 25; U.S. 

Small Business Administration, Office of Advocacy, Dynamics of Minority-Owned Employer Establishments, 

1997-2001, February 2005, p. 9.

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

1992 to 1996 1997 to 2001

Period of Survival

Percent of Firms

Hispanics

African Americans

Asian Americans and Pacific

Islanders, American Indians,

and Alaska Natives

Survival Rates 

Research indicates that 75.5 percent of all firms in existence in 1992 survived until 1996, but 

these rates vary by racial/ethnic group. For example, 79.2 percent of firms owned by Asian 

Americans and Pacific Islanders, American Indians, and Alaska Natives, which were existing in 

1992, survived until 1996, compared with 74.3 percent of Hispanic-owned firms, and only 68.9 

percent of black-owned businesses. Firms with paid employees were more likely to survive. The 

rates were 91, 87, and 92 percent for Hispanic-, African American-, and Asian American-owned 

businesses with paid employees (see figure A.4), but only 70, 66, and 74 percent, respectively, 

for firms without.13 New businesses in 1992 had even lower survival rates. Of all businesses with 

employees that started in 1992 and had positive payrolls, 47 percent survived until at least 1996. 

These rates were 44.9 percent for Hispanic-owned new businesses, 34.7 percent for new blackowned ones, and 50.4 percent for those owned by Asian Americans, Pacific Islanders, American 

Indians, Eskimos, and Aleuts.14 

 

13 U.S. Small Business Administration, Office of Advocacy, Minorities in Business, 1999, pp. 8, 12, 16. 

14 U.S. Small Business Administration, Office of Advocacy, Minorities in Business, 2001, November 2001, p. 2 
104 Dissent Appendix A 

Recent data show substantially lower survival rates between 1997 and 2001. Even among firms 

with paid employees in 1997, the survival rates in 2001 are 72.1, 68.6, 67.0, and 61.0 percent for 

Asian American and Pacific Islander-, Hispanic-, American Indian and Alaska Native-, and 

African American-owned businesses, respectively.15 (See figure A.4, which combines Asian 

American and Pacific Islander- and American Indian and Alaska Native-owned firms for 

comparison with the earlier year.) These data suggest, again, that minority-owned businesses, 

and black-owned firms in particular, continue to face substantial challenges. Low survival rates 

among businesses may hinder firms’ ability to develop long-term rapport with federal agencies 

from which to seek contracts. 

Summary

Whether measured in numbers, revenue, or paid employees, minority-owned businesses grew 

from the early to late 1990s. They grew in numbers and, for many minority groups, in revenue, 

more than businesses generally. However, African American-owned businesses have not grown 

as much as businesses generally. Furthermore, the numbers and revenue of minority-owned 

businesses did not increase nearly as much in the years spanning the1995 Adarand decision (i.e., 

between 1992 and 1997) as during an earlier period (1987 to 1992). This finding could result 

from myriad factors. 

TRENDS IN FEDERAL CONTRACTING 

The Adarand decision was only one of many developments affecting federal contracting in the 

1990s. Legislative changes, which had both positive and negative influences on small businesses 

opportunities to compete for federal government contracts, include the Federal Acquisition 

Streamlining Act of 1994, the Federal Acquisition Reform Act of 1996, and the Small Business 

Reauthorization Act of 1997. 

First, the Federal Acquisition Streamlining Act of 199416 (FASA) reformed acquisition 

procedures to allow agencies to contract with multiple firms for the same or similar products 

(known as multiple award contracts, MACs). New contract vehicles such as MACs accounted for 

an increasingly large portion of governmentwide expenditures for contracts over $25,000 

between fiscal years (FYs) 1994 and1999.17 

Second, FASA exempted purchases of $2,500 or less from the range of contracts previously 

reserved for small businesses and encouraged agencies to use purchase cards, similar to 

corporate credit cards, for purchases of this amount.18 Small business representatives were 

 

(hereafter cited as SBA, Minorities in Business, 2001). 

15 See SBA, Dynamics of Minority-Owned Employer Establishments, p. 9. 

16 Federal Acquisition Streamlining Act, 15 U.S.C. § 644 (2000). 

17 U.S. General Accounting Office, Small Business: Trends in Federal Procurement in the 1990s, January 2001, pp. 

3–4, 6 (hereafter cited as GAO, Small Business Procurement Trends). 

18 Federal Acquisition Streamlining Act, 15 U.S.C. § 644 (2000). 
Dissent Appendix A 105

concerned that buyers making micropurchases were less likely to seek small businesses for these 

purchases. At the same time, FASA raised the ceiling for contracts reserved exclusively for small 

businesses—from $25,000 to $100,000—in an effort to encourage federal agencies to purchase 

more goods and services from small businesses and counter the negative effect of the new 

exemption. 19

The Federal Acquisition Reform Act of 1996 authorized multi-agency contracts, known as 

governmentwide agency contracts, through which federal agencies could access each other’s 

information technology contracts.20 Some entrepreneurs were concerned that these contract 

vehicles would consolidate multiple agencies’ requirements or demand performance over a wide 

geographic area and thereby diminish small businesses’ ability to compete for federal 

contracts.21

The Small Business Reauthorization Act of 199722 increased a previous legislative goal for 

federal contract expenditures to small businesses from 20 to 23 percent beginning with fiscal 

year 1998.23 Governmentwide procurement with small businesses was about 21 percent in FYs 

1995 and 1996 and hovered around 23 percent in FYs 1998 to 2003.24 

With so many changes, and particularly some in the years immediately before and after Adarand, 

one cannot isolate the effects of the 1995 Supreme Court decision. However, data can reveal 

whether more or less federal contracting with minority-owned businesses is coincident to the 

collective effects of these changes and Adarand. 

Amounts of Federal Procurement 

Federal procurement constitutes a significant portion of government expenditures.25 The

amount of federal procurement ranged around $200 billion in FYs 1992 through 1996. In FYs 

 

19 GAO, Small Business Procurement Trends, pp. 4–5, 8. 

20 Federal Acquisition Reform (Clinger-Cohen) Act of 1996, Pub. L. No. 104-106, Div, D, E, 110 Stat. 642, 41 

U.S.C. § 251(f) (2000). 

21 GAO, Small Business Procurement Trends, p. 4. 

22 Small Business Reauthorization Act of 1997, Pub. L. No. 105-135, 111 Stat. 2592, 15 U.S.C. § 631 note (1997). 

23 GAO, Small Business Procurement Trends, pp. 5, 12–13. 

24 U.S. General Services Administration, Office of Governmentwide Policy, Office of Acquisition Policy,

Governmentwide Information Systems Division, Federal Procurement Data Center, Federal Procurement Report,

2003, <http://www.fpdc.gov/fpdc/fpr2003.htm> (last accessed Sept. 21, 2004) (hereafter cited as GSA, Federal 

Procurement Report, 2003), and similar reports for 1995 through 2002. Also see GAO, Small Business Procurement

Trends, pp. 14–15, 30. 

25 In FY 2003, procurement of $305 billion constituted about 14 percent of government outlays reported in the 

President’s budget. See Office of Management and Budget, Executive Office of the President, Budget of the United 

States Government, Fiscal Year 2004, no date, <http://www.whitehouse.gov/omb/budget/fy2004/tables.html> (last 

accessed Feb. 17, 2005). Note further that the Federal Procurement Report for 2003 reports total procurement at 

$305 billion (p. 2), but shows only $277 billion for agencies’ total achievements against small business and other 

goals (pp. viii–ix). GSA, Federal Procurement Report, 2003. (See appendix B for an explanation of the goals.) The 

data presented throughout this report are the lower numbers—the goaling achievements. Purchases exempt from

goals for small businesses, including, for example, those less than $2,500, make up the differences. See 48 C.F.R. § 
106 Dissent Appendix A 

1997 to 1999, it dipped below that, ranging $182 to $190 billion. In FY 2000, it again hit $200 

billion, and steadily increased since then—$220 billion in FY 2001, $235 billion in FY 2002, 

and $279 billion in FY 2003. 26 (See figure A.5, part (a).) Federal procurement through small 

business contracts ranged $39 to $43 billion between FYs 1992 and 1999. Since then it has 

steadily increased—$45 billion in FY 2000, $50 billion in FY 2001, $53 billion in FY 2002, and 

$66 billion in FY 2003. (See figure A.5, part (a).) Against this backdrop, the trends in federal 

procurement for small disadvantaged businesses show fairly steady increases in dollar amounts 

across the decade with only small setbacks in FYs 1996 and 1997. Federal procurement to small 

disadvantaged businesses was $8.3 billion in FY 1992, increased to $11.2 billion in FY 1995, 

then dropped to just under $11 billion in FYs 1996 and 1997. In FY 1998, at $11.5 billion, it 

surpassed earlier levels, and continued increasing thereafter, reaching about $19.5 billion in FY 

2003. (See figure A.5, part (b).)27 Thus, federal procurement to small disadvantaged businesses 

appears to have been slightly less in FYs 1996 and 1997, the years immediately following 

Adarand, but parallels general cuts in government expenditures. 

Figure A.5 (part (b)) shows that federal procurement through the 8(a) program was $4.9 billion 

in FY 1992 and steadily increased to $6.4 billion in FY 1995. It remained at $6.4 billion in FYs 

1996 and 1997, then fluctuated between $5.8 and $6.6 billion during FYs 1998 to 2002 before a 

sudden increase to $10.1 billion in FY 2003. Thus, contract awards through the 8(a) program did 

not fall during the years immediately following Adarand, but failed to grow. Federal 

procurement through the 8(a) program fluctuated more during FYs 1999 to 2002 than in the 

years right after Adarand (1995 to 1998). 

Proportion of Procurement with Disadvantaged Businesses 

The trends in the amounts of federal procurement to minority-owned businesses are not just a 

reflection of government purchasing as a whole or even of that directed to small businesses. The 

proportion of federal procurement to small, disadvantaged businesses increased nearly every 

year whether viewed against small businesses or the totality of federal contracting. Procurement 

through small, disadvantaged businesses was 21 percent of small business procurement in FY 

1992 and increased to 30 percent by FY 2003 (with only a minor decrease in FY 2002 over that 

of FY 2001). (See figure A.6, part (a)). Figure A.6, part (b), shows similar trends in the 

proportion of procurement small, disadvantaged businesses represent of all federal contracting. 

This proportion increases from 4.1 percent in FY 1992 to 7.0 percent in FY 2003. (See figure 

A.6, part (b)). 

 

4.602 (c )(1) (2004). 

26 Figures are not adjusted for inflation. One report claims that the total amount of goods and services that the 

government purchased, including those bought with purchase cards, declined about 7 percent between fiscal years 

1993 and 1999. Consequently, all businesses had to compete for a reduced total of federal contract expenditures. 

See GAO, Small Business Procurement Trends, p. 9. 

27 See, e.g., GSA, Federal Procurement Report, 2003, and similar reports for other years. 
Dissent Appendix A 107

FIGURE A.5 

Trends in the Amount of Federal Procurement, 1992 to 2004 

Caption: Procurement with small disadvantaged businesses increased across the decade,

although small setbacks occurred in the years after the Adarand decision--1996 and 1997---

coincident with cuts in federal expenditures. Contracting through the race-conscious 8(a) 

program fluctuated more during fiscal years 1999 to 2002 than imediately after Adarand .

(a) Procurement through prime contracts and small business contracts

Source: U.S. General Services Administration, Federal Procurement Report, Fiscal Year[s] [1992 

through 2003], "Report on Annual Procurement Preference Goaling Achievements."

(b) Procurement through small disadvantaged businesses and the 8(a) program

Caption: Federal procurement through prime contracts was approximately $200 billion in fiscal

year 1996 and before. It dropped below that in fiscal years 1997 to 1999, then grew to $277 

billion in fiscal year 2003. Procurement with small businesses has increased slowly, but fairly

steadily between fiscal years 1992 and 2002, with only slight reductions in fiscal years 1996 and 

1997.

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

$300.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Fiscal Year

Billions of Dollars

Prime contracts Small business contracts

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Fiscal Year

Billions of dollars

Small disadvantaged business Section 8(a) program
108 Dissent Appendix A 

FIGURE A.6 

Trends in the Proportions of Federal Procurement, 1992 to 2004 

 (a) Amount of procurement through small disadvantaged businesses and the 8(a)

program as a proportion of small business contracts

(b) Amount of procurement through small disadvantaged businesses and the 8(a)

program as a proportion of all federal contracts

Caption: Contracting with small disadvantaged enterprises increased across the decade as a 

propotion of procurement with small businesses. The proportion of small business contracting 

through the 8(a) program was dropping in fiscal years 1998 to 2002, not in 1996 and 1997, when 

agencies were responding to Adarand .

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Fiscal Year

Percent

SDB/SB 8(a)/SB

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Fiscal Year

Percent

SDB/Total 8(a)/Total

Caption: Although contracting with small disadvantaged enterprises also increased as a propotion of 

total federal procurement, at its most in fiscal year 2003, it never exceeded 7 percent. The proportion 

of contracting through the 8(a) program as a proportion of total procurement also dropped in fiscal

years 1998 to 2002.

Source: U.S. General Services Administration, Federal Procurement Report, Fiscal Year[s] [1992 through 

2003], "Report on Annual Procurement Preference Goaling Achievements."
Dissent Appendix A 109

The proportion of procurement through the 8(a) program increased from 12.4 percent of that 

awarded to small businesses in FY 1992 to 15.9 percent in FY 1997 and then decreased 

thereafter, dropping to a low of 10.3 percent in FY 2002. But, in FY 2003, the proportion of 

small business procurement carried out through the 8(a) program rose again to 15.5 percent, 

almost as high as its peak in FY 1997. (See figure A.6, part (a).) Thus, fluctuations in federal 

usage of the 8(a) program occur in recent years more so than when responses to Adarand were 

first crafted. 

FIGURE A.7 

Number of New Small Disadvantaged Business Contracts the Federal Government Awarded by

Fiscal Year (1992 to 2003) 

Caption: New contracts with disadvantaged businesses dropped during fiscal years 1993 to 1995 

and were low again in 1998 to 2001. The reductions correspond to the filing of the Adarand case 

and recent efforts to reform contracting programs programs, rather than to the Supreme Court's 

"narrow tailoring" decision. (Data are unavailable in 1997 when reporting requirements for SDBs 

changed.)

Source: U.S. General Services Administration, Federal Procurement Report, Fiscal Year[s] [1992 through 

2003], "Small Business Ownership Report, Number of New Businesses by Type of Contractor--SF 279."

Total Federal Procurement

0

2000

4000

6000

8000

10000

12000

14000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Fiscal Year

Number of new businesses

New Contracts with Disadvantaged Businesses 

To examine whether the pool of firms receiving procurement is expanding, figure A.7 shows the 

number of contracts over $25,000 the federal government awarded to small disadvantaged 

businesses that had not previously had any. The numbers of new small disadvantaged business 

contractors dropped dramatically from 12,165 in FY 1992 to 5,536 in FY 1993 and further to 

4,695 in FY 1994. They increased in FYs 1995 and 1996, reaching 9,852, before dropping to 

about 4,500 to 5,000 in FYs 1998 through FY 2001. They began increasing again in FYs 2002 

and 2003 ending at 8,869. (See figure A.7. Data for FY 1997 are unavailable because reporting 

requirements for SDBs changed that year—see appendix D.) If Adarand affected this pattern, it 
110 Dissent Appendix A 

may have suppressed the number of new contractors during a period of uncertainty after the case 

was filed and before it was decided. Once the Supreme Court issued its decision, the number of 

new contractors returned to previous levels in FY 1996. Other program changes may have 

brought about the drop in procurement with new firms in FY 1998. 

Procurement by Race/Ethnicity of Firm’s Owner 

The Federal Procurement Data System’s (FPDS) reporting of specific racial or ethnic groups is 

limited. The Small Business Administration (SBA) maintains additional race/ethnicity data on 

8(a) participants that the agency presents to Congress. 

First, the FPDS data by race and ethnicity are available only for the Department of Defense’s 

(DOD’s) new contract awards to small disadvantaged enterprises. Figure A.8 shows the new 

contract awards by racial/ethnic groups summed for women- and “other,” meaning male-owned, 

small disadvantaged businesses. The number of new contracts awarded to each of the five 

racial/ethnic groups dropped between FYs 1992 and 1994, increased somewhat by 1996, and 

dropped below FY 1994 levels again during FYs 1998 and 1999. Four out of five groups were 

awarded more new contracts in FYs 2002 and 2003 than in FY 1994. However, Asian Indian 

Americans received fewer new contracts than in FY 1994 throughout FYs 1998 to 2003 (see 

figure A.8). Furthermore, the FYs 2002 and 2003 increases for other groups were not great. 

Native American-owned small disadvantaged businesses were the only group ever to receive 

more new contracts than in FY 1992. 

The largest effects are for African Americans. The number of DOD awards to new black-owned 

businesses dropped from 1,419 in FY 1992 to 441 in FY 1994. In FYs 1998 and 1999, the 

number of new contracts awarded to African American-owned businesses was 399 and 314, 

respectively. In FYs 2002 and 2003, African Americans received 742 and 686 new contracts. 

The decrease in the number of contracts awarded in FYs 1992 to 1994 to Hispanics and Asian 

Americans and Pacific Islanders was less severe than for blacks. DOD contracts with new 

Hispanic owners decreased from 1,039 to 475 and ranged between 337 and 636 in ensuing years; 

for Asian Americans and Pacific Islanders, numbers dropped from 773 to 457 in FY 1994 and 

ranged 201 to 333 thereafter, with the exception of FY 2002, when new contracts reached 546. 

(See figure A.8.) Thus, minority-owned businesses suffered from major DOD reductions in new 

contracts awarded them in the years after Adarand was filed but before it was decided, and 

further reductions in years following Department of Justice (DOJ) guidance. DOD has never 

since awarded similar numbers of new contracts to these three groups. 
Dissent Appendix A 111

FIGURE A.8 

Number of New Small Disadvantaged Business Contracts the Department of Defense Awarded by

Race/Ethnicity and Fiscal Year (1992 to 2003) 

Summary caption: The Department of Defense awarded substantially fewer new contracts to each of five racial/ethnic groups

between fiscal years 1992 and 1994 and fewer still in 1998 and 1999. The largest drops were for African Americans. (The 1997 data

are unavailble because reporting requirements for SDBs changed that fiscal year.)

Source: U.S. General Services Administration, Federal Procurement Report, Fiscal Year[s] [1992 through 2003], "Small Business

Ownership Report, Number of New Businesses by Ethnic Group--SF279."

Caption: New contracts with Asian Indian American-owned 

firms decreased from about 300 to 150 in fiscal years 1992 to 

1994, then fell to 133 in fiscal year 1999 and 64 in 2000.

Caption: The number of new contracts with African 

American-owned businesses dropped from more than 1,400 

almost to 400 between fiscal year 1992 and 1994, then

decreased almost to 300 in 1999.

Caption: New contracts with disadvantaged Hispanic

American-owned businesses dropped from more than 1,000 

to below 500 from fiscal years 1992 to 1994, then almost to

300 in 1998.

Caption: New contracts with Asian/Pacific American-owned 

firms dropped from about 800 to 250 in fiscal years 1992 to 

1994, then further to 200 in 1999.

Caption: New contracts with disadvantaged Native Americanowned businesses dropped from 342 to 142 from 1992 to 

1994, then to 317 in 1998.

African American-Owned Small Disadvatages 

Businesses

0

250

500

750

1000

1250

1500

1992

1993

19941995

1996

1997

1998

1999200020012002

2003

Fiscal Year

Number of new 

businesses

Hispanic American-Owned Small Disadvantaged 

Businesses

0

250

500

750

1000

1250

1500

1992

199319941995

199619971998199920002001

20022003

Fiscal Year

Number of new 

businesses

Asian Pacific American-Owned Small 

Disadvantaged Businesses

0

250

500

750

1000

1250

1500

1992

19931994

1995

1996

1997

19981999

2000

20012002

2003

Fiscal Year

Number of new 

businesses

Native American-Owned Small Disadvantaged 

Businesses

0

250

500

750

1000

1250

1500

1992

199319941995199619971998

19992000

200120022003

Fiscal Year

Number of new 

businesses

Subcontinent Asian (Asian Indian) AmericanOwned Small Disadvantaged Businesses

0

250

500

750

1000

1250

1500

1992

199319941995

19961997199819992000

2001

2002

2003

Fiscal Year

Number of new 

businesses
112 Dissent Appendix A 

Other race-specific data are available on the 8(a) program, which encourages agencies to 

contract with small disadvantaged businesses. SBA reports to Congress show that the largest 

proportion of certified 8(a) participants are African American owners, but the percentage has 

been dropping. For example, in 1996, 45.4 percent of eligible firms were African Americanowned; 0.3 percent were Caucasian-owned. Since then, the percent of certified black-owned 

businesses decreased from, for example, 40.7, 39.8, 39.3, to 37.9 percent each fiscal year from

2000 to 2004. At the same time, the proportion of Caucasian American-owned firms in the 

program increased—1.8, 2.7, 3.1, and 4.8 percent each year from 2000 to 2004.28 Furthermore, 

as appendix B explains, participation in the 8(a) program does not guarantee federal contracts. 

Overall, black-owned businesses experienced the most severe setbacks in recent trends, in both 

the number of new awards DOD makes to disadvantaged groups and 8(a) program participation. 

