8(a)s wary of Clinton's proposal

New procurement regulations proposed by the Clinton administration would reshape the way federal contracts are awarded to socially and economically disadvantaged companies but the changes may not settle the question of how much business agencies should try to award to minority-owned information technology companies.

In a new rule proposed by the Federal Acquisition Regulation Council May 9 and in policy statements issued concurrently by the Justice Department the administration said it would base future contracting decisions on industry benchmarks a solution suggested by the 1995 Supreme Court decision Adarand v. Pena. In that case the court said the government must "narrowly tailor" race-based programs to remedy specific patterns of discrimination.

Under the proposed rule the government would try to award contracts to small disadvantaged businesses (SDBs) only to the extent that such vendors are underrepresented in the federal marketplace compared to their capacity to do business in the overall economy.

If for example qualified SDBs perform 10 percent of the business in the IT industry overall the government could use race-based preferences only if SDBs were awarded less than 10 percent of the total federal IT procurement dollars.

But vendors and others who follow the IT market said that it will be difficult for the government to produce accurate statistics on how much business SDBs should get if they are not discriminated against. Some contend that no matter what the benchmark is new procurement practices mean agencies are less likely to turn to minority-owned firms than in the past when hiring a small business of any type meant an acquisition could be done more quickly.

"They appear to be very willing to check the box for an SDB if we have the lowest price or most timely delivery but the meaningfulness of SDB has no value as I see it today in agency decision-making " said William Davis chief executive officer at Pulsar Data Systems Inc. Lanham Md. an 8(a) company that made $160 million from its General Services Administration multiple-award schedule contract last year.

Davis said federal agencies are now "bundling" requirements into large contracts for which firms such as his cannot compete.

Timely Data

The main problem observers see with benchmarks is that the Commerce Department which will set the markers will base its decisions on census data that is 5 years old. A new version of the Census Bureau's comprehensive business survey is being conducted this year but the new data will not be available right away.

Ken Salaets director of government affairs with the Information Technology Industries Council said "anything 5 years old in the IT industry is dated " but he knew of no "real-time" sources of information either. Devon Hewitt a lawyer with Shaw Pittman Potts & Trowbridge McLean Va. who specializes in minority contracting issues said the IT industry does not have a long history like construction that would make it possible to assess how contracting opportunities for minority firms have changed.

A DOJ spokesman acknowledged that getting up-to-date information is "always a problem " but that Commerce will attempt to adjust the census data to compensate. "We're making a good-faith effort to use the best data we can " he said. "People might well challenge it but we've tried our best and we think we can withstand challenges."

Once the benchmarks are in place early in the next fiscal year they will govern contract set-asides under the Small Business Administration's 8(a) program and preference programs authorized under the proposed FAR rule. Those preferences include price credits for SDBs evaluation points for prime contractors who bid with SDB subcontractors and monetary incentives for prime vendors to work with SDBs.

The new policy has been expected for a year since DOJ outlined how it would comply with the Supreme Court's decision in Adarand.

In the 8(a) program according to DOJ following the benchmarks could mean limiting the number of contracts awarded to vendors in an industry that has achieved the benchmark or reducing the number of participating firms from that industry by not accepting new applicants or speeding graduation of participants.

Anecdotally there is no agreement as to how much IT contractors who are SDBs are discriminated against in the federal marketplace. Bob Dornan senior vice president of Federal Sources Inc. a McLean market research firm said "there are a lot of 8(a) companies in the IT business because it has very low start-up [costs] " and IT vendors capture more 8(a) business than program participants do overall.

But Pulsar's Davis said that taking the federal and commercial markets together federal contracting "is significantly lower than where it should be " even though "the percentage in government is probably as good as it's going to get."

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