Disadvantaged Businesses: A Review of Federal Assistance

Disadvantaged Businesses: A Review of Federal Assistance

Order Code RL30059
CRS Report for Congress
Received through the CRS Web
Disadvantaged Businesses:
A Review of Federal Assistance
Updated January 14, 2002
Michael K. Fauntroy
Analyst in American National Government
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

Disadvantaged Businesses:
A Review of Federal Assistance
Summary
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.
Peña, which challenged a federal program that gave cash bonuses to prime
contractors for awarding subcontracts to minority-owned businesses, could have far-
reaching 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.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Historical Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Constitutional Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Defining and Certifying Small Disadvantaged Businesses . . . . . . . . . . . . . . 6
Women-Owned Business Enterprises (WBEs) . . . . . . . . . . . . . . . . . . . . . . 8
Federal Assistance for Starting a Small Business . . . . . . . . . . . . . . . . . . . 11
The Minority Business Development Agency . . . . . . . . . . . . . . . . . . . . . 12
Contracting and Subcontracting Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Price Evaluation Adjustment Program and Benchmarking . . . . . . . . . . . . 13
Price Evaluation Adjustment Program . . . . . . . . . . . . . . . . . . . . . . . 13
Benchmarking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SBA’s Section 8(a) Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Department of Transportation’s Programs . . . . . . . . . . . . . . . . . . . . . . . . 16
Department of Defense’s SDB Program . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Laws That Apply to Other Departments and Agencies . . . . . . . . . . . . . . . 20
Department of Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Department of State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Environmental Protection Agency . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Federal Deposit Insurance Corporation . . . . . . . . . . . . . . . . . . . . . . 22
National Aeronautics and Space Agency . . . . . . . . . . . . . . . . . . . . . . 22
Programs for Native Americans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Additional Sources of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Appendix A: List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
List of Tables
Table 1. Composition of SDB Certification as of August 24, 2000 . . . . . . . . . . 8
Table 2. Women-Owned Business Share of U.S. Government Contracting
and Subcontracting, 1997-2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 3. Number and Receipts for Women-Owned Firms by Industry Division,
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
This report is based in large part on an earlier CRS report by Mark Eddy, Specialist
in American National Government.

Disadvantaged Businesses:
A Review of Federal Assistance
Introduction
Since the late 1960s, it has been the policy of the federal government to assist
small businesses owned by minorities and women to become fully competitive and
viable business concerns. Federal assistance to women and minority-owned firms,
which have come to be known as small disadvantaged businesses (SDBs), includes the
following:
! preferential treatment in obtaining procurement contracts and subcontracts,
! percentage contracting goals by federal agencies,
! management and technical assistance,
! grants for education and training,
! surety bonding assistance,
! loans, and
! loan guarantees.
Small Business Administration regulations define SDBs 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.1 African Americans, Asian Americans, Hispanic
Americans, and Native Americans are presumed to be socially disadvantaged by the
Small Business Act, as amended;2 but they must prove economic disadvantage for
participation in some programs of other agencies. Business owners who do not
belong to these racial or ethnic groups (such as nonminority women and handicapped
persons) can individually establish disadvantaged status for purposes of some federal
programs. There are also programs in which women and handicapped persons are
113 CFR §124.103 (a); 13 CFR §124.104 (a). Business owners who are not members of
designated groups may petition to be classified as disadvantaged. To do so, business owners
must provide narrative and supporting documentation that demonstrates social disadvantage.
That evidence must include the following elements: (1) possession of at least one objective
distinguishing feature that has contributed to the business owners’ social disadvantage — such
as race, ethnic origin, gender, physical handicap, or long-term residence in an environment
that is isolated from mainstream America; (2) description of how business owner has
personally experienced substantial and chronic social disadvantage within American society,
not in other countries; and (3) how disadvantage has had a negative impact upon business
owners’ entry into or advancement in the business world.
2P.L. 85-536, as amended, sec. 2(f)(1)(c). Indian tribes, Native Hawaiian organizations, and
other minorities may also qualify.

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included within the definition of socially disadvantaged and are eligible for
participation if they are also economically disadvantaged.
This report presents an overview of the major federal programs now in existence
and indicates where interested persons can obtain further information about specific
programs.
Historical Background. Federal small disadvantaged business programs find
their antecedents in long-established federal contracting policies and programs,
including contract set-asides, designed to support the development of small
businesses. Federal contracting authority to assist small businesses first appeared in
federal legislation in 1942, when Congress acted to mobilize the productive capacity
of small business and augment production during World War II.3 Section 4 of the law
created the Smaller War Plants Corporation and granted it authority to contract with
federal agencies to furnish articles, equipment, supplies, or materials and to arrange
for the performance of these contracts by letting subcontracts to small business
concerns or, if necessary, larger firms. The law specified that, if the War Production
Board certified that the Smaller War Plants Corporation was competent to perform
any specific government contract, the corporation had the right to receive the
contract. The corporation was also empowered to make loans or advances to small
businesses and to assist small businesses in other ways to manufacture articles,
equipment, supplies, or materials for the war effort or for essential civilian purposes.
This same contracting authority reappeared in the Defense Production Act
Amendments of 1951.4 This law created the independent Small Defense Plants
Administration and empowered it to enter into contracts with federal agencies to
furnish articles, equipment, supplies, or materials to the federal government; to
arrange for the performance of such contracts by letting subcontracts to small
businesses or others; and to provide technical and managerial aid to small businesses.
Like the earlier law, the thrust was national defense: “It shall be the duty of the
Administration and it is hereby empowered, to coordinate and to ascertain the means
by which the productive capacity of small-business concerns can be most effectively
utilized for national defense and essential civilian production.”5
The legislation that created the Small Business Administration (SBA) two years
later, the Small Business Act of 1953, contained the same authority in almost identical
wording.6 During the Cold War, the thrust of the contracting provision was once
again national defense. Consistent with regulations prescribed under the First War
Powers Act of 1941, as amended, SBA would use its contracting authority to insure
that small businesses would not be bypassed in wartime. In fact, the Small Business
Act of 1953 authorized the President to transfer records, property, and personnel
3 P.L. 77-603, 56 Stat. 351, June 11, 1942.
4P.L. 82-96, 65 Stat. 131 at 139, July 31, 1951.
5Ibid., 65 Stat. 141, sec. 110(a), adding sec. 714(d)(1) to Title VII of the Defense Production
Act of 1950.
6P.L. 83-163, 67 Stat. 230 at 236, sec. 207 (c)-(e) and 208, July 30, 1953.

