At Risk The 8(a) program faces an uncertain future.

The 8(a) program faces an uncertain future.

Political and legal threats loom over the Small BusinessAdministration's 8(a) minority set-aside program, whichprovided 6,625 new contracts and more than 25,000 contractmodifications totaling $5.82 billion to small minority businessesin fiscal 1995. California's passage of the anti-affirmativeaction Proposition 209 and the Supreme Court's June 1995decision in Adarand v. Peña possibly invalidatinggovernment agencies' racial classifications make it more thanlikely Congress will attempt to redraw the SBA program as part of abroader effort to make federal laws more color- andethnicity-blind.

Rep. Charles Canady (R-FL) will reintroduce the bill hesponsored last session, which ends racial and gender preferencesfor federal programs. Last session, only Republicans publiclysupported the Dole-Canady bill. But a Canady aide says someDemocrats were also on board, if silently. "There will beDemocratic support for something in this direction," hemaintains.

It is uncertain whether anyone will introduce a narrower bill onthe 8(a) program, as Rep. Jan Meyers (R-KS), the retired chair ofthe House Small Business Committee, did in 1996, to no avail. Butthe Clinton administration will fight any major reform efforts."There is no need for drastic change," says SBA spokesmanD.J. Caulfield, who notes that while the Justice Department isconsidering changes to federal programs in the wake ofAdarand, none are expected to significantly affect 8(a).

The Beginnings

President Richard Nixon started the 8(a) program in response toconclusions made by the Kerner Commission on Civil Disorder, whichmet in 1967 after urban riots resulting from racial unrest. Thecommission said blacks needed "special encouragement" toenter the economic mainstream. The program initially was reservedfor the socially or economically disadvantaged; those terms werenot defined. But in 1973, the SBA listed five groups"presumed" to fit that category: African Americans,American Indians, Spanish Americans, Asian Americans and PuertoRicans. Today, a long list of ethnic groups are presumedeligible.

The 8(a) program is envisioned as a starter program for minoritybusinesses (companies must leave the program after nine years).Many minority firms have used the 8(a) program to boost themselvesup, eventually leaving the program to thrive. Steven Farinha,president of Farinha Inc., dba Paragon Construction, in Auburn,California, founded his company in 1983 "with a pickup truck,a dog and $500." He was certified by the 8(a) program in 1989and received his first contract two years later. The company nowemploys 100 people and does about

$17 million a year. "I cannot stress enough how essential the8(a) program has been to my success," Farinha says. Some 35percent of his company's revenue comes from 8(a) contracts.

Court Challenges

Since 1989, federal courts have issued decisions questioning thelegality of local, state and federal procurement set-asideprograms. In City of Richmond v. Croson, the Supreme Courtruled racially oriented policies could be maintained by states andlocalities only if there was concrete evidence of discrimination.In the six years since, federal courts, using Croson as aguideline, have struck down several state and local set-asideprograms.

In 1995, the Supreme Court applied that same reasoning tofederal programs in Adarand v. Peña, which dealt with aset-aside contract from the U.S. Department of Transportation. Thejudgment stated that "all racial classifications" bygovernment agencies are "inherently suspect and presumptivelyinvalid." A federal district court in Colorado is stillreconciling the facts in that case.

Michael A. Carvin, a Washington, DC, attorney with Cooper &Carvin PLLC who worked on procurement set-aside cases in the ReaganJustice Department, says it is unlikely the final Colorado federalcourt ruling in Adarand will force the Clintonadministration to pull the plug on 8(a). However, he says,"all federal set-aside programs, particularly 8(a), arevulnerable under Adarand."

George R. La Noue, a professor of political science at theUniversity of Maryland, Baltimore County, graduate school anddirector of its Project on Civil Rights and Public Contracts, hastestified nationwide in court cases on government set-asides. Hefeels the affirmative action policy changes being considered by theJustice Department in the wake of Adarand are insufficient.In fact, he argues, there probably is no way to save 8(a) becausethe Supreme Court requires proven discrimination by a federalagency before that agency can set aside contracts for an ethnic orracial group.

Political Perils

The near-term threat to 8(a) is probably more political thanlegal. Rep. Canady's aide says exit polls showed substantialDemocratic support for California Proposition 209, which passed bya vote of 54 percent to 46 percent. It's too early to tellwhether Democrats in Congress will support either a Canady bill ora narrower bill targeting only 8(a).

One of the wild cards here is working women, a criticalcomponent in Clinton's election. White women are not presumedto be eligible for 8(a); they must first prove they have beendiscriminated against. That is a hard case to make. Only nine whitewomen have succeeded in proving discrimination and been acceptedinto the program thus far.

One of them, Shirley A. Stewart Veal, president of SAS GeneralConstruction Contractor, a construction firm in Herndon, Virginia,says she has received no help from the SBA since qualifying for8(a) in 1992. "It seems to me the real issue here is notwhether the program will work for me but why the program officersat the Small Business Administration seem determined not to helpme," she says.

Another factor contributing to anti-8(a) sentiment is a stringof General Accounting Office studies underlining the program'sinadequacies. For example, 50 out of the 6,002 companies certifiedby the SBA have in recent years received 25 percent of totalcontracts awarded. The SBA Inspector General said in 1995 that 32of the top 50 firms exceeded their respective industries'averages for five performance factors. The SBA subsequently setrequirements for its field staff to consider graduation for anyfirm that exceeded three of those five criteria. But a February1996 review by the SBA found its field staff was flummoxed by themandate.

You don't have to look far to find aspects of 8(a) worthmending. But is the program so full of holes it should be tossedout? The sewing kit is in the hands of Congress and the SupremeCourt.

Stephen Barlas is a freelance business reporter who writesmonthly Washington columns for 15 magazines.

Contact Sources

Cooper & Carvin PLLC, 2000 K St. N.W., #400,Washington, DC 20006, (202) 822-8950;

Farinha Inc., dba Paragon Construction, 12405 LocksleyLn., Auburn, CA 95602, (916) 823-6775;

The Project on Civil Rights and Public Contracts,University of Maryland, Baltimore County, 1000 Hilltop, Baltimore,MD 21250, (410) 455-2180;

SAS General Construction Contractor, 1601 Society Ct.,Herndon, VA 20172-1969, (703) 471-1450;