[Federal Register Volume 62, Number 90 (Friday, May 9, 1997)]
[Notices]
[Pages 25648-25653]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12190]


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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]
BILLING CODE 4410-13-P