Unfortunately, little specific race or ethnic group data is available for agencies’ new or ongoing 

contracts.29 Thus, one cannot determine whether federal procurement programs—8(a), SDB, or 

race-neutral ones—help African American-owned businesses, which grew more slowly than 

other small or minority-owned businesses during the period analyzed here. 

PERSISTENT DISPARITIES IN FEDERAL PROCUREMENT 

Congress states that the long-standing effects of discrimination continue to influence the size and 

nature of minority-owned businesses, and their ability to compete.30 Minority-owned business 

assistance and other procurement programs exist “to ensure that all businesses have an equitable 

 

28 U.S. Small Business Administration, Office of Minority Enterprise Development, A Report to the U.S. Congress 

on Minority Small Business and Capital Ownership Development For Fiscal Year 1996, no date, p. 12, 

<http://www.sba.gov/8abd/reports/med1996rpttocongress.html> (last accessed Apr. 8, 2005). U.S. Small Business 

Administration, Office of Business Development, Report to the U.S. Congress on Minority Small Business and 

Capital Ownership Development, Fiscal Year 2003, no date; U.S. Small Business Administration, Office of 

Business Development, Report to the U.S. Congress on Minority Small Business and Capital Ownership

Development, Fiscal Year 2002, no date; U.S. Small Business Administration, Office of Business Development,

Report to the U.S. Congress on Minority Small Business and Capital Ownership Development, Fiscal Year 2001, no 

date; U.S. Small Business Administration, Office of Business Development, Report to the U.S. Congress on 

Minority Small Business and Capital Ownership Development, Fiscal Year 2000, no date. 

29 In one exception, the Department of Housing and Urban Development reports FY 2004 procurement with SDBs

according to racial/ethnic categories. Just over 40 percent of contract actions with small disadvantaged businesses 

(8(a)s and others) were with African American-owned firms. Numbers calculated from U.S. Department of Housing 

and Urban Development, “HUD Procurement System (HPS): Procurement Opportunities Program Performance 

Summary Report (FPDS Validated), Reporting Period: 10/01/2003-09/30/2004,” no date.

30 See 15 U.S.C. § 621 (f)(1)(B) (2000); and Proposed Reforms to Affirmative Action in Federal Procurement, 61 

Fed. Reg. 26,042, 26,050 (May 23, 1996) (hereafter cited as DOJ, Proposed Reforms to Affirmative Action in

Federal Procurement) (citing Small and Minority Business in the Decade of the 1980’s (Part 1): Hearings Before 

the House Comm. on Small Business, 97th Cong., 2nd Sess., 1981, p. 4 (hereafter cited as House Comm. on Small

Business, Small and Minority Business); H.R. REP. NO. 92-238, pt., at 3, 7 (1972); H.R. REP. NO. 103-870, at 5, 

7, 15 n. 36 (1994); U.S. Congress, Availability of Credit to Minority and Women-Owned Small Businesses: Hearing 

Before the Subcomm. on Financial Institutions Supervision, Regulation and Deposit Insurance of the House Comm. 

on Banking, 103d Cong., 1st Sess., 1994, pp. 6, 27 (statements of Andrew Hove and Wayne Smith) (hereafter cited 

as House Comm. on Banking, Availability of Credit).
Dissent Appendix A 113

opportunity to participate in federal procurement.”31 Agencies must promote minority and 

disadvantaged business development to achieve statutory goals, and also ensure that such 

programs comply with Adarand’s legal requirements. Race-neutral programs, by helping all 

firms to compete, are designed to expand contracting opportunities for minority and 

disadvantaged business owners.32 However, some believe that a goal to increase minority and 

disadvantaged businesses’ share of federal procurement, even if only commensurate with their 

representation among companies capable of executing contracts, demands special effort. The 

effectiveness of race-neutral contracting programs thus hinges on a program’s ability to (1) reach 

such firms and help them become competitive, and (2) render federal contracting more fair 

without establishing separate criteria that create a disadvantage for other enterprises. 

To accomplish this goal, procurement assistance programs focus on eliminating barriers that 

appear to impact small, minority-owned, and disadvantaged firms more than large, established 

enterprises. For example, minority-owned firms tend to be smaller and newer than their 

nonminority counterparts.33 As a result, programs to increase federal contracting opportunities 

frequently are designed to overcome challenges facing small and new businesses. The following 

section describes difficulties facing businesses that affect all firms, and which may 

disproportionately hinder minority-owned businesses’ access to federal contracts. 

Individual Financial Circumstances 

SBA estimates that 50 percent of small businesses fail within one year of starting, and 95 percent 

within five years.34 Many failures stem from unforeseen financial difficulties that increased 

capital might overcome, or cash flow problems when prime contractors do not pay on schedule.35

When entrepreneurs have low income and wealth, as is the case for many minorities, they find it 

more difficult to overcome such financial challenges and often cannot recover from even minor 

periods of resource deprivation. Lower rates of homeownership and savings among minorities 

result in decreased collateral for private-sector financing, such as short-term loans and 

alternative financing that could make a difference during periods of resource scarcity. 36

Furthermore, low-income and low-wealth business owners are less likely to have connections to 

social and familial networks that can provide temporary financial relief.

37 

 

31 U.S. Department of Education, Doing Business with the U.S. Department of Education, November 2004, p. 13, 

<http://www.ed.gov/fund/contract/about/booklet1.html> (last accessed May 31, 2005). 

32 George R. La Noue and John C. Sullivan, “Race Neutral Programs in Contracting,” Public Administration 

Review, vol. 55, no. 4 (July/August 1995), p. 348. 

33 María Enchautegui, Michael Fix, Pamela Loprest, Sarah von der Lippe, and Douglas Wissoker, The Urban 

Institute, Do Minority-Owned Businesses Get a Fair Share of Government Contracts?, 1997, pp. 34–35 (hereafter 

cited as Urban Institute, “Fair Share”).

34 U.S. Small Business Administration, “Are You Ready? Why Small Businesses Fail,” no date, 

<http://www.sba.gov/starting_business/startup/areyouready.html> (last accessed Mar. 10, 2005). 

35 Pennsylvania Advisory Committee to the U.S. Commission on Civil Rights, Barriers Facing Minority- and 

Women-owned Businesses in Pennsylvania, August 2002, p.20 (hereafter cited as PAC/USCCR, Barriers Facing 

Minority- and Women-owned Businesses). 

36Ibid., p.18. 

37 Urban Institute, “Fair Share,” pp. 34–36. 
114 Dissent Appendix A 

Access to Capital and Credit

In addition to lack of wealth and insecure personal financial circumstances, many minority 

business owners face reduced access to capital and credit, including loans and start-up financing. 

Research documents racial discrimination in business lending, though researchers disagree on 

the magnitude of its effects.38 At least, most concede that business owners who have either 

limited wealth or experience or both often face higher loan costs and interest rates than those 

who have ample collateral and long credit histories.39 Furthermore, many minority entrepreneurs 

report avoiding applying for loans for fear they will be rejected.40

Small business owners generally may have difficulty securing financing from banks that set a 

minimum loan size. Many banks, for example, will not make commercial loans of less than 

$100,000 or an even higher amount.41 Additionally, residential segregation and patterns of 

poverty may unduly impact minorities’ access to credit because some banks are unwilling to lend 

in locations they perceive as dangerous, low-income, or of limited income potential.42 

Minority firms also lack access to capital, including access to social and business networks that 

provide information on (or sources of) start-up and venture capital, discussed below.43 The 

Urban Institute suggests that residential segregation limits minority-owned businesses’ market 

access to white consumers.44 Also, while government offers some prime contractors mobilization 

funds for start-up costs, it rarely extends this financing to small business subcontractors.45

Delayed or irregular payments from government and prime contractors can create significant 

cash flow problems.46 Additionally, because they lack the bulk purchasing power of their larger 

counterparts, small businesses often pay vendors more for supplies.47 

 

38 Ibid., p. 36. See also DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, pp. 26,057–58. 

39 David G. Blanchflower, Phillip B. Levine, and David J. Zimmerman, “Discrimination in the Small Business 

Credit Market,” working paper 6840, National Bureau of Economic Research Working Paper Series, Cambridge, 

MA, December 1998. 

40 Ken Cavalluzzo, Linda Cavalluzzo, and John Wolken, “Competition, Small Business Financing, and 

Discrimination: Evidence From a New Survey,” in Jackson L. Blanton, Alicia Williams, Sherrie L.W. Rhine (eds.), 

Business Access to Capital and Credit: A Federal Reserve System Research Conference, ed. (proceedings of a 

conference held in Arlington, VA, March 8–9, 1999), pp. 180–265 (hereafter cited as Blanton, Williams, and Rhine 

(eds.), Business Access to Capital and Credit). 

41 See, e.g., Commercial Direct, “Get a Quote,” <http://www.commercialdirectloans.com/apply.jsp> (last accessed 

May 25, 2005). 

42 Raphael Bostic and Patrick Lampini, “Racial Differences in Patterns of Small Business Finance,” in Blanton,

Williams, Rhine (eds.), Business Access to Capital and Credit, pp.149–179. 

43 Urban Institute, “Fair Share,” pp. 36–37.

44 Ibid., p. 39.

45 PAC/USCCR, Barriers Facing Minority- and Women-owned Businesses, p.18. 

46 Ibid., p.20. 

47 Urban Institute, “Fair Share,” p. 42.
Dissent Appendix A 115

Insurance and Bonding 

Most government contracts for construction, repair, or other public works require performance 

and payment bonding to ensure that the contractor will finish a project and pay laborers and 

suppliers.48 The same factors that hinder minority and small business owners’ access to credit 

and capital also influence their ability to obtain insurance and bonding at a reasonable cost. 

Surety companies usually require contractors to have experience, but firms may not acquire 

proficiency without bonding. Bonders may charge newer firms and business owners, or small 

firms with little credit or collateral, substantially more in fees than they do larger companies with 

experience, rendering these smaller companies’ bids uncompetitive, even when they obtain 

bonding. Bonding adds substantially to the up-front costs contractors pay, and may exceed the 

means of small companies that have already spent significant amounts to prepare bids, secure 

suppliers, and hire laborers during periods when cash flow may be low.49 

In addition to the factors above, DOJ’s guidance discusses municipal and state disparity studies 

and reports to Congress documenting racial bias in surety bonding.50 Overall, the bonding 

process may be arbitrary, and at least one expert has suggested that surety companies structure 

themselves to avoid regulatory requirements, including some state antidiscrimination laws.51 

These factors compound difficulties small and disadvantaged businesses face in obtaining 

insurance and bonding.52 

Size and Administrative Capacity

New and small businesses may not have the resources to mobilize additional workers for a 

specific contract. Furthermore, they may not retain levels of human capital or technical experts 

sufficient to identify procurement opportunities, fill out government paperwork, or write 

competitive proposals that conform to federal requirements. They may lack financial and 

management skills (or assets) to plan for speculative chances at future government contracts.53

These kinds of businesses also may retain too few employees or insufficient equipment and 

supplies to realistically compete with other firms for prime contracts.54 

 

48 See 40 U.S.C. § 3131 et. seq. (requiring bonding for all projects over $100,000, although Federal Acquisition 

Regulation guidelines permit alternatives to payment bonds for projects between $25,000 and $100,000). 40 U.S.C.

§ 3134 provides that the secretaries of Transportation, Army, Navy, and the Air Force may waive bonds for certain

types of projects. 

49 PAC/USCCR, Barriers Facing Minorities and Women-owned Businesses, p. 19. 

50 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,060. 

51 Margaret Simms, statement before the U.S. Commission on Civil Rights, briefing on “Civil Rights Implications of 

Regulatory Obstacles Confronting Minority Entrepreneurs,” Sept. 5, 1996, transcript, p. 83. 

52 PAC/USCCR, Barriers Facing Minority- and Women-owned Businesses, p. 19. 

53 See discussion in Urban Institute, “Fair Share,” pp. 34–40. The Small Business Administration’s 8(a) Business 

Development Program aims largely to help businesses overcome these kinds of deficits. Michael K. Fauntroy,

analyst in American national government, Government and Finance Division, Congressional Research Service, U.S. 

Library of Congress, Disadvantaged Businesses: A Review of Federal Assistance, Jan. 14, 2002, pp. 3, 15–16. 

54 SBA, Minorities in Business, 2001, pp. 14–16; Urban Institute, “Fair Share,” pp. 34, 41. 
116 Dissent Appendix A 

Technology and Expertise 

Many government contracting opportunities require specific technological knowledge and 

capacity. Trade unions and apprenticeships help business owners develop relevant skills and 

expertise, but historically many of these organizations have discriminated against minorities.55

Additionally, many newer and minority-owned businesses lack a contracting record to 

demonstrate their ability to complete proposed work plans. Procurement officials and prime 

contractors may be reluctant to hire such firms, especially where awards are based on past 

performance.56

In addition to experience and skills, government contracts may require specialized 

manufacturing equipment or other technology. Given their size and financial constraints, few 

small businesses can make such large capital investments up front without advance payments or 

guaranteed contracts. 

Interpersonal and Business Networks 

Business and social networks are critical to a firm’s ability to establish itself. According to DOJ: 

Contrary to the common perception, contracting is not a “meritocracy” where the low 

bidder always wins. . .[personal and informal] networks can yield competitive 

advantages, because they serve as conduits of information about upcoming job 

opportunities and facilitate access to the decisionmakers (e.g. contracting officers, prime 

contractors, lenders, bonding agents and suppliers).57

Access to networks increases businesses’ abilities to learn of procurement opportunities, find out 

about potential contracts in a timely fashion, learn of new market prospects, find capital, identify 

decisionmakers, and understand unwritten cultural and agency-specific factors that influence the 

propensity of contracting officials to accept a bid.58 Personal familiarity garnered through 

networks may influence a procurement officer’s evaluation of a business owner’s integrity or 

ability to do a job, and may be particularly important for contracts that are non-competitive or 

are awarded based on a firm’s previous contract performance.59 When procurement officers 

solicit bids orally or through limited written requests, they may not contact all qualified firms, 

and firms without access to business networks may never hear of these contracting 

 

55 See DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,054. 

56 Id., p. 26,055.

57 Id., p. 26,059. 

58 See Federal OSDBU Directors Interagency Council, “Model Code of Expectations between Federal Offices of 

Small and Disadvantaged Business Utilization (OSDBU’s) and Small Businesses,” August 2003, 

<http://www.osdbu.gov/Assets/PDF/Best%20Practices.pdf> (last accessed May 31, 2005). 

59 See discussion in Urban Institute, “Fair Share,” pp. 34–40. 
Dissent Appendix A 117

opportunities.60 Personal familiarity may also enable certain firms to secure capital at a cost 

below that quoted to unfamiliar companies.61

Well-placed contacts in educational institutions, family, and trade and professional associations 

open important avenues through which entrepreneurs may access information and provide 

evidence of a firm’s capability for work opportunities. The quality and quantity of these access 

points have a bearing on the nature and number of awards for which a contractor will be 

considered. If minorities have less access than nonminorities, the impact of their exclusion from

networks is exacerbated.62 

Design Discretion 

Discretionary factors related to project design may limit the ability of small and minority-owned 

businesses, more than others, to compete for projects. One is the flexibility that procurement 

officials possess for setting contract size.63 While large, consolidated projects may streamline the 

contracting process, they preclude small business participation because they call for exceptional 

amounts of human, technological, and financial capital. 

Additionally, government officials can phrase bid solicitations in ways that favor certain firms. 

When deliberate, this practice is illegal; however, procurement officers may inadvertently use 

language that unnecessarily limits which firms can win contracts.64 Other factors discussed 

above can magnify the effects of such practices on small and disadvantaged businesses. For 

example, firms that lack access to networks may not learn what language procurement officers 

prefer.65 

Discrimination 

Many policymakers agree that historical discrimination contributed significantly to present-day 

problems, including those documented above. Few agree, however, about the extent to which 

past discrimination hampers minority businesses’ current ability to compete for federal contracts. 

Discussing evidence it collected after Adarand as to whether government has an interest in 

proactively increasing contracting opportunities for minorities, the Clinton Justice Department 

wrote: 

 

65 See Ibid., pp. 34–40. 

60 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,060.

61 Brian Uzzi and James J. Gillespie, “What Small Firms Get Capital and at What Cost: Notes on the Role of Social 

Capital and Banking Networks,” in Blanton, Williams, Rhine (eds.), Business Access to Capital and Credit, pp. 

413–444. 

62 See discussion in Urban Institute, “Fair Share,” pp. 34–40. 

63 Ibid., p. 41. 

64 Ibid. 
118 Dissent Appendix A 

All told, the evidence that the Justice Department has collected to date is powerful and 

persuasive. It shows that the discriminatory barriers facing minority-owned businesses 

are not vague and amorphous manifestations of historical societal discrimination. Rather, 

they are real and concrete, and reflect ongoing patterns and practices of exclusion, as well 

as the tangible lingering effects of prior discriminatory conduct.66

Allegations of discrimination in contracting persist.67 Anecdotal evidence, compliance reviews, 

and data presented before Congress and the courts demonstrate specific concerns about 

discrimination in federal contracting, even if they are not as widespread as before.68

Overall, minority-owned businesses and disadvantaged firms face myriad challenges as a result 

of personal factors, history, and aspects of the contracting process. Procurement assistance 

initiatives, discussed in appendix B, address these challenges both directly and indirectly to 

increase small disadvantaged businesses’ share of federal contract dollars. 

THE FEDERAL PROCUREMENT PROCESS: HOW AGENCIES MAKE PURCHASES 

Minority-owned businesses continue to face multiple barriers to success, and data confirm that 

these firms have historically fared poorly in federal contracting. Vast spending on federal 

procurement—approximately $300 million in FY 2003 alone—makes government contracts a 

potentially important source of revenue for small and disadvantaged businesses.69 Programs 

 

66 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,050. 

67 See generally, Thinket Ink Info. Res., Inc. v. Sun Microsystems, Inc., 368 F.3d. 1053, (9th Cir. 2004) (illustrating 

the difficulties facing companies seeking to file discrimination suits against prime contractors or procurement 

officials). The appellate court disagreed with the lower court over whether Thinket, a company owned by AfricanAmericans, had a “racial identity” for standing to file a discrimination case under 42 U.S.C. § 1981(b) prohibiting 

discrimination in contractual relationships. After fighting various statutes of limitation, the U.S. District Court for 

the District of Northern California ruled that the company lacked standing to sue under state law prohibiting 

independent contractors from bringing such a claim;; Solomon Moore, “‘Fronts’ Said to be Rife in Contracting,” 

Los Angeles Times, Aug. 6, 2001, p. B.1; Bob Egelko, “Judge Blasts Contra Costa After Contracting Bias Reports

Surface,” San Francisco Chronicle, June 22, 2001, p. A.21; Robert Schwab, “Arbiter Revisits U.S. West Case;

Settlements in Discrimination Suit Could Be Rescinded, Official Says,” Denver Post, Feb. 12, 2000, p. C.02; Darrel 

Rowland, “Business Owners’ Problems With State Detailed in Report,” Columbus Dispatch, Aug. 24, 2001, p. 3B;

John Sanko, “State Urged to Give Work to Minority Contractors; Group Threatens to File Bias Suit, Stage 

Protests,” Denver Rocky Mountain News, May 17, 2000, p. 23A. 

68 See DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,050 (citing House Comm. on 

Small Business, Small and Minority Business, pp. 3, 7; H.R. REP. NO. 103-870, at 5, 7, 15 and 36 (1994); House 

Comm. on Banking, Availability of Credit, pp. 6, 27. 

69 In FY 2003, procurement of $305 billion constituted about 14 percent of government outlays reported in the 

President’s budget. See GSA, Federal Procurement Report, 2003, p. 2; and Office of Management and Budget,

Executive Office of the President, Budget of the United States Government, Fiscal Year 2004, “Summary Tables,” 

no date, <http://www.whitehouse.gov/omb/budget/fy2004/tables.html> (last accessed Feb. 17, 2005). Although the 

Federal Procurement Data System denotes “contract actions,” this report uses the phrase “contracts” 

interchangeably with “contract actions.” Technically, in addition to contracts, “contract actions” may include 

purchase orders, calls against a blanket purchase agreement, delivery orders, and other types of orders, as well as 

modifications to existing agreements. See, e.g., U.S. Department of Transportation, “Instructions for Preparing 

Standard Form 291, ‘FPDS Summary Contract Action Report ($25,000 or Less),’” no date, p. 3, 

<http://www.dot.gov/ost/m60/earl/sf281ins.htm> (last accessed Sept. 23, 2004). 
Dissent Appendix A 119

designed to assist these firms must accommodate a large and often complicated procurement 

infrastructure that generates millions of contracts each year.70

The federal government purchases myriad goods and services, from basic office supplies to 

advanced weapons systems. Though the General Services Administration (GSA) procures some

supplies and assets for governmentwide use, most departments and agencies purchase goods and 

services directly from vendors. GSA administers government supply schedules, which are 

contracts for which firms agree to supply materials and services at set prices for a limited time 

period. Government offices and programs can place orders for routine purchases and contracts 

directly with GSA-approved vendors on these lists or schedules, reaping the benefits of volumediscounted prices, lower administrative and regulatory costs, and access to pre-approved vendors 

within various procurement categories. For the most part, agencies do not rely on GSA’s services 

for uncommon or program-specific procurement. 71 

President Bush’s Management Agenda of 2001 (PMA),72 and ensuing legislation such as the EGovernment Act of 2002,73 aim to reduce regulatory burdens, such as overlapping paperwork for 

different agencies, that face businesses working with the federal government. Information 

technology advancements have enabled better cross-agency coordination of procurement 

processes, easing the paperwork burden for businesses involved in federal contracts.74 The PMA 

continued to focus attention on performance-based contracting; acquisition officers weigh 

contractor evaluations on previous federal projects when making procurement decisions in 

addition to information in each individual bid. The recently-established Past Performance 

Information Retrieval System facilitates performance-based contracting by enabling procurement 

personnel to consult a centralized Internet database to obtain composite information on vendor 

work.75

The Federal Acquisition Regulation (FAR)76 is a base set of guidelines that dictate each stage of 

the government procurement process from inception through contract execution and payment.77

 

70 GSA, Federal Procurement Report, 2003, pp. viii–ix; with 5.7 million actions, DOD awarded half of all federal 

contracts and nearly 70 percent of the dollars spent. The Department of Veterans’ Affairs awarded the second most

number of contract awards (3.7 million, or more than 32 percent), and the Department of Energy ranked the second 

highest total dollar amount, $21.1 billion, or over 7 percent of all federal procurement. Ibid. 

