Panel explores potential bias against minority contractors

Minority and women-owned businesses still are running up against serious obstacles in their effort to secure contracts with the federal government, industry advocates testified before a House panel on Wednesday.

One major problem is the personal net worth cap placed on small disadvantaged businesses and 8(a) small businesses, which are owned by socially and economically disadvantaged individuals, said Thomas Boston, a professor of economics at Georgia Tech and CEO of EuQuant, an Atlanta consulting firm. The net worth ceiling of $750,000 for participation in both programs was established in 1998 and has not been adjusted since.

Boston's firm examined 47,000 small businesses -- 40 percent of which were minority-owned -- in a study requested by the Congressional Black Caucus Foundation and found that business owners bumped up against the personal net worth ceiling before they had a chance to grow their revenues to the levels allowed under the program. If small disadvantaged businesses did not have to operate under the current ceiling, their annual revenue could increase by almost $1 million and they would still meet the criteria for the program, Boston found.

In the short run, he recommended creating new and significantly higher industry-specific ceilings. In the long run, the Small Business Administration should consider replacing the personal net worth cap with more industry specific and business development-related criteria, he told the House Oversight and Government Reform Subcommittee on Information Policy, Census and National Archives.

But Calvin Jenkins, SBA's deputy associate administrator for government contracting and business development, said during an interview on Thursday that the ceiling is not a hindrance to small businesses. The ceiling is only for individuals' net worth -- minus the equity of their home and investment in their company -- rather than the value of the business.

If the cap were increased to the level Boston suggests, then "there would be questions about whether this individual is really disadvantaged," Jenkins said.

Much of the hearing centered on potential discrimination by prime contractors rather than bias in federal regulations or on the part of agency officials.

Anthony Robinson, president of the Minority Business Enterprise Legal Defense and Education Fund, shared a litany of complaints with the panel.

He said word of job opportunities is spread through back channels to avoid minority competition, while small disadvantaged businesses have a more difficult time obtaining surety bonds. Prime contractors, he said, often refuse to accept the lowest bids from minority subcontractors or shop their offer elsewhere until they find another company willing to beat the minority-owned firm's bid.

"In case after case all across this country the experience clearly shows that this type of inexcusable bias for them translates, at best, into higher costs and foreclosed opportunities, and at worst, failed businesses," said Anthony Brown, a member of the Airport Minority Advisory Council. "It's like the addition of a race-based tax that makes them have to work twice as hard while making half the profit. Discrimination against minority and women contractors in America is abundant and devastating."

According to SBA data , small disadvantaged firms earned nearly $23 billion in federal contracts in fiscal 2006, representing more than 6.7 percent of all spending on prime contracts -- the highest figure among small business subcategories. The federal statutory goal for small disadvantaged businesses is 5 percent.

Comparatively, 8(a) small businesses earned 3.6 percent of contract dollars, veteran-owned small businesses earned 2.5 percent, and women-owned businesses earned 3.4 percent. There is no federal contracting goal for the 8(a) program. The statutory goal for women-owned businesses is 5 percent, and the target is 3 percent for veteran-owned firms. SBA is expected to publish its 2007 figures in the coming weeks. The agency does not release figures for subcontracts.

Wednesday's hearing was the first in a series that will examine possible evidence of discrimination against minority-owned businesses, particularly those serving as federal subcontractors, said Rep. William Clay, D-Mo., chairman of the subcommittee.