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from the Small Defense Plants Administration, which was being liquidated, to the
newly created Small Business Administration.
When the Small Business Act of 1953 was restructured and reauthorized in 1958
as the Small Business Act,7 SBA’s authority to enter into contracts with federal
agencies and to let subcontracts “to small-business concerns or others” reappeared in
the new legislation in section 8(a).8 In 1958, SBA issued its first regulations
implementing this section. The 8(a) contracting authority was to be exercised in the
event of emergency for the benefit of small business as a class and on a publicized,
competitive basis. At the time, however, SBA’s contracting authority contained in
section 8(a) was not used.
After outbreaks of racial violence in several U.S. cities during 1967, pressure
arose in Congress to use the 8(a) authority to assist small businesses in inner cities to
help alleviate high unemployment and other circumstances thought to contribute to
social unrest. The Small Business Act’s unutilized section 8(a), which authorized
SBA to let federal procurement contracts to small businesses, was administratively
reformulated to funnel federal procurement contracts to minority-owned small
businesses.9
The earliest statutory basis for federal aid to economically disadvantaged
entrepreneurs appeared in the 1967 amendments to the Economic Opportunity Act
of 1964, which, in part, directed SBA to assist small businesses owned by low-income
individuals.10 The first law to establish a specific percentage goal for federal
procurement from minority-owned businesses was the Public Works Employment Act
of 1977. Implemented by the Economic Development Administration within the
Department of Commerce, it required that at least 10% of the total dollar value of
federal grants for local public works projects be expended through minority business
enterprises.11 Statutes that contained additional percentage goals for individual
programs or agencies followed, as described below.
Over the years, the emphasis of this effort has broadened somewhat, from
minority entrepreneurs to entrepreneurs who are “socially and economically
disadvantaged.” In 1978, for example, P.L. 95-50712 explicitly recognized that it is
possible for nonminorities to be disadvantaged. This trend has caused the long-
7P.L. 85-536, 72 Stat. 384, July 15, 1958, 15 U.S.C. 661 et seq.
8Ibid., 72 Stat. 389.
9SBA’s administrative decision to turn section 8(a) into a minority business program
eventually gained statutory basis with the passage in 1978 of P.L. 95-507, which is discussed
below.
10P.L. 90-222, Sec. 106 (a), repealed in 1974 by P.L. 93-386, which established the position
of administrator for minority small business within the SBA (88 Stat. 742, 748, Aug. 23,
1974).
11P.L. 95-28, 91 Stat. 117, 118. This law also set aside 2½ % for “Indian tribes and Alaska
Native villages.”
1292 Stat. 1757, 1760 and 1767, Oct. 24, 1978.

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standing term “minority business enterprise,” or “MBE,” to be supplemented, and in
some cases replaced, by the terms “small disadvantaged business,” or “SDB,” and
“disadvantaged business enterprise,” or “DBE.” Currently, the Small Business
Administration also uses the term “historically underutilized businesses” (HUBs) in
its contracting program.
Constitutional Issues. Beginning in the mid-1990s, the constitutionality of
some programs to assist disadvantaged businesses was called into question. In 1995,
the Supreme Court declared in Adarand Constructors, Inc. v. Peña that, in order to
pass constitutional standards on equal protection, race-based federal programs must
be narrowly tailored to serve a compelling governmental interest.13 The case
challenged a federal program that gave cash bonuses to prime contractors for
awarding subcontracts to minority-owned businesses. The decision for the first time
applied the criterion of “strict scrutiny,” an established judicial standard for reviewing
state and local affirmative action measures, to race-conscious decision making by the
federal government.
Federal programs for minority and women-owned businesses have been reviewed
as a result of Adarand and the ongoing controversy over the proper role of affirmative
action in such areas as employment, education, and contracting. On July 19, 1995,
President Clinton ordered the Department of Justice to review all federal race-based
affirmative action programs, and ordered that any program that did not meet the
constitutional standard of strict scrutiny as set forth in Adarand be reformed or
eliminated.14 As a result of this review, new regulations were proposed for specific
programs and promulgated; those affecting SDBs are explained in new program
descriptions below. The range of federal statutes and regulations designed to
promote small businesses owned by minorities and women remains largely intact.15
The Court did not precisely define “racial classification” in Adarand, but a
plurality of Justices described the concept in terms of burdens or benefits placed on
individuals because of race, or subjecting individuals to unequal treatment. Race-
conscious action by government or private employers that neither confers a benefit
nor imposes a burden on individuals might not be subject to strict scrutiny or
13Adarand Constructors, Inc. v. Peña, 115 S.Ct. 2097 (June 12, 1995). See also CRS Report
RL30470, Affirmative Action Revisited: A Legal History and Prospectus, by Charles V.
Dale, pp. 6-7.
14U.S. President, 1993- (Clinton), “Memorandum on Affirmative Action,” July 19, 1995,
Weekly Compilation of Presidential Documents, vol. 31, July 24, 1995, pp. 1264-1265.
15Nevertheless, among statutory changes was repeal of a Federal Communications
Commission statute designed to encourage minority ownership of radio and television stations
by granting a capital gains tax break for majority-owned broadcast companies that sell
broadcast or cable facilities to minority buyers (P.L. 104-7, 109 Stat. 93, April 11, 1995).
Congress also removed the Agency for International Development’s (AID) 10% goal for
contracting with minorities and women from the agency’s FY1996 appropriations bill.
Known as the “Gray amendment,” the goal had been renewed by Congress in every AID
appropriations act since its first adoption in 1984. For a brief review of earlier developments
in affirmative action, see CRS Report RL30142, Affirmative Action: Recent Congressional
and Presidential Activity, 1995-1998, by Andorra Bruno.

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heightened judicial review. Thus, courts have found data collection activities
concerning the racial or gender makeup of a workforce do not violate the
Constitution. “Statistical information as such is a rather neutral entity which only
becomes meaningful when it is interpreted.”16
Similarly, strict scrutiny has generally not been applied by the courts to minority
outreach or recruitment efforts that do not amount to an actual preference in
employment decision making. A public university, for example, may be racially
“aware” or “conscious” by amassing statistics on the racial and ethnic makeup of its
faculty and encouraging broader recruiting of racial or ethnic minorities, without
triggering strict scrutiny review. These activities do not impose burdens or benefits,
it has been held, nor do they subject individuals to unequal treatment. If that
institution, however, then engages in race-preferential hiring, firing, or promotion,
that action is subject to strict scrutiny. This distinction between “inclusive” forms of
affirmative action — such as recruitment, advertising in minority media, and other
outreach to minority communities — and “exclusive” affirmative action — quotas,
set-asides, layoff preferences, etc. — has been central to several recent decisions.17
On remand, the district court in Adarand II18 decided that Adarand did not mean
that federal affirmative action must be supported by a particularized showing of past
discrimination as state and local programs. On September 25, 2000, the 10th Circuit
Court of Appeals issued its latest ruling in Adarand Constructors Inc. v. Slater
(Adarand III).19 Reversing the district court injunction against future implementation
of the affirmative action program in question in Adarand, it found that the challenged
federal highway program of financial incentives to promote minority and
“disadvantaged” small business utilization was unconstitutional as it existed at the
time of Adarand I, and held that, as revised and amended in 1997, the program was
narrowly tailored to a compelling governmental interest and passed constitutional
muster. The U.S. Supreme Court on March 26, 2001, granted certiorari in an appeal
from the Circuit Court’s latest decision.
Since Adarand I, there have been numerous lower federal court cases that have
dealt with the question of congressional authority to fashion affirmative action
remedies. While these courts have generally acknowledged the government’s interest
16 Sussman v. Tanoue, 39 F.Supp.2d 13, 24 (D. D.C. 1999) (quoting United States v. New
Hampshire, 539 F.2d 277, 280 (1st Cir. 1976)).
17 See Duffy v. Wolle, 123 F.3d 1026, 1038-39 (8th Cir. 1997) (“An employer’s affirmative
efforts to recruit female and minority applicants does not constitute discrimination.”); Allen
v. Alabama State Board of Education, 164 F.3d 1347, 1352 (11th Cir. 1999) (racially
conscious outreach efforts to broaden applicant pool not subject to strict scrutiny), vacated
216 F.3d 1263 (11th Cir. 2000); Ensley Branch, NAACP, 31 F.3d 1548 (11th Cir. 1994)
(describing efforts to actively encourage African Americans to apply for jobs, including
waivers of application fees, as “race-neutral”); Billish v. City of Chicago, 962 F.2d 1269,
1290 (7th Cir. 1992) (describing aggressive recruiting as “race-neutral procedures”), rev’d on
other grounds, 989 F.2d 890 (7th Cir.1993) (en banc). For a discussion of each of these cases,
see CRS Report RL30470, by Charles V. Dale.
18 Adarand Constructors, Inc. v. Pena, 965 F. Supp. 1556 (D. Colo. 1997).
19 2000 WL 1375571 (10th Cir. (Colo.)).