71 For information on supply schedules and other services, see U.S. General Services Administration, “Acquisition 

Solutions,” Jan. 12, 2005, <http://www.gsa.gov> (last accessed May 31. 2005). 

72 Executive Office of the President, Implementing the President’s Management Agenda for E-Government: EGovernment Strategy, April 2003 (hereafter cited as EOP, President’s Management Agenda).

73 The E-Government Act of 2002, Pub. L. No. 107-347, 116 Stat. 2899, 44 U.S.C. §§ 101 note, 3501 note, 3601 

note (2002) (hereafter cited as The E-Government Act of 2002). 

74 See 48 C.F.R. § 9.104-3(b) (2004). 

75 U.S. Department of Defense, E-Business Office, “Past Performance Information Retrieval System,” Jan. 25, 

2005, <http://www.ppirs.gov> (last accessed June 1, 2005). 

76 The General Services Administration, the National Aeronautics and Space Administration, and DOD jointly issue 

governmentwide instructions—the Federal Acquisition Regulation (FAR)—codified at 48 C.F.R. §§ 1-99 (Chapter 

1) (2004). For access to the FAR, see the “Federal Acquisition Regulation (FAR) Home Page,” no date, 

<http://www.acqnet.gov/far> (last accessed June 1, 2005). 

77 See Federal Acquisitions Regulations System, 48 C.F.R. §§ 1–99 (2004). 
120 Dissent Appendix A 

Individual departments also develop and follow individual supplements to FAR guidelines; the 

complexity of each agency’s guidelines varies. For example, the Defense Federal Acquisition 

Regulation Supplement (DFARS),78 a DOD guidance document, has more than 600 pages and 

encompasses a variety of purchasing scenarios and procedures unique to the agency. In contrast, 

the Education Acquisition Regulation (EDAR)79 varies minimally from FAR.

FAR guidelines vary depending on the size and nature of the service or contract sought (see table 

A.2). Under FASA, authorized employees can make “micro-purchases” of under $2,500 without 

obtaining competitive bids.80 Other legislation mandates the use of small businesses, when such 

bids are competitive, for purchases between $2,500 and $100,000.81 For procurement actions 

exceeding $100,000, agencies issue either an “invitation for bid” (IFB) dictating a sealed bid 

procedure (for defined specifications) or a “request for proposal” (RFP) for work requiring 

negotiation, or when there exist more than a single method of achieving the desired outcome.

 82

Competition for these contracts is “open,” that is, all qualified companies may bid on IFBs and 

RFPs for contracts exceeding $100,000. 

FAR requires agencies to post acquisitions larger than $25,000 on the Web site 

www.FedBizOpps.gov; some agencies voluntarily do so at an even lower dollar threshold. 

Generally, contracts between $2,500 and $100,000 are subject to “simplified acquisition 

procedures,” which are regulations exempting procurement officials from issuing open IFBs or 

RFPs.83 An agency’s head of contract activity may establish different thresholds for 

simplification.84 Though officials still must post every purchase expected to exceed $25,000 on 

the Internet, they need only solicit three bids for purchases less than the $100,000 ceiling, and 

can do so informally using telephone or limited mailings, usually to local business interests.85

 

78 See id. at §§ 200–299. 

79 See id. at §§ 3400 –3499. 

80 Federal Acquisition Streamlining Act, 15 U.S.C. § 644 (2000). 

81 See Simplified Acquisition Procedures, 48 C.F.R. § 13 (2004). 

82 For a brief overview of purchasing legislation and FAR requirements, see the pamphlet, U.S. Small Business 

Administration, How the Government Buys, no date, <http://www.sba.gov/businessop/basics/buys.html> (last

accessed June 1, 2005). 

83 See Simplified Acquisition Procedures, 48 C.F.R. § 13. 

84 General Services Administration, facsimile to U.S. Commission on Civil Rights, July 8, 2005, p. 1. (hereafter 

cited as GSA, facsimile to USCCR). 

85 See Simplified Acquisition Procedures, 48 C.F.R. § 13 (stating that certain products and services have a higher 

price threshold for simplified acquisition procedures). 
Dissent Appendix A 121

TABLE A.2 

General Purchasing Policy for Non-Exempt Items and Services

Contract Size Posting Requirements Bid Procedure Policy

Micropurchases $2,500 or less ● None 

● No bid issued; 

buyers use 

government 

purchasing cards 

● Regulations 

encourage procurement 

officials to use GSAapproved vendors 

● No business size 

restriction 

● Competition 

requirements eased 

● Contracting officer 

has broad discretion to 

set evaluation criteria 

● May use “best value” 

and other non-related 

price factors 

$2,500 to 

$25,000 

● Oral or electronic 

solicitations of 3 or more 

sources 

● Non-binding 

quotations 

● Reserved for small 

businesses

● Procurement official 

discretion to restrict 

competition to 

HUBZone or servicedisabled veteran-owned 

small business 

concerns 

Simplified 

Acquisition 

Procedures 

(purchases from 

$2,500 to 

$100,000) 

$25,000 to 

$100,000 

● Written (paper) 

solicitation of 3 or more 

sources 

● Post planned 

purchases on 

www.FedBizOpps.gov

● Written non-binding 

quotation, or 

● Proposal detailing 

proposed execution 

strategy

● Reserved for small 

businesses 

● Procurement official 

discretion to restrict 

competition to 

HUBZone or servicedisabled veteran-owned 

small business 

concerns 

Full and Open 

Competition 

$100,000 to 

$5,000,000 

● Written solicitation of 

qualified firms registered 

in PRO-Net/CCR 

● Posting on 

www.FedBizOpps.gov

● Sealed bids prioritize 

price/price related 

factors

● Negotiated bids call 

for “best value” 

● Use small business 

concerns if reasonable 

expectation 2 or more 

will bid at fair market 

value 

● May use “best value” 

and other non-related 

price factors 

Caption: Acquisition procedures differ according to contract value. Federal policy directs agencies to award purchases of 

$2,500 to $100,000 to small businesses. Government agencies should use small businesses for procurements of $100,000 

to $5,000,000 if officials expect bids at fair market value from two or more. In addition, micropurchases—that is, those of 

less than $2.500—are not subject to small business initiatives. 

Source: Simplified Acquisition Procedures, 48 CFR § 13 (2004); U.S. Small Business Administration, “How the Government Buys,” 

no date, <http://www.sba.gov/businessop/basics/buys.html> (last accessed June 1, 2005). 

The FAR specifies that “contracting officers should use the Central Contractor Registration 

database...as their primary sources of vendor information,”86 which standardizes the 

procurement process under simplified acquisition procedures; ensures consistency, integrity, and 

 

86 Id. § 13.102. 
122 Dissent Appendix A 

reliability of data on potential bidders, and reduces the administrative burden of all parties.87 The 

DOD-maintained Central Contractor Registration (CCR) database is a key element of efforts to 

modernize federal acquisition. FAR regulations obligate prospective prime vendors to register as 

a vendor in the searchable database as a prerequisite to eligibility for government contract 

awards or payments.88 Subcontractors may choose to register, but are not required to unless they 

plan to bid directly. CCR allows procurement officials to search for vendors based on size, 

location, or status (for example, as a veteran- or woman-owned firm) in addition to product or 

service the company provides.89 

In 2004, CCR incorporated several Small Business Administration-run databases, including 

PRO-Net, and an Historically Underutilized Business Zone (HUBZone) Empowerment 

Contracting registry, discussed in chapter 2 and appendix B. At one point, the PRO-Net database 

was the main information source for procurement officers seeking small business participants in 

SBA business and certification programs.90 Contracting officials would search PRO-Net and 

other databases to identify firms that qualified for special consideration under several SBA and 

governmentwide programs, including small disadvantaged business certification and 

participation in the 8(a) Business Development program. While firms still must apply with SBA 

for certification in programs formerly covered by these other registries, the centralized CCR 

system simplifies procurement officers’ abilities to locate certain types of vendors or businesses 

in geographic areas. SBA still maintains a subcontracting network database called SUB-Net in 

which prime contractors (and federal agencies and other organizations) post subcontracting 

opportunities, and subcontractors search for solicitations and teaming prospects.91 

In addition to databases that enable federal officials to identify contractors, or businesses to 

search for contracting opportunities, the Federal Procurement Data System (FPDS) supports the 

development, collection, and dissemination of annual procurement data to meet the needs of 

Congress, the executive branch, and the public sector.92 FPDS is a system for recording 

government procurement actions, amounts, and the characteristics of firms receiving the 

contracts. Since GSA began the data collection in 1978 through a recent transfer of system

maintenance to a contractor, agencies have used FPDS data to analyze the impact of 

 

87 GSA, facsimile to USCCR, p. 1.

88 See Policy, 48 C.F.R. § 4.1102 (2004). 

89 Central Contractor Registration, 48 C.F.R. § 4.11. 

90 U.S. Small Business Administration, “SBA, OMB, GSA and DOD Work Together to Integrate PRO-Net and 

CCR Database and Simplify Contracting Process for Small Businesses,” Aug. 13, 2004, <http://pro-net.sba.gov/> 

(last accessed June 1, 2005). 

91 U.S. Small Business Administration, “What is SUB-Net,” no date, <http://web.sba.gov/subnet/dsp_what_is_subnet.cfm> (last 

accessed March 7, 2005).

92 Public Law 93-400 established the Federal Procurement Data System (FPDS). The statute required the Office of 

Management and Budget’s Office of Federal Procurement Policy to set up the system. The U.S. General Services 

Administration’s Office of Governmentwide Policy, Office of Acquisition Policy, Governmentwide Information 

Systems Division, Federal Procurement Data Center issued reports through the analysis of 2003 data. Beginning 

Oct. 1, 2004, a private enterprise assumed operation of the FPDS. As a result, the system is newly redesigned to

provide fewer printed reports than in the past, but enhanced on-line data manipulation. The Office of Federal

Procurement Policy Act, Pub. L. No. 93-400, 88 Stat. 796; GSA, Federal Procurement Report, 2003, “Foreword,” 

and “Highlights.” 
Dissent Appendix A 123

congressional and presidential initiatives and federal acquisition policy changes.93 This system is 

the source of the procurement data in this analysis. 

Summary

Over the past decade, minority-owned businesses have grown substantially. Furthermore, federal 

procurement trends both prior to and following Adarand show growth in small and 

disadvantaged business contracting. Changes to national policies affecting small business and 

implemented around the same time as Adarand make it difficult to clearly attribute growth 

patterns to the decision, new legislation, or economic trends. 

Trends suggest that growth rates for African American-owned businesses are less than for other 

minority groups or for businesses generally. But, to the extent that access to government 

contracting could help such enterprises, publicly available federal data do not offer information 

on entrepreneurs of specific racial/ethnic groups except for firms newly under contract with one 

agency, the Department of Defense, and participation rates in one small business program—

8(a)—which need not result in procurement awards. Thus, the government cannot determine 

whether small business programs benefit firms that continue to confront obstacles in accessing 

federal contracts. 

Many factors contribute to the ease with which small and disadvantaged businesses participate in 

federal procurement. All small businesses face barriers, such as unfavorable financial 

circumstances and a need for management skills. Other obstacles, such as exclusion from social 

and business networks and present or historical discrimination, may impede minority-owned 

firms unequally. 

 

93 GSA, Federal Procurement Report, 2003, “Foreword.” 
124 Dissent Appendix A 
Dissent Appendix B 125

Dissent Appendix B: Federal Programs to Promote Small and 

Minority Business Contracting 

The Adarand decision compelled agencies to reconsider strategies for providing equal access to 

federal contracts for small and disadvantaged businesses. After the decision, agencies subjected 

contracting programs to the strict scrutiny standard, which requires establishing a compelling 

governmental interest for using race, and applying “narrowly tailored” strategies to achieve that 

interest. Agencies rely on Congress, the President, and the courts to articulate what constitutes a 

compelling governmental interest. Although Congress has not specified what makes a 

contracting program narrowly tailored, several governmentwide efforts to increase procurement 

with small and minority firms have withstood legal challenges under the strict scrutiny standard. 

This appendix describes governmentwide programs to promote procurement with small and 

disadvantaged businesses (SDBs). It begins by examining two federal responses to historically 

low levels of contracting with these firms. First, Congress created new offices and a council of 

agency executives dedicated to expanding SDB access to federal contracting opportunities. 

Second, at least one agency’s policy statement articulates a commitment to increasing 

procurement with SDBs and delineates strategies for eliminating barriers for small businesses in 

bold terms. 

The appendix examines several legislated programs that impact federal procurement 

opportunities for SDBs. It discusses in detail the Small Business Administration’s (SBA’s) 8(a) 

and mentor-protégé programs. The appendix also considers SDB certification, industry 

benchmarks, and accompanying programs to enhance contracting opportunities for certified 

businesses. It concludes by examining SBA’s goaling program, which implements statutorily 

established targets for contracting with specific types of small businesses. 

THE PRIORITY OF CIVIL RIGHTS IN CONTRACTING 

In other contexts, Commission research has found that many federal agencies pay insufficient 

attention to civil rights. The Commission generally identifies the priority agencies place on civil 

rights by assessing the commitment of resources, both funding and staffing; organizational 

structure for meeting civil rights goals; oversight and accountability with regard to civil rights 

enforcement; strategic planning with civil rights objectives; and regular issuance of policy 
126 Dissent Appendix B 

guidance.1 Such are the criteria the Commission now applies in judging the priority of civil 

rights in procurement, an area it has studied little in the past.2

 

In studying efforts to promote contracting with small and minority-owned businesses, the 

Commission first examined Offices of Small and Disadvantaged Business Utilization 

(OSDBUs).3

 In the past, the Commission has shown that the effectiveness of civil rights 

components depends on their placement within the agency, authority, functions, and 

coordination with other offices.4

 A brief review of these aspects with regard to OSBDUs is 

below, followed by a discussion of one agency’s strong policy statement, representing a model 

for others to follow. 

Offices of Small and Disadvantaged Business Utilization 

In 1978, Congress amended the Small Business Act to establish OSDBUs with procurement 

powers at each federal agency.5

 Section 15 (k) of the Small Business Act charges each agency’s 

OSDBU director with promoting the interests of small and disadvantaged businesses pursuing 

federal contracts.6

 The legislation assigns several specific responsibilities to OSDBUs, including 

overseeing contracts to ensure that small businesses have the maximum practicable opportunity 

to participate as prime and subcontractors; providing assistance and information for firms 

preparing contract bids; and ensuring timely payment of contractors. OSDBU staff consult with 

SBA to implement these responsibilities.7

 

To maximize influence over the procurement practices of their respective agencies, section 15 

(k) also requires OSDBU directors to report to the head or deputy of each department.8

 In 

practice, the Government Accountability Office9

 (GAO) found that nearly half of OSDBU 

directors reported to a lower authority than required within their agency. Additionally, upon 

receiving a congressional exemption to the reporting requirement in 1988, the Department of 

 

1

 U.S. Commission on Civil Rights, Ten-Year Check-Up: Have Federal Agencies Responded to Civil Rights 

Recommendations, Volume I: A Blueprint for Civil Rights Enforcement, September 2002, pp. 10–25 (hereafter cited 

as USCCR, Ten-Year Check-Up, Blueprint). 

2

 One previous Commission study suggested that agencies pay little attention to civil rights in contracting, as 

expressed through a lack of interagency coordination. See State Advisory Committees to the U.S. Commission on 

Civil Rights, Promises and Perceptions: Federal Efforts to Eliminate Employment Discrimination Through 

Affirmative Action, October 1981, p.12. 

3 See generally, U.S. Department of Commerce, “Federal OSDBU Directors Interagency Council,” no date,

<http://www.osdbu.gov> (last accessed May 24, 2005). 

4

 USCCR, Ten-Year Check-Up, Blueprint, pp. 13–15. 

5

 Amendments to the Small Business Act of 1978, Pub. L. No. 95-507, 92 Stat. 1757 (codified as amended at 15 

U.S.C. §§ 631–633, 636, 637, 644 (2000)) (hereafter cited as Small Business Act of 1978). See also U.S. 

Government Accountability Office, Small and Disadvantaged Businesses: Most Agency Advocates View Their 

Roles Similarly, March 2004, p. 1 (hereafter cited as GAO, Most Agency Advocates View Their Roles Similarly). 

6 See also, 48 C.F.R. § 19.201 (2004). 

7

 Small Business Act of 1978, 15 U.S.C § 644(k) (2000). 

8 Id. § 644(k)(3). 

9

 Until 2001, GAO was known as the General Accounting Office. 
Dissent Appendix B 127

Defense (DOD) twice lowered the authority level to which its OSDBU director reports. 10 GAO 

concluded that directors’ failure to report to the appropriate authority dilutes their potential 

influence on small and disadvantaged business procurement policy.11 

Interrogatory responses confirm that the placement of OSDBUs within an agency affect 

communication about program activities. DOD, for example, has one oversight OSDBU that 

collects and disseminates information on procurement and program activity. This office reports 

to the deputy undersecretary of defense for acquisition technology and logistics (AT&L), who in 

turn responds to the under secretary of defense for AT&L, who answers to the deputy secretary 

of defense.12 Additionally, each military service also houses an OSDBU charged with reporting 

to the director or deputy director of its respective agency, as well as many distinct procurement 

offices.13 DOD reports that its decentralized purchasing authority precludes coordination 

between personnel and subordinate OSDBUs with respect to SDB programs.14 In contrast, the 

Department of Housing and Urban Development’s (HUD) one OSDBU reports directly to the 

secretary.15 Secretarial support for procurement with SDBs, expressed through a strong policy 

statement discussed below,16 and high expectations for awarding contracts to small, womenowned, and minority-owned firms foster targeted procurement at HUD.17 

Apart from ineffective structural placement, other factors suggest that OSBDUs are weak. For 

example, a recent GAO survey revealed that OSDBU directors view their obligations under the 

Small Business Act differently, despite statutory language outlining eight specific duties. Of 24 

 

10 U.S. Government Accountability Office, Small and Disadvantaged Businesses: Some Agencies’ Advocates Do 

Not Report to the Required Management Level, September 2003, p. 3. 

11 Ibid., p. 3. 

12 U.S. Department of Defense, “Office of the Secretary of Defense Organizational Chart,” March 2001, 

<http://www.defenselink.mil/odam/omp/pubs/GuideBook/Pdf/Osd.PDF> (last accessed May 6, 2005). 

13 48 C.F.R. § 219.201 (2004); U.S. Department of Defense (DOD), “Foreword,” Small Business Specialists,

October 2002, <www.acq.osd.mil/sadbu/publications/sbs/sbs.html> (last accessed Feb. 11, 2005). 

14 U.S. Department of Defense, Response to the U.S. Commission on Civil Rights Interrogatory on Federal

Contracting, Mar. 10, 2005, p. 6 (hereafter cited as DOD Interrogatory). 

15 U.S. Department of Housing and Urban Development, “HUD’s Organizational Chart,” Jan. 20, 2005, 

<http://www.hud.gov/about/index.cfm> (last accessed Feb. 23, 2005). 

16 Mel Martinez, secretary, U.S. Department of Housing and Urban Development, “HUD Small Business Policy

Statement,” May 16, 2001, <http://www.hud.gov/offices/osdbu/policy/statement.cfm> (last accessed Jan. 26, 2005) 

(hereafter cited as Martinez, “HUD Small Business Policy Statement”). 

