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

DEPARTMENT OF JUSTICE

Response to Comments to Department of Justice Proposed Reforms to

Affirmative Action in Federal Procurement

AGENCY: Department of Justice.

ACTION: Notice.

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SUMMARY: On May 23, 1996, the Department of Justice published its

Proposed Reforms to Affirmative Action in Federal Procurement. 61 FR

26042. The Department reviewed over 1,000 comments. This report

discusses the observations and concerns most frequently expressed, and

describes the changes to the proposal that were made in response to

those comments. In addition, the Federal Acquisition Regulatory Council

is today publishing for comment proposed amendments to the Federal

Acquisition Regulation that will implement the contracting mechanisms

described in the Justice Department proposal.

FOR FURTHER INFORMATION CONTACT: Mark Gross, Civil Rights Division,

P.O. Box 66078, Washington, D.C. 20035-6078, telefax (202) 514-8490.

Introduction

On May 23, 1996, the Department of Justice published its Proposed

Reforms to Affirmative Action in Federal Procurement. 61 FR 26042.

These reforms will ensure that the use of affirmative action in federal

procurement complies with the strict scrutiny standard discussed in the

Supreme Court's decision in Adarand Constructors, Inc. v. Pena, 115 S.

Ct. 2097 (1995).

The Justice Department received more than 1,000 individual

responses to the proposal; many of those contained a number of

different and lengthy comments. We greatly appreciate the time and

effort so many individuals, companies, private organizations, and

government personnel from cities, states, and federal agencies, took to

respond to the proposal. The comments raised many of the difficult

issues that were considered during the preparation of the proposal, as

well as many new ones.

This report will not summarize all the comments that were received,

but rather, will discuss those observations and concerns most

frequently expressed. The report will identify the changes we have made

to the reform proposal both in response to the comments and as a result

of our continuing work on the proposal, and those issues that remain

under consideration.

The Federal Acquisition Regulatory Council is publishing today the

proposed amendments to the Federal Acquisition Regulation (FAR)

necessary to implement the proposed reforms, including procedures to

implement Section 7102 of the Federal Acquisition Streamlining Act

(FASA) and to further implement 10 U.S.C. 2323. These statutes permit

federal agencies to allow competitive advantages, including price and

evaluation credits, in awards involving small businesses owned and

controlled by socially and economically disadvantaged persons (SDBs).

The regulation explains how consideration of social and economic

disadvantage will be made in the contracting process. The Small

Business Administration (SBA) will be publishing regulations that

describe the new process by which firms can be determined to be SDBs.

I. Eligibility and Certification

A. Determination of Social and Economic Disadvantage

Many of the comments expressed concern that the proposal could

permit each federal agency to determine whether firms are owned and

operated by individuals who are socially and economically

disadvantaged. The primary concern was inconsistent decisions by

different agencies, leading to forum shopping, where firms would search

to find the agency with the most lenient standards. While that

possibility is less of a concern for persons who belong to minority

groups statutorily presumed to be socially and economically

disadvantaged,1 the

[[Page 25649]]

concern expressed in quite a few comments was that individual agency

determinations could lead to inconsistent results when persons who are

not members of ``presumed groups'' seek to be determined to be socially

and economically disadvantaged. The comments almost universally

suggested that determination of social and economic disadvantage be

made exclusively by the SBA, which already makes similar determinations

under the 8(a) program.

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\1\ Both FASA and 10 U.S.C. 2323 (which, in language similar to

that in FASA, permits the Department of Defense, NASA, and the Coast

Guard to use less than full and open competition in order to aid

SDBs) incorporate by explicit reference the definition of social and

economic disadvantage contained in Section 8(d) of the Small

Business Act. Pursuant to Section 8(d), members of designated groups

are presumed to be both socially and economically disadvantaged;

those presumptions are rebuttable. By contrast, under the separate

program established under Section 8(a) of the Small Business Act

(the 8(a) program), members of identified groups are rebuttably

presumed to be socially disadvantaged, but must establish that they

are economically disadvantaged.