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for the program in question, the outcome of such cases has largely turned on each
court’s view of the program in actual operation.20 Consequently, post-Adarand
judicial activity has been mixed, with some decisions invalidating federal affirmative
action programs and others allowing such plans to continue.
As of this writing, the Bush Administration has not announced its plans for
disadvantaged business programs.21
Defining and Certifying Small Disadvantaged Businesses
The definitions in federal law of small disadvantaged businesses and women-
owned businesses are not uniform. For example, in some statutes women are included
within the definition of socially disadvantaged individuals, but in others they are not.
Some statutes do not define the terms at all. Section 8(d) of the Small Business Act22
does contain a comprehensive definition of socially and economically disadvantaged
small businesses that applies to SBA programs and that is incorporated by reference
into many other statutes. Section 8(d) defines a small disadvantaged business as a
small business concern that is at least 51% owned by a citizen or citizens of the
United States who are socially and economically disadvantaged; or, in the case of a
publicly owned business, that has at least 51% of its stock owned by socially and
economically disadvantaged citizens. The daily management and operation of the
business concern must also be controlled by an owner or owners who are socially and
economically disadvantaged.
Socially disadvantaged individuals are defined by section 8(d) as persons who
have been subjected to racial or ethnic prejudice or cultural bias because of their
identity as members of a group, without regard to their individual qualities. As the
law specifically states, the social disadvantage of such individuals must stem from
circumstances beyond their control. African Americans, Asian Americans, Hispanic
Americans, and Native Americans are presumed by statute to be socially
disadvantaged, absent evidence to the contrary.
Economically disadvantaged individuals are defined by section 8(d) as socially
disadvantaged individuals whose ability to compete in the free enterprise system has
been impaired due to diminished capital and credit opportunities, as compared to
others in the same or in a similar line of business and competitive market area who are
not socially disadvantaged. (Small businesses owned and managed by economically
disadvantaged Native American tribes or Native Hawaiian organizations also fit the
definition of small disadvantaged business.)
20 See Christian v. United States, 2000 WL 760521 (Fed. Cl.); Rothe Development Corp. v.
U.S. Department of Defense, 49 F. Supp. 2d 937 (W.D. Tex. 1999); In re Sherbrooke
Sodding Co., 17 F. Supp. 2d 1026 (D. Minn. 1998); Cortez III Serv. Corp. v. National
Aeronautics & Space Administration, 950 F. Supp. 357 (D. D.C. 1996).
21Rainnie Deane, U.S. Small Business Administration, Office of Congressional and Legislative
Affairs, discussion by telephone, Friday, January 11, 2002.
2215 U.S.C. 637(d).

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In order to qualify as small, a disadvantaged business must meet the size
standard established by regulation for the firm’s primary Standard Industrial
Classification (SIC) Code.23 The size standards, which are based upon either the
firm’s maximum number of employees or its amount of annual receipts, are set forth
at length in the Code of Federal Regulations at 13 C.F.R. Part 121.101 et seq.
In a major post-Adarand reform adopted by the Clinton Administration, firms
that meet the above criteria must be formally certified as SDBs by the Small Business
Administration before they are eligible to participate in federal SDB procurement
programs. Previously, many federal SDB programs relied on self-certification by the
business owners themselves as to their economic and social disadvantage, with
provisions for competing firms to dispute a firm’s self-proclaimed SDB status. Self-
certification is no longer possible. SBA or a private certifier determines if a firm
meets SDB status.24
Business owners not in the groups presumed to be socially disadvantaged, as
described above, may qualify for SDB certification by individually establishing their
disadvantaged status. This could be done before, as well, but the new rule lowered
the standard of proof from “clear and convincing evidence” to “a preponderance of
the evidence” in order to make it easier for persons not in the groups presumed to be
socially disadvantaged to establish eligibility. SBA records show that 9,034 small
business firms were certified as SDBs as of August 24, 2000. According to SBA
officials, approximately 6,405 of these firms were automatically certified due to their
8(a) certification. As of August 24, 2000, SBA had certified 2,629, or about half, of
the 5,456 small business firms that submitted applications for certification to the Small
Disadvantaged Business Certification (SDBC) program.25
23SIC is the acronym for Standard Industrial Classification (SIC) Code. An SIC is a code that
represents a category within the Standard Industrial Classification System administered by
the Statistical Policy Division of the U.S. Office of Management and Budget. The system was
established to classify all firms in the U.S. economy.
2463 FR 35772, June 30, 1998, as amended at 65 FR 33250, May 23, 2000; 65 FR 57542,
Sept. 25, 2000.
25U.S. General Accounting Office, “Small Business: Status of Small Disadvantaged Business
Certifications,” (Washington: Government Printing Office, Jan. 2001), p. 2. Also, according
to GAO’s study, for those applications that it did not certify, SBA returned 1,990 applications
as incomplete and denied certification for 241 applicants. Applicants withdrew 307
applications for unknown reasons. The remaining 289 applications were in various stages of
screening and processing.

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Table 1. Composition of SDB Certification
as of August 24, 2000*
SDB Certification Categories
Number of SDBs
8(a) business development
5,689
8(a) business development graduates
716
SBA Certifications
2,629
Total Certifications
9,034
Source: GAO analysis of SBA-provided data, reported in U.S. General Accounting Office, “Small
Business: Status of Small Disadvantaged Business Certifications,” (Washington: Government
Printing Office, Jan. 2001), p. 8.
* 8(a) business development (BD) firms were grandfathered into the SDBC program. These firms
automatically qualified as SDBs by virtue of their status as 8(a) BD concerns. Firms that have
graduated from SBA’s 8(a) BD program but continued to be eligible for the 8(a) BD program as
determined by an annual review also qualified as SDBs and were grandfathered into the SDBC
program. These firms will remain on the list of certified SDBs for three years from the date of the
last annual review.
Women-Owned Business Enterprises (WBEs)
Federal efforts to directly support female business owners began in 1979 with
the issuance by President Carter of Executive Order 12138.26 The Executive Order,
which responded to the findings of the Interagency Task Force on Women Business
Owners and to congressional findings, was designed to discourage discrimination
against female entrepreneurs and to create programs responsive to their special needs,
including assistance in federal procurement. As a result, the Office of Women’s
Business Ownership was established within the Small Business Administration. This
office negotiates annually with each federal agency a percentage goal for the awarding
of federal prime procurement contracts to women-owned business enterprises
(WBEs). Table 2 presents data on women-owned business participation in U.S.
government prime contracts and subcontracts.
2644 F.R. 29637, May 18, 1979, 15 U.S.C. 631 note.

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Table 2. Women-Owned Business Share of U.S. Government
Contracting and Subcontracting, 1997-2000
(in billions)
Women-Owned Businesses
Small
Percent of
Total
Business
Percent
Small
Fiscal Year
Dollars
Dollars
Dollars
of Total
Business
Prime Contract Dollars
1997
177.5
40.0
3.3
1.9
8.3
1998
181.8
42.5
4.0
2.2
9.4
1999
185.8
43.0
4.6
2.5
10.5
2000
200.9
44.7
4.6
2.3
10.2
Subcontract Dollars
1997
109.2
450.5
4.3
3.9
0.9
1998
97.8
27.4
3.1
4.6
11.3
1999
99.0
27.9
3.0
4.3
10.7
2000
22.3
9.1
1.3
5.7
13.9
Source: U.S. Small Business Administration, Office of Advocacy, Women in Business,
2001, Table A-5, p. 28.
From 1982 to 1992, the number and revenue of women-owned business grew
at rates that outpaced those of all other small business sectors. According to Small
Business Administration data, the number of women-owned businesses grew in every
sector of the economy in which the type of business can be determined from 1982 to
1992. The number of women-owned businesses in determinable industries grew
during this period from a low of 73.2% (retail trade) to high of 382.1% (wholesale
trade). From a revenue standpoint, the increase ranged from 53.2% (mining) to
742.3% (manufacturing).27
The federal promotion of WBEs was given statutory authority with the
enactment of the Women’s Business Ownership Act of 1988.28 This law defined a
WBE as a small business that is at least 51% owned, managed, and operated by one
or more women. It established a new loan guarantee program administered by SBA
to guarantee commercial bank loans of up to $50,000 to small firms (not just female-
owned firms); created a National Women’s Business Council to monitor the progress
27Small Business Administration, Women in Business, Washington: Small Business
Administration, October 1998, Table 3.
28P.L. 100-533, 102 Stat 2689, Oct. 25, 1988.