17David Enzel, senior counsel, Office of General Counsel, Valerie Hayes, acting director, Office of Small and 

Disadvantaged Business, Bernard Morton, supervisory procurement analyst, Policy and Field Operations Division, 

Office of the Chief Procurement Officer, Public Housing Development, and Edward Girovasi, director, Policy and 

Field Operations Division, Office of the Chief Procurement Officer, U.S. Department of Housing and Urban 

Development, interview in Washington, DC, Apr. 19, 2005 (statement of Edward Girovasi), transcript p. 30 

(hereafter cited as HUD follow-up interview). See also, e.g., U.S. Department of Housing and Urban Development,

“HUD Secretary Mel Martinez Receives Award for Commitment to Women and Minority Businesses,” May 5, 

2003, <http://www.hud.gov/offices/osdbu/awards/wow2003.cfm> (last accessed Jan. 28, 2005) (hereafter cited as 

HUD, “HUD Secretary Mel Martinez Receives Award”); U.S. Department of Housing and Urban Development, 

“HUD Recognized for Exemplary Small Business Contracting Achievements,” May 2, 2002, 

<http://www.hud.gov/offices/osdbu/awards/perkins.cfm> (last accessed Jan. 28, 2005) (hereafter cited as HUD, 

“HUD Recognized for Exemplary Small Business Contracting Achievements”). 
128 Dissent Appendix B 

directors surveyed, nearly 80 percent agreed on five duties, including supervising OSDBU 

personnel; identifying and increasing small business access to large contracts containing many 

different tasks (called “bundled” contracts); and helping firms obtain agency payments. Many 

OSDBU directors also reported assuming responsibility for additional duties, such as reviewing 

and reporting subcontracting plans and conducting outreach to small businesses. However, 

approximately one-third of the respondents did not believe they were responsible for other tasks 

outlined in section 15(k), such as helping small business subcontractors obtain payments from

prime contractors.18 Along with several OSDBU directors’ reports that they lack adequate 

resources and influence in the procurement process, the GAO report provides evidence that these 

offices may fall short of Congress’ expectations.19 

Finally, the federal OSDBU Director’s Interagency Council, a forum for discussing small and 

disadvantaged business policy, enables directors and their representatives to share best practices 

that effectively help small and disadvantaged businesses to overcome formal and informal 

barriers to contracting opportunities.20 Voting council members comprise the directors or 

director’s designee from OSDBU offices within most Cabinet-level agencies as well as several 

other departments. Subordinate staff and delegates from other OSDBU offices and agencies, as 

well as other interested parties, may participate in meetings but do not have voting powers.21 All 

departments in this study except for SBA are council members, but interrogatory responses do 

not clarify agencies’ activity levels in the organization.22 Agencies that participate in the 

interagency council only nominally may not reap the full benefits of shared information related 

to their office missions. 

HUD’s Policy Statement 

Policy statements complement OSDBU activities and programs such as those SBA runs 

(discussed below) by articulating strategies for increasing procurement with SDBs. A strong 

policy statement can help an agency increase SDB contracting by clarifying roles among internal 

offices and establishing high expectations for small business utilization. Individual agencies have 

authority to develop and customize statements encouraging small business contracting. For 

example, in 2001, then Secretary of Housing and Urban Development Mel Martinez issued a 

 

18 GAO, Most Agency Advocates View Their Roles Similarly, pp. 5–7.

19 See generally, ibid.

20 See Federal OSDBU Directors Interagency Council, “Model Code of Expectations between Federal Offices of 

Small and Disadvantaged Business Utilization (OSDBU’s) and Small Businesses,” August 2003, 

<www.osdbu.gov/Assets/PDF/Best%20Practices.pdf> (last accessed May 31, 2005). 

21 Federal OSDBUs Directors Interagency Council, “Charter,” Feb. 20, 2003, 

<http://www.osdbu.gov/Aboutthecouncil.htm#charter> (last accessed May 24, 2005). 

22 DOD Interrogatory, p. 6; U.S. Department of Education Response to U.S. Commission on Civil Rights 

Interrogatory on Federal Contracting, Mar. 11, 2005, p. 2 (hereafter cited as DOEd interrogatory); U.S. Department

of State Response to U.S. Commission on Civil Rights Interrogatory on Federal Contracting, Mar. 1, 2005, p. 5 

(hereafter cited as DOS Interrogatory); U.S. Department of Energy Response to the U.S. Commission on Civil

Rights Interrogatory on Federal Contracting, Mar. 7, 2005, p. 3 (hereafter cited as DOEn Interrogatory); U.S. 

Department of Transportation Response to U.S. Commission on Civil Rights Interrogatory on Federal Contracting, 

Mar. 17, 2005, p. 7. 
Dissent Appendix B 129

particularly strong small business policy statement.23 HUD’s policy directs OSDBU or the chief 

procurement officer to: 

• “set high goals for contracting with small businesses in all preference categories” to 

award at least half of contract dollars to small enterprises; 

• publish an annual procurement forecast within the first 30 days of each fiscal year (as 

legislation and regulations require all agencies to do), update it with changes in 

anticipated contract actions, and distribute copies to field offices, small business interest 

groups, trade associations, chambers of commerce, and sponsors of outreach events; 

• contact certified eligible SDBs, 8(a)s, and HUBZone firms about any small business setasides through SBA’s online database, PRO-Net, (now included in the Central 

Contracting Registry (CCR) described in appendix A) and other means; 

• conduct aggressive outreach to small businesses (by participating in national conferences 

and trade fairs explaining how to conduct business with HUD and its grantees) and target 

specific contracting areas where minority-owned businesses are underrepresented; 

• provide annual training on small business initiatives for program and procurement staff 

and monthly classes on agency contracting opportunities for small business 

representatives; 

• develop strong avenues of communication and support with national and regional 

minority organizations, for example, by entering into memoranda of understanding 

regarding the dissemination of information; 

• make maximum use of set-asides, non-competitive procurements, and price evaluation 

credits as the law and regulations permit in areas where SDBs have been underutilized; 

• ensure that bid solicitations contain subcontracting goals above the governmentwide level 

for small businesses and selection evaluation factors related to SDB participation; 

• encourage teaming arrangements on agency procurements, promote partnerships between 

large contractors and small disadvantaged businesses, and develop a mentor-protégé 

program that fosters technical and managerial capabilities of 8(a) firms and SDBs for 

areas in which they have been underutilized; and 

• use procurement strategies that avoid contract bundling (i.e., consolidation).24

After the statement’s issuance, women and minority business owners’ groups recognized HUD 

with an award for its leadership in reaching out to their businesses.25 In response to Commission 

 

23 Martinez, “HUD Small Business Policy Statement.” 

24 Ibid. 

25 See, e.g. HUD, “HUD Secretary Mel Martinez Receives Award;” HUD, “HUD Recognized for Exemplary Small 
130 Dissent Appendix B 

inquiries, HUD said it did not employ agency-specific SDB programs beyond those that SBA 

sponsors. Instead, HUD identified its secretary’s high expectations, as well as the agency’s 

conscious commitment to increasing procurement with SDBs and rewards for employees who do 

so, as reasons for its success in expanding access to federal contracting opportunities.26

PROGRAMS TO PROMOTE CONTRACTING WITH SDBS 

The Section 8(a) Program 

SBA’s 8(a) Business Development Program, named for section 8(a) of the Small Business Act, 

acknowledges that certain businesses lack key resources to successfully compete for contracts 

against larger, better situated, and more strongly financed firms, and offers SDBs assistance. The 

8(a) program withstood legal challenges to the use of race as one of several eligibility criteria 

because, as a business development program, its application is narrowly tailored and therefore 

legally permissible under Adarand.

27 Although the program is built on the presumption that 

African Americans, Asian Americans, Hispanic Americans, and Native Americans are socially 

disadvantaged, regulations allow others, such as women, persons with disabilities, or individuals 

not presumptively disadvantaged, to establish social disadvantage case by case.28 Furthermore, 

the 8(a) program targets economic disadvantage more than other SDB programs. To be eligible 

for 8(a), an owner’s net worth must not exceed $250,000.29 These are the reasons some agencies 

give for considering this program race-neutral. For the purpose of this discussion, the program is 

characterized as race-conscious because race is a factor in determining eligibility. 

Under the program, SBA contracts with agencies to perform work and then subcontracts the 

work to 8(a) firms it has certified as economically and socially disadvantaged.30 SBA has also 

signed memoranda of understanding with 25 federal agencies allowing them to directly contract 

 

Business Contracting Achievements.” 

26 See generally, U.S. Department of Housing and Urban Development Response to the U.S. Commission on Civil

Rights Interrogatory on Federal Contracting, Mar. 18, 2005 (hereafter cited as HUD Interrogatory); HUD follow-up 

interview, pp. 30–32, 35–36 (statements of Girovasi, Enzel, and Hayes). 

27 U.S. Small Business Administration Response to the U.S. Commission on Civil Rights Interrogatory on Federal

Contracting, Mar. 10, 2005, p. 5 (hereafter cited as SBA Interrogatory) (stating, “SBA has been named in a number 

of suits alleging that the 8(a) program does not pass constitutional muster under the Adarand case. To date, none 

have resulted in an adverse decision finding that the program facially or as applied is unconstitutional.”). 

28 For other individuals to obtain certification for program participation, they must demonstrate that they have been 

subjected to racial or ethnic prejudice or cultural bias because of their membership in a particular group. 13 C.F.R. § 

104.103 (2005). 

29 Proposed Reforms to Affirmative Action in Federal Procurement, 61 Fed. Reg. 26,043 (May 23, 1996) (hereafter 

cited as DOJ, Proposed Reforms to Affirmative Action in Federal Procurement); U.S. General Accounting Office, 

Small Business: Status of Small Disadvantaged Business Certifications, January 2001, p. 2 (footnote) (hereafter 

cited as GAO, Status of Small Disadvantaged Business Certifications). 

30 Michael K. Fauntroy, analyst in American national government, Government and Finance Division, 

Congressional Research Service, U.S. Library of Congress, “Disadvantaged Businesses: A Review of Federal

Assistance,” updated Jan. 14, 2002, p. 15 (hereafter cited as Fauntroy, “Disadvantaged Businesses: A Review of 

Federal Assistance”). 
Dissent Appendix B 131

with 8(a) companies.31 Depending on circumstances, the 8(a) program enables procurement 

officials to award some contracts non-competitively to certified firms, or to establish set-asides 

restricting bidding to 8(a) enterprises.32 All Cabinet-level departments and major independent 

agencies participate in the 8(a) program.

33

The 8(a) program also provides technical, financial, and practical assistance to help participating 

businesses develop the experience necessary to be viable without SBA support. Firms in the 

developmental stage of 8(a) receive training in financial and marketing skills (e.g., loan 

packaging, accounting, and bookkeeping), and management. SBA expects businesses in the 

transitional period to obtain a progressively larger share of revenue from non-8(a) sources to 

enhance their chances of survival after graduation. The program limits participation to nine 

years, and if a firm’s net worth exceeds the eligibility criterion during this period, it will be 

required to leave the program early.34 Businesses are much more likely to leave the 8(a) program

because of the time limit than other factors: of 857 exiting firms in fiscal year (FY) 2003, only 

one was an early graduate. In contrast, 718 (84 percent) exited upon completing their nine-year 

term.

35 

SBA processing of 8(a) applications has mostly increased in recent years. Figure B.1 shows 

businesses submitted approximately 2,400 applications in FYs 2000 and 2001 and from about 

3,700 to more than 3,900 in FYs 2002 to 2004. SBA returned a large proportion of processed 

applications as incomplete—approximately 1,100 in FYs 2000 and 2001 and 2,000 to 2,500 in 

FYs 2002 to 2004. In comparison, the numbers SBA approved (ranging 819 in FY 2000 to just 

over 1,200 in FYs 2003 and 2004) or denied (between 316 and 403 each year) were smaller (see 

figure B.1). SBA denied applications for multiple reasons related to eligibility criteria. However, 

depending upon the fiscal year, between 30 and 35 percent of the reasons for denying 8(a) 

applications concerned the businesses’ potential for success.36 That SBA already engages in 

extensive outreach and education to potential 8(a) participants, as well as assistance in 

completing applications for certifications, suggests that simplifying and improving the 

application process might best expand access to the program. 

 

31 U.S. Small Business Administration, “Certification Programs,” no date, 

<http://www.sba.gov/training/certprograms.html> (last accessed May 31, 2005). 

32 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,046. 

33 Fauntroy, “Disadvantaged Businesses: A Review of Federal Assistance,” p. 15. 

34 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,043. Also see Fauntroy,

“Disadvantaged Businesses: A Review of Federal Assistance,” p. 16; U.S. General Accounting Office, Small

Business: SBA Could Better Focus Its 8(a) Program to Help Firms Obtain Contracts, July 2000, p. 5 (hereafter 

cited as GAO, SBA Could Better Focus 8(a)). 

35 In addition, 92 (11 percent) were excluded for failing to meet reporting requirements, and 46 (5 percent)

voluntarily left the program prior to graduating. U.S. Small Business Administration, Office of Business 

Development, Report to the U.S. Congress on Minority Small Business and Capital Ownership Development Fiscal 

Year 2003, no date, p. 18 (hereafter cited as SBA, Minority Small Business and Capital Ownership Development, 

FY 2003). 

36 Failure to meet eligibility criteria were other common reasons for denying applications, for example, economic 

disadvantage (11 to 20 percent of the justifications depending on the fiscal year); ownership (also 10 to 20 percent);

control and management (8 to 17 percent); and social disadvantage (5 to 6 percent). U.S. Small Business 

Administration, "8(a) Data [compiled] for Civil Rights Commis[s]ion," May 12, 2005. 
132 Dissent Appendix B 

Certification for the 8(a) program, however, does not always confer the benefit of receiving 

federal contracts. A 2000 nationwide survey of 8(a) firms found that owners, most of whom join 

the program for contracts, were concerned that a few businesses receive most of the awards and 

effectively limit opportunities available to others. For example, of the more than 6,000 firms in 

the 8(a) program in FY 1998, 209 received 50 percent of the total dollar amount of 8(a) 

contracts. Furthermore, about half the enterprises in the program in a given year—for example, 

more than 3,000 in FY 1998—received no 8(a) contracts. Although many firms may have been 

in the early stages of business development, 24 percent of the survey respondents who had 

participated in the program for at least two years had yet to win an 8(a) contract. SBA officials 

explain that not all 8(a) firms win contracts from the program because they vary in skills and 

experience. Other factors also are relevant, such as not having the lowest bid.37

FIGURE B.1 

Small Business Administration's Certifications of 8(a) Businesses, Fiscal Years 2000 to 2004 

Source: U.S. Small Business Administration, "8(a) Data [compiled] for Civil Rights Commis[s]ion," May 12, 2005.

Caption: Between fiscal years 2000 and 2004, the number of 8(a) applications SBA received rose substantially--

approximately 2,500 to 4,000--with most of the increase occuring between 2001 and 2002. The agency returned

correspondingly large numbers of applications as incomplete--from about 1,100 to 2,500. The number of applications

SBA approved ranged only 800 to 1,200; but the number of applications denied also remained low, approximately 300 

to 400.

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2000 2001 2002 2003 2004

Fiscal Year

Number of Applications

Received

Returned

Approved

Denied

In addition to the program’s effect on access to contracts, a GAO report questioned whether SBA 

appropriately promotes the targeted training and assistance for aspects of the program. Only onefifth of surveyed firms joined the program so that they could learn more about how to manage a 

business. Furthermore, many of the businesses were not newly formed or the owners already had 

more than 10 years’ management experience. The study also found that SBA is unable to track 

the training and assistance it provides to 8(a) firms, and has been unable to do so for more than a 

 

37 GAO, SBA Could Better Focus 8(a), pp. 3–4, 6, 44–45. 
Dissent Appendix B 133

decade. GAO concluded that the lack of a tracking system for training and assistance impairs 

SBA’s ability to measure the program’s performance and determine what support firms need.38

SBA measures the success of the 8(a) program using the number of firms still independently 

owned and operated three years after leaving the program. Recent statistics suggest that the 

number of successful firms is increasing. SBA reports the percentages of independently 

operational 8(a) participants when leaving the program as 41 percent in 2000, 64 percent in 

2001, 58 percent in 2002, and 64 percent in 2003.39 In the future, the agency plans to analyze 

financial trends to determine a firm’s progress compared to its non-8(a) peers.40 The planned 

analysis will be much more helpful than previous measures in assessing whether race-conscious 

programs such as 8(a) benefit disadvantaged groups more than race-neutral approaches. 

The 8(a) program is also designed to provide increased contracts and business development 

assistance to small and disadvantaged businesses; SBA measures this goal as the percentage of 

firms that receive federal contracts, technical assistance, and mentoring. In 2001, SBA programs 

aimed to provide business development and financial assistance to 25 percent of its certified 

small and disadvantaged businesses, including 8(a) firms. GAO noted that SBA efforts to 

increase business development suffered dramatic funding cuts shortly after they began and 

recommended that SBA target its limited training to owners with little management experience.41 

SBA’s 8(a) Mentor-Protégé Program 

Another mechanism by which SBA provides assistance to 8(a) firms is through the 8(a) MentorProtégé Program. Certified firms are paired with a successful large business, which offers 

guidance and access. Types of assistance the mentor may offer are technical and/or management 

advice, financial assistance in the form of loans or startup costs, subcontract support, and help 

performing prime contracts through joint venture arrangements. Both mentor and protégé 

cooperate in competing for federal procurement and accessing capital (equity loans). Mentor 

incentives may include reimbursement from the contracting agency for costs incurred from

providing developmental assistance, credit toward subcontracting goals, or a combination.42 

SBA requires that protégés be in good business standing and in the developmental stage of the 

8(a) program; have never received an 8(a) contract; or be a size that is less than half the standard 

in its primary industry. A mentor firm must be a federal contractor in good standing, demonstrate 

 

38 Ibid., p. 4. 

39 SBA, Minority Small Business and Capital Ownership Development, FY 2003. See also similar reports for FYs 

2000, 2001, and 2002. 

40 U.S. Small Business Administration Follow-up Response to the U.S. Commission on Civil Rights, May 6, 2005, 

p. 4 (hereafter cited as SBA follow-up response). 

41 The program is known by the section 7(j), which provides its funding. See GAO, SBA Could Better Focus 8(a), 

pp. 13–14, 22. 

42 U.S. Small Business Administration, “8(a) Business Development Mentor-Protégé Program,” Nov. 3, 2003, 

<http://www.sba.gov/8abd/indexmentor.html> (last accessed Mar. 7, 2005); GAO, SBA Could Better Focus 8(a).
134 Dissent Appendix B 

favorable financial health, and display commitment and ability to assist protégé firms.43 Mentors 

may be businesses that have completed the 8(a) program, are currently in the transitional stage of 

the 8(a) program, or non-8(a) participants, large or small.44 

Mentors and protégés must enter into written agreements that set forth goals and plans, assess the 

protégé’s needs, and describe the types of assistance the mentor will provide. SBA approves the 

agreements, which must be a minimum of one year in duration. Mentors and protégés may 

continue their relationship after the original agreement expires, upon review and approval by 

SBA.45 SBA evaluates the mentor-protégé relationship annually or semiannually—as is the case 

for DOD and the Department of Transportation (DOT)—to review the progress and growth of 

the protégé firm against the goals set forth in the agreement. This evaluation examines the 

specific actions the mentor took to develop the capabilities of the protégé firms, the number and 

dollar value of each subcontract awarded to the protégé, each contract awarded as a joint 

venture, and a description of the success meeting the protégé firm’s developmental needs.46 

Although the 8(a) mentor-protégé program goal is worthy, its success has not been clearly 

documented. GAO found that SBA had established only 40 mentor-protégé agreements as of 

April 2000, and planned an additional 60 by the end of that fiscal year. The study concluded that 

if this participation level continued, the program would only reach a small fraction of the nearly 

6,000 certified 8(a) firms.47 By 2004, the number had increased, but remained small. That year, 

SBA approved 147 mentor-protégé agreements; the goal for 2005 is to approve 150 such 

arrangements. As of April 28, 2005, the agency had achieved 60 percent of its goal (with 90 

agreements) for the year.48 Although meeting agency goals is important, mentor-protégé program

participants still comprise only 2.5 percent of all 8(a) firms. 

Small Disadvantaged Business Certification and Programs 

Agencies generally operate independent programs aimed at procurement with SDBs, distinct 

from 8(a). Like 8(a), SDB programs help the government identify capable disadvantaged 

contractors, but do not directly offer technical and financial assistance to enable small businesses 

to become viable competitors for federal procurement.49 In other words, 8(a) concentrates 

primarily on business development, whereas SDB programs identify businesses based on size 

and other criteria in industries that Department of Commerce (Commerce) benchmark studies, 

discussed below, determined are underutilized because of historical discrimination. Both aim to 

remedy the traditional exclusion of minority-owned firms from contract opportunities. 

 

43 U.S. Small Business Administration, “The SBA Mentor-Protégé Program: An Overview,” Feb. 7, 2005, 

<http://www.sba.gov/8abd/mentoroverview.html> (hereafter cited as SBA, “Mentor-Protégé Program”). See also

SBA Interrogatory, p. 8. 

44 SBA, “Mentor-Protégé Program.” 

45 Ibid. 

46 Ibid. 

47 GAO, SBA Could Better Focus 8(a), pp. 15, 45. 

48 SBA follow-up response, p. 2. 

49 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,043. 
Dissent Appendix B 135

To be eligible to participate in agency SDB programs, regulations require businesses to be 

certified as small and also socially and economically disadvantaged, and use criteria similar to 

those for the 8(a) program. To become certified, business owners must show they have 

experienced social and economic bias as individuals or as members of a group, and that they face 

reduced credit and capital opportunities. Regulations rely on 8(a) definitions of social 

disadvantage (see above), which presume that most racial and ethnic minorities qualify. 

Nonminority members may gain certification upon demonstrating that they have experienced 

individual bias based on attributes including but not limited to “ethnic origin, gender, physical 

handicap, long-term residence in an environment isolated from the mainstream of American 

society, or. . .personal experiences of substantial and chronic social disadvantage.”50 The SDB 

net worth cap is higher than 8(a)’s $250,000 limit; an owner of an SDB must not have a net 

worth exceeding $750,000 (excluding any primary residence and equity in the business).51 

SBA conducts SDB certification for other agencies, with the exception of DOT, which has a 

memorandum of understanding with SBA establishing certification reciprocity.52 With 

Department of Justice (DOJ) guidance and Federal Acquisition Regulations (FAR), individual 

agency regulations dictate which programs and procurements require SDB certification. 

