SOCIOECONOMIC CONSIDERATIONS

1. SOCIOECONOMIC CONSIDERATIONS • Why must there be considerations? • What’s to consider? • Who is considered?

2. SOCIOECONOMIC CONSIDERATIONS • Why must there be considerations? • To ensure adequate opportunities in the government market. • To ensure fair and open competition. • What does doing business with a small business have to do with opportunities, fairness, and open competition?

3. SOCIOECONOMIC CONSIDERATIONS • What’s a small business? • Small Business = • Size? _________ • $? ____________

4. SOCIOECONOMIC CONSIDERATIONS • Small Business = • Size? Yes. See size standards. • $? Yes, $ caps for different types of businesses.

5. SOCIOECONOMIC CONSIDERATIONS • Small business does not equal small disadvantaged business. A small disadvantaged business is 51% owned/controlled by socially/economically disadvantaged person.

6. SOCIOECONOMIC CONSIDERATIONS • In the past, SDB’s were allowed to self-certify themselves. All that had to happen was a form had to be signed stating that they were SDBs. Can you see the problems that might have happened?

7. SOCIOECONOMIC CONSIDERATIONS • Now there is a new certification process which attempts to reduce fraud and ensure that SDBs are actually getting the benefits of the SBA’s 8(a) program. This 8(a) program authorizes the SBA to subcontract awards from other Government agencies and then to award them to SDBs.

8. SOCIOECONOMIC CONSIDERATIONS • In order to qualify, the SDB must also be in one of 55 industries found to have lingering discrimination and the owners must provide a certifier with financial documents regarding the company and themselves as verification that they are truly SDBs. Personal net worth < $750K to qualify. Must be African-Amer., Native-Amer., or any socially disadvantaged group.

9. SOCIOECONOMIC CONSIDERATIONS • An SDB benefits because it receives a 10% adjustment on their bids for contracts. Therefore, in order to win, the SDB need not be the lowest bidder. This is a definite advantage to SDBs that may not have the economies of scale that larger businesses possess.

10. SOCIOECONOMIC CONSIDERATIONS • But adoption was slow. This was partly seen because the fee to be certified could be upwards of $2,000. Other businesses don’t want to or can’t fill out the complicated forms. Other businesses don’t want to reveal financial information.

11. SOCIOECONOMIC CONSIDERATIONS • How is the SB program put into practice? • Contract Set-asides: total or partial • SB programs, i.e SBIR

12. SOCIOECONOMIC CONSIDERATIONS • Contract Set-asides: total or partial. • Total: If there is reasonable expectation of competition and reasonable prices • Partial: If criteria for total aside can’t be met.

13. SOCIOECONOMIC CONSIDERATIONS • Subcontracting Plans: Regulated and monitored use of SB as subcontractors on government contracts of determined size (>$500K) via adherence to a SB Plan submitted with the proposal. • Plan gives anticipated goals for use of SB, SDB, WO, labor surplus areas. Min.’s est. • Monitored by DLA, SBA with penalties.

14. SOCIOECONOMIC CONSIDERATIONS • Once the FAR clause that mandates the use of Small Business and the establishment of a plan is put into Section I of the contract, the prime contractor is obligated to submit, as part of its proposal, a plan to use SBs, SDBs, and Women-Owned businesses -in given % goals- as part of the goods and services not provided by the contractor (or being subcontracted out).

15. SOCIOECONOMIC CONSIDERATIONS • Acceptable goals were: • 5-8% to Small Businesses • 5% to Women-owned Businesses • 2-4% for SDBs • If no S/C opportunities existed for these categories, an explanation had to be included. What might some explanations be?

16. SOCIOECONOMIC CONSIDERATIONS • If the contract was won, you began immediately to fill your subcontracts. • Then, yearly, the contractor submits a report on • how well they performed in placing $$ with SBs, SDBs, Wos for each eligible contract (reported by qtrs) on Form 294 • how well they did overall in placing subcontracts, compared against the previous year on Form 295.

17. SOCIOECONOMIC CONSIDERATIONS • Unsatisfactory placement %’s meant lower than predicted goals. Without good excuses or a show of a good faith effort, the contractor faced: • loss of future contract awards • liquidated damages • additional pressure to perform

18. SOCIOECONOMIC CONSIDERATIONS • But then came Adarand?

19. SOCIOECONOMIC CONSIDERATIONS • Federal agency contracts must contain a subcontractor competition clause. This gives a prime contractor a financial incentive to hire contractors certified as SB/SDB and requires the contractor to presume that such individuals include minorities.