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of federal, state, and local governments in assisting WBEs; and authorized grants to
private organizations to provide management and technical assistance to WBEs.
Table 3. Number and Receipts for Women-Owned Firms
by Industry Division, 1997
Sales and Receipts
Industry Division
Number of Firms
(billions)
All Industries
5,417,034
$818.7
Agricultural Services, Forestry, and
74,444
$5.9
Fishing
Mining
20,030
$7.2
Construction
157,173
$67.6
Manufacturing
121,108
$113.7
Transportation, Communications, and
128,999
$32.9
Utilities
Wholesale Trade
125,645
$188.5
Retail Trade
919,990
$152.0
Finance, Insurance, and Real Estate
479,469
$56.0
Services
2,981,266
$186.2
Source: Survey of Women-Owned Business Enterprises (SWOBE), 1997, U.S. Department
of Commerce, Bureau of the Census (as reported in U.S. Small Business Administration,
Office of Advocacy, Women in Business, 2001 (Washington: October 2001), p. 18).
Annual procurement goals for WBEs continued to be negotiated between federal
agencies and the SBA under the authority of Executive Order 12138 until enactment
of the Federal Acquisition Streamlining Act of 1994.29 This law, known by its
acronym, “FASA,” amended section 15 of the Small Business Act30 to establish a 5%
annual goal for WBE participation in federal prime contracts and subcontracts. FASA
also amended section 8(d) of the Small Business Act31 to give WBEs equal standing
with small businesses and small disadvantaged businesses in the subcontracting plans
of federal prime contractors.32
Further measures to facilitate the federal government’s promotion of WBEs were
contained in the Small Business Administration Reauthorization and Amendments Act
29P.L. 103-355, 108 Stat. 3243, 3374, Oct. 13, 1994.
3015 U.S.C. 644.
3115 U.S.C. 637(d).
3248 CFR 19.7.

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of 1994.33 This law codified the SBA’s Office of Women’s Business Ownership;34
established an Interagency Committee on Women’s Business Enterprise to
recommend policies to promote the development of WBEs; and restructured the
National Women’s Business Council as a bipartisan federal government council to the
Interagency Committee, the SBA, and Congress.
There is no centralized federal program for certification of WBEs, such as has
been put in place for SDBs.
Federal Assistance for Starting a Small Business
Although there are no federal programs specifically designed to help
disadvantaged individuals obtain startup capital for new business ventures, SBA offers
assistance to small business entrepreneurs who, despite sound business plans, are
unable to borrow on reasonable terms from conventional lenders. This assistance
most often takes the form of loan guarantees under the section 7(a) program, by
which SBA guarantees to pay part of any loss sustained by a bank or other financial
institution in the event of default.35 In general, however, SBA is a lender of last
resort, after other possible sources have been exhausted.
SBA also helps finance Minority Business Enterprises (MBEs) through its
assistance to privately owned Small Business Investment Companies (SBICs).
Created by the Small Business Investment Act of 1958,36 SBICs are private firms that
raise funds to provide venture capital for small businesses by selling securities
guaranteed by SBA. Located throughout the United States, they provide equity
capital, long-term loans, and management assistance to small businesses for
expansion, modernization, and operating expenses, as well as venture capital for
startup costs and research and development expenses. Assistance to small businesses
often takes the form of equity-type investments, by which SBICs share in the future
growth and profits of the firms.37
Some federal agencies, such as the Department of Energy and the Farmers Home
Administration in the Department of Agriculture, have programs to promote specific
kinds of small business creation and development, for which eligible minorities or
women can apply. These programs can be identified in the Catalog of Federal
Domestic Assistance published by the General Services Administration. The catalog
can be found at many libraries and is available by subscription from the
33P.L. 103-403, 108 Stat. 4175, 4192, Oct. 22, 1994.
34The Office of Women’s Business Ownership maintains a Web site at
[http://www.sba.gov/womensbusiness].
35P.L. 91-606. The SBA has not provided funding for direct handicapped assistance loans,
but such individuals are eligible for all SBA loan guaranty programs.
36P.L. 85-699, 72 Stat. 689, Aug. 21, 1958.
37Information on SBICs can be obtained from the National Association of Small Business
Investment Companies, 666 11th St., NW, Washington, DC 20001; [http://www.nasbic.org],
visited Sept. 14, 2001.

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Superintendent of Documents, Government Printing Office, Washington, DC 20402.
It can also be consulted on the Internet at [http://www.cfda.gov/].
The Minority Business Development Agency
President Nixon issued Executive Order 11458 in 1969.38 That executive order
created the Office of Minority Business Enterprise, which, in 1979, became the
Minority Business Development Agency (MBDA). Located in the Department of
Commerce, MBDA is the only federal agency charged exclusively with promoting the
creation and growth of minority-owned businesses in the United States. Although its
scope of operations has been reduced in recent years due to budgetary reductions,
MBDA continues to help federal, state, and local government agencies, as well as
major corporations, increase their contracting activities with minority-owned firms.
MBDA also provides funding for a network of some 36 Minority Business
Development Centers (MBDCs) and nine Native American Business Development
Centers (NABDCs) located throughout the country. These centers provide
management and technical assistance to minority entrepreneurs to help them to create,
manage, and expand their businesses, and to identify business development
opportunities. The MBDCs and NABDCs are not sources of capital; they do not
make grants or provide loans or loan guarantees. They do, however, offer assistance
in locating possible sources of capital and in preparing funding and bonding proposals
for submission to financial institutions and government agencies.
Persons who qualify for assistance from MBDA include African Americans,
Puerto Ricans, Spanish-speaking Americans, Aleuts, Asian-Pacific Americans, Asian
Indians, American Indians, Eskimos, and Hasidic Jews. Nonminority women are
eligible on an individual basis if they are found to be socially or economically
disadvantaged, but they are not eligible as a group for MBDA assistance. Unlike
most other federal programs for disadvantaged businesses, size standards do not
apply; MBDA serves minority-owned firms of any size.
Further information about MBDA and its network of MBDCs and NABDCs is
available from MBDA regional offices in Atlanta, Chicago, Dallas, New York, and
San Francisco, and from district offices in Boston, Miami, Philadelphia, and El Monte,
CA. MBDA’s home page is available at [http://mbda.gov].
Contracting and Subcontracting Goals
In P.L. 95-507, Congress amended the Small Business Act and the Small
Business Investment Act of 1958 to require all federal agencies to set percentage
goals for the awarding of procurement contracts to MBEs.39 These goals are
3834 F.R. 4937, March 5, 1969. MBDA now operates under the authority of two subsequent
executive orders: E.O. 11625, Oct. 13, 1971, 15 U.S.C. 631 note (36 F.R. 19967), issued by
President Nixon; and E.O. 12432, July 14, 1983, 15 U.S.C. 631 note (48 F.R. 32551), issued
by President Reagan.
39P.L. 95-507 was approved on Oct. 24, 1978. 92 Stat. 1757, 1770, 15 U.S.C. 644 (g).