Agencies use the CCR, described in appendix A, to identify and verify SDB-certified firms for 

contract solicitations and awards. Firms retain certification for up to three years, after which they 

must reapply to maintain eligibility.53

Recent studies have examined whether the SDB program effectively serves minority businesses, 

and such scrutiny prompted program modification. For example, the Clinton administration 

changed the eligibility process from self-certification of social disadvantage to one that requires 

evidence and a formal SBA decision.54 Although heralding the change for reducing possible 

program fraud, many feared that SBA would be unable to process all applications when the new 

procedures were implemented. These concerns proved unfounded. Only 5,456 new businesses 

applied for certification during the implementation period, substantially fewer than the 30,000 

SBA expected. More than two-thirds of certifications went to businesses already participating in 

the 8(a) program; SBA certified 2,629 of the new applications.55

FIGURE B.2 

Small Business Administration's Certifications of SDBs, Fiscal Years 2000 to 2004 

 

50 Business Credit and Assistance, 13 C.F.R. § 124.103(b)(2)(ii) (2005). 

51 See, e.g., GAO, Status of Small Disadvantaged Business Certifications, p. 2, footnote.

52 SBA Interrogatory, p. 4; U.S. Small Business Administration, “Programs to Assist Business: SBA/DOT 

Certification Reciprocity for Disadvantaged Businesses,” Aug. 13, 2001, 

<http://www.sba.gov/8abd/indexprograms-dotcert.html> (last accessed June 1, 2005). 

53 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, pp. 26,043–44. 

54 U.S. Small Business Administration, “SBA Details New Certification Process For Small Disadvantaged

Businesses,” news release 98-78, Sept. 21, 1998, <http://www.sba.gov/news/archive98/98-78.html> (last accessed 

June 3, 2005). 

55 See GAO, Small Business: Status of Small Disadvantaged Business Certifications, pp. 2, 6–8. 
136 Dissent Appendix B 

Source: U.S. Small Business Administration, Follow-up Interrogatory Reponse, May 6, 2005, p. 3.

Caption: The number of SDB applications SBA received in fiscal year 2001 dropped from about 2,500 to about 1,700,

then rose to about 2,300 in subsequent years. The number of applications the agency returned as incomplete was 

more than half the number received. The number of approved SDB applications dropped from about 1,500 to 600 in

fiscal years 2000 to 2002, but has increased to about a 1,000 per year since then. The number of applications denied

is generally small.

86 18 53 58 177

0

500

1000

1500

2000

2500

3000

2000 2001 2002 2003 2004

Fiscal year

Numbers of applications

Received

Returned

Approved

Denied

Considerably fewer firms applied for SDB certification in subsequent years. The number of 

applications dropped from about 2,500 in FY 2000 almost to 1,700 in FY 2001 and hovered 

around 2,200 thereafter. The number approved was highest—near 1,500—in FY 2000 and 

ranged approximately 600 to 1,100 in more recent years. As with the 8(a) applications, large 

numbers—between 900 and 1,400 each year—were incomplete and returned, suggesting that 

firms may need more or improved technical assistance. Of completed applications, SBA declined 

fewer than 100 per year in FYs 2000 to 2003 and nearly 200 in FY 2004 (see figure B.2). The 

SDB tracking system does not enable searching or sorting by the reason for the decline without 

reviewing each individual record,56 and thus does not help to determine whether or not there are 

patterns in which factors contribute to denials. Despite these arguable deficiencies in the tracking 

system, processing is fairly efficient—the typical SDB certification takes less than 45 days. 

Furthermore, SBA’s implementation of an electronic application system in September 2004 

expedited processing: in May 2005, agency officials reported an average of 21 days for 

processing applications in the previous two months.57 

Benchmarks for SDB Utilization 

To narrowly tailor SDB programs, DOJ post-Adarand guidance calls for Commerce to annually 

calculate “benchmarks” to determine in which industries government underutilizes qualified 

minority-owned firms. Original benchmark studies use bidding records and Federal Procurement 

Data System (FPDS) data to calculate SDB “capacity” (the proportion of companies capable of 

 

56 SBA follow-up response, pp. 2–3. 

57 Ibid. 
Dissent Appendix B 137

meeting government procurement needs) in relation to the number of contract awards to these 

firms.58 FAR limits SDB assistance to procurement in industries where benchmarks indicate 

insufficient government contracting; the severity of the underrepresentation determines the 

extent to which agencies may employ SDB programs to remedy the effects of past 

discrimination.59

DOJ characterizes SDB programs as race-conscious, and it articulates reservations about using 

these strategies more than necessary.60 Accordingly, FAR requires Commerce to annually 

monitor contract awards against benchmarks to ensure that agencies discontinue SDB programs 

in industries or regions that attain adequate representation in government procurement. Using a 

complicated statistical methodology and FY 1996 contracting records, Commerce calculated the 

original benchmarks in 1998. In 1999, noting “the consistency in recent federal procurement 

patterns,” Commerce declared its intent to calculate new benchmarks every three years but to 

monitor contract data annually for indications more frequent estimates were necessary.61 Despite 

this declaration, to date Commerce has not recalculated the original benchmarks. Commerce did, 

however, revise the benchmarks from industries identified using the Census’ Standard Industrial 

Classification codes into the government’s current standard, the North American Industry 

Classification System.

62 Because the differences between the systems can be confusing, the SBA 

Web site links to an industry code conversion calculator to allow businesses and procurement 

officials to check eligibility for contracting programs requiring SDB certification.63 Table B.1, 

below, provides a partial list of industries and services in which benchmarks have demonstrated 

government underutilization of capable minority firms, and are thus subject to SDB procurement 

mechanisms to remedy such disparity. 

 

58 See Small Disadvantaged Business Procurement; Reform of Affirmative Action in Federal Procurement, 65 Fed. 

Reg. 35,714, 35,716 (June 30, 1998). 

59 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,047.

60 Id., p. 26,046. 

61 Small Disadvantaged Business Procurement: Reform of Affirmative Action in Federal Procurement, 64 Fed. Reg. 

52,086 (Sept. 30, 1999). 

62 Jeffrey Mayer, Economic Statistics Administration, Department of Commerce, electronic correspondence to Anna 

Maria Ortiz, civil rights analyst, U.S. Commission on Civil Rights, Apr. 7, 2005. 

63 U.S. Small Business Administration, “Small Disadvantaged Business (SDB) Certification and Eligibility,” May 

19, 2004, <http:www.sba.gov/sdb/indexaboutsdb.html> (last accessed May 31, 2005). 
138 Dissent Appendix B 

TABLE B.1 

Industries in Which Benchmarks Demonstrate Minority Firm Underrepresentation (partial list) 

Industries Services

Agriculture 

Fishing 

Forestry

Construction 

Mining 

Manufacturing 

Transportation 

Communications 

Electric

Gas 

Sanitation 

Wholesale trade 

Retail trade 

Finance 

Insurance 

Real estate 

Caption: SDB programs apply only to certified companies in industries where benchmarks have shown persistent 

underutilization of minority firms, including agriculture, construction, electric and gas services, and others. 

Source: U.S. Small Business Administration, “About Small Disadvantaged Business (SDB) Certification and Eligibility, May 19, 

2004, <http://www.sba.gov/sdb/indexaboutsdb.html> (last accessed May 12, 2005). 

SDB Assistance Mechanisms 

FAR identifies three SDB procurement assistance mechanisms subject to benchmark limits and a 

fourth that can be used to limit competition to certain categories of firms regardless of market 

capacity. Two strategies, an evaluation factor and a monetary incentive, concern subcontracting 

with SDBs. The third, a price evaluation adjustment, concerns prime contracts. As of December 

2004, SBA directed civilian agencies to discontinue use of the price evaluation adjustment upon 

the expiration of the authorizing statute; DOD, NASA, and the Coast Guard may employ this 

mechanism in limited circumstances.64

Evaluation Factor Credits 

FAR grants government procurement officials discretion in setting bid evaluation standards, such 

that price is not always the prime factor in contract decisions.65 Regulations permit acquisitions 

staff to grant evaluation factor credits based on a prime contractor’s planned subcontracting with 

SDBs.66 

In general, solicitations above $500,000 require prime contractors to submit subcontracting plans 

with their bids detailing proposed utilization of small businesses, SDBs, women-owned and 

 

64 Federal Acquisition Regulation Systems, 48 C.F.R. § 19.1101 (2004); Laura Auletta, Civilian Agency Acquisition 

Council, U.S. General Services Administration, “Expired Program Authority for the Price Evaluation Adjustment

for Small Disadvantaged Business Program,” Dec. 27, 2004, p. 1 (hereafter cited as Auletta, CAAC Letter). As will 

be discussed below, price evaluation adjustments cannot be used for 12 months after DOD achieves its SDB 

contracting goals. 

65 48 C.F.R. § 19.701. 

66 Id. § 19.1203. 
Dissent Appendix B 139

HUBZone enterprises, and service-disabled veteran-owned firms.67 Procurement officers who 

choose to evaluate subcontracting plans in addition to other factors driving the award decision 

must clearly state the relative weight of different elements in the bid solicitation. FAR does not 

dictate how to weigh subcontracting plans, and instead acknowledges that “each contracting 

officer must consider each plan in terms of the circumstances of the particular acquisition.”68

Along with other criteria, contracting officials who choose to employ evaluation credits must 

assess bid submissions based on contractors’ past compliance with subcontracting plans, and 

whether the proposed strategy is realistic given the potential pool of SDBs to perform the work.69

The requirement that prime contractors submit utilization plans (and progress reports) with most 

negotiated contracts means that evaluation factors pose little, if any, additional burden on 

prospective vendors, and interrogatories suggest that procurement officials frequently employ 

this mechanism to increase subcontracting with SDBs and other small businesses.70

Monetary Incentives 

In addition to evaluation factors, FAR allows contracting officers to employ a monetary 

incentive to increase prime contractor utilization of SDBs. To use this mechanism, officials 

include a clause in contract solicitations to offer competing firms a dollar incentive up to 10 

percent of the cost of subcontracting for exceeding proposed goals, subject to a number of 

exceptions. While several departments mentioned their ability to employ monetary incentives, 

only one agency, the Department of Education (DOEd), reported using this mechanism when 

negotiating complex multi-million dollar contracts.71 The Commission suspects that the structure 

of the monetary incentive may deter contracting officials because the mechanism may 

unintentionally provide a reason to understate SDB subcontracting plans so that a business can 

easily exceed its stated goals. Additionally, HUD officials suggested that procurement officers 

rarely employ monetary incentives because to do so, agencies must spend either program

budgets or operating resources in addition to the allocated cost of a contract.72 Other agencies in 

this study also mentioned the cost of monetary incentives as a deterrent.73 

 

67 Id. § 19.708. 

68 Id. § 19.705. 

69 Id. § 19.705-4. 

70 DOS Interrogatory, p. 5; HUD follow-up interview, p. 37; DOD Interrogatory, p. 3. 

71 DOEd Interrogatory, p. 2; U.S. Department of Education Follow-up Response to U.S. Commission on Civil

Rights, Apr. 22, 2005, p. 2 (hereafter cited as DOEd follow-up response); DOD Interrogatory, p. 3; U.S. 

Department of Defense Follow-up Response to U.S. Commission on Civil Rights, May 6, 2005, p. 10. DOEd 

reports that it weighs SDB subcontracting plans and achievements, in addition to a host of other factors, in its

decision to award monetary incentives to a contractor. DOEd follow-up response, pp. 2–3. 

72 HUD follow-up interview, p. 35. 

73 DOS Interrogatory, p. 5 (stating, “[the] State Department does not have the resources to provide financial

incentives to encourage large primes to subcontract with SDBs and other small businesses”). Also, U.S. Department 

of State Follow-up Response to U.S. Commission on Civil Rights, Apr. 19, 2005, p. 6 (hereafter cited as DOS 

follow-up response) (stating, “[w]e do not have funds for financial incentives”).
140 Dissent Appendix B 

Price Evaluation Adjustment 

The price evaluation adjustment for SDBs applies to bids for contracts greater than $100,000. To 

use the adjustment, procurement officers inflate the bids of non-SDBs by a percentage 

determined by regional and industry benchmarks, up to 10 percent, and evaluate bids 

accordingly. Thus, price evaluation adjustments do not restrict competition or set aside 

procurement, but instead offer SDBs an advantage on one factor among others in contracting 

evaluations. 

Even before legislation for SDB price evaluation adjustments expired in late 2004 and SBA 

notified civilian agencies to discontinue their use, regulations strictly limited use of the 

strategy.74 Procurement officials could not use the adjustment for certain types of contracts, such 

as when price was not a selection factor (e.g., architectural services), or for awards restricting 

competition to 8(a) program participants or other firms.75 FAR also prohibited officials from

using the adjustment if the resultant bids would exceed fair market value by more than the 

percentage evaluation factor applied.76

Because different statute governs DOD, the National Aeronautics and Space Administration, and 

the Coast Guard, regulations allow these agencies to continue using SDB price evaluation 

adjustments. However, defense authorization statutes in FY 1999 and 2003 require DOD to 

suspend the price evaluation adjustment for 12 months following each year in which the 

department attained its SDB contracting goal of 5 percent.77 Having regularly exceeded its 5 

percent SDB goal, DOD has suspended authority for the adjustment program every year since 

2001.78 SBA notes that because agencies can no longer use price evaluation adjustments, they 

rely more heavily on the 8(a) program to contract with SDB firms.79

Set-Asides 

Prior to Adarand, SBA and other agencies operated strict “set-aside” programs, sometimes 

referred to as the “rule of two,” that limited competition for certain contracts to SDBs. When a 

contract officer identified two or more qualified SDBs to bid on a project for an amount within 

 

74 Auletta, CAAC Letter, p. 1.

75 48 C.F.R. § 19.11 (2004). 

76 Id. §§ 19.1103, 19.202-6(a). 

77 The Strom Thurmond National Defense Authorization Act Fiscal Year 1999, Pub. L. No. 105-261, 112 Stat. 2139 

et seq. (codified as amended at 5 U.S.C. § 3104 note). ]; The Bob Stump National Defense Authorization Act for 

Fiscal Year 2003, Pub. L. No. 107-314, 116 Stat. 2458 (2002). 

78 Deidre A. Lee, director, defense procurement, Office of the Under Secretary of Defense, memoranda for directors 

of Defense agencies, deputy for acquisition and business management, deputy assistant secretary of the Air Force 

(contracting), deputy assistant secretary of the Army (procurement), executive director for procurement

management, executive director for logistics policy and acquisition management, and director, Defense Contract

Management Agency, re: suspension of the price evaluation adjustment for small disadvantaged businesses, Jan. 25, 

2001, Jan. 31, 2002, Jan. 24, 2003, and Jan. 23, 2004. 

79 U.S. Small Business Administration, Affected Agency Review of U.S. Commission on Civil Rights Draft Report,

July 21, 2005. 
Dissent Appendix B 141

10 percent of fair market price, the contract was set aside exclusively for SDB competition.80 In 

1994, for example, approximately one-sixth of DOD contracting with minority-owned firms 

resulted from the rule of two.81 After the Adarand decision, DOJ prohibited civilian agencies’ 

SDB set-asides and banned DOD’s use of them for two years. DOJ permitted agencies to replace 

set-asides with evaluation credits and the now largely defunct price evaluation adjustment.82

Set-asides are now based on size and geographic criteria more than race-related factors, and 

apply only to established SDB programs. In fact, regulations require officials to reserve contracts 

that fall between $2,500 and $100,000 for exclusive bidding by HUBZone, 8(a), service-disabled 

veteran-owned, or small or very small businesses.83 Procurement officials subject many contracts 

exceeding $100,000 to bidding restrictions as well; regulations prioritize HUBZone enterprises 

over small businesses in general for setting aside awards of this size.84 FAR grants exceptions 

from set-asides for certain industries, types of acquisitions (such as those critical for national 

security), and when no small businesses extend an acceptable offer. FAR also permits officials to 

implement “partial” set-asides for contracts easily subdivided.85 

Agency implementation of set-asides varies. Several agencies, notably HUD and DOD, rely on a 

cascading set-aside procedure that invokes tiers of restricted competition to prioritize the types 

of small businesses to which the agency awards contracts; the Department of State (DOS) uses a 

similar strategy called “order of consideration.”86 HUD does not use any one hierarchy in its 

cascading set aside.87 HUD policy directs contracting personnel to construct cascades using an 

appropriate hierarchy of small business set-asides, taking into consideration the history of the 

procurement, the market research for the specific requirement, and current accomplishments 

against the agency’s various small business contracting goals. Staff may use any combination of 

the small business set-asides that federal acquisition regulations authorize as a cascading setaside, but the last tier is unrestricted (i.e., all business types). The adequacy of competition at the 

higher tiers determines whether or not the award process reaches the unrestricted tier.88 Thus, for 

 

80 GAO, Status of Small Disadvantaged Business Certifications, p. 6. 

81 DOJ, Proposed Reforms to Affirmative Action in Federal Procurement, p. 26,043. 

82 GAO, Status of Small Disadvantaged Business Certifications, p. 6. 

83 See 48 C.F.R. § 19.5 (2004). 

84 Id. § 19.501. 

85 Id. § 19.502-3. 

86 See DOS follow-up response, “Open Market Small Business Procurement Procedures Order of Consideration” 

(omitted attachment provided via fax, Durie White, Department of State to Latrice Foshee, civil rights analyst, U.S. 

Commission on Civil Rights, Apr. 28, 2005, p. 6). DOS’ order of consideration gives first priority to the 8(a) 

program with emphasis on HUBZone 8(a) concerns. In the second tier, if there are two or more capable HUBZone 

firms, the award is set aside for HUBZones, For awards of $2,500 to $100,00, the third tier sets contracts aside for 

small business if there are two or more them are capable. For awards over $100,000, the third tier reserves contracts 

for HUBZone small businesses if only one such firm satisfies requirements (i.e., sole source); the fourth

consideration is the small business set-aside; and the fifth level is full and open competition. Ibid. State has 

successfully met all but its HUBZone goals. See below. 

87 HUD notes that “cascades may employ any combination of the small business set-asides authorized in Part 19 of 

the Federal Acquisition Regulation.” U.S. Department of Housing and Urban Development, Affected Agency

Review of U.S. Commission on Civil Rights Draft Report, July 7, 2005. 

88 Ibid., p. 1. 
142 Dissent Appendix B 

example, if in one HUD schema, 8(a) businesses are top priority, and two or more qualified 8(a) 

firms compete for a contract, the contract officer can restrict competition for the contract to 8(a) 

businesses. If too few 8(a) firms bid, the officer can award the contract competitively to a second 

tier of HUBZone enterprises. If competition among HUBZone firms is inadequate (i.e., fewer 

than two qualified bids), the officer can open bidding to small disadvantaged veteran-owned 

businesses and then to all small businesses. 

HUD developed the cascading set-aside procedure in conjunction with SBA.89 DOD’s cascading 

system prioritizes firms differently, and rank orders very small firms, HUBZone enterprises, and 

small businesses before opening competition to all businesses if cascading set-asides fail to 

generate enough bids from appropriate firms.90 The Department of Energy (DOEn) notes that its 

strategic plan contains sections on contracting with various businesses subject to set-asides for 

ease of reference, and that it is currently revising its guidance for procurement officers to clarify 

the order of preference among programs based on law.91

SBA’S PROCUREMENT GOALING PROGRAM 

In 1978 Congress enacted a program to encourage federal agencies to award a designated 

proportion of their prime contracts to small businesses. Congressional intent was to ensure that 

the government’s procurement process is fair and unbiased and to open opportunities for small 

businesses to provide goods and services. The Small Business Act defines and sets 

governmentwide goals in eight major goaling categories, five for prime contract awards to small 

businesses, and three for subcontracts.92 Over time Congress has amended its original goals and 

added ones for firms facing social and economic disadvantage and for subcontracts in addition to 

other categories.93 Congress has also added goals for businesses located in HUBZones.94 

 

89 HUD Interrogatory, p. 1; U.S. Department of Housing and Urban Development, Cascading Set-Aside Solicitation 

Provisions, no date. 

90 U.S. Department of Defense, Defense Logistics Agency, Defense Logistics Acquisition Directive Revision 5 § 

19.59 (as revised by DLA Procurement Policy Letter (PROCLTR) 02-14, July 31, 2002, “Cascading/Combined SetAside Logic in Business Systems Modernization (BSM)”), <http://www.dla.mil/j-3/j336/logisticspolicy/DLADrev5parts/lastDLADrev5updated.htm> (last accessed June 1, 2005). DOD’s cascading 

system applies to acquisitions between $2,500 and $100,000 and has slight variations when awards are between 

$2,500 and $50,000. Ibid. As indicated in the text, DOD has not been as successful as HUD in meeting its goals for 

8(a) or HUBZone firms. See below. 

91 U.S. Department of Energy, Follow-up Response to the U.S. Commission on Civil Rights, May 12, 2005, p. 3;

U.S. Department of Energy, Affected Agency Review of U.S. Commission on Civil Rights Draft Report, July 7, 

2005; see also, U.S. Department of Energy, FY 2005 Strategic Plan for Small Business, no date, pp. 11, 19. Agency

officials consider all activities with regard to set-asides to be race-neutral, apparently including those involving the 

8(a) program. Ibid. 