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The proposal stated that while agencies could perform this function

themselves, it also stated that an agency might wish to assign this

responsibility to SBA. Consistency is a critical feature, and the SBA

is in the best position to ensure consistent application of standards

on social and economic disadvantage. As a result, the SBA has been

assigned responsibility for developing procedures and standards that

will govern federal determinations of social and economic disadvantage,

and will be assigned to do determinations of social and economic

disadvantage. A system will be developed that will ensure that SBA has

resources to support this effort.

B. Certification of Ownership and Control

A number of comments also questioned the proposal's decision to

rely on private, state and local organizations to make certifications

that a firm is owned and controlled by socially and economically

disadvantaged individuals. Those comments urged the government to

permit SBA to make that certification, noting that this approach would

be more efficient for SDBs. As stated in the original proposal,

however, there already is an exhaustive system of private, state and

local certifiers of ownership and control in place, and creation of a

federal structure to perform this process seems unnecessary and

wasteful.

C. Re-certifications

A number of comments stated that it was unnecessarily expensive to

require SDBs to provide updated certifications of ownership and control

every three years. The comments urged the government to permit SDBs

simply to update their certifications and to keep the certification for

a longer period, perhaps five years.

The interval between certifications will remain at three years. The

effort to meet strict scrutiny requires that the benefits of

affirmative action go only to those individuals and firms that truly

qualify for competitive advantages. One way is to ensure that firms

that are determined to be SDBs continue to be eligible for that status.

While annual updates will help that process, many firms undergo

significant changes within three years of operation. Recertification of

ownership and control every three years will help to ensure the

accuracy of the list of eligible SDBs, and thereby help to ensure that

the government's programs meet the standards of strict scrutiny. Every

effort has been made to balance the potential impact of the

certification process and the need to ensure the validity of the

certification.

D. Use of the Preponderance of the Evidence Standard for Social and

Economic Disadvantage of Individuals Who Do Not Qualify for a

Presumption of Disadvantage

As explained in the proposal, under FASA and 10 U.S.C. 2323 members

of designated minority groups seeking to participate in SDB programs

fall within the statutorily mandated presumption of social and economic

disadvantage established in Section 8(d) of the Small Business Act.

Individuals who do not fall within the statutory presumption can

qualify for SDB status by proving that the individuals who own and

control the firm are socially and economically disadvantaged. Under

current SBA practice for certifying individuals under the 8(a) program,

those individuals who are not members of presumed groups must prove

social and economic disadvantage by clear and convincing evidence. The

proposal would change that standard of proof to a preponderance of the

evidence.

Many comments urged us not to change the standard of proof.

Generally, the comments asserted that lowering the standard could

permit companies owned by individuals who are not truly socially and

economically disadvantaged to qualify as SDBs and to win contracts that

should go to legitimate SDBs. Those comments stated that the relatively

small number of federal procurement contracts that now go to firms

owned by minorities pursuant to affirmative action initiatives should

not be reduced by awards going to non-deserving firms owned by non-

minorities.

There is significant legal support for the use of the preponderance

of the evidence when an agency is determining what is essentially a

question of civil law. The Supreme Court has held that the

preponderance of the evidence standard is appropriate for most

inquiries made in civil litigation, including questions of

discrimination. Price Waterhouse v. Hopkins, 490 U.S. 228, 252-255, 261

(1989). See also Herman & MacLean v. Huddleston, 459 U.S. 375, 389-390

(1983), in which the Court indicated that the clear and convincing

evidence standard should be limited to those civil questions in which

``particularly important individual interests or rights are at stake,''

and cited as examples termination of parental rights, involuntary civil

commitment, and deportation. The SBA's inquiry as to social and

economic disadvantage is most comparable to the discrimination inquiry

in Price Waterhouse, which was subject to the preponderance of the

evidence standard.