20. SOCIOECONOMIC CONSIDERATIONS • In Adarand Construction v. Pena, the prime contractor (Mountain Gravel and Construction Co.), under a federal highway construction contract containing such a clause, awarded a subcontract to a company that was certified as SDB.

21. SOCIOECONOMIC CONSIDERATIONS • Adarand submitted the lowest bid on the subcontract but was not certified SDB. Consequently, it did not win the subcontract. The subcontract went to Gonzales Construction, certified as SDB.

22. SOCIOECONOMIC CONSIDERATIONS • Adarand claimed that raced-based presumptions used in S/C compensation clauses violate the equal protection component of the 5th Amendment's Due Process Clause.

23. SOCIOECONOMIC CONSIDERATIONS • The Court held that all racial classifications, imposed by the government, must be analyzed by a reviewing court under a strict scrutiny standard.

24. SOCIOECONOMIC CONSIDERATIONS • “The decision here makes explicit that federal racial classifications,…[to be used] must serve a compelling governmental interest, and must be narrowly tailored to further that interest...

25. SOCIOECONOMIC CONSIDERATIONS • The Adarand case put into jeopardy the idea that prime contractors had to seek out SDBs to meet the goals of placement.

26. SOCIOECONOMIC CONSIDERATIONS • And, with acquisition streamlining and reform, the added costs of monitoring such awards seemed a good target for elimination.

27. SOCIOECONOMIC CONSIDERATIONS • But the subcontracting program remains strong. In fact, in a recent issue of Contract Management, an article calls for the following tough measures: • liquidated damages with publicized examples showing that existing regulations are being enforced. • The key standard here is “good faith effort”

28. SOCIOECONOMIC CONSIDERATIONS • But the subcontracting program remains strong. In fact, in a recent issue of Contract Management, an article calls for the following tough measures: • propose legislation that would withhold a specified amount or percentage of the total contract for failure to achieve goals.

29. SOCIOECONOMIC CONSIDERATIONS • But the subcontracting program remains strong. In fact, in a recent issue of Contract Management, an article calls for the following tough measures: • motivate the COs by including poor performance here as part of their performance evaluation.

30. SOCIOECONOMIC CONSIDERATIONS • But the subcontracting program remains strong. In fact, in a recent issue of Contract Management, an article calls for the following tough measures: • Use OMB letter published in the Federal register and dated 4/2/99, promoting subcontracting initiatives, as a supplement to the FAR.

31. SOCIOECONOMIC CONSIDERATIONS • But the subcontracting program remains strong. In fact, in a recent issue of Contract Management, an article calls for the following tough measures: • Use Small Business advocates, designated by businesses, to help carry out the objectives.

32. SOCIOECONOMIC CONSIDERATIONS • But the subcontracting program remains strong. In fact, in a recent issue of Contract Management, an article calls for the following tough measures: • make awards as a way to publicly recognize successful contractors who meet their goals.

33. SOCIOECONOMIC CONSIDERATIONS • The article also pointed to the need for buy-in and enforcement by corporate management and the need for top sales department leadership in this cause.

34. SOCIOECONOMIC CONSIDERATIONS • FASA further changed the requirements for accounting for women-owned businesses. Women-owned businesses are not the same as other small businesses.

35. SOCIOECONOMIC CONSIDERATIONS • Stats published by the SBA say that women currently own 40% of US firms but only receive 2% of federal government prime contracts.

36. SOCIOECONOMIC CONSIDERATIONS • Let’s consider more stats… • 2% of government contracts given to women are granted from a pool of 9 million companies that employ 27.5 million people and had sales of more than $2 trillion last year.

37. SOCIOECONOMIC CONSIDERATIONS • An estimated 42% of women owned businesses sell products or services to government agencies, while 61%of male-owned firms consider the government a client.

38. SOCIOECONOMIC CONSIDERATIONS • Set-aside programs have resulted in 23% of firms owned by women of color selling to the government, compared to only 13% among firms owned by white women.

39. SOCIOECONOMIC CONSIDERATIONS • A problem? • old-boy network • sexism • drives up costs to change to women-owned businesses

40. SOCIOECONOMIC CONSIDERATIONS • What’s happening now? • SBA has tripled the number of loans and dollars lent to women-owned business. • New efforts to identify government contracts that women owned businesses are eligible for. • Help to those businesses with paperwork and forms, etc.