92 Small Business Administration, Office of Government Contracting, Goaling Guidelines for the Small Business 

Preference Programs for Prime and Subcontract Federal Procurement Goals & Achievements, July 3, 2003, p. 1 

(hereafter cited as SBA, Goaling Guidelines for the Small Business Preference Programs); see also Small Business 

Act of 1978, 15 U.S.C. § 644(g) (2000).

93 SBA, Goaling Guidelines for the Small Business Preference Programs, p. 1. 

94 Ibid. 
Dissent Appendix B 143

Current governmentwide prime contract goals include: 23 percent to small businesses, 5 percent 

to small and disadvantaged firms (divided between 8(a) and other SDB programs), and 3 percent 

to HUBZone businesses.95 For subcontract goals, SBA identifies prime contracts over $500,000 

(over $1 million in construction) and other large efforts likely to require smaller projects. It then 

works with each agency to project subcontracting possibilities, and sets goals based on these 

opportunities and an agency’s prior data.96 The governmentwide subcontracting goal for SDBs is 

5 percent. 

Congress charged SBA with implementing the program to meet governmentwide goals. 

However, the Small Business Act recognized that different departmental missions and 

procurement needs affect the maximum practical contracting opportunities for small business 

concerns, and as such SBA negotiates annual agency-specific goals and reviews results.97

To start negotiations, SBA assigns prime contract goals of the higher of either the 

governmentwide statutory level or the agency’s average achievement over the past three years. 

An agency must make a compelling case if it wants to set lower goals, and SBA cannot accept 

proposed goals from an agency without first ensuring that the sum of all federal contracts will 

meet or exceed the statutory governmentwide level.98 For example, as will be discussed in 

greater detail below, DOEn has successfully negotiated significantly reduced contracting goals 

annually. SBA has accepted as justification the assertion that the nature of DOEn procurement 

often precludes small business participation.99 By surpassing their goals, other agencies ensure 

that, despite one agency’s shortfall, governmentwide prime contracting goals are met. 

At the end of each fiscal year, SBA requests federal procurement data showing each agency’s 

prime and subcontract statistical achievements and governmentwide accomplishments. If an 

agency has failed to achieve any proposed prime or subcontract goal, it must submit a 

justification to SBA and propose a plan for corrective action.100

Agency Goal Achievements 

Given that SBA adapts goaling targets to each agency’s needs, one might presume that agencies 

always meet these goals. However, the Commission’s research shows decidedly mixed results in 

attaining procurement targets for 8(a) firms, non-8(a) SDBs, and HUBZone enterprises. The 

section below describes contracting goals and achievements in using small and minority-owned 

 

95 U.S. Small Business Administration, “Final Prime Contract Goals Negotiated by Agencies for FY 2005,” April

2005, < http://www.sba.gov/GC/goals/finalprimegoals_2005.pdf> (last accessed May 17, 2005) (hereafter cited as 

SBA, “Final Goals for FY 2005”); U.S. Small Business Administration, “Federal Procurement and Small Business 

Goals,” no date, <http://www.sba.gov/businessop/basics/procurement.html> (last accessed May 17, 2005). 

96 SBA, Goaling Guidelines for the Small Business Preference Programs, p. 5. 

97 Ibid., p. 2. 

98 Ibid. 

99 DOEn Interrogatory, p. 6. 

100 U.S. Small Business Administration, “Methodology for Establishing Goals,” no date, p. 5, 

<http://www.sba.gov/GC/goals/indexmethod.html> (last accessed June 1, 2005). 
144 Dissent Appendix B 

businesses for each of the seven agencies this study considers. (Appendix E provides 

corresponding tables summarizing goals and achievements.) Agencies’ attainment of HUBZone 

goals is discussed in the Majority Report. 

U.S. Small Business Administration 

Despite the small amount of SBA’s own procurement, its goals are important because of the 

example it sets for other agencies that rely on its contracting programs. SBA establishes and 

must meet its own procurement goals.101 SBA’s small business and SDB targets exceed those of 

other agencies. The agency’s FYs 2002 and 2003 prime contracting goals were 60 percent to 

small businesses and 46.5 percent to SDBs (see appendix E, table E.1). SBA raised its small 

business goals from 55 percent in FYs 2000 and 2001. However, it cut its 8(a) goals in half over 

the years—from 40 percent in FYs 2000 to 2001 to 20 percent in FYs 2004 and 2005 (see 

appendix E, table E.1). 

Despite ambitious plans, SBA has not achieved its prime contracting goals for small businesses 

since FY 2001. In fact, as the small business goals have grown, achievements have steadily 

declined. With the exception of FY 2002, the agency has similarly fallen short of its 8(a) 

contracting goals specifically, as well as its overall SDB goals (see tables B.2 and E.1). The 

current goal of 36 percent to all SDBs appears more attainable than the higher goals of previous 

years, but SBA has struggled to achieve consistent SDB contracting levels that would exceed 

even this reduced goal. Data are not available for SBA’s subcontracting achievements. 

U.S. Department of Defense 

With by far the largest amount of procurement of any federal agency, DOD was moderately 

successful at meeting its small business program goals in 2003. DOD’s goal for small business 

prime contract awards was at the governmentwide target—23 percent (see figure B.3). It 

awarded approximately $42 billion or 22.4 percent to small business concerns. While seemingly 

minute, 

the 0.6 percent shortfall translates to more than $1 billion. On the other hand, SDB procurement 

in FY 2003, including 8(a) firms, exceeded the 5 percent goal. FY 2005 goals for DOD are: 23 

percent for small businesses and 5.7 percent for 8(a) and other SDBs combined (see figure B.4 

and appendix E, table E.2).102 

 

101 SBA, Goaling Guidelines for the Small Business Preference Programs, p. 2. 

102 Federal Procurement Data System, “Report on Annual Procurement Preference Goaling Achievements,” fiscal

year 2003 through fourth quarter, pp. viii–ix (hereafter cited as FPDS, “Goaling Achievements, FY 2003”); U.S. 

Small Business Administration, “Final FY 2003 Prime Contract Goaling Achievements,” no date, 

<http:www.sba/GC/goals/fund_2003prime.pdf> (last accessed June 1, 2005); SBA, “Final Goals for FY 2005”; 

DOD Interrogatory, attachment C. While the DOD Interrogatory reports identical figures, DOD’s OSDBU reports 

slightly different figures; see Department of Defense, “Program Goals and Statistics,” no date, 

<http://www.acq.osd.mil/sadbu/statistics/goals_printerfriendly.htm> (last accessed May 31, 2005). 
Dissent Appendix B 145

Figures B.3 to B.5 show a broader picture of SDB goals and achievements for DOD prime 

contracts and subcontracts for FYs 2000 to 2003. Although DOD exceeded its SDB goals each 

year, it did not always surpass individual 8(a) or non-8(a) SDB goals (see figure B.5 and tables 

B.2 and E.2). DOD also failed to attain its SDB subcontracting goals between FYs 2001 to 2003, 

when the target was 5.0 percent and its achievement ranged from 4.6 to 4.9 percent (see figure 

B.4 and table E.2). 

U.S. Department of Transportation 

The Surface Transportation Assistance Act of 1982 established DOT contracting goals at 25 

percent to small businesses and 10 percent to socially and economically disadvantaged 

businesses (including 8(a) concerns).103 In recent years, DOT has negotiated much higher goals 

with SBA than those stated in the legislation. Although they remain higher than the 

governmentwide requirement, the agency’s small business goals have declined in recent years—

50 percent in FY 2003, 47.7 in FY 2004, and 38.0 percent in FY 2005 (see figure B.3 and table 

E.3). 

SDB goals are 9.5, 17.6, and 15.3 percent in FYs 2003 to 2005, respectively (see figure B.4). In 

FY 2003, the most recent year for which data are available, achievement exceeded the 8(a) goal, 

but not that for non-8(a) SDBs (see figure B.5). That year, DOT awarded 40.7 percent of 

procurement dollars to small businesses, totaling approximately $825 million, and 14.3 percent 

to SDBs.104 Expectations for FYs 2004 and 2005 are higher generally, but even more so for the 

8(a) program (see figure B.5). 

DOT also adopted subcontracting goals of 40 percent for small businesses and 5 percent for 

SDBs in FY 2003, and far exceeded both goals. In FYs 2004 and 2005, negotiations with SBA 

raised each of DOT’s subcontracting goals (see figures B.3 and B.4 and table E.3). With 

sustained performance, DOT will surpass its 2004 and 2005 small business and SDB goals. 

U.S. Department of Energy 

As noted, each agency pursues an annual goal that represents the “maximum practicable 

opportunity for small business concerns.”105 DOEn’s small business goals demonstrate the 

 

103 The Surface Transportation Assistance Act of 1982 was the first statute mandating DOT’s Disadvantaged 

Business Enterprise (DBE) program. The 10 percent DBE goal was reauthorized by the Intermodal Surface 

Transportation Efficiency Act of 1991, and later the Transportation Equity Act for the 21st Century in 1998. Laws 

also require a 10 percent goal for airport improvement funds and concession contracts. See Intermodal Surface 

Transportation Efficiency Act of 1991, Pub. L. No. 102-240, 105 Stat. 1914 (codified as amended in scattered 

sections of 23 U.S.C.); Transportation Equity Act of the 21st Century, Pub. L. No. 105-178, 112 Stat. 107 (codified 

as amended in scattered sections of 23 U.S.C.). 

104 FPDS, “Goaling Achievements, FY 2003.” 

105 48 C.F.R. § 19.201 (2004) (stating that “[i]t is the policy of the Government to provide maximum practicable

opportunities in its acquisitions to small businesses, veteran-owned small businesses, service-disabled veteranowned small businesses, HUBZone small businesses, small disadvantaged businesses, and women-owned small

business concerns”); see also U.S. Department of Energy, Office of Economic Impact and Diversity, Office of 
146 Dissent Appendix B 

flexibility to negotiate adjustments. Agency documents explain the unique nature of energy 

contracts that make procurement with small and disadvantaged businesses particularly 

challenging. First, DOEn oversees facilities and laboratories through management and operating 

(MO) contracts, which account for approximately 85 to 90 percent of the agency’s procurement. 

The nature of work performed under MO contracts generally renders them more suitable for 

large businesses and educational institutions, and multi-year contracts.106 Another reason the 

agency gives for low awards to small businesses is a secretarial policy that no longer allows 

contractual arrangements for security services at nuclear facilities.107 

Because of the unique character of DOEn’s contracts in FYs 2000 and 2001, SBA established 

the agency’s small business goal at only 5 percent. Yet, DOEn fell short of its goal both years. In 

2002, DOEn negotiated a reduction to 3.7 percent (see figure B.3).108 As a condition for granting 

the reduced goal, SBA required DOEn to develop a strategy for how and when it will meet the 

23 percent goal. In response, DOEn proposed a 20-year plan, indicating a gradual increase of 1 

percent per year until FY 2022.109 In 2002, the secretary also issued a policy statement 

instructing all departmental elements to seek ways to improve access for small businesses, SDBs, 

and HUBZone businesses, and asked the agency’s OSDBU to prepare an agencywide small 

business strategy.110 

Despite the reduced 2002 goal, DOEn’s achievements once again fell short and the agency 

established a Small Business Working Group to develop individual goals for each of its 

components. In 2003, 4.1 percent of DOEn contracting dollars went to small businesses, slightly 

exceeding the agency goal (see figure B.3 and table E.4). DOEn notes that prime contracting 

dollars awarded to small businesses have increased from $500.3 million in FY 2000 to $902 

million in FY 2004.111 Although a sizable increase, the 2004 figure still represents only 4.3 

percent of the agency’s total procurement dollars. In another demonstration of support for these 

programs, Congressmen have sought GAO investigations of the department’s contracting 

practices producing low achievement.112

 

Small and Disadvantaged Business Utilization, “Strategic Plan for Small Businesses,” no date, p. 3 (hereafter cited

as DOEn, OSDBU, “Strategic Plan”) (illustrating that agency documents often replicate FAR language). 

106 U.S. Department of Energy, Office of Economic Impact and Diversity, Office of Small and Disadvantaged 

Business Utilization, “Report to the Secretary of Energy on the U.S. Department of Energy’s Small Business 

Programs, Fiscal Year 2002 and 2003,” Mar. 31, 2004, pp. 4, 7. See also, DOEn Interrogatory, p. 6. Agency

documents indicate that in 2002 DOEn began assessing the MO process to identify contracting opportunities for 

small businesses. 

107 DOEn Interrogatory, p. 6. 

108 DOEn, OSBDU, “Strategic Plan,” p. 3. 

109 Theresa Speake, director, Office of Small and Disadvantaged Business Utilization, U.S. Department of Energy, 

letter to Fred C. Armendariz, associate deputy administrator, Office of Government Contracting and Business 

Development, U.S. Small Business Administration, re: 20-year plan, July 12, 2002. 

110 Spencer Abraham, secretary, U.S. Department of Energy, memorandum to all departmental elements, re: policy

statement on supporting small businesses in implementing DOE missions, Sept. 23, 2002. 

111 DOEn Interrogatory, p. 6. 

112 U.S. General Accounting Office, Achieving Small Business Prime Contracting Goals Involves Both Potential

Risks and Benefits, May 18, 2004; Mary Clare Jalonick, “Senate Chairmen Want to Know Why Energy Department
Dissent Appendix B 147

In keeping with its low procurement with small businesses, DOEn goals and achievements for 

SDBs are also low. In FYs 2000 to 2003, goals for SDBs have ranged from 1.3 to 5.0 percent, 

but the agency awarded 1.5 percent or less to SDBs every year (see figure B.4 and tables B.2 and 

E.4). 

The agency performs better with respect to subcontracting with small businesses. Its goals are 

much higher, and achievement exceeded them in FYs 2001 to 2003 (see figure B.3 and table 

B.2). However, DOEn’s subcontracting goals with SDBs fluctuate, and the agency exceeded 

them only at their lowest levels. Furthermore, DOEn’s SDB achievements for subcontractors 

dropped between FYs 2001 and 2003 (see figure B.4 and table E.4). 

U.S. Department of Housing and Urban Development 

HUD’s prime contract goals are high—in FYs 2002 and 2003 the agency aimed to award 30 

percent of contract dollars to small businesses, and 5.5 percent each to 8(a) and non-8(a) SDBs, 

for a total of 11 percent to SDBs. HUD exceeded these goals. In FY 2003, 54 percent of its 

procurement dollars went to small businesses and about 28 percent went to SDBs (see figures 

B.3 to B.5 and table E.5). 

SBA negotiated higher goals with HUD in FY 2004 and 2005—38 percent for small businesses 

and 13.2 percent for SDBs (see figures B.3 to B.6 and table E.5). 

HUD nevertheless exceeded its small business and SDB subcontracting goals. HUD’s 

subcontracting with small businesses was 54.4 percent in FY 2001, 55.5 percent in FY 2002, and 

nearly 60.7 percent in FY 2003. Its subcontracting with SDBs was 12.2, 21.2, and 28.9 percent 

in each respective fiscal year (see figures B.3 and B.4 and table E.5). 

HUD’s ability to exceed its goals is driven by the secretary’s policy directive, described earlier 

in this appendix, and a number of other initiatives that promote contracting with small and 

disadvantaged businesses. First, HUD establishes internal “stretch goals”—targets higher than 

the SBA-negotiated levels to encourage staff to surpass the official mark. An internal agency 

Web page posts the stretch goals to ensure staff awareness.113 For example, while HUD 

negotiated a 38 percent small business prime contracting goal with SBA for FY 2004, it set an 

internal stretch goal of 50 percent. For subcontracting, HUD’s SBA-negotiated goal is 37.2 

percent; the internal stretch goal is 40 percent.114

Second, HUD’s procurement staff accesses a database allowing ongoing examination of progress 

in meeting goals. A contracting office can use this database to redirect efforts toward goals that 

are unmet. For example, if the database reveals that mid-year achievements exceed the goal for 

 

Shuns Small Businesses,” CQ Today, Dec. 9, 2004, p. 10. 

113 HUD follow-up interview, pp. 18, 30–33 (statements of Girovasi). 

114 U.S. Department of Housing and Urban Development, “HUD Small Business Goals for FY 2004,” no date

(attachment to David H. Enzel, senior counsel, Office of General Counsel, U.S. Department of Housing and Urban 

Development, electronic correspondence to Eileen E. Rudert, social science analyst, U.S. Commission on Civil

Rights, May 5, 2005). 
148 Dissent Appendix B 

small business but are under the 8(a) goal, staff can initiate market research to identify 8(a) firms 

and try to target a specific buy as an 8(a) set-aside.115

Third, HUD employs cascading set-asides, described above, which prioritize awards to 8(a) and 

HUBZone firms rather than small businesses generally. These set-asides thus ensure that 

procurement procedures favor those businesses for which goals are harder to attain. 

U.S. Department of Education 

DOEd’s progress toward its small business contracting goals has been modest. In FY 2003 only 

16.8 percent of spending (about $171 million, or about 3,000 contract actions) was with small 

businesses and just 3 percent ($31 million) was with SDBs (see figures B.3 and B.4 and 

appendix table E.6). In 2003, DOEd awarded only 0.7 percent to 8(a) businesses. Its awards to 

non-8(a) SDBs have risen since FY 2000, but remain below the 2.5 percent goal (see figure B.5 

and table E.6). Notwithstanding its 2003 achievements, DOEd’s FY 2005 prime contracting 

goals match governmentwide goals (see figures B.3 to B.5 and table E.6). 

DOEd exceeded only its subcontracting goal for SDBs in 2003. Against a mark of 5 percent, it 

awarded 6.8 percent to SDB subcontractors. Its SDB subcontracting goals for FYs 2004 and 

2005 are 6 percent (see figure B.4 and table E.6). 

U.S. Department of State 

DOS officials announced that the agency met its small business goals for the last five years.116

One exception was in 2001, when the agency awarded 8 percent to 8(a) firms, which slightly 

missed the goal of 8.8 percent (see figure B.5 and table E.7). Generally, however, DOS 

performance has been high. In 2003, the agency awarded 48.3 percent of its procurement dollars 

to small businesses and 21.0 percent to SDBs (see figures B.3 to B.6 and table E.7). DOS also 

exceeded SDB subcontracting goals, which have been set at 5 percent from FY 2000 to FY 2005, 

against DOS achievements ranging 7.4 to 13.9 percent (see figure B.4 and table E.7). 

 

115 HUD follow-up interview, pp. 12–13 (statement of Girovasi). 

116 DOS Interrogatory, tab 2. 
Dissent Appendix B 149

TABLE B.2 

Summary of Selected Agencies' Performance Against Prime and Subcontracting Goals for Small 

Disadvantaged Businesses, Fiscal Years 2000 to 2004 

Subcontracting 

Both 8(a) and non8(a) SDBs 8(a) Non-8(a) SDBs

GOVERNMENTWIDE

2003 Exceeded Exceeded Exceeded Unmet

2002 Exceeded Unmet Exceeded Exceeded

2001 Exceeded Exceeded Unmet Unmet

2000 Exceeded Exceeded Unmet Exceeded

DEPARTMENT OF DEFENSE 

2003 Exceeded Exceeded Exceeded Unmet

2002 Exceeded Unmet Exceeded Unmet

2001 Exceeded Zero Goal Unmet Unmet

2000 Exceeded Zero Goal Unmet Exceeded

DEPARTMENT OF EDUCATION 

2003 Unmet Unmet Unmet Exceeded

2002 Unmet Unmet Unmet Unmet

2001 Unmet Unmet Exceeded Unmet

2000 Exceeded Exceeded Unmet Unmet

DEPARTMENT OF ENERGY 

2003 Unmet Unmet Unmet Exceeded

2002 Unmet Unmet Unmet Exceeded

2001 Unmet Unmet Unmet Unmet

2000 Unmet Unmet Unmet Unmet

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

2003 Exceeded Exceeded Exceeded Exceeded

2002 Exceeded Exceeded Unmet Exceeded

2001 Exceeded Unmet Exceeded Unmet

2000 Unmet Unmet Exceeded Unreported

DEPARTMENT OF STATE 

2003 Exceeded Exceeded Exceeded Exceeded

2002 Exceeded Exceeded Exceeded Exceeded

2001 Exceeded Unmet Exceeded Exceeded

2000 Exceeded Exceeded Exceeded Exceeded

DEPARTMENT OF TRANSPORTATION

2003 Exceeded Exceeded Unmet Exceeded

2002 Exceeded Exceeded Unmet Unmet

2001 Exceeded Unmet Exceeded Exceeded

2000 Unmet Unmet Exceeded Exceeded

Compiled by U.S. Commission on Civil Rights from other sources.

Small Disadvantaged Business Goals 

Caption: Government agencies vary in their attainment of statutory small business, 8(a,) and non8(a) SDB goals for prime contracting and subcontracting. Between fiscal years 2000 and 2003, 

DOS exceeded its goals in nearly every category, whereas DOEn has never met any of its prime 

contracting goals. Collectively, governmentwide prime contracting goals have mostly been met.