Furthermore, changing the standard of proof should not permit

persons who are not truly socially and economically disadvantaged to

receive determinations of eligibility they do not deserve. The burden

of proof to show that one is socially and economically disadvantaged

remains with the applicant. Careful scrutiny of applications under

proper standards will result in rejection of undeserving applicants

that fail to prove to SBA that they are actually socially and

economically disadvantaged. The SBA will review these applications

rigorously to ensure that only truly deserving candidates are

determined to be SDBs.

Finally, some comments cautioned that if more non-minority firms

became SDBs as a result of the lower standard of proof, reporting all

SDB contracts as part of the utilization of minority firms will over-

state the number of contracts actually awarded to minority-owned firms.

In the event that occurs, the General Services Administration (GSA) and

other governmental agencies will explore methods to ensure that only

contracts that are awarded to minority-owned firms are reported as such

when the utilization figure is compiled and compared with the

benchmark.

E. Timing of Certifications

At least one inquiry asked whether an SDB needed to have its formal

determination of eligibility before it could respond to a solicitation

as an SDB, or whether it would be sufficient if the SDB had secured its

determination of eligibility by the time the contract actually was

awarded. A middle ground will be adopted.

Requiring all SDBs to have final determinations of eligibility in

hand before being able to respond in any way to a solicitation might

encourage firms to seek eligibility on the assumption

[[Page 25650]]

that they might want to use it at some point in the fiscal year. It is

clear that, at least at the beginning of this program, there will be a

large number of firms seeking to be eligible SDBs, and it is important

that people not be encouraged to seek that status if they are unsure

whether they would ever have occasion to use it.

The proposed regulation amending the FAR states that the

contracting officer will specify in the solicitation the date by which

each SDB must have official determination of eligibility. That date

will be early enough in the process to allow offerors a reasonable

opportunity, consistent with the needs of the procurement, to obtain a

determination of SDB status before the contract award process is

completed. The award of a contract will not be delayed to permit a firm

to secure SDB status after the date specified by the contracting

officer.

II. Benchmark Limits

A. Use of SMOBE Data

The proposal states that the system will rely primarily on Census

data to determine the capacity and availability of minority-owned

firms. A number of comments stated that the Census Department's SMOBE

(Survey of Minority-Owned Business Enterprise) data are incomplete. The

comments stated that SMOBE may not count certain types of corporations

and has other reporting problems. A number of comments stated that the

government should focus on those firms that are ``ready, willing and

able'' to participate in government contracting when determining

whether present methods of contracting unfairly exclude minority-owned

firms, and that SMOBE or other similar data may not accurately describe

the universe of such firms.

The Commerce Department has addressed a number of ways to fill in

information not contained in SMOBE, and is refining those data. The

Commerce Department has also been working to determine the appropriate

database, or combination of databases, to measure the availability and

capacity of existing minority-owned firms for purposes of establishing

the benchmark figure for minority capacity.

B. Use of Two-Digit SIC Codes

The proposal stated that benchmarks would be established in each

two-digit Standard Industrial Classification (SIC) code. A number of

comments asserted that two-digit SIC codes were too broad to be used

for this purpose. Some comments stated that the use of two-digit SIC

codes runs the risk of yielding an erroneous vision of a particular

industry. For example, one comment stated that where minority firms in

one four-digit SIC code within the larger two-digit classification were

very successful, the government might be receiving an erroneous

impression of the state of minority contracting in other activities

within that two-digit SIC code and assume incorrectly that minority

firms in those activities were successful.

The proposal used two-digit SIC codes for several reasons. First,

available Census data would not support capacity estimates at the four-

digit level. Second, were the necessary data available, it would be

extremely burdensome to implement benchmarks for all the four-digit

SICs in which federal contracting takes place.

However, a Department of Commerce analysis using the Federal

Procurement Data System indicates that 40 four-digit SIC codes

accounted for approximately 80% of dollars awarded under prime

contracts above $25,000 in FY 1995. Thus, a suitably expanded Survey of

Minority-Owned Business Enterprises could support future use of four-

digit SIC codes in these industrial activities.

