Minority Biz Funding Law Loses Appeal in Federal Court

Article excerpt

A federal appeals court has held unconstitutional a law that calls for 5 percent of federal defense contracting dollars each year to be awarded to minority-owned small businesses, saying the statute was not based upon sufficiently strong evidence of discrimination.

The U.S. Circuit Court of Appeals for the Federal Circuit also directed a lower court to enjoin enforcement of the law.

Phil Busey, chairman and CEO of the Busey Group in Oklahoma City, said the ruling causes him some concern.

"I think it's important that they maintain a level playing field for small business," he said. "It's tough enough as it is to compete with large businesses."

Often, he said, the only reason a larger firm would use a small business to help fulfill a contract is because of such set-aside provisions.

Busey said there have been set-asides for many years.

"It's kind of disturbing, why they would find that unconstitutional," he said.

Busey said that 45 percent of U.S. workers are employed by small businesses.

The Busey Group provides a variety of program-management and business-related services, including government contracting.

The federal law actually refers to small businesses owned by socially and economically disadvantaged individuals, but incorporates a presumption in the federal Small Business Act that members of certain minority groups are socially disadvantaged.

The law was challenged in 1998 on equal protection grounds by Rothe Development Corp., a Texas business owned by a white woman, which submitted the lowest bid of $5.57 million on a computer system contract with the U.S. Air Force. International Computer and Telecommunications, a company owned by a Korean-American couple, submitted a bit of $5.75 million, which was accepted.

In implementing the law, the U.S. Department of Defense established a "price evaluation adjustment" or PEA, of 10 percent, which when applied to Rothe's bid, effectively increased it to $6.1 million before comparing it to the competing company's bid.

The PEA has been suspended since 1998, because the Defense Department has met the 5-percent goal each year since then.

According to The Associated Press, last year minority-owned firms received $15 billion in defense contracts, or about 5. …