Prime Contracts
150 Dissent Appendix B 

FIGURE B.3

Selected Federal Agencies' Contracting Goals and Achievements for Small Businesses 

Summary caption: Agencies have different levels of goals and success at meeting them. DOEn’s prime contracting goals were

extremely low from fiscal years 2000 through 2004 and barely met. DOEd generally did not meet its goals. DOT’s pattern of meeting

goals is inconsistent, with the agency exceeding its goals in some years but not others. On the other hand, DOD, DOS, and HUD

generally met prime contracting goals, but at varying levels.

Source: Compiled by USCCR using U.S. Small Business Administration, "Government-wide Procurement Preference Goaling Program," no 

date, <http://www.sba.gov/GC/goals/> (last accessed June 1, 2005).

Caption: DOEn generally met its small business goals,

although its prime contracting goals are quite low.

Caption: DOT has had mixed success in meeting its small

business prime and subcontracting goals. 

Caption: DOEd has generally failed to meet prime and 

subcontracting goals for small business from fiscal years 

2000 to 2003

Caption: In fiscal years 2000 through 2003, DOS consistently

exceeded its SDB prime and subcontracting goals. 

Caption: DOD generally met or nearly met its small business

prime and subcontracting goals from fiscal years 2000

through 2003.

Caption: From fiscal years 2000 to 2003, HUD consistently

exceeded its small business prime and subcontracting goals.

DOD Small Business

0.0%

15.0%

30.0%

45.0%

60.0%

75.0%

2000 2001 2002 2003 2004 2005

Fiscal year

Percent of total 

procurement

Prime Contract Goals Prime Contract Achievements

Subcontracting Goals Subcontracting Achievements

DOEd Small Business

0.0%

15.0%

30.0%

45.0%

60.0%

75.0%

2000 2001 2002 2003 2004 2005

Fiscal year

Percent of total 

procurement

DOEn Small Business

0.0%

15.0%

30.0%

45.0%

60.0%

75.0%

2000 2001 2002 2003 2004 2005

Fiscal year

Percent of total 

procurement

HUD Small Business

0.0%

15.0%

30.0%

45.0%

60.0%

75.0%

2000 2001 2002 2003 2004 2005

Fiscal year

DOS Small Business

0.0%

15.0%

30.0%

45.0%

60.0%

75.0%

2000 2001 2002 2003 2004 2005

Fiscal year

DOT Small Business

0.0%

15.0%

30.0%

45.0%

60.0%

75.0%

2000 2001 2002 2003 2004 2005

Fiscal year
Dissent Appendix B 151

FIGURE B.4 

Selected Federal Agencies' Contracting Goals and Achievements for Small Disadvantaged 

Businesses 

DOEd SDB contracting usually fell slightly short of its goals in fiscal years 2000 through 2003.

Caption: DOT has generally met or exceeded its SDB prime

and subcontracting goals in fiscal years 2000 through 2003.

Caption: DOEd SDB contracting usually fell slightly short of

its goals in fiscal years 2000 through 2003.

Caption: In fiscal years 2000 through 2003, DOS consistently

exceeded its SDB prime and subcontracting goals

Caption: Although DOEn surpassed its SDB subcontracting 

goals in fiscal years 2002 and 2003, it has yet to meet its 

SDB prime contracting goals.

Caption: Overall, DOD contract awards to SDBs were on par

with its goals in fiscal years 2000 to 2003.

Caption: With the exception of subcontracting in fiscal year

2001, HUD met and increasingly exceeded its SDB prime and

subcontracting goals from fiscal years 2000 through 2003. 

Summary caption: DOD generally attained and DOEd nearly achieved their fairly modest SDB contracting goals. DOS and DOT

generally met or exceeded, and HUD has increasingly exceeded its SDB contract goals. DOEn failed to meet its prime

contracting goals in fiscal year 2002 and fiscal year 2003, but met its subcontracting goals consistently.

Source: Compiled by USCCR using U.S. Small Business Administration, "Government-wide Procurement Preference Goaling Program,"

no date, <http://www.sba.gov/GC/goals/> (last accessed June 1, 2005).

DOD SDBs (both 8(a) and non-8(a) or other)

0.0%

10.0%

20.0%

30.0%

2000 2001 2002 2003 2004 2005

Fiscal year

Percent of total 

procurement

Prime Contract Total SDB Goals Prime Contract Total SDB Achievements

Subcontracting SDB Goals Subcontracting SDB Achievements

DOEd SDBs (both 8(a) and non-8(a) or other)

0.0%

10.0%

20.0%

30.0%

2000 2001 2002 2003 2004 2005

Fiscal year

Percent of total 

procurement

DOEn SDBs (both 8(a) and non-8(a) or other)

0.0%

10.0%

20.0%

30.0%

2000 2001 2002 2003 2004 2005

Fiscal year

Percent of total

procurement

HUD SDBs (both 8(a) and non-8(a) or other)

0.0%

10.0%

20.0%

30.0%

2000 2001 2002 2003 2004 2005

Fiscal year

DOS SDBs (both8(a) and non-8(a) or other)

0.0%

10.0%

20.0%

30.0%

2000 2001 2002 2003 2004 2005

Fiscal year

DOT SDBs (8(a) and non-8(a) or other)

0.0%

10.0%

20.0%

30.0%

2000 2001 2002 2003 2004 2005

Fiscal year
152 Dissent Appendix B 

FIGURE B.5 

Selected Federal Agencies' Prime Contracting Goals and Achievements for 8(a) and Non-8(a) SDBs

Caption: Between fiscal years 2000 and 2003, DOT has had

mixed success in attaining contract goals for 8(a) and non8(a) SDBs.

Caption: DOEd has generally failed to reach its modest

goals for 8(a) and non-8(a) contracting.

Caption: Despite having the lowest goals of any agency,

DOEn failed to attain any of its 8(a) and non-8(a) SDB

contract goals from fiscal year 2000 to 2003.

Caption: From fiscal years 2000 to 2003, DOD has 

occasionally met its 8(a) and non-8(a) SDB prime contracting 

goals.

Caption: HUD prime contracting with 8(a) firms far 

surpassed its goals in fiscal years 2002 and 2003, and it has 

usually exceeded its goals for non-8(a) SDB awards

Caption: Since fiscal year 2000, DOS has almost always

surpassed its goals for contracting with 8(a) and non-8(a)

SDBs.

Summary caption: DOS met or exceeded nearly all of its prime contracting goals for 8(a) and non-8(a) SDBs from fiscal years 

2000 through 2003. In fiscal years 2002 and 2003, DOT and HUD prime contracts also surpassed their goals for 8(a) firms. In

contrast, DOD, DOEd and DOEn struggled to meet their prime contracting goals for 8(a) and non-8(a) SDBs in fiscal years 2000 to

2003.

Source: Compiled by USCCR using U.S. Small Business Administration, "Government-wide Procurement Preference Goaling Program,"

no date, <http://www.sba.gov/GC/goals/> (last accessed June 1, 2005).

DOD 8(a) and non-8(a) SDBs

0.0%

7.0%

14.0%

21.0%

2000 2001 2002 2003 2004 2005

Fiscal year

Percent of total 

procurement

Prime Contract 8(a) Goals Prime Contract 8(a) Achievements

Prime Contract non-8(a) SDB Goals Prime Contract non-8(a) SDB Achievements

DOEd 8(a) and non-8(a) SDBs

0.0%

7.0%

14.0%

21.0%

2000 2001 2002 2003 2004 2005

Fiscal year

Percent of total 

procurement

DOEn 8(a) and non-8(a) SDBs

0.0%

7.0%

14.0%

21.0%

2000 2001 2002 2003 2004 2005

Fiscal year

Percent of total 

procurement

HUD 8(a) and non-8(a) SDBs

0.0%

7.0%

14.0%

21.0%

2000 2001 2002 2003 2004 2005

Fiscal year

DOS 8(a) and non-8(a) SDBs

0.0%

7.0%

14.0%

21.0%

2000 2001 2002 2003 2004 2005

Fiscal year

DOT 8(a) and non-8(a) SDBs

0.0%

7.0%

14.0%

21.0%

2000 2001 2002 2003 2004 2005

Fiscal year
Dissent Appendix B 153

Achievement Summary

In sum, HUD and DOS were successful in meeting small disadvantaged business goals, 

particularly in recent years (see table B.2). DOD and DOT met SDB goals overall, but failed to 

reach targets in some segments. Recently, DOEn and DOEd have met subcontracting goals for 

SDBs, but rarely met performance goals for prime contracts. 

DOEn demonstrated that goals are negotiable by establishing much lower levels to accommodate 

the nature of the agency’s procurement. However, intense scrutiny of greatly reduced goals is 

necessary, and SBA’s request for a written strategy, the agency’s formation of an internal 

working group, and congressional oversight were appropriate responses. 

Finally, HUD had many initiatives to promote success in meeting goals. They included, for 

example, a database allowing ongoing examination of progress in meeting goals and procedures 

prioritizing awards to 8(a) and HUBZone firms rather than business segments where goals are 

more easily met. 

CONCLUSION 

Recognizing that small disadvantaged and minority-owned firms continue to have trouble 

accessing a fair share of federal contracts, the government has taken many steps to expand 

procurement opportunities without placing undue burdens on other firms. Congress has created 

agencies and offices, such as SBA and OSDBUs, to increase government’s effectiveness in 

expanding contracting opportunities. Agencies have also established internal policies to 

emphasize a commitment to small and disadvantaged businesses. Moreover, Congress has 

legislated several programs to increase the share of federal procurement going to these 

businesses. These programs, which include setting statutory targets for procurement, SBA’s 8(a) 

program, mentor-protégé arrangements, and small disadvantaged business certification, vary in 

effectiveness, and also in the extent to which they are race-conscious. 
154 Dissent Appendix B 
Dissent Appendix C 155

Dissent Appendix C: Sample Interrogatory 
156 Dissent Appendix C 
Dissent Appendix C 157

U.S. COMMISSION ON CIVIL RIGHTS 

RACE-NEUTRAL FEDERAL CONTRACTING 

Project Concept 

In 1995, the Supreme Court made a landmark decision in Adarand v. Peña, changing the 

landscape of affirmative action in federal contracting. The Court held that federal programs that 

use racial and ethnic criteria as a basis for decision-making are subject to “strict judicial 

scrutiny.” Such programs must serve a compelling government interest and must be narrowly 

tailored to serve that interest. “Narrow tailoring” requires agencies to consider race-neutral 

alternatives in federal procurement and to justify use of race-conscious measures. 

To implement the regulatory requirements of Adarand, the Department of Justice (DOJ) 

recommended that agencies pursue a variety of race-neutral alternatives to limit the use of 

affirmative action to the “minimum extent necessary to achieve legitimate objectives.”1

 DOJ 

maintains that these objectives include statutorily established government-wide goals of 23 

percent contracting with small businesses, 5 percent contracting with business interests 

controlled by socially and economically disadvantaged individuals, 5 percent contracting with 

women-owned small businesses, and 3 percent contracting with small firms qualified as in 

Historically Underutilized Business Zones (HUBZones).2

 Regulations allow agencies to adjust 

their own goals in line with the narrow tailoring requirement of Adarand. 

DOJ recommended that agencies pursue mentor-protégé programs, engage in constant outreach, 

eliminate the impact of surety costs from bids, and undertake other race-neutral measures before 

considering race-conscious initiatives such as targeted solicitation and price evaluation credits. 

DOJ’s recommendation that agencies pursue race-neutral alternatives rests upon the belief that 

race-neutral tools will help agencies comply with the legal requirements of Adarand and help 

minorities and disadvantaged businesses by eliminating barriers facing all small businesses 

seeking federal contracts. Because government’s interest is to redress discrimination, agencies 

must also aggressively enforce existing antidiscrimination laws. 

This project asks what programs and practices agencies pursue in order to fulfill the 

requirements of Adarand. In other words, what race-neutral alternatives do federal agencies use 

to fulfill the statutory small business and small disadvantaged business goals and at the same

time ensure nondiscrimination in contracting? 

 

1

 Department of Justice, “Proposed Reforms to Affirmative Action in Federal Procurement,” p. 9. 

2 See 15 USC § 644. 
158 Dissent Appendix C 

Specifically, the project will consider the following: 

• Do agencies engage in race-neutral practices such as mentor-protégé programs, outreach, 

and financial and technical assistance as means to increase opportunities for small and 

disadvantaged businesses to win federal contracts? 

• Do agencies employ specific, best practices for such consideration? 

• Are agencies developing and utilizing additional promising practices for race-neutral 

means of achieving statutory goals?

• How do agencies measure the impact of race-neutral programs on federal contracting, if 

at all? 

• What sorts of mechanisms are in place to ensure that government contracting is not 

discriminatory? 

• What triggers the use of race-conscious initiatives in addition to or in place of raceneutral measures? 

To implement the study, staff will conduct intensive background research using the Internet and 

other sources. They will conduct a literature review on race-neutral contracting, as well as 

pertinent federal statutes, regulations and data. Staff will identify a set of agencies to study more 

deeply and will prepare interrogatories to assess these agencies’ use of race-neutral methods of 

procurement. The study report will conclude with findings and recommendations. 
Dissent Appendix C 159

U.S. Department of Transportation 

U. S. COMMISSION ON CIVIL RIGHTS INTERROGATORY 

AND DOCUMENT REQUEST 

Deadline: February 28, 2005 

1. Under the narrow tailoring requirement of the Supreme Court’s 1995 Adarand v. Peña

decision, federal agencies must make a good faith effort to employ race-neutral measures to 

improve contracting opportunities for small businesses generally, and minority-owned firms 

in particular. 

What race-neutral programs or practices does the Department of Transportation (DOT) 

employ to comply with this requirement (e.g., technical assistance, mentoring, small business 

database maintenance, teaming efforts, etc.)? Please explain in detail and provide all relevant 

policy statements or guidance. 

2. Have the scope and frequency of the agency’s outreach to minority-owned businesses 

changed as a result of the narrow tailoring requirement? Please explain in detail, including 

types of outreach and target audiences and provide relevant data for each fiscal year from

2000 to 2004. 

3. Does DOT view its HUBZone program as a race-neutral means to expand contracting 

opportunities for minority-owned businesses? How does DOT measure the impact of this 

program on contracts with these businesses? Please provide any relevant data or policy 

guidance about DOT’s HUBZone activities. 

4. Does DOT maintain a database of small businesses eligible for contracts? If so, please 

explain how the list is organized and how often it is updated. 

5. What types of race-neutral financial incentives or assistance does DOT provide to (1) prime 

contractors to encourage subcontracting with small and disadvantaged businesses; and (2) to 

small and disadvantaged businesses to enable them to compete for contracts? 

6. Please describe eligibility requirements and participation rates for DOT’s Short-Term

Lending Program and Bonding Assistance Program. Are these financial assistance measures 

available to all small businesses? 

7. The Bonding Assistance Program page on DOT’s Web site indicates that the program is out 

of money and being revised. What is the status of the revision efforts? How has the lack of 

resources adversely impacted small and disadvantaged businesses? 
160 Dissent Appendix C 

8. Does DOT coordinate with or consult other federal agencies with regard to the development 

of race-neutral initiatives or “best practices” for ensuring compliance with case law and at 

the same time improving the competitiveness of minority firms? 

9. President Bush has prioritized the unbundling of large contracts to create more contracting 

opportunities for small businesses. How has DOT addressed this priority? Has unbundling 

had a measurable effect on the number of small disadvantaged or minority-owned firms 

receiving contracts? Please explain. 

10. What has the agency done to ensure that procurement procedures are not administratively 

onerous, thereby limiting small business participation? 

11. Please describe DOT programs (such as the mentor-protégé program) that may not be purely 

race-neutral based on eligibility requirements, but that are designed to enable minorityowned firms to compete for contracts on equal footing. How does DOT make the distinction 

between, and the legal justification for, such programs and those that are purely race-neutral?

12. Has DOT made a conscious effort to identify procurement procedures or policies that, 

although race-neutral, may have a disparate impact on minority firms? If so, what has the 

agency done to modify these procedures? Please provide examples. 

13. Please explain DOT’s Disadvantaged Business Enterprise (DBE) certification process in 

detail and provide documents outlining certification criteria. Can an economically 

disadvantaged firm, regardless of the owner’s race, be certified? 

14. How many participants in DOT’s small and disadvantaged business programs are NOT 

minority- or women-owned firms (not including those that participate solely in programs for 

service-disabled veterans)? Please provide relevant data on the number and percentage of 

nonminority firms receiving certification and subsequently contracts (see also data request in 

question 12). 

15. How does the agency measure the overall effectiveness of its race-neutral practices? Please 

provide any related data, including the number and percentage of contracts going to small 

disadvantaged businesses as a whole, and minority-owned firms as a subset, and the dollar 

value of those contracts for each fiscal year from 2000 to 2004. 

16. Does DOT track whether contract recipients achieve the statutory 10 percent goal for 

subcontracting with DBEs? By what standards does DOT gauge good faith efforts to secure 

DBE participation? Where the goal is not met, what assistance does DOT offer? Please 

explain. 

17. What mechanisms are in place to ensure that race-conscious programs are used only when 

race-neutral programs are not effective? Does the agency have an established policy for 

periodic review of the continuing necessity of race-conscious measures? Please provide any 

relevant written guidance or policies. 
Dissent Appendix C 161

18. What justification(s) does DOT use to apply race-conscious measures? Does the agency rely 

on statistical evidence to determine where such measures are needed? Please provide any 

relevant empirical or disparity studies. 

19. Enforcement of nondiscrimination laws is critical to ensuring that minority-owned businesses 

have equal opportunity to compete for federal contracts. To what extent has DOT 

incorporated enforcement of Title VI of the Civil Rights Act in its procurement program? Is 

the agency’s enforcement program complaint-driven or based on compliance reviews and 

other preventive measures? Has DOT pursued legal sanctions against prime contractors or 

other funding recipients for discrimination against minority firms? Please provide data on 

complaints, compliance reviews, and resolutions/remedial actions for each fiscal year 

between 2000 and 2004. 

20. To what extent do DOT’s Office of Small and Disadvantaged Business Utilization and Office 

for Civil Rights coordinate with respect to Title VI enforcement? 

21. Please explain how DOT monitors recipients to ensure compliance with the DBE provisions 

outlined in agency regulations. 

22. To what extent does DOT examine prime contractors to validate subcontracting data and 

ensure that small and disadvantaged businesses are being appropriately utilized? 

DOCUMENT AND DATA REQUEST 

Please provide the following documents, based on the above questions: 

1. Policy statements or guidance outlining race-neutral programs or practices aimed at 

improving small and disadvantaged business participation in agency contracts. 

2. Data on outreach activities, including number, type, and targeted audience, for each fiscal 

year from 2000 to 2004. 

3. Policy guidance governing DOT’s participation in HUBZone activities and data on the 

number and dollar amount of HUBZone contracts, by race of participating firm ownership, 

for fiscal years 2000 to 2004. 

4. Policies or guidelines outlining DBE certification criteria. 

5. Data on the number and percentage of contracts going to small disadvantaged businesses as a 

whole, and minority- and nonminority-owned firms as a subset, and the dollar value of those 

contracts for each fiscal year from 2000 to 2004. 

6. Policy statements or guidance governing the use and review of race-conscious programs. 
162 Dissent Appendix C 

7. Empirical or disparity studies used to justify the application of race-conscious measures. 

8. Enforcement data on Title VI complaints, compliance reviews, and resolutions/remedial 

actions for each fiscal year between 2000 and 2004. 
Dissent Appendix D 163

Dissent Appendix D: Sources of Data on Minority-Owned 

Businesses and Federal Contracting 

Key data sources to measure trends of minority-owned businesses consist of (1) the U.S. Census 

Bureau’s survey of minority-owned businesses, conducted every five years; and (2) the Federal 

Procurement Data System, updated each fiscal year.1

CENSUS BUREAU’S SURVEYS OF MINORITY-OWNED BUSINESSES 

The Census Bureau inaugurated its survey of minority-owned businesses in 1972 and has 

continued to collect information every five years since then. The survey is part of a longexisting economic census that in 1997 collected data from 3.7 million companies.2

 The Bureau 

took its most recent economic census in 2002, but will not release detailed data on minorityowned businesses to the public until 2006.3

 For examining the trends herein, data are available 

from the 1992 survey,4

 taken before Adarand, and the 1997 one, collected afterward. Thus, the 

1997 data capture results soon after Adarand, but leave most of the decade since the decision 

unstudied. 

Furthermore, the Census Bureau reports that the 1992 and 1997 figures are not comparable 

because of changes in survey methodology. Among the most significant changes, the 1997 

survey (1) included a legal type of corporation that was mostly excluded from the 1992 survey; 

and (2) assigned minority ownership using a more stringent criteria (i.e., owning 51 percent of 

the interest in the firm rather than having 50 percent minority owners). The Census Bureau 

provides adjusted numbers to make comparisons between the 1992 and 1997 figures that differ 

from the published survey results. 5 Because of the lack of comparison between 1992 and 1997 

 

1 See, e.g., U.S. Small Business Administration (SBA), Office of Advocacy, Minorities in Business, 1999, p. 5. 

2 U.S. Census Bureau, History of the 1997 Economic Census, POL/00-HEC, July 2000, p. 2, and Appendix B, p. B17. 

3

 U.S. Census Bureau, “Guide to the 2002 Economic Census: Schedule and Geographic Coverage for Reports, by

Sector,” Apr. 25, 2005, <http://www.census.gov/econ/census02/guide/g02sch3.htm> (last accessed May6, 2005). 