C. Areas With Little Minority Availability and Capacity

Several comments stated that, by tying benchmarks to the existing

availability and capacity of minority-owned firms, the government could

be continuing to exclude minority-owned firms from industrial areas in

which they have had little success.

While the benchmark will be based in large part on the existing

capacity and availability of minority-owned firms, consideration will

also be given to the extent to which the effects of racial

discrimination have impeded the ability of minority individuals to

become entrepreneurs, and the ability of minority-owned firms to grow.

The consideration of the effects of discrimination, as applied in these

and other circumstances, may increase the benchmark beyond the

estimates of the present existence of minority-owned firms,

particularly in those areas in which there is little minority activity.

The Commerce Department is still working to develop the statistical

assessment of these effects of racial discrimination.

D. Exclusion of Small Firms From the Benchmarks

The proposal stated that we were considering, when establishing the

benchmarks, excluding those firms that are simply too small to have

competed for and won federal contracts. Several comments stated that

excluding such small firms would freeze the effects of discrimination

on those firms, as discrimination has limited the ability of many

minority firms to grow and compete for federal contracts.

This comment may be addressed in three ways. In particular

industries, it may be appropriate to forego any adjustments in

recognition that discrimination has suppressed firm size. In others,

the phenomenon may be addressed by the assessment of the effects of

racial discrimination on minority business development. And, finally,

as a practical matter, the Commerce Department, during its analysis of

benchmarks, has identified industrial areas in which very small firms

have won contracts, and so there may not be a reason to exclude any

firms when the benchmarks are calculated in some SIC codes. It is not

clear, at this time, whether there will be SIC codes in which federal

contracts or subcontracts are always so large that an exclusion of

small firms is appropriate. That determination will be made as final

benchmarks are established in all SIC codes.

E. Benchmarks Should Consider Discrimination by the Private Sector

A number of comments urged consideration of the fact that

discrimination has limited participation by minority-owned firms in the

private sector. Those comments stated that considering curtailing or

eliminating affirmative action when federal contracting has reached or

exceeded those benchmarks ignores the broad discrimination occurring in

the private sector.

The effects of private discrimination will be reflected in the

assessment of the extent to which discrimination has impeded the

development and growth of minority-owned firms. This factor will be

critical when the assessment is made in any SIC code to curtail or even

eliminate the use of price or evaluation credits. While affirmative

action in federal procurement is not a means to make up for

opportunities minority-owned firms may have lost in the private sector,

it is intended to ensure that federal procurement is a means for

minority-owned firms to secure full and fair treatment, which may well

translate into more success for those firms in private commercial

efforts.

F. Evidence of the Effects of Discrimination

The proposal stated that a statistical calculation representing the

effect discrimination has had on suppressing minority business

development and capacity would be made, and that

[[Page 25651]]

calculation would be factored into benchmarks. The Department of

Commerce continues to work to develop this calculation.

Regardless of the outcome of that statistical effort, the effects

of discrimination will be considered when utilization exceeds the

benchmark and it is necessary to determine whether race-conscious

measures in a particular SIC code should be curtailed or eliminated.

Before race-conscious action is decreased, consideration will be given

to the effects discrimination has had on minority business development

in that industrial area, and the need to consider race to address those

effects.

III. Interaction of Benchmarks and Mechanisms

A. Reservation of Contracts

The proposal stated that the authority to reserve contracts for

bidding by SDBs would not be invoked for at least two years after

implementation of the proposed system. The purpose of that waiting

period was to allow evidence to accumulate regarding the effectiveness

of the new system. The proposal contemplated that after two years the

system would be evaluated to consider whether reservation of contracts

might be appropriate if the system clearly was unable to remedy

persistent and substantial underutilization of minority firms in

particular industries resulting from past or present discrimination.

