Disadvantaged Businesses: A Review of Federal Assistance

Publication Date: January 2002

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Business

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Abstract:

It is the policy of the federal government to encourage the development of small disadvantaged businesses (SDBs) owned by minorities and women. SDBs are statutorily defined as small businesses that are owned and controlled by socially and economically disadvantaged individuals who have been subjected to racial or ethnic prejudice or cultural bias and who have limited capital and credit opportunities. Under the Small Business Act, as amended, African Americans, Asian Americans, Hispanic Americans, and Native Americans are presumed to be socially disadvantaged. Other business owners who do not belong to these racial or ethnic groups (such as nonminority women) can establish disadvantaged status as individuals for participation in certain federal programs. In other programs, women and handicapped persons are defined as socially disadvantaged and are eligible for participation as long as they are also economically disadvantaged.

Federal assistance to SDBs includes procurement goals, contract price evaluation preferences, management and technical assistance, grants for education and training, surety bonding assistance, loans, and loan guarantees. These affirmative action programs include the Small Business Administration's section 8(a) program, which provides preferential treatment in obtaining federal procurement contracts to SDBs enrolled in the program. There are no federal programs specifically designed to help disadvantaged individuals obtain start-up capital for new business ventures, although such assistance can be sought from privately owned Small Business Investment Companies, which receive federal support.

All federal agencies with procurement powers are required by law to establish annual percentage goals for the awarding of procurement contracts and subcontracts to SDBs. These agencies have Offices of Small and Disadvantaged Business Utilization that are responsible for carrying out their SDB responsibilities and for coordinating their programs with the Small Business Administration. Some federal statutes contain specific requirements relating to SDBs. These include the Defense Department's section 2323 program, which mandates a DOD contracting goal of 5% for SDBs; the Department of Transportation's 10% goal; and the Energy Policy Act of 1992 (P.L. 102-486), which created a 10% goal for certain Department of Energy and other programs.

The 1995 Supreme Court decision in the case of Adarand Constructors, Inc. v. Pena, which challenged a federal program that gave cash bonuses to prime contractors for awarding subcontracts to minority-owned businesses, could have farreaching implications for all governmental programs that give special consideration to disadvantaged businesses. Some changes have already been made in federal procurement programs targeting SDBs. The practice of setting aside contracts for exclusive bidding by SDBs, for example, was discontinued by the Clinton Administration.