CRS-13
established annually by consultations between SBA and each federal agency. The
same law also amended section 8(d) of the Small Business Act to require prime
contractors with federal contracts that exceed $1,000,000 for the construction of any
public facility, or $500,000 in the case of all other contracts, to establish percentage
goals for the utilization of MBEs as subcontractors whenever subcontracting
opportunities are present.
The procedure established by P.L. 95-507 for determining annual MBE
procurement goals was changed and strengthened in 1988 by a provision of P.L. 100-
656 requiring the President to establish a governmentwide procurement goal for
SDBs at not less than 5% of the total value of all prime contracts.40 (The goal for all
small businesses, including those that are minority-owned, is set at 20%.) The 5%
SDB goal went into effect at the beginning of FY1990 and helped to increase the
share of federal contracting and subcontracting dollars going to minority-owned firms
despite declining federal procurement budgets.
In addition, P.L. 95-507 amended the Small Business Act to require each federal
agency with procurement powers to create an Office of Small and Disadvantaged
Business Utilization (OSDBU).41 These offices are responsible for each agency’s
contracting and development programs for small, disadvantaged, and women-owned
businesses, and are responsible for coordinating these programs with the SBA. This
means, in effect, that virtually every federal agency has procurement programs for
MBEs and WBEs. Minority and female entrepreneurs wanting to do business with
a specific federal agency should contact the OSDBU of that agency for information
on contracting and subcontracting opportunities. A list of OSDBUs is available on
the Internet at [http://www.sba.gov/GC/osdbu.html].
Price Evaluation Adjustment Program and Benchmarking
The price evaluation adjustment program is an SDB program incentive and
benefit. Benchmarking is a mechanism designed to facilitate compliance with
Adarand.
Price Evaluation Adjustment Program. The governmentwide affirmative-
action effort for SDBs was further strengthened by the Federal Acquisition
Streamlining Act of 1994,42 which reiterated the 5% SDB goal and extended to
civilian agencies two devices previously authorized for use by the Department of
Defense in its SDB program. First, when at least two capable SDBs were expected
to bid on a contract, that contract could be set aside for exclusive bidding by SDBs.
40102 Stat. 3853, 3881, P.L. 100-656, Nov. 15, 1988, 15 U.S.C. 644(g)-(h). The final policy
letter to heads of departments and agencies on implementing small business and SDB goals
and on reporting their results to the SBA was published in the Federal Register on March 20,
1991 (56 F.R. 11798). It requires that the 5% SDB goal be calculated separately for prime
contracts and subcontracts.
4115 U.S.C. 644(k).
42P.L. 103-355, Sec. 7102, 108 Stat. 3243, 3367, Oct. 13, 1994, 15 U.S.C. 644 note.

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This was known as the “Rule of Two.”43 Second, in the case of unrestricted
competitions, SDBs can receive a price evaluation preference of up to 10%. This is
achieved by increasing the offers of all non-SDBs by the determined percentage. The
winning bid, however, cannot exceed fair market price. Proposed regulations to
implement this new provision of federal procurement law were published in the
Federal Register on January 6, 1995.44 (Other procurement reforms contained in
FASA — such as simplifying acquisition processes for contracts under $100,000 and
reserving contracts between $2,500 and $100,000 for exclusive bidding by small
businesses — were designed for all small businesses, not just SDBs.)
The Adarand decision of June 1995 and the subsequent federal review of all
race-based affirmative action programs ordered by President Clinton in July 1995
resulted in the proposed rules to implement FASA’s SDB provisions being delayed
and ultimately not being adopted. The Rule of Two, which had already been
discontinued by DOD, was deemed not to meet the Adarand standard and was
dropped entirely. The 10% price evaluation preference was adopted, but on a more
limited scale.
The “price evaluation adjustment program” implements FASA’s 10% price
evaluation provision in a way that is intended to address discrimination, meet the legal
requirements of Adarand, preserve competition, and not unfairly harm businesses that
do not qualify as SDBs.
Under this program, SDBs submitting bids on competitively awarded federal
contracts may qualify for a price evaluation credit of up to 10%, as described above.
Since January 1, 1999, the credits have been available only to businesses that have
been certified as SDBs by the Small Business Administration. The price evaluation
credit is used only in industries in which it has been determined, by a method called
“benchmarking,” that minority-owned firms continue to suffer the effects of
discrimination.45 If price credits, offered over a sustained period of implementation,
prove inadequate to remedy discrimination in a particular industry, agencies can
consider the use of set-asides in awarding contracts to SDBs. Otherwise, the
moratorium on set-asides, initiated by the Clinton Administration in 1996, remains in
effect.
43In the aftermath of the Adarand decision, and after consultation with the Department of
Justice, DOD suspended use of the “Rule of Two” in October 1995.
44U.S. Office of Management and Budget, “Federal Acquisition Regulation; Small Business,”
Federal Register, vol. 60, Jan. 6, 1995, pp. 2301-2320. Final rules to implement Section
7102 were held up pending completion of the review of federal race-based affirmative action
programs ordered by the President’s directive of July 19, 1995, in response to the Supreme
Court’s decision in Adarand Constructors, Inc. v. Peña. A final rule was published at U.S.
Office of Management and Budget, “Federal Acquisition Regulation; Reform of Affirmative
Action in Federal Procurement,” Federal Register, vol. 64, Jul. 2, 1999, pp. 36221-36225.
45U.S. Office of Management and Budget, “Small Disadvantaged Business Procurement;
Reform of Affirmative Action in Federal Procurement,” Federal Register, vol. 63, June 30,
1998, pp. 35714-35718.

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Benchmarking. Benchmarking was developed in an attempt to meet the
Adarand requirement that race-conscious contracting programs must serve a
“compelling interest” and must be “narrowly tailored.” In order to determine markets
in which it is still necessary to offset the effects of discrimination, the utilization and
capacity of minority-owned businesses in 70 SIC major groups, and in nine
geographic areas for each of the three construction SIC major groups, were
determined by analyzing data representing the firms in the United States that bid on
federal contracts or participated in the SBA’s 8(a) program during FY1996.
Utilization was based on the percentage of the total dollar value of federal contracts
awarded to SDBs in each SIC code or geographic area in FY1996. Capacity, more
difficult to determine, was estimated by taking into account various characteristics of
firms that bear directly on the value of contracts that they receive, such as the size and
age of the firm. This approach allowed Commerce Department statisticians to
estimate the percentage of the dollar value of contracts that SDBs would be expected
to receive if the success of individual SDBs in winning federal contracts equaled that
of all other firms of equal age and size in the industry.
SBA’s Section 8(a) Program
Named for the section of the Small Business Act from which it derives its
authority,46 the purpose of the 8(a) program is to assist eligible small disadvantaged
business concerns to compete in the American economy and gain access to the federal
procurement market through business development. SBA enters into contracts with
other federal agencies for their procurement needs; it then subcontracts the actual
performance of the work to the limited number of economically and socially
disadvantaged firms certified by the SBA for participation in the program. All federal
departments and major independent agencies participate in the 8(a) program.
For purposes of program enrollment, African Americans, Asian Americans,
Hispanic Americans, and Native Americans are presumed to be socially
disadvantaged. Others, such as women or disabled persons who do not belong to the
presumptively disadvantaged minority groups, can individually establish social
disadvantage by demonstrating that they have been subjected to racial or ethnic
prejudice or cultural bias because of their membership in a particular group. In the
past, there have been few nonminority business owners in the 8(a) program.
Economic disadvantage is established, in part, by the personal net worth of the
owners and managers claiming disadvantage. Individuals whose personal net worth
exceeds $250,000 (excluding their ownership interests in the firm and the equity in
their primary places of residence) will not be considered economically disadvantaged
for purposes of 8(a) program entry. All firms currently in the 8(a) program will
automatically receive SDB status and will not have to be recertified. All firms that
have exited the 8(a) program in good standing within the last three years and have
undergone a routine annual review during that period will also receive automatic
certification.
46Section 8(a) of the Small Business Act, P.L. 85-536, as amended, can be found at 15 U.S.C.
637(a). Regulations appear at 13 CFR 124.