Numerous comments suggested that this two-year evaluation period

was too inflexible. While, as stated in the proposal, we believe that

the new system should make reservation of contracts unnecessary, we

also believe a modification of the proposal is appropriate. The

determination whether to consider reservation of contracts in any

industry should turn not on the lapse of any particular period of time,

but on the amount and strength of the evidence regarding the

effectiveness of the new system in that industry. Thus, where the

Department of Commerce, in consultation with the Department of Justice,

the General Services Administration, and the Small Business

Administration, finds substantial and persuasive evidence of (1) a

persistent and significant underutilization of minority firms in a

particular industry, attributable to past or present discrimination,

and (2) a demonstrated incapacity to alleviate the problem by using the

proposed system, then the agencies may be authorized to reserve

contracts. This is a rigorous standard, and contracts will not be

reserved until it is met.2

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\2\ This discussion does not apply to the 8(a) program, which,

as described in the proposal, has unique indicia of narrow

tailoring.

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B. Counting 8(a) Contracts Toward the Benchmark Limits

A number of comments asserted that the government should not

include contracts awarded pursuant to the SBA's 8(a) program when

determining the amount of money that has been awarded to minority-owned

firms in each SIC code. The reason, many asserted, was that the 8(a)

program is not based on racial considerations, but rather is a race-

neutral business development program. Therefore, the comments stated,

race should not be considered to have been a factor in the award of

those contracts. The comments also stated that, if achievement of a

benchmark is an indication that there is less of a need for affirmative

action programs, we should not count 8(a) contracts because those

developing firms are not fully competitive, and the award of an 8(a)

contract is not an indication that the minority-owned firm would fare

as well in open competition.

First, while the 8(a) program is a business development program,

the race of the owner of a firm is a factor in the manner in which a

firm may become certified as eligible for an 8(a) contract. Therefore,

8(a) is not an entirely ``race-neutral'' program. Second, and more

importantly, these comments may reflect a misunderstanding of the

assessment that will be made at the end of each fiscal year. As

explained in the proposal, the benchmark figure will represent the

extent to which the government would expect contract dollars in

particular industrial activities to be awarded to minority-owned firms

in the absence of discrimination or its effects. The reason to measure

the extent to which minority-owned firms have received federal

contracts is to determine whether race-conscious programs, like price

or evaluation credits, continue to be needed to ensure that firms owned

by minorities have a fair opportunity to compete for and win federal

contracts.

This assessment must count all contracts awarded to minority-owned

firms, whether through race-conscious programs or through free and open

competition. Only by determining the extent of minority participation

in contracting, and then by determining whether that participation has

been achieved through full and open competition, race-conscious action

programs, or by a combination of the two, can we determine whether

race-conscious programs continue to be needed in that SIC code.

Therefore, when a contract is awarded to a minority-owned firm through

the 8(a) program, it must be counted towards the benchmark. It must be

counted simply because the firm that was awarded the contract is owned

and operated by a minority individual or individuals.

This does not mean, however, that the fact that the contract was

awarded pursuant to the 8(a) program is irrelevant to the question

whether the use of race-conscious action in a particular SIC code

should continue, be curtailed, or even be eliminated. If the amount of

federal contract money awarded to minority-owned firms in a particular

SIC code exceeds the benchmark, the determination of the extent to

which race-conscious measures may be permissible in the next year will

consider how the awards were made. If the benchmark is significantly

exceeded in an SIC code, but a large percentage of minority contracts

would not have been awarded to minority-owned firms without the use of

8(a) and/or price or evaluation credits, that might indicate that the

use of price credits, or even of the 8(a) program, should be cut back,

but not eliminated.

Accordingly, the fact that an award made to a minority-owned firm

pursuant to 8(a) is counted towards the benchmark does not ignore the

purposes of the 8(a) program. The proposal contemplates continued use

of the 8(a) program as an effective means to develop small socially and

economically disadvantaged businesses.