The Census Bureau released preliminary numbers on July 28, 2005, but more detailed analyses are not yet available. 

4 See, e.g., U.S. Department of Commerce, Economics and Statistics Administration, Bureau of the Census, 1992 

Economic Census: Survey of Minority-Owned Business Enterprises, Summary, MB92-4, September 1996. 

5

 In the first change, the 1997 survey included the legal form of organization known as “C” corporations, although 

the 1992 survey contained only a small sample of such in a women-owned business survey and none in the minority

survey. “C” corporations, as identified in the 1997 survey were 11 percent of all U.S. firms, although they

accounted for 75 percent of all U.S. firms’ receipts. U.S. Census Bureau, 1997 Economic Census: Company 

Statistics Series, Company Summary,1997, EC97CS-1, September 2001, pp. 6, 12 (hereafter cited as U.S. Census 

Bureau, 1997 Economic Census—Company Summary). 

In effect, the latter methodological change excluded from the 1997 survey businesses that were 50 percent minority- 
164 Dissent Appendix D 

figures, this study reports the unadjusted 1997 statistics but describes 1992–1997 changes as 

percentage increases or decreases between the adjusted 1992 and 1997 figures. At the same time, 

some comparisons between 1992 and 1997 are shown using the proportions minority-owned 

businesses represent of all U.S. businesses. 

Information available from the Economic Censuses that indicates the growth or decline of 

minority-owned businesses from 1992 to 1997 includes: 

• the number of such firms, 

• the sales and receipts, that is, revenue, of those enterprises, 

• the number of them with paid employees, 

• the revenue of those with paid employees, 

• the number of employees of minority-owned firms, and 

• the annual payroll of those with paid employees.6

The Small Business Administration (SBA) issued reports on minority-owned businesses in 1999, 

2001, and 2005 containing analyses of all the sources listed above.7

THE FEDERAL PROCUREMENT DATA SYSTEM 

The Federal Procurement Data System8 develops, collects, and disseminates annual procurement 

data to meet the needs of Congress, the executive branch, and the public sector. Since data 

 

and 50 percent nonminority-owned and equally owned male/female firms. The 1997 survey revealed 84,586 

businesses which were 50 percent minority-/50 percent nonminority-owned firms. They were 0.4 percent of all U.S. 

firms and had 0.2 percent of all firms’ sales and receipts. Similarly, 3.6 million firms were equally male-/femaleowned businesses. The equally male-female-owned businesses represented 17.5 percent of all U.S. firms, but

accounted for only 5.1 percent of total receipts. U.S. Census Bureau, 1997 Economic Census--Company Summary, 

pp. 6, 10. 

To better compare 1992 and 1997 data, the Census Bureau adjusted the minority group figures by excluding the “C” 

corporations from the 1992 statistics. The 1997 data was not adjusted for the small number of 50 percent

minority/50 percent nonminority firms. See, U.S. Census Bureau, 1997 Economic Census: Survey of MinorityOwned Business Enterprises; Company Statistics Series, Summary, 1997, EC97CS-7, July 2001, pp. 13–14 

(hereafter cited as U.S. Census Bureau, 1997 Economic Census—Minority Summary). 

6 See, e.g., U.S. Census Bureau, 1997 Economic Census: Survey of Minority-Owned Business Enterprises; 

Company Statistics Series, Black, 1997, EC97CS-3, March 2001, p. 17. Also see similarly titled reports for 

Hispanics (EC97CS-4), Asian and Pacific Islanders (EC97CS-5), and American Indians and Alaska Natives 

(EC97CS-6). 

7 See U.S. Small Business Administration, Office of Advocacy, Minorities in Business, 1999; U.S. Small Business 

Administration, Office of Advocacy, Minorities in Business, 2001, November 2001; U.S. Small Business 

Administration, Office of Advocacy, Dynamics of Minority-Owned Employer Establishments, 1997-2001, February

2005. Despite the recent date of this last report, it contains no information on establishments that opened after 1997. 

Ibid., p. 3. 

8

 Public Law 93-400 established the Federal Procurement Data System (FPDS). The statute required the Office of 
Dissent Appendix D 165

collection began in 1978, the system has yielded analyses of the impact of congressional and 

presidential initiatives in socioeconomic sectors, such as small business, and assessments of the 

impact of federal acquisition policy.9

The analysis in this report comes largely from tables included in the preface of annual reports 

issued for fiscal years 1992 to 2003. Among these are the “Report on Annual Procurement 

Preference Goaling Achievements” and small business ownership reports. 10 

The goaling achievements report provides data on governmentwide and agency procurement 

with small businesses, small disadvantaged enterprises, firms qualified for SBA’s 8(a) program, 

and those certified as located in Historically Underutilized Business Zones (HUBZones). 

Agency achievements are available for the years this report studies—1992 through 2003—

although some reported information has changed. First, the HUBZone program was 

implemented in 1998.11 As a result, agencies’ achievements against HUBZone goals are 

available only for FYs 2000 to 2003. Second, since FY 2001, reports have carried a column of 

data for non 8(a) small disadvantaged businesses (SDBs), clarifying that SDB data comprise the 

sum of 8(a) and non 8(a) SDBs. Before 2001, data labeled “SDB” represented the non-8(a) 

SDBs.12

The federal procurement system provides two small business ownership tables. Both show the 

number of new businesses receiving federal contracts. The first displays the number of each 

agency’s new businesses by type of contractor: women-owned small businesses; women-owned 

small disadvantaged firms; and other small disadvantaged enterprises. The second table 

crosstabulates each type of contractor by race or ethnic group, but only for the Department of 

 

Management and Budget’s Office of Federal Procurement Policy to set up the system. The U.S. General Services 

Administration’s Office of Governmentwide Policy, Office of Acquisition Policy, Governmentwide Information 

Systems Division, Federal Procurement Data Center issued reports through the analysis of 2003 data. Beginning 

Oct. 1, 2004, a private enterprise assumed operation of the FPDS. As a result, the system is newly redesigned to

provide fewer printed reports than in the past, but enhanced on-line data manipulation. U.S. General Services 

Administration, Office of Governmentwide Policy, Office of Acquisition Policy, Governmentwide Information 

Systems Division, Federal Procurement Data Center, Federal Procurement Report, 2003, “Foreword,” and 

“Highlights,” <http://www.fpdc.gov/fpdc/fpr2003.htm> (last accessed Sept. 21, 2004) (hereafter cited as GSA, 

Federal Procurement Report 2003). 

9

 Ibid. 

10 See, e.g., U.S. General Services Administration, Office of Governmentwide Policy, Office of Acquisition Policy,

Governmentwide Information Systems Division, Federal Procurement Data Center, Federal Procurement Report,

2001, pp. vi-ix (hereafter cited as GSA, Federal Procurement Report 2001). See also reports with similar names 

from earlier and later years. 

11 U.S. General Services Administration, Office of Governmentwide Policy, Office of Acquisition Policy,

Governmentwide Information Systems Division, Federal Procurement Data Center, Federal Procurement Report,

1999. U.S. General Services Administration, Office of Governmentwide Policy, Office of Acquisition Policy, 

Governmentwide Information Systems Division, Federal Procurement Data Center, Federal Procurement Report,

2000. 

12 GSA, Federal Procurement Report 2001. 
166 Dissent Appendix D 

Defense.13 The Commission analyzed SDBs by combining the women-owned small 

disadvantaged firms and the other small disadvantaged enterprises. 

 

13 See, e.g., GSA, Federal Procurement Report 2003, pp. vi and vii.
Dissent Appendix E 167

Dissent Appendix E: Selected Agencies’ Small and Disadvantaged Business Goals and Achievements 

Tables E.1 to E.7 show the seven selected agencies’ goals and achievements for contracting with 

small and disadvantaged businesses for fiscal years 2000 to 2005. They show the prime and 

subcontracting goals and actual percentages for small businesses and small disadvantaged 

businesses (SDBs). They also show the goals and achievements for the Small Business 

Administration’s 8(a) program separate from non-8(a) SDBs, as well as the two combined for 

prime contracts. There are no separate subcontracting goals for 8(a) and non-8(a) SDBs. 

TABLE E.1 

Small Business Administration's Goals and Achievements for Small and Disadvantaged 

Businesses, Fiscal Years 2000 to 2005

2000 2001 2002 2003 2004a 2005a

Goals Actual Goals Actual Goals Actual Goals Actual Goals Goals

Small Business 

Prime 55.0% 62.7% 55.0% 72.2% 60.0% 55.5% 60.0% 48.1% 60.0% 60.0%

Subcontracting -- -- -- -- 40.0% -- 40.0% -- -- --

Small Disadvantaged Businesses 

8(a) Prime 40.0% 12.6% 40.0% 18.5% 23.3% 32.1% 23.3% 23.0% 20.0% 20.0%

Non 8(a) SDB Prime 10.0% 33.9% 10.0% 3.6% 23.3% 10.2% 23.3% 9.5% 16.0% 16.0%

Total Prime 50.0% 46.5% 50.0% 22.1% 46.5% 42.3% 46.5% 32.4% 36.0% 36.0%

Subcontracting -- -- -- -- 5.0% -- 5.0% -- -- --

Caption: SBA’s goals are generally higher than other agencies’ goals. In fiscal years 2000 and 2001, SBA exceeded its 

small business prime contracting goals. In fiscal years 2002 through 2004, goals increased by 5 percent but were unmet. 

Overall, from fiscal years 2000 through 2003, SBA had sporadic success in meeting its 8(a) and non-8(a) SDB contracting 

goals. 

a Agencies' 2004 achievements are unavailable because of problems with a newly implemented data system. This report was 

published before fiscal year 2005 ended. See General Services Administration, facsimile to U.S. Commission on Civil Rights, July 8, 

2005, p. 1. 

Source: Compiled by USCCR using U.S. Small Business Administration, "Government-wide Procurement Preference Goaling 

Program," no date, <http://www.sba.gov/GC/goals/> (last accessed June 1, 2005). 
168 Dissent Appendix E 

TABLE E.2 

Department of Defense's Goals and Achievements for Small and Disadvantaged Businesses, 

Fiscal Years 2000 to 2005 

2000 2001 2002 2003 2004a 2005a

Goals Actual Goals Actual Goals Actual Goals Actual Goals Goals

Small Business 

Prime 23.0% 21.4% 23.0% 20.5% 23.0% 21.2% 23.0% 22.4% 23.0% 23.0%

Subcontracting 41.0% 39.3% 41.0% 38.9% 40.0% 34.3% 40.0% 37.0% 42.0% 42.0%

Small Disadvantaged Businesses 

8(a) Prime 0.0% 2.6% 0.0% 2.2% 2.5% 1.4% 2.5% 3.3% 2.6% 2.6%

Non 8(a) SDB Prime 5.0% 2.9% 5.0% 3.3% 2.5% 4.5% 2.5% 3.0% 3.1% 3.1%

Total Prime 5.0% 5.6% 5.0% 5.5% 5.0% 6.0% 5.0% 6.3% 5.7% 5.7%

Subcontracting 5.0% 5.4% 5.0% 4.9% 5.0% 4.6% 5.0% 4.7% 5.0% 5.0%

Caption: Generally, DOD’s achievements came close to but did not meet its small business and SDB goals in fiscal years

2000 and 2003. However, DOD exceeded its non-8(a) SDB prime contracting goals in fiscal years 2002 through 2004. 

a Agencies' 2004 achievements are unavailable because of problems with a newly implemented data system. This report was

published before fiscal year 2005 ended. See General Services Administration, facsimile to U.S. Commission on Civil Rights, July 8, 

2005, p. 1. 

Source: Compiled by USCCR using U.S. Small Business Administration, "Government-wide Procurement Preference Goaling 

Program," no date, <http://www.sba.gov/GC/goals/> (last accessed June 1, 2005); DOD Interrogatory.

TABLE E.3 

Department of Transportation's Goals and Achievements for Small and Disadvantaged 

Businesses, Fiscal Years 2000 to 2005 

2000 2001 2002 2003 2004a 2005a

Goals Actual Goals Actual Goals Actual Goals Actual Goals Goals

Small Business 

Prime 32.0% 53.5% 32.0% 54.6% 50.0% 34.1% 50.0% 40.7% 47.7% 38.0%

Subcontracting 30.0% 52.4% 30.0% 57.8% 40.0% 21.1% 40.0% 65.3% 48.2% 48.2%

Small Disadvantaged Businesses 

8(a) Prime 11.5% 0.7% 11.5% 10.9% 4.8% 6.8% 4.8% 10.0% 10.3% 9.3%

Non 8(a) SDB Prime 3.0% 4.9% 3.0% 5.3% 4.8% 3.7% 4.8% 4.4% 7.3% 6.0%

Total Prime 14.5% 5.6% 14.5% 16.2% 9.5% 10.5% 9.5% 14.3% 17.6% 15.3%

Subcontracting 5.0% 7.8% 5.0% 8.0% 5.0% 2.7% 5.0% 29.8% 8.5% 8.5%

Caption: DOT exceeded its small business contracting goals in fiscal years 2000 and 2001; however, the department failed 

to meet its fiscal year 2002 through 2004 goals. In contrast, DOT’s SDB 8(a) and non 8(a) goals were unmet in fiscal years

2000 and 2001, but the agency achieved these goals in fiscal years 2002 and 2003. a Agencies' 2004 achievements are unavailable because of problems with a newly implemented data system. This report was

published before fiscal year 2005 ended. See General Services Administration, facsimile to U.S. Commission on Civil Rights, July 8,

2005, p. 1. 

Source: Compiled by USCCR using U.S. Small Business Administration, "Government-wide Procurement Preference Goaling 

Program," no date, <http://www.sba.gov/GC/goals/> (last accessed June 1, 2005). 
Dissent Appendix E 169

TABLE E.4 

Department of Energy's Goals and Achievements for Small and Disadvantaged Businesses, Fiscal 

Years 2000 to 2005 

2000 2001 2002 2003 2004a 2005a

Goals Actual Goals Actual Goals Actual Goals Actual Goals Goals

Small Business 

Prime 5.0% 3.0% 5.0% 2.9% 3.7% 3.1% 3.7% 4.1% 5.1% 5.5%

Subcontractingb 40.0% 48.0% 40.0% 47.5% 40.0% 49.4% 40.0% 48.2% 50.0% 50.0%

Small Disadvantaged Businesses 

8(a) Prime 1.0% 0.8% 1.0% 0.8% 2.5% 1.0% 2.5% 0.8% 2.2% 2.2%

Non 8(a) SDB Prime 0.3% 0.4% 0.3% 0.5% 2.5% 0.6% 2.5% 0.5% 1.0% 1.0%

Total Prime 1.3% 1.1% 1.3% 1.3% 5.0% 1.5% 5.0% 1.3% 3.2% 3.2%

Subcontracting 10.0% 9.6% 10.0% 10.0% 5.0% 8.5% 5.0% 7.9% 15.0% 15.0%

Caption: DOEn generally did not meet its small business prime contracting goals; however, it generally exceeded its 

subcontracting goals from fiscal year 2000 through fiscal year 2003. DOEn’s SDB 8(a) and non 8(a) goals were 

consistently unmet. a Agencies' 2004 achievements are unavailable because of problems with a newly implemented data system. This report was 

published before fiscal year 2005 ended. See General Services Administration, facsimile to U.S. Commission on Civil Rights, July

8, 2005, p. 1. 

b Department of Energy officials report different subcontracting goals and achievements--targets of 45.8 , 46.9, 47.0, and 48.0 

percent in fiscal years 2000 to 2003, and performance at 48.7, 47.3, 48.9, and 48.1 percent, respectively. The conclusion that the 

agency exceeded goals is the same with either set of numbers. See U.S. Department of Energy, Affected Agency Review of U.S. 

Commission on Civil Rights Draft Report, July 7, 2005, p. 1. 

Source: Compiled by USCCR using U.S. Small Business Administration, "Government-wide Procurement Preference Goaling 

Program," no date, <http://www.sba.gov/GC/goals/> (last accessed June 1, 2005). 

TABLE E.5 

Department of Housing and Urban Development's Goals and Achievements for Small and 

Disadvantaged Businesses, Fiscal Years 2000 to 2005 

2000 2001 2002 2003 2004a 2005a

Goals Actual Goals Actual Goals Actual Goals Actual Goals Goals

Small Business 

Prime 26.0% 40.7% 26.0% 35.7% 30.0% 38.0% 30.0% 54.0% 38.1% 38.1%

Subcontracting 47.0% -- 47.0% 54.4% 40.0% 55.5% 40.0% 60.7% 37.2% 37.2%

Small Disadvantaged Businesses 

8(a) Prime 6.0% 0.8% 6.0% 3.1% 5.5% 12.9% 5.5% 20.6% 6.1% 6.1%

Non 8(a) SDB Prime 2.0% 7.0% 2.0% 8.8% 5.5% 5.4% 5.5% 7.2% 7.1% 7.1%

Total Prime 8.0% 7.7% 8.0% 11.9% 11.0% 18.3% 11.0% 27.8% 13.2% 13.2%

Subcontracting 15.0% -- 15.0% 12.2% 5.0% 21.2% 5.0% 28.9% 10.0% 10.0%

Caption: From fiscal years 2000 through 2003, HUD usually met or exceeded its small business and SDB contracting 

goals. The agency vastly exceeded prime contracting goals in 2004. a Agencies' 2004 achievements are unavailable because of problems with a newly implemented data system. This report was 

published before fiscal year 2005 ended. See General Services Administration, facsimile to U.S. Commission on Civil Rights, July

8, 2005, p. 1. 

Source: Compiled by USCCR using U.S. Small Business Administration, "Government-wide Procurement Preference Goaling 

Program," no date, <http://www.sba.gov/GC/goals/> (last accessed June 1, 2005). 
170 Dissent Appendix E 

TABLE E.6 

Department of Education's Goals and Achievements for Small and Disadvantaged Businesses, 

Fiscal Years 2000 to 2005 

2000 2001 2002 2003 2004a 2005a

Goals Actual Goals Actual Goals Actual Goals Actual Goals Goals

Small Business 

Prime 23.5% 13.9% 23.5% 12.0% 23.0% 26.2% 23.0% 16.8% 23.0% 23.0%

Subcontracting 23.0% 12.1% 23.0% 28.7% 40.0% 26.4% 40.0% 33.4% 23.0% 23.0%

Small Disadvantaged Businesses 

8(a) Prime 4.0% 4.9% 4.0% 0.5% 2.5% 0.8% 2.5% 0.7% 4.0% 4.0%

Non 8(a) SDB Prime 1.0% 0.8% 1.0% 1.5% 2.5% 1.0% 2.5% 2.3% 1.0% 1.0%

Total Prime 5.0% 5.7% 5.0% 2.0% 5.0% 1.8% 5.0% 3.0% 5.0% 5.0%

Subcontracting 6.0% 2.6% 6.0% 3.8% 5.0% 4.3% 5.0% 6.8% 6.0% 6.0%

Caption: DOEd generally did not meet its small business goals from fiscal year 2000 through fiscal year 2004, except in

fiscal year 2002 when it exceeded its prime contracting goals, and in fiscal year 2001 when it exceeded its

subcontracting goals. DOEd’s SDB 8(a) and non 8(a) SDB goals were generally unmet. a Agencies' 2004 achievements are unavailable because of problems with a newly implemented data system. This report was

published before fiscal year 2005 ended. See General Services Administration, facsimile to U.S. Commission on Civil Rights, July

8, 2005, p. 1. 

Source: Compiled by USCCR using U.S. Small Business Administration, "Government-wide Procurement Preference Goaling 

Program," no date, <http://www.sba.gov/GC/goals/> (last accessed June 1, 2005). 

TABLE E.7 

Department of State's Goals and Achievements for Small and Disadvantaged Businesses, Fiscal 

Years 2000 to 2005 

2000 2001 2002 2003 2004a 2005a

Goals Actual Goals Actual Goals Actual Goals Actual Goals Goals

Small Business 

Prime 36.5% 42.5% 36.5% 38.6% 40.0% 47.1% 40.0% 48.2% 40.0% 40.0%

Subcontracting 40.0% 48.7% 40.0% 48.7% 40.0% 47.2% 40.0% 48.3% 40.0% 40.0%

Small Disadvantaged Businesses 

8(a) Prime 8.8% 14.5% 8.8% 8.0% 6.5% 13.7% 6.5% 11.9% 7.0% 7.0%

Non 8(a) SDB Prime 4.0% 7.8% 4.0% 9.9% 6.5% 7.8% 6.5% 9.1% 7.0% 7.0%

Total Prime 12.8% 22.3% 12.8% 17.9% 13.0% 21.4% 13.0% 21.0% 14.0% 14.0%

Subcontracting 5.0% 7.6% 5.0% 13.9% 5.0% 9.6% 5.0% 7.4% 5.0% 5.0%

Caption: DOS fairly consistently exceeded its small business and SDB contracting goals from fiscal year 2000 through 

fiscal year 2004; exceptions are fiscal years 2001 and 2004, when the agency failed to meet its 8(a) prime contracting

goals. 

a Agencies' 2004 achievements are unavailable because of problems with a newly implemented data system. This report was 

published before fiscal year 2005 ended. See General Services Administration, facsimile to U.S. Commission on Civil Rights, July

8, 2005, p. 1. 

Source: Compiled by USCCR using U.S. Small Business Administration, "Government-wide Procurement Preference Goaling 

Program," no date, <http://www.sba.gov/GC/goals/> (last accessed June 1, 2005).