Minority owned small businesses were dealt another blow when a Kentucky federal judge on September 23rd, partially blocked a U.S. Transportation Department program that issues contracts to them. There are some that worry this trend of decision against programs to diversify federal contract spending will hamper progress.  The Federal Drive with Tom Temin  got the chance to speak with Kendra Perkins Norwood, a partner with the law firm Reed Smith.

Interview transcript:

Kendra Perkins Norwood So there have been three primary rulings of late that have impacted this area. The first being out of Tennessee, a decision that challenged the presumption of social disadvantage by designated groups under the Small Business Administration 8(a) Business Development program. And there was a challenge that impacted the way SBA now assesses whether a company is socially disadvantaged. The other would be a challenge out of Texas against a program run by the Minority Business Development Agency. And there it was a similar challenge. And BDA, as it’s called, runs a program regionally across the country where it provides technical assistance to small businesses that are interested in doing business with the federal government or business generally. And they’re the same sort of challenge was successful. And here lately, we’ve seen that decision out of Kentucky related to the Department of Transportation’s program for minority business enterprises. And so those are the three that have sort of been at the forefront and have resulted in some significant changes. And so the presumption is that we will see more as things develop.

Eric White Is this part of the norm for judges to weigh in on stipulations like this? I guess cases were brought to them and they were forced to make a decision. But how can one branch really tell the executive branch who they’re allowed to do business with? Shouldn’t that decision be left up to them? I know I’m maybe preaching to the choir here, but that was the part that confused me the most, was, is this an area where we usually see judges weighing in on when companies feel as if they’ve got the short end of the stick? I thought that was kind of left up to the Government Accountability Office and other things like that.

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Kendra Perkins Norwood That is generally the case. But these challenges have been brought under the equal protection clause of the Constitution, which requires equal protection of the law. And so the legal arguments have centered around the idea that by creating these preferences or these programs that are set aside for certain entities, that it’s precluding equal protection for firms that may not fit the criteria that the government is setting aside. So it is a constitutional challenge. That’s how they’re bringing them before the courts. And so under the system of checks and balances, yeah, the judicial branch and in fact check agency action, executive agency action.

Eric White What is it about these cases that could have an effect on how executive agencies choose set aside contracts for those that they feel were in an unfair position or have faced societal problems that have made it harder for them to do business. Is that going to be something that we’re going to be seeing less and less of? If an executive agency says we would love to do that, but it’s probably going to get overturned if somebody challenges it with, which more than likely will happen.

Kendra Perkins Norwood Well, I think what’s going to happen is that agencies will have to become more strategic and more intentional about how they’re putting these programs together. The decisions that I’ve read, the three that that I just discussed, all sort of provide, in my view, a roadmap for what the court has deemed in error with the programs as they are currently configured. And so I think what government agencies will likely need to do is restructure the programs, reconsider the criteria, reconsider how they are making the assessments as to who’s entitled to take advantage of the opportunities presented. So I don’t think this is necessarily the end of these programs per se, but I do think we will see some changes in how the government puts them together and how the government administers them going forward.

Eric White It’s almost as if the judges are saying we want a more targeted approach rather than blanketed approach of any minority owned business is facing societal issues that have hampered their ability to work with the government. They want to see, I guess, show your work. They want to see actual reasons of how they’ve been disadvantaged, I guess, is what you’re saying.

Kendra Perkins Norwood Absolutely. So these decisions are saying that the agencies established these programs in a way that is too broad and that we need to see more specific impacts to the individuals that are being given these opportunities through the programs. And so again, it’s not that these decisions are saying the programs cannot continue. They’re just saying that this presumption that certain groups of people are socially disadvantaged by default, being a part of a certain racial or ethnic group is no longer about, at least as these decisions have been made clear. So agencies will need to become tighter around how they put these programs together and how they administer them. For example, the SBA’s 8(a) program. When the Tennessee decision came down, SBA 8(a) status companies would have received a presumption that they were socially disadvantaged just by default of being a part of a social, racial ethnic group or by being limited. And so now the court is saying that’s no longer presumption. And so people will need to provide specific examples of how they’