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Revised by the Business Opportunity Development Reform Act of 1988,47 and
more recently by the Department of Justice’s post-Adarand review of federal
affirmative action programs, the 8(a) program’s current regulations were published
in the Federal Register on June 30, 1998.48 The regulations can also be consulted
online via SBA’s Office of Minority Enterprise Development at
[http://www.sbaonline.sba.gov/8abd/].
SBA is directed to rely on the benchmarking system described above in
administering the 8(a) program. The benchmarks are to provide guidance to program
administrators in determining, for example, the number and types of firms that will
participate in the program, and in deciding what contracts will be authorized under
the program.
The 8(a) program is designed as a business development program, and certified
SDB firms are required to develop comprehensive business plans with specific
business targets, objectives, and goals. Program participation is limited to a period
of nine years. As companies move through the program, they are required to obtain
a progressively larger share of their revenues from non-8(a) sources in order to
enhance their chances of survival after graduating from the program.
To help meet these objectives, section 7(j) of the Small Business Act49 requires
SBA to provide management and technical assistance to 8(a) firms. Assistance is
provided in such areas as loan packaging, financial counseling, accounting and
bookkeeping, marketing, and management. There are also provisions for surety
bonding assistance and for advance payments to help in meeting financial
requirements necessary to the performance of a contract.
SDBs can participate in many other SBA programs that are available to small
businesses in general. These include a national network of Small Business
Development Centers that offers technical and management assistance, a surety
bonding program for contractors who are unable to obtain bonding through normal
channels, and several business development programs that emphasize improvement
of management skills. Small business owners interested in participating in the 8(a)
program or other SBA assistance programs should contact their nearest SBA field
office or go online at [http://www.sbaonline.sba.gov].
Department of Transportation’s Programs
The Surface Transportation and Uniform Relocation Assistance Act of 1987
(STURAA)50 required the Department of Transportation (DOT) to expend not less
than 10% of federal highway and transit funds with disadvantaged business
47P.L. 100-656, 102 Stat. 3853, Nov. 15, 1988.
48U.S. Office of Management and Budget, “Small Business Size Regulations; 8(a) Business
Development/Small Disadvantaged Business Status Determinations,” Federal Register, vol.
63, June 30, 1998, pp. 35726-35780.
4915 U.S.C. 636.
50P.L. 100-17, 101 Stat. 132, 145, April 2, 1987.

CRS-17
enterprises. STURAA was one of the first pieces of federal legislation to include
women in the definition of socially disadvantaged individuals. Prior to its passage,
DOT maintained separate programs and goals for MBEs and WBEs. DOT’s 10%
goal was reauthorized by the Intermodal Surface Transportation Efficiency Act of
1991 (ISTEA),51 and was unchanged by the Transportation Equity Act for the 21st
Century (TEA-21),52 despite efforts to terminate it.53 According to the most recent
data available, from 1983 through 1999, about $35 billion of the federal funds
expended through DOT-assisted highway and transit contracts went to DBEs — an
increase from 9.9% to 12.8%.54
Federal transportation funds are distributed by DOT through state departments
of transportation and state and local mass transit agencies, which are not covered by
the new federal benchmarking requirements. These agencies are required to adopt
specific annual goals for DBE participation in their highway and transit contracts.
The state and local transportation agencies are also responsible for establishing
certification procedures for their DBE programs, although all 8(a) firms are
automatically certified. Regulations containing changes in response to Adarand were
published in 1999.55 Information on highway and transit contracting opportunities for
DBEs can be obtained from state highway departments and state and local transit
agencies.
Amendments in 1987 and 1992 to the Airport and Airway Improvement Act of
198256 require DOT to expend not less than 10% of federal airport improvement
funds with DBEs. Also, an airport must ensure, to the maximum extent practicable,
that at least 10% of concession contracts go to DBEs. This law requires DOT to
establish uniform criteria to be used by state governments and airport agencies in
certifying whether firms qualify as DBEs and, like STURAA and its successors,
includes women in the definition of disadvantaged individuals.
DBEs seeking to compete in transportation contracting opportunities can
experience difficulties in obtaining capital and meeting bonding requirements. Two
programs conducted by DOT’s Minority Business Resource Center in Washington are
designed to assist DBEs in these areas. Short term working capital at prime interest
rates can be obtained through the Short Term Lending Program, and payment and
51P.L. 102-240, 105 Stat. 1914, 1919, Dec. 18, 1991.
52P.L. 105-178, June 9, 1998.
53Proposed floor amendments to kill the program failed in both the Senate (“Amendment No.
1708,” Congressional Record, daily edition, vol. 144, March 6, 1998, pp. S1481-S1498) and
the House (“Amendment No. 3 Offered by Mrs. Roukema,” Congressional Record, daily
edition, vol. 144, April 1, 1998, pp. H2000-H2012).
54U.S. General Accounting Office, “Disadvantaged Business Enterprises: Critical Information
Is Needed to Understand Program Impact,” GAO report GAO-01-586 (Washington: May 1,
2001), p. 3.
55U.S. Office of Management and Budget, “Participation by Disadvantaged Business
Enterprises in Department of Transportation Programs,” Federal Register, vol. 64, Feb. 2,
1999, pp. 5095-5148.
5649 U.S.C. App. 2204.

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performance bonds can be issued through the Bonding Assistance Program. To be
eligible for these assistance programs, certified DBEs must have been awarded a
transportation-related contract.
As noted by the General Accounting Office, the DBE program has changed
significantly since DOT issued regulations in 1999, in part, to respond to Adarand.57
The regulations overhauled the DBE goal-setting process, so that states and transit
authorities are no longer required to justify goals lower than 10% — the amount
identified in the statutory DBE provision.58 Further, goals are to be based on the
number of “ready, willing, and able” DBEs in local markets.59 Among other changes
are:
States and transit authorities must now use race-neutral measures (i.e., measures
intended to help small businesses, not just DBEs), such as outreach and technical
assistance, to the greatest extent possible to achieve their DBE goals.
Furthermore, the new regulations revised the eligibility requirements to include a
personal net worth cap of $750,000 for the individuals who own and control
DBEs.60
States and transit authorities were required to submit to DOT new DBE program
plans that reflected the new regulations in August 1999.
Department of Defense’s SDB Program

Section 1207 of the National Defense Authorization Act of 1987 established a
goal, for FY1987 through FY1989, of awarding 5% of the total value of Department
of Defense (DOD) procurement contracts to minority firms, historically black colleges
and universities, and other minority institutions.61 Repeatedly reauthorized, this
requirement was extended through FY2003, by the National Defense Authorization
Act for Fiscal Year 2001.62 This same law also codified the program as section 2323
of Title 10, U.S. Code. The recently enacted Federal Acquisition Streamlining Act
extended section 2323 to the U.S. Coast Guard and the National Aeronautics and
Space Administration. Regulations implementing this program can be found in the
Code of Federal Regulations at 48 CFR Part 219.
In pursuit of the 5% goal, DOD is the largest participant by far in the 8(a)
program. SDBs can receive a price evaluation preference of up to 10% when
competing against non-SDBs in open solicitations. In addition, winning bids with
DOD, unlike those with civilian agencies, are allowed to exceed fair market price.
57U.S. General Accounting Office, “Disadvantaged Business Enterprises: Critical Information
Is Needed to Understand Program Impact,” p. 3.
58Ibid, p. 4.
59Ibid.
60Ibid.
61P.L. 99-661, 100 Stat. 3816, 3973, Nov. 14, 1986.
62P.L. 106-398, 114 Stat. 1654, Oct. 30, 2000.

