SBA proposes new minority preference rules for contractors -

The Small Business Administration's 8(a) program is changing again.


No stranger to controversy, the 8(a) program has had a series of recent tremors. In
1995, the Supreme Court's decision in Adarand Constructors Inc. vs. Pena signaled a need
to focus more narrowly on minority preferences in Government contracting.


A 1995 General Accounting Office report concluded that most 8(a) companies derive
little benefit from the program, but the top few dozen received 25 percent of the awarded
8(a) contract dollars. And the Clinton administration has questioned whether the program
should emphasize minority employment rather than ownership.


In response to these challenges, SBA has proposed rules that would dramatically revamp
the 8(a) program. One major change would open program participation to disadvantaged white
entrepreneurs, especially white women.


Traditionally, nonminority women have been excluded from the 8(a) program. Two decades
ago, Marilyn Andrulis, a white woman, sought an injunction to prevent the SBA from
terminating her company from an 8(a) program. The District Court issued a temporary
restraining order and, ultimately, SBA reinstated Andrulis' company in the program. But
her case was the exception, not the rule.


According to SBA, only nine white women and 18 other white-owned small businesses were
program participants in 1994. SBA administrator Aida Alvarez said she expects the proposed
revisions will result in the addition of thousands of new, primarily white-women-owned
businesses to the 8(a) program.


The change would lower the level of proof for nonminority applicants. Instead of
requiring a "clear and convincing pattern" of social disadvantage, the proposed
regulations would lower the standard to a "preponderance of evidence." The test
for economic disadvantage would not change and would be the same for all applicants.


Another innovation would encourage partnering among 8(a) companies. Such combinations
now constitute what SBA calls an affiliation, which means that the total combined revenues
or total number of employees of the partners must meet the applicable size ceilings. Under
the new process, SBA generally will consider a team small if all the member companies are
small businesses.


The revision is intended to permit increased teaming among 8(a) participants to offset
the effects of large contracts comprised of bundled work requirements.


A related proposal permits newer 8(a) firms to benefit from a mentor/prot'g'
relationship with older or graduated 8(a) concerns. The two can benefit from relaxed rules
on joint venturing, and the mentor can own up to a one-third equity interest in the
prot'g'.


Not all the changes open up the program. One revision would limit the number of
sole-source 8(a) contracts that a company can receive. The limit would be either $100
million or five times the company's revenue-based size standard. The cap on sole-source
contracts would not affect a company's ability to receive or perform competitively awarded
contracts.


Federal contracting opportunities via the revised 8(a) program represent a potentially
rich source of revenue for companies that were previously under-represented.


In fiscal 1996, 8 (a) companies received more than $6 billion out of the nearly $200
billion in federal procurement dollars.


Increased governmentwide goals for small business contracting might increase that
figure.


Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo &
Associates. E-mail him at jpetrillo@counsel.com


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