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Decision in Defense procurement case could set precedent

By Elizabeth Newell enewell@govexec.com November 11, 2008

Last week's federal court decision overturning the law that established a 5 percent goal for awarding defense contracts to socially and economically disadvantaged small businesses could affect other minority contracting programs, procurement observers said on Tuesday.

The ruling by the U.S. Court of Appeals in Rothe Development Corp. v. Department of Defense and Department of the Air Force stated that the government did not have sufficient evidence of "pervasive, nationwide racial discrimination" by Defense to justify a race-based contracting preference program. Procurement and legal analysts argued that the rationale could be applied to minority contracting programs and the women's procurement program governmentwide.

"The decision itself is limited, but I definitely think there will be future cases that quote this case as precedent where they try to make the argument that it applies in a broader way," said Robert Burton, former deputy administrator of the Office of Federal Procurement Policy and now a partner at the Washington law firm Venable. "I think it's pretty clear the case will be cited as precedent for striking down other preference categories."

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While the Rothe case applies specifically to the small disadvantaged business program at Defense, it is a short leap to the nearly identical, and also race-based, governmentwide contracting portion of the federal 8(a) program. Guy Timberlake, chief executive officer of the American Small Business Coalition, said while the decision was not a direct hit on the 8(a) program or minority contracting programs outside of Defense, he recognized that it paves a clear path to future challenges.

Joe Hornyak, a partner in Holland & Knight's government contracts group, said that now he would expect a challenge of the 8(a) program to incorporate the reasoning from the Rothe opinion and, therefore, to yield a similar decision.

"The 8(a) program is not dead yet but this decision, if allowed to stand, could really have an impact on the 8(a) program should another contractor try a similar challenge," Hornyak said. "If the same court were reviewing the 8(a) program ... and following the same reasoning, will they uphold the program or strike it down? I frankly think they'd have to strike it down."

Hornyak noted, however, that further challenges based on the Rothe case will take months or years to wind their way through the court system. Timberlake urged concerned small businesses not to panic.

"One of the things we're trying to do right now is damage control, trying to prevent people from freaking out right now," Timberlake said. "This only impacts the [Defense] program specific for small disadvantaged business at this point. There's a lot of knee-jerk paranoia happening already."

Defense, the Small Business Administration and Congress so far are mum on how they will handle the decision, but they have several options. One would be to follow the process used during the last few years to establish the women's procurement program. While SBA and the Justice Department have been accused of foot-dragging on the program, they have tried to ensure it would stand up to constitutional challenge by commissioning disparity studies to determine the industries in which women are underrepresented.

"The court probably would have ruled differently if there had been that kind of evidence, so those types of studies would be very helpful in trying to justify future set-asides," Burton said.

While Defense ultimately is responsible for dealing with the decision's implications, SBA and Justice have said they are reviewing the case, and lawmakers will have to determine the best way to salvage the contracting goals they have long mandated.

"I believe, especially since we have a Democratic administration and a heavily Democratic Congress, or will soon, that you will see them appeal this to the Supreme Court or go back and try to follow in the reasoning of this decision and provide evidence to support other programs," Hornyak said. "I don't think they'll throw up their hands and say it's dead ... [that] minority contracting in general is dead."

Burton said he sees no way in which all agencies, and the Federal Acquisition Regulation Council, can avoid addressing this decision. "Whatever [Defense] does in reaction to this case, I would think the government would want to apply that very quickly to avoid related litigation," he said.

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COMMENTS

  • Thanks to Rothe, pressure has been exerted on the bureaucracy to finally take action on a problem which has existed for a decade. Special interests have been unfairly attacking the statutes of P.L. 95-507 by citing ‘race, ethnicity or gender,’ when such references were never the primary basis for the statutes in the first place. Granted, discrimination continues to exist and affect disadvantaged groups, however, the main purpose behind the SDB program was to end the unfair monopoly large businesses have enjoyed, for decades, over government contracting and to allow groups which have been economically underserved, the opportunity to fairly compete for government contracts. The basis for the P.L. 95-507 statutes is to give ‘maximum practicable utilization’ (MPU) to groups which had been and continue to be economically underserved and often ignored for countless reasons. These groups desperately need academic led research with which to update the old data which led to the passing of P.L. 95-507. This data – purposely or not – was never kept up-to-date. The Fairness in Procurement Alliance Think tank at The University of North Florida (UNF) had proposed to the SBA – as far back as 2007 – for their support in conducting the disparity study which would lead to a new ‘dataset.’ Also for the establishment of a ‘Clearinghouse’ so that this valuable information could be used by States and municipalities whose procurement programs - to serve ‘disadvantaged groups’ - would be properly protected against unfair attempts by special interests. Those who have followed the FPA efforts will know that we have helped demonstrate – through cases and examples - how the bureaucracy and Government Regulators – by their culture - have abused our statutory rights. Let’s all thank Congress for their foresight when they established the SDB program in the first place. Raul Espinosa, Founder Fairness in Procurement Alliance (FPA) Raul Espinosa Posted January 15, 2009 8:21 AM
  • In my opinion, the fallout from this decision will not be major unless the Office of Management and Budget (OMB), the Office of Federal Procurement Policy (OFPP)and the Small usiness Administration (SBA) decide to make it a major issue by providing the federal contracting community confusing guidance on how to proceed with their small and disadvantaged procurement policies. The 8a) business development program has withstood more significant challenges in the past and has weathered the storm. I am confident it will do so again. However, the more important issue here is that the time has arrived to think more strategically and get rid of all socially disadvantaged criteria in the small business procurement programs and have only an economically disadvantaged criteria that will apply to all small businesses and to all federal small business programs. In this way OMB, OFPP, SBA and the federal agencies can concentrate on contracting more dollars with the small business community and maybe, just maybe.. in 10 years we will all be looking at 50% federal contracting awards to the small business community. Just think of the impact on job creation and the economy if just 5% more is awarded to the small business community each year for the next five years...WOW!... That would be economic growth worth seeing. Another issue that needs to be addressed is that the small, minority, women-owned and service disadbaled veterans and other trade associations also need to start raising this issue at the national and state levels so their Congressional representatives will eliminate the social disadvantaged criteria and establish a simple straighforward economic disadvantaged status. Joe Capuano/Small Business Advocate Posted November 14, 2008 10:06 AM
  • Personally I'm glad that the era of set asides and quotas is ending. The quotas cost the taxpayer $$ since as long as they were within 5% of the low bid they won. Those that think this was a great idea should keep that in mind the next time that they go to the grocery store, why not a special 5% surcharge to help minority farmers an packagers, wonder how many will be willing to pay it. I can guarantee that Darlene and AW wouldn't dan ketter Posted November 13, 2008 11:30 AM
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