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Major DOD prime contractors are also required to submit plans and goals for
subcontracting with SDB concerns.
The FY1999 defense authorization act contains a provision that places
restrictions on DOD’s SDB program. Section 80163 amends current law to require
that the Secretary of Defense determine, at the beginning of each fiscal year, whether
the department has met its 5% SDB goal in the most recent fiscal year for which data
are available. If the goal has been met, DOD is required to suspend, for one year, the
regulations providing for the granting of price evaluation preferences to SDBs.
During that one-year period, DOD is prohibited from entering into a contract with an
SDB for a price exceeding fair market cost.
DOD contracting offices throughout the country maintain active programs to
identify small disadvantaged businesses and place them on mailing lists that are used
in the solicitation of proposals and bids. Unlike SBA’s section 8(a) program and
DOT’s DBE program, DOD’s section 2323 program had no certification
requirements. All SDB contractors will have to be certified by the SBA. Although
nonminority women are not presumed to be disadvantaged for purposes of Section
2323, DOD does actively seek out female-owned small businesses as prime
contractors and subcontractors in its attempts to meet its 5% WBE goal.
To encourage DOD contractors to increase SDB participation in subcontracting,
Congress in 1990 created the Mentor-Protégé Pilot Program. Mandated by section
831 of the National Defense Authorization Act for Fiscal Year 1991,64 the program
authorizes prime contractors (mentors) to award noncompetitive subcontracts to
SDBs (protégés) and to provide loans or make other investments in protégé firms.
Mentors receive incentives in the form of reimbursements for their assistance to
protégés and earn credit towards their SDB subcontracting goals. In this voluntary
program, mentors are responsible for selecting their protégés, subject to the approval
of DOD’s Office of Small and Disadvantaged Business Utilization, which oversees the
program.
“Small business specialists” are available at each defense procurement agency to
assist SDBs in marketing their products and services with DOD. Information and
guidance are available on defense procurement procedures, how to be placed on
solicitation mailing lists, and how to identify prime contracting and subcontracting
opportunities. A list of the locations of Army, Navy, Air Force, Defense Logistics
Agency, and other DOD procurement and contract administration offices, together
with the names of each location’s small business specialist, can be found in the DOD
publication Small Business Specialists, which can be purchased from the
Superintendent of Documents, U.S. Government Printing Office, Washington, DC
20402. The home page of DOD’s Office of Small and Disadvantaged Business
Utilization can be visited on the Internet at [http://www.acq.osd.mil/sadbu/].
63P.L. 105-261. For the text of the conference report (H.Rept. 105-736), see Congressional
Record, daily edition, vol. 144, Sept. 22, 1998, pp. H8097-H8460.
64P.L. 101-510, 104 Stat. 1485, 1607, Nov. 5, 1990.

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Two other DOD publications, Selling to the Military and Guide to the
Preparation of Offers for Selling to the Military, provide background information on
DOD procurement procedures, items purchased, the location of military purchasing
offices, and how to prepare bids and proposals. Subcontracting opportunities with
DOD prime contractors can be identified in the DOD directory Subcontracting
Opportunities with DoD Major Prime Contractors, which lists the names and
addresses of DOD prime contractors, the names and telephone numbers of the firms’
small business liaison officers, and the products or services being provided to DOD.
These publications are also for sale by the superintendent of documents.
Laws That Apply to Other Departments and Agencies
Other federal laws that contain provisions designed to assist small disadvantaged
businesses and that apply to specific executive departments or independent agencies
not discussed above are described here. Some of these statutes, as noted, include
women as socially or economically disadvantaged, making firms owned by
nonminority women eligible for participation.
Department of Energy. The Energy Policy Act of 199265 requires that not
less than 10% of the total combined amounts obligated for contracts and subcontracts
by each agency under this Act be expended with small business concerns controlled
by socially and economically disadvantaged individuals or women, historically black
colleges and universities (HBCUs), or colleges and universities having a student body
in which more than 20% of the students are Hispanic Americans or Native Americans.
The National Defense Authorization Act for FY199466 establishes for the
Department of Energy (DOE) a 5% goal for contracts and subcontracts with SDBs,
HBCUs, and minority institutions in carrying out national security programs for the
Department of Defense. This goal applies to procurement funds obligated in each
fiscal year from 1994 through 2000.
DOE has initiated a pilot mentor-protégé program to help energy-related SDBs
and WBEs improve their business and technical capabilities in order to obtain a larger
share of DOE prime and subcontracts. Final guidelines for this program were
published in the Federal Register on April 21, 2000.67
65P.L. 102-486, 106 Stat. 2776, 3133, Oct. 24, 1992, 42 U.S.C. 13556.
66P.L. 103-160, 107 Stat. 1547, 1956, Nov. 30, 1993.
67U.S. Office of Management and Budget, “Office of Economic Impact and Diversity;
Guidelines for Department of Energy Mentor Protégé Initiative,” Federal Register, vol. 65,
Apr. 21, 2000, pp. 21367-21371.

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Department of State.68 The Omnibus Diplomatic Security and Anti-
Terrorism Act of 1986,69 which authorizes funds for the construction and maintenance
of U.S. embassies abroad, requires that not less than 10% of the amount appropriated
for diplomatic construction or design projects each fiscal year shall be allocated to the
extent practicable for contracts with American minority contractors.
The Foreign Relations Authorization Act, Fiscal Years 1990 and 1991,70 requires
the Secretary of State to: establish a pilot program of voluntary set-asides to increase
SDB participation in contract, procurement, grant, and research and development
activities funded by the Department of State and the United States Information
Agency (Sec. 126); allocate not less than 10% of the amount of funds obligated for
local guard contracts for Foreign Service buildings abroad for contracts with U.S.
MBEs (Sec. 136);71 and make available to U.S. SDBs not less than 10% of the
amounts available for U.S. contracts for the broadcasting relay station in Israel (Sec.
301). Nonminority women are not presumed to be socially or economically
disadvantaged under this law.
Environmental Protection Agency.72 The Superfund Amendments and
Reauthorization Act of 198673 authorizes funds to clean up hazardous waste sites
throughout the country. While there is no specific set-aside goal or quota in this
legislation, it does require the Environmental Protection Agency (EPA) to submit to
Congress an annual report on contracts awarded to minority businesses under this
law.
EPA’s appropriations act for FY1991 provided that at least 8% of federal
funding for prime contracts and subcontracts awarded in support of authorized
programs, including grants, loans, and contracts for wastewater treatment and leaking
underground storage tanks grants be made available to SDBs (including WBEs) and
68For more information on Department of State disadvantaged business programs, contact the
Office of Small and Disadvantaged Business Utilization, Department of State, SA-6, Room
L500, Washington, DC 20522. Its Web site can be accessed at
[http://www.statebuy.gov/osdbu1.htm].
69P.L. 99-399, 100 Stat. 853, 865, Aug. 27, 1986.
70P.L. 101-246, 104 Stat. 15, 28, 33, and 63, Feb. 16, 1990.
71This provision was amended in 1994 by the Foreign Relations Authorization Act, Fiscal
Years 1994 and 1995 (P.L. 103-236, 108 Stat. 401, April 30, 1994) and was codified at 22
U.S.C. 4864.
72For more information on Environmental Protection Agency programs for disadvantaged
business, contact the Office of Small and Disadvantaged Business Utilization, Environmental
Protection Agency, 1200 Pennsylvania Avenue, N.W. (1230A), Washington, DC 20460. Its
Web site can be accessed at [http://www.epa.gov/osdbu].
73P.L. 99-499, 100 Stat. 1613, 1627, Oct. 17, 1986.

