Rensselaer Small Business Procurement Services - Small Business Administration

About the Small Business Administration (SBA)

The Small Business Administration is the leading advocate for insuring that small businesses can fairly and equitably participate in the Federal procurement process. Where applicable, in determining whether a firm qualifies for certification, the SBA will consider the totality of the circumstances experienced by the individual that owns and controls the firm.

The Small Business Administration will also consider the extent to which a disadvantaged individual’s ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities. The SDB is one of several programs implemented to reform affirmative action that the SBA intends to judiciously implement these goals and objectives.

SDB OVERVIEW

In keeping with former President Clinton’s directive, the Small Business Administration (SBA) implemented the Small Disadvantaged Business (SDB) Program to provide equity in contracting with small business concerns, including small businesses owned and controlled by individual(s) determined to be socially and economically disadvantaged. The program certifies small business concerns that meet specific social, economic, ownership, and control eligibility criteria as Small Disadvantaged Businesses.

In the Adarand Contractors, Inc. vs. Pena case, the Supreme Court extended strict judicial scrutiny to Federal affirmative action programs that use racial or ethnic criteria as a basis for decision making. Under strict scrutiny, any Federal program that makes race a basis for contract decision making must be narrowly tailored to serve a compelling Government interest.

THE SUPREME COURT’S ADARAND DECISION AND PERTINENT CASE LAW

Impact of Adarand: Who is affected?

Small Disadvantaged Businesses (SDB’s)
Other Small Businesses (indirectly)
Large Business Prime Contractors
The impact is so profound, it will affect all of the above

Adarand Lawsuit - Background

1989 - A Dept. of Transportation (DOT) highway project in Colorado is awarded to a company by the name of Mountain Gravel and Construction Company.
Mountain Gravel solicits bids for a subcontract for guard rails.
The lowest bid is submitted by a company called Adarand Constructors, Inc.
Although Adarand’s bid was the lowest, Mountain Gravel decides to award the subcontract to a minority firm (Gonzales Construction) with a higher bid in order to qualify for a bonus in its contract for using minority firms as subcontractors.
Adarand files a lawsuit against DOT, arguing that the bonus, or subcontracting incentive clause, that caused it to lose a subcontract, was unconstitutional.
Lower courts rule in favor of DOT.
Adarand takes its case to the Supreme Court.
January 1995 - Adarand’s lawyers argue their case before the Supreme Court.
The case is docketed as Adarand Constructors, Inc. v. Federico Pena, Secretary of Transportation, et al., and becomes known as "Adarand."
June 1995 - the Supreme Court remands the case to the lower court for application of "Strict Scrutiny."
June 1997 - U.S. District Court, Colorado, finds the subcontracting compensation clause as used by DOT on Federal contracts in the state of Colorado unconstitutional.

STRICT SCRUTINY

There is a compelling government interest (as demonstrated by past discrimination); and
The remedy is narrowly tailored to achieve that interest.

ANALYSIS OF ADARAND

Question: Are the use of racial classifications in Federal affirmative action programs constitutional?
Answer: Only if they meet the test of strict scrutiny. Concept of strict scrutiny applies to Federal programs as well as to those of state and local programs.
Detailed statistical disparity studies are required to justify the continued use of race-based preferences.

DEPARTMENT OF JUSTICE PROPOSAL

In 1995, President Clinton orders the Dept. of Justice to begin a review of all Federal affirmative actions programs;
In May 1996, Justice publishes a comprehensive proposal for reform of affirmative action in Federal procurement.
Strict Scrutiny requires that the Government (the Dept. of Commerce) develop "benchmark limitations" for each industry.
For this purpose, industries should be defined by two-digit SIC codes.
Each benchmark limitation will represent the level of minority contracting one would reasonably expect to find in a market absent discrimination or its effects.
Benchmarks should be adjusted every five years. Then, each year the Department of Commerce will determine in which industries minority contracting continues to fall below the benchmark and, after consultation with SBA, advise OFPP.
OFPP will then announce in which two-digit SIC Codes preferences will be allowed and how large (up to 10%) they may be.

WHY THE PROGRAM EXISTS

The program is designed to ensure compliance with the constitutional standards established by the Supreme Court in Adarand. lady

Certified SDB concerns seeking to obtain contracts from Federal government agencies are eligible to participate in procurements in which price and evaluation credits will be offered. The program is designed to ensure price adjustments are narrowly tailored to remedy discrimination.

In general, the SDB Program is a procurement tool to assist the government in finding firms capable of providing needed services, while at the same time, helping to address the traditional exclusion of minority owned firms from contracting opportunities. A series of benchmarks by the Department of Commerce will identify those industries in which small, disadvantaged businesses will receive price credits. Credits will be available only in industries that show the ongoing effects of discrimination. The benchmark system ties affirmative action to objective data demonstrating that small, disadvantaged firms in particular industries have been harmed by discrimination.

ELIGIBLE REQUIREMENTS

Must be US Citizen
A Small Disadvantaged Business
- which qualifies as small under Chapter 13, Code of Federal Regulation (CFR) Part 121 for the size standard corresponding to the applicable four digit Standard Industrial Classification (SIC) code;
- which is at least 51% unconditionally owned by one or more socially and economically disadvantaged individual(s) as defined by CFR 124.105 For tribes and Alaska Native Corporations (ANCs), Native Hawaiian Organizations (NHOs), and Community Development Corporations (CDCs), see 124.109, 124.110, and 124.111, respectively;
- whose management and daily business operations are controlled by one or more socially and economically disadvantaged individual(s). For tribes and ANCs, NHOs, and CDCs see 124.109, 124.110, and 124.111 respectively; and
- which for procurement preferences relating to Department of Defense, National Aeronautics & Space Administration and the Coast Guard only, has the majority of its earnings accruing directly to the socially and economically disadvantaged individual(s).