C. Counting Subcontracts Awarded Pursuant to a Prime Contractor's

Subcontracting Plan Toward the Benchmark

Other comments raised a similar point; subcontracts awarded to

minority-owned firms should not count toward the benchmarks if they

were awarded pursuant to the subcontracting plan that Section 8(d) of

the Small Business Act requires of prime contractors. The comments

stated that they should not be counted because race is not a factor in

the award of the subcontract. For the same reasons that contracts

awarded to minority-owned firms pursuant to 8(a) must be counted toward

the benchmark, subcontracts to minority-owned firms--whether awarded

through race-based measures or direct competition--must be counted as

well.

[[Page 25652]]

D. When Achievement of the Benchmark in an SIC Code Will Result in

Curtailment or Elimination of Race-Conscious Action in that SIC Code

A number of comments requested clarification of precisely when

achievement of a benchmark would result in curtailment or elimination

of affirmative action measures. Some of these comments suggested a

misunderstanding of the proposal.

Achievement of a benchmark in a particular SIC code does not

automatically mean that race-conscious programs, or the use of 8(a)

contracts, will be eliminated in that SIC code. The purpose of

comparing utilization of minority-owned firms to the benchmark is to

ascertain when the effects of discrimination have been overcome and

minority-owned firms can compete equally without the use of race-

conscious programs. Full utilization of minority-owned firms in an SIC

code may well depend on continued use of race-conscious programs like

price or evaluation credits. Where utilization exceeds the benchmark,

the Office of Federal Procurement Policy (OFPP) may authorize the

reduction or elimination of the level of price or evaluation credits,

but only after analysis has projected the effect of such action.

E. Ensuring That Prime Contractors Actually Use SDB Subcontractors

A few comments asserted that many non-minority prime contractors

commit to use SDBs as subcontractors in order to be awarded a prime

contract, but do not actually use the SDBs, or use SDBs to a lesser

extent than proposed.

The proposal addresses this problem in a number of ways. First, the

extent of an evaluation credit given to a prime contractor increases as

the commitment to SDBs becomes more firm. Prime contractors who present

written, enforceable subcontracting commitments to specific SDBs will

receive more consideration in an evaluation context than those who

simply promise to find SDBs as subcontractors during the course of the

contract. The more enforceable the commitment to SDBs, the higher the

evaluation credit. Second, the extent to which a prime contractor has

honored a commitment to subcontract to SDBs may be a factor when the

prime contractor bids on a subsequent contract.

Some comments stated that it would be very difficult for prime

contractors to assign an SIC code to subcontracting opportunities at

the bidding stage. The proposal has a provision that will significantly

ease the administrative burden of reporting subcontracting. The prime

contractor may report subcontracts based on the predominant SIC code of

the subcontractor. The subcontracting firm need only report to the

prime contractor the SIC code in which it does most of its work, and

the prime may then report that SIC code for purposes of reporting

subcontracting.

Several comments stated that it would be a hardship for prime

contractors to help secure determinations of eligibility for those SDBs

it will use as subcontractors. These comments may reflect a

misunderstanding of the proposal. No prime contractor is responsible

for issuing determinations of eligibility, or for helping to establish

the eligibility of an SDB it proposes to use as a subcontractor. That

is the responsibility of the SDB. In order to receive a price or

evaluation credit based on subcontracting, however, the prime

contractor must demonstrate that its commitment is to eligible SDBs.

The prime, therefore, while not involved in the process of determining

or securing determinations of eligibility for SDBs, must ensure that

when it submits a bid that seeks a price or evaluation credit based on

subcontracting to SDBs, the firms it identifies as SDBs have been

determined eligible.

Finally, a number of comments urged the government to use mentor-

protege programs aggressively. The proposal mentions mentor-protege

programs as one of the outreach and technical assistance programs the

government seeks to use to increase participation of SDBs in federal

contracting. Mentor-protege programs have been an effective way of

increasing participation of minority-owned firms in federal

contracting, and we are hopeful that such programs will continue.

F. Joint Ventures

A number of comments stated that joint ventures of non-minority and

minority-owned firms provide the minority-owned firm an opportunity to

secure a share of federal contracts. Under the proposed amendments to

the FAR, joint ventures will be eligible for price credits.