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historically black colleges and universities.74 This provision was continued in EPA’s
FY1993 appropriations act75 and remains in effect.76
The Clean Air Act Amendments of 1990,77 while specifically prohibiting the use
of quotas, provide that the EPA shall, to the extent practicable, require that not less
than 10% of total federal funding for any research relating to the requirements of the
amendments be made available to disadvantaged business concerns, historically black
colleges and universities, colleges and universities having a student body in which
40% of the students are Hispanic, or minority institutions. This law includes women
and disabled Americans within its definition of economically and socially
disadvantaged individuals.
Federal Deposit Insurance Corporation. The Financial Institutions
Emergency Acquisitions Amendments of 198778 require the Federal Deposit Insurance
Corporation, when assisting in the emergency interstate acquisition of a minority-
controlled bank, to seek an offer from other minority-controlled banks before
proceeding with the bidding priorities otherwise required.
National Aeronautics and Space Agency. NASA currently operates
under a requirement that at least 8% of the total value of its prime contracts and
subcontracts be made available to SDBs and minority educational institutions. First
included in its FY1990 appropriations act79 and codified at 42 U.S.C. 2473b, this 8%
goal was restated in subsequent NASA appropriations acts to include women.80 As
noted above, the Federal Acquisition Streamlining Act extended to NASA DOD’s
authority to set aside procurement contracts for exclusive bidding by SDBs, to grant
SDBs a price evaluation preference of up to 10% when competing against non-SDBs
in open solicitations, and to grant contracts at above fair market price. NASA has
also formulated its own mentor-protégé program81 and is taking other steps to
enhance the capabilities of SDBs and WBEs to perform as NASA contractors and
subcontractors.
74P.L. 101-507, 104 Stat. 1351, 1374, Nov. 5, 1990.
75P.L. 102-389, 106 Stat. 1571, 1602, Oct. 6, 1992.
7642 U.S.C. 4370d.
77P.L. 101-549, 104 Stat. 2399, 2708, Nov. 15, 1990, 42 U.S.C. 7601 note.
78P.L. 100-86, 101 Stat. 552, 625, Aug. 10, 1987, 12 U.S.C. 1823f(6).
79P.L. 101-144, 103 Stat. 839, 863, Nov. 9, 1989, 42 U.S.C. 2473b.
80See Departments of Veterans Affairs and Housing and Urban Development, and Independent
Agencies Appropriations Acts for 1991 (P.L. 101-507, 104 Stat. 1351, 1380, Nov. 5, 1990)
and 1993 (P.L. 102-389, 106 Stat. 1571, 1610, Oct. 6, 1992).
81For the final rule, see U.S. Office of Management and Budget, “NASA Mentor-Protégé
Program Policies,” Federal Register, vol. 60, March 24, 1995, pp. 15497-15503. Or see 48
CFR Part 1819.

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Programs for Native Americans
In addition to the Minority Business Development Agency’s Native American
Business Development Centers described above, other federal programs have been
created specifically for Native American-owned firms. The Department of the
Interior’s Bureau of Indian Affairs (BIA) operates several such programs, authorized
by the Indian Financing Act of 1974, as amended.82 BIA’s Indian Business
Development Grant Program, for example, provides equity capital for Native
American entrepreneurs to establish and develop profit-making business ventures on
federal Indian reservations.83 Eligibility for this program extends to federally
recognized Native American tribes and Alaska Native groups, individual members of
such tribes or groups, and Indian-owned corporations, partnerships, and cooperative
associations. Businesses must be at least 51% owned and controlled by Native
Americans and be located on or near federal Indian reservations.
The BIA also operates a guaranteed loan program for federally recognized
Native American tribes, Alaska Native groups, and individual members of such tribes
or groups who are otherwise unable to obtain credit from private lending institutions.
Loans may be guaranteed for any profit-making purpose (usually business, industry,
or agriculture) that will promote the economic development of a federal Indian
reservation. The BIA can also make direct loans, funded from a revolving account,
to Native Americans and Native American entities for economic development
purposes in cases where funds are unavailable from other sources on reasonable terms
and conditions.
The Indian Self-Determination and Education Assistance Act requires that Indian
organizations and Native American-owned economic enterprises receive preference
in the award of subcontracts and subgrants that flow from BIA contracts and grants
for the benefit of Native Americans.84 Also, the Buy Indian Act gives the secretary
of the interior discretion to purchase the products of Native American industry.85
DOD’s Defense Logistics Agency administers a program with the dual purpose
of maintaining a strong national security by expanding the defense industrial base and
improving the business climate and economic development on federal Indian
reservations.86 In this Procurement Technical Assistance (PTA) Program, DOD
shares the cost of establishing and supporting PTA programs that are conducted by
82P.L. 93-262, 88 Stat. 77, Apr. 12, 1974, 25 U.S.C. 1451.
83For more information on Bureau of Indian Affairs disadvantaged business programs, contact
the Bureau of Indian Affairs, Department of the Interior, 1849 C Street, N.W., Washington,
DC 20240. Pursuant to a Court order dated December 6, 2001, the Bureau of Indian Affairs
Web site has been temporarily disconnected from the Internet.
84P.L. 93-638, 88 Stat. 2203, Jan. 4, 1975, 25 U.S.C. 450e(b).
85P.L. 61-313, Sec. 23, 36 Stat. 855, 861, June 25, 1910, 25 U.S.C. 47.
86For more information on Department of Defense small business programs, contact the Office
of Small and Disadvantaged Business Utilization, Room 2A318, The Pentagon, Washington,
DC 20301-3061. Its Website can be accessed at [http://www.acq.osd.mil/sadbu].

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tribal organizations and Native American economic enterprises to help business firms
located on reservations obtain DOD procurement contracts.
The Indian Health Service of the Department of Health and Human Services, in
connection with its construction, maintenance, and operation of hospital and health
facilities as well as water and sewer systems for Indians, is authorized to grant
preferences to products of Native American firms.87
Additional Sources of Information
Commerce Business Daily (CBD) is a valuable source of information for
identifying opportunities for selling goods and services to the federal government.
Published by the Department of Commerce every weekday, it lists proposed
procurements of all federal agencies, subcontracting opportunities offered by prime
contractors, and other information on federal procurement activities. It is available
by subscription from the Superintendent of Documents, U.S. Government Printing
Office, Washington, DC 20402. The CBD is also available for inspection at DOD
procurement offices, at the field offices of the Small Business Administration, the
Department of Commerce, and the General Services Administration, and at many
local chambers of commerce and public libraries. It can also be consulted via the
Internet at [http://cbdnet.gpo.gov].
Field offices of the Small Business Administration, the General Services
Administration, and the Department of Commerce as well as the procurement offices
of the Department of Defense are equipped to assist SDBs in locating federal civilian
and military procurement opportunities. Many local chambers of commerce also have
facilities to provide similar guidance and assistance.
Products and services purchased by federal civilian agencies are described in the
SBA’s publication U.S. Government Purchasing and Sales Directory, which is
available for purchase by mail from the Superintendent of Documents, P.O. Box
371954, Pittsburgh, PA 15250-7954. Information on the availability and cost of this
and other executive agency publications mentioned in this report can be obtained by
calling the Government Printing Office in Washington, DC, at 202-512-1800.
87P.L. 94-437, Title III, 90 Stat. 1407, Sept. 30, 1976, 90 Stat. 1407, 25 U.S.C. 1633.

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Appendix A: List of Acronyms
DBE
Disadvantaged Business Enterprise
FPDC
Federal Procurement Data Center
MBDA
Minority Business Development Agency
MBDC
Minority Business Development Center
MBE
Minority Business Enterprise
NABDC
Native American Business Development Center
OSDBU
Office of Small and Disadvantaged Business Utilization
SBA
Small Business Administration
SDBC
Small Disadvantaged Business Certification
SDB
Small Disadvantaged Business
WBE
Women-Owned Business Enterprise