THE BENEFITS

A price evaluation adjustment of up to 10 percent is a key benefit. This price evaluation would be mandatory for those authorized competitive procurements to which it applied. The Administrator for the office of Federal Procurement Policy will publish on an annual basis, the authorized SDB procurement mechanisms and applicable factors (percentages). All Federal agencies will apply the procurement mechanisms determined by the Department of Commerce.
A source selection evaluation factor or sub factor for planned small disadvantaged participation, primarily at the subcontract level, in the performance of a contract in the SIC Major Groups as authorized by the administrator of the Office of Federal Procurement Policy. This evaluation factor or sub factor would be used in competitive, negotiated acquisitions expected to exceed $500,000 ($1,000,000 for construction).
A monetary incentive for prime contractors to subcontract with small disadvantaged businesses is another benefit. Contracts resulting from solicitations in which Small Disadvantaged Business participation is evaluated may provide for a monetary payment to those prime contractors that exceed specified targets for Small Disadvantaged Business participation is evaluated may provide for a monetary payment to those prime contractors that exceed specified targets for Small Disadvantaged Business participation as subcontractors in the SIC Major Groups.
The Federal Acquisition Regulation also has a requirement to evaluate the past performance of offerors in complying with targets for SDB participation and subcontracting plan goals for SDBs whenever past performance is to be evaluated.

EFFECTIVE DATES

August 24, 1998	SBA began accepting and processing applications for SDB Certification
October 1, 1998	Small Disadvantaged Businesses are eligible for a price evaluation adjustment up to 10 percent. SBA begins processing protests on disadvantaged status o a concern. Interim policies, provisions and clauses regarding this program are effective for all solicitations issued after this date.
January 1, 1999	Prime contractors will be eligible to receive a monetary incentive for subcontracting with small disadvantaged businesses. A source selection evaluation factor or sub factor for planned SDB participation will be implemented.
October 1, 1999	Reliance on SDB self-certification ends. Firms must be formally certified by the SBA to receive program benefits.

ADDITIONAL INFORMATION

Consistent with the President’s long-standing commitment to equal opportunity in federal contracting, the Administration’s new affirmative action procurement regulations meet the test set out by the Supreme Court in its 1995 decision in Adarand Constructors, Inc. v. Pena, 115 S. Ct. 2097 (1995).

The new regulations provide new procurement preferences for small disadvantaged business (SDBs), including a price evaluation adjustment up to 10 percent for SDBs bidding as prime contractors. Lady

The preferences for the use of SDBs as subcontractors are contained in a new section of the regulation called the SDB Participation Program.

The SDB preferences will apply to many Federal procurements but not all, and they will be allowed only in industries in which SDBs ate under utilized. Eligible industries will be determined by the Department of Commerce through the use of benchmarks and will be adjusted periodically, possibly once a year, to reflect the most current procurement data.

Benchmarks satisfy the primary concerns of the Supreme Court in the Adarand case, and will also insure that SDBs receive an advantage on industries where some form of preference is clearly needed. In the past, the government relied on self-certification for purposes of SDB eligibility, which allowed firms to identify themselves as meeting the requirement for certification. One in which SBA must certify all companies claiming to be SDBs replaces the self-certification procedure. The new process of government certification will reduce costs, prevent fraud and abuse, and ensure that the program is administered fairly.

To be eligible for a price evaluation adjustment, an offeror must submit a certification, obtained within the past three years, that the business is owned and controlled by one or more socially and economically disadvantaged persons. Contracting Officers and large business prime contractors will verify, at the time of the actual procurement, that an entity is still on SBA’s list of certified SDBs by checking an on-line registry maintained by SBA. Members of designated minority groups seeking to participate in SDB programs fall within the statutory presumption of social and economic disadvantage established un Section 8(d) of the Small Business Act. Individuals who do not fall within the statutory presumption can qualify by proving their social and economic disadvantage status.

The Small Business Administration’s (SBA) Office of Government Contracting and Minority Enterprise Development will administer the new government-wide SDB Certification and Eligibility Program.

In particular and in accordance with subpart B of 13 CFR 124, SBA will:

Certify all qualified concerns requesting SDB certification;
Decide protests and appeals;
Establish and oversee a nationwide network of private certifiers who will help SBA process applications, ensure that they are complete and correct in form, and determine that the applicant firm is in fact owned and controlled by individuals identified as the owner; and
Maintain a national public on-line registry of certified SDBs for access by contracting officers and the general public.

The SDB regulations were published for public comment on August 14, 1997. Requirements related to certification, protests and appeals and other issues are addressed in the rules. An interim Federal Acquisition Regulation (FAR) rule that implemented the price evaluation adjustment for SDB concerns was issued June 30, 1998. Implementation of evaluation factors or sub factors for SDB participation and incentive contracting with SDB concerns. The price evaluation adjustment program, which allow SDBs to receive up to 10% price preference on certain procurements, went into effect October 1, 1998

For Frequently Asked Questions about the Small Business Administration.