G. Contracts for Commercial Items

Several comments noted that it would be very difficult to assess or

evaluate subcontracting opportunities under contracts for commercial

items. While there are difficulties, commercial items are covered.

IV. Miscellaneous Comments

A. Funding of the 7(j) Program

Many comments expressed a concern that while the proposal relies

significantly on the SBA's 7(j) program that provides technical and

management assistance to qualifying individuals, Congress has not

funded that program. That concern is legitimate, and the Administration

is exploring measures to keep the program viable.

B. Women-Owned Firms

A number of comments expressed concern that the government appeared

to give no consideration in this proposal to firms owned and operated

by women, despite the fact that many women entrepreneurs had endured

the effects of discrimination similar to that suffered by minorities.

Some portions of the proposal, such as the lowering of the standard

of proof for non-minority firms as SDBs to preponderance of the

evidence, could affect women-owned firms. Plainly, the portions of the

proposal that address the manner in which race-conscious measures are

permissible do not address women-owned firms not owned by minorities.

The proposal concentrates on firms owned and operated by minorities

because the regulation will implement Section 7102 of FASA and 10

U.S.C. 2323, and those statutes do not authorize affirmative action for

women. Section 7102 permits the federal government to take affirmative

action, including granting price and evaluation credits, for ``small

business concerns owned and controlled by socially and economically

disadvantaged individuals * * *.'' That provision refers to subsection

(d)(3)(C) of Section 8 of the Small Business Act (15 U.S.C. 637), which

in turn defines social disadvantage in terms of ``racial or ethnic

prejudice or cultural bias.'' Women are not so designated, and

therefore these portions of the proposal are limited to implementing

affirmative action for the minority groups designated under FASA.

While women-owned firms, per se, are not eligible for the price and

evaluation credit program enacted by FASA or 10 U.S.C. 2323, there are

other avenues by which the federal government tries to ensure that

women-owned firms have an equal opportunity to compete for and win

federal contract dollars. The Small Business Act requires agencies to

set annual goals for participation in contracting by women-owned firms.

Women-owned firms may be certified under the 8(a) program by

demonstrating to the SBA that the firm is owned and operated by a woman

or women, and that the individual women who operate the firm have

suffered social and economic disadvantage similar to that suffered by

members of minority groups. The Adarand decision

[[Page 25653]]

applies strict scrutiny to actions of the federal government that use

race. Actions taken with respect to gender, however, are scrutinized by

a lesser standard of review, and thus the same requirements we propose

to ensure that race-conscious programs are narrowly tailored should not

necessarily also apply to programs for women.

C. Compelling Interest for the Use of Race-Conscious Measures

A few comments questioned the federal government's ability to use

race-conscious action in procurement. Those comments stated that there

was an insufficient record of discrimination by the government in

procurement to support race-conscious activity.

When the proposal was published in the Federal Register, it was

accompanied by an appendix titled ``The Compelling Interest for

Affirmative Action in Federal Procurement: A Preliminary Survey.'' 61

FR 26050. That report documented the effects public and private

discrimination has had on business formation and development, and the

way discrimination has hindered the ability of minority-owned firms to

compete for and win federal contracts. The report demonstrated that

race-conscious means are still necessary to ensure that minority-owned

firms have the ability to compete fairly for federal procurement

dollars.

Subsequently, the Urban Institute published ``Do Minority-Owned

Businesses Get A Fair Share Of Government Contracts,'' its survey of

the results of numerous state and local disparity studies. The Urban

Institute found generally that ``minority-owned businesses receive far

fewer government contract dollars than would be expected based on their

availability,'' and made extensive findings similar to those published

in the Federal Register. The appendix to the procurement reform

proposal, and the Urban Institute's study, demonstrated that a

compelling interest warranting race-conscious efforts in federal

procurement remains.

Mark L. Gross,

Deputy Chief, Appellate Section, Civil Rights Division.

[FR Doc. 97-12190 Filed 5-8-97; 8:45 am]

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