Department Of Justice Survey On Remedying The Effect Of Discrimination In Federal Contracting
Madam Speaker, I include in the Record the executive summary of a report by the Department of Justice (DOJ) titled ``The Compelling Interest to Remedy the Effects of Discrimination in Federal Contracting: A Survey of Recent Evidence.'' The…
Madam Speaker, I include in the Record the executive summary of a report by the Department of Justice (DOJ) titled ``The Compelling
Interest to Remedy the Effects of Discrimination in Federal Contracting: A Survey of Recent Evidence.'' The DOJ summary and associated report illustrate how systemic discrimination continues to create barriers for women- and minority-owned businesses to fairly compete for federal contracts and how federal contracting programs can respond to, address, and remedy the harmful effects of discrimination.
[From the U.S. Department of Justice, May 16, 2022]
The Compelling Interest To Remedy the Effects of Discrimination in
Federal Contracting: A Survey of Recent Evidence--Executive Summary
On January 27, 2022, the Department of Justice posted a
notice in the Federal Register announcing the publication of
a Department of Justice report surveying the evidence
supporting the use of race- and sex-conscious contracting
programs by the federal government in order to remedy the
effects of discrimination.
This report is third in a series created by the Department
of Justice since the Supreme Court determined that federal
race-conscious contracting programs must meet the strict
scrutiny standard of review to survive a constitutional
challenge based on the Equal Protection Clause in Adarand
Constructors, Inc. v. Pena, 515 U.S. 200, 227 (1995). Each
report has compiled and summarized the evidence of
discriminatory barriers that businesses owned by women and
people of color face that impede participation in government
contracting. Both previous reports have been cited in federal
court as evidence that there is a compelling governmental
interest in programs that support the ability of businesses
owned by people of color to compete on an equal basis. Strict
scrutiny is the most exacting standard of review, and it
requires, among other things, evidence supporting the
conclusion that such measures are necessary to further the
compelling governmental interest in remedying the effects of
past and present racial discrimination. If a program contains
affirmative measures based on sex, those measures are subject
to the somewhat lower standard of intermediate scrutiny. That
standard demands that any gender-based preference be
substantially related to an important governmental objective.
In assessing whether race- and sex-conscious government
contracting programs could continue to survive heightened
levels of judicial review, the Department of Justice reviewed
hundreds of state and local disparity studies, dozens of
congressional hearings and related testimony, government
reports on public contracting, academic and expert reports on
public and federal contracting, academic and government
reports on financial data related to small businesses, and
recent case law related to Equal Protection challenges to
government contracting and grant programs. The disparity
studies, congressional hearings, and academic reports contain
both quantitative and qualitative evidence of the persistence
of discrimination and its lingering effects in the public and
private sector.
The Department of Justice report determines that there is a
strong basis in evidence, both quantitative and qualitative,
of the continued pervasiveness of discriminatory barriers
that impede the full and fair participation of businesses
owned by women or people of color in government contracting.
The evidence discussed in this report supports the compelling
interest in the continued use of federal programs that
contain remedial measures to eliminate discriminatory
barriers to contracting opportunities for businesses owned by
minorities and an important state interest in the continued
use of federal programs that contain remedial measures to
eliminate discriminatory barriers to contracting
opportunities for businesses owned for women.
Both the qualitative and quantitative evidence shows the
various ways discrimination hinders the ability of minority-
and women-owned businesses to compete equitably for
government contracts. While this discrimination can take many
forms, primary obstacles include: (1) discrimination limiting
access to capital; (2) discrimination by procurement agencies
and prime contractors, (3) exclusion from business networks,
and (4) discrimination in lending and by bonding companies
and suppliers.
In assessing the current public contracting environment
faced by minority- and women-owned businesses, the Department
of Justice reviewed over 200 disparity studies from state and
local jurisdictions in 34 different states and the District
of Columbia. Disparity studies are quantitative demographic
analysis of public procurement contracting utilization as
compared to local business availability categorized by the
race or sex of the owner. The review of these studies shows
that there continues to be substantial disparities between
the availability of minority- and women-owned businesses and
the utilization of such businesses in state and local
government procurement in all areas of the country and at all
levels of procurement. The overwhelming majority of these
studies showed significant under-utilization of minority- and
women-owned businesses in almost every sector of public
procurement. The report cited to an overview of these
disparity studies conducted by the Minority Business
Development Agency in 2016, which found that the studies
indicated significant contracting disparities for minority
business enterprises that were pervasive across different
ethnic and racial groups, industries, and geographies.
Shockingly, the median value for the observed disparities was
just 19%, indicating that minority businesses were being
utilized at less than one-fifth of their availability in a
given marketplace.
The report also reviewed federal government small business
contracting. In 2017, just 9.8% of federal spending on
contracts went to minority-owned businesses. The same year,
woman-owned businesses received only 5% of federal prime
contract awards. Even when comparing businesses and
controlling for the industry in which the firm did business,
business age, business size (both in terms of average number
of employees and annual receipts), business form, and
security clearance, the likelihood of minority-owned
businesses receiving a federal contract versus similar
businesses is still lower than non-minority-owned businesses.
Overwhelmingly, the disparity studies and reports also
present evidence linking disparities in contracting to
discriminatory factors. In the private financial sector,
historic barriers and private discrimination has limited the
ability of minority business owners to accumulate assets and
wealth. Minority-owned businesses are two to three times more
likely to be denied credit, more likely to avoid applying for
loans based on the belief they will be turned down, and more
likely to receive smaller loans and pay higher interest rates
on the loans they do receive. Minority- and women-owned firms
not only receive smaller loans at higher interest rates than
firms owned by White males, but they also get smaller equity
investments.
In the bonding arena, both quantitative and qualitative
evidence shows that bonding requirements disproportionately
affect businesses owned by women or people of color. 83% of
minority- and women-owned businesses identified bonding
requirements as a specific barrier to the ability to obtain
contracts. A number of recent studies show that minority-
owned firms are significantly more likely to face
difficulties in obtaining required bonds compared with
majority-owned firms.
The evidence presented in the report indicates that the
barriers that have impeded the growth and success of
minority- and women-owned businesses continue to exist and
that government contracting preference programs ameliorate
the effects of public and private discrimination. For
example, a 2017 disparity study prepared for the Los Angeles
County Metropolitan Transportation Authority compared the
participation of minority- and women-owned businesses on
contracts that contained goals to encourage utilization of
minority- and women-owned businesses as opposed to contracts
that did not contain such goals. The results showed that on
contracts without goals, minority- and women-owned firms
earned only 53 cents on the dollar, but on contracts with
goals, such firms earned 96 cents on the dollar--almost what
would be expected given the availability of such firms in the
marketplace.
The federal government currently operates two main
contracting programs with race and/or sex-conscious elements:
the SBA Section 8(a) business development program and the
Department of Transportation Disadvantaged Business
Enterprise program. All federal departments and major
independent agencies participate in the SSA's Section 8(a)
business development program, which offers a variety of
assistance, including set-aside federal government contracts
to socially and economically disadvantaged businesses. In
Fiscal Year 2019, the federal government awarded $30.4
billion to 8(a) firms.
Appendices of 219 state and local disparity studies, 45
relevant academic and government studies, and 28
Congressional hearings are included with the report. The
Federal Register notice announcing the report may be found at
87 FR 4955, and the report itself is publicly available at
the Department of Justice.