After almost 20 years of court battles, the United States District Court, District of Columbia, ruled on August 15, 2012 that the federal government’s Section 8(a) program is constitutionally valid. The program provides preferences to minorities and other socially and economically disadvantage individuals.
In regard to the case of DynaLantic v Department of Defense, while the court ruled that the program on its face is constitutionally valid, it found the way in which the program remedies were applied in the DynaLantic case failed to pass constitutional muster.
This is part I of a two part article that explains the recent court decision and significance to minority business owners.
In 1989, the US Supreme Court rendered a landmark decision regarding minority business affirmative action programs. In the case of City of Richmond v. Croson, the court found affirmative action programs to be constitutionally valid if they are supported by compelling evidence of discrimination. It also found the way in which the City of Richmond implemented its program to be unconstitutional, because it failed to pass two important legal standards; “strict scrutiny” and “narrowly tailoring.”
Using the ammunition provided by the Richmond decision, minority business programs fell under constant legal assault after 1989. Two decades ago, almost every major Metropolitan area had multiple minority business programs that were designed to provide preferences in compensation for decades of discrimination.
Early on, the programs were fashioned after the City of Atlanta’s, which was established by the late Mayor Maynard Jackson. He assumed office in 1974 as the first African-American mayor of a major southern city. Jackson immediately observed that no minority contractors were receiving awards from the City.
Atlanta had operated for more than 100 years and over most of its history it had a majority black population. However, the City did not make an award to an African-American contractor until 1973, and the amount was $13,000. To abolish the city’s racial practices, the mayor mandated that construction on the new international airport include 25% subcontract awards to minority vendors, whenever such vendors were qualified, available and able to do the work.
Following Atlanta, cities across the country implemented similar programs. However, the Croson decision unleashed a flurry of litigation that brought those programs to a screeching halt. Today, most cities still operate minority business programs, but in name only. This is because very few have race conscious mandates. The legal challenges to the constitutionality of the programs were overwhelmingly successful at shutting them down.
Among the few programs that still remain are the Disadvantaged Business Enterprise Programs operated by each State Department of Transportation. There is also the 8(a) Program operated by the Small Business Administration. For this reason, the outcome of the litigation in the DynaLantic case is of special importance.
The Small Business Administration’s Section 8(a) Program was designed to remedy the present and past effects of racial discrimination against minorities and other socially and economically disadvantaged individuals. The program provides business development support in the form of technical and financial assistance and preferential awards of government contracts.
The current program is an outgrowth of executive orders passed by Presidents Lyndon Johnson and Richard Nixon in response to the civil unrest of the late 1960s. The Kerner Commission Report examined the conditions that led to the urban rebellions. It found that minorities had no appreciable ownership of small businesses and did not share in the process of community development. It recommended that steps be taken to increase the opportunity for minorities to participate competitively in the market place.
Over the years, numerous studies have found that minority entrepreneurs operate at a significant disadvantage insofar as starting a business, growing a business and gaining access to taxpayer-funded government contracts. Research has shown that the disadvantages cannot be explained exclusively by the differences in personal capabilities of business owners. Instead, much of the difference is attributable to factors such as discriminatory barriers in access to credit and capital, bonding, bid opportunities and business networks.
In 1995, the 8(a) Program was sued (DynaLantic Corporation v. U.S. Department of Defense). Dynalantic sells simulation and training equipment to the Department of Defense. The Corporation claimed that the procurement features of the 8(a) Program prevented it from bidding on a contract for which it was qualified, because it was not a participant.
The suit claims that the program is an unconstitutional racial preference, which is a violation of the equal protection clause under the Fifth Amendment to the Constitution. The suit also asserted that its rights under Title VI of the Civil Rights Act of 1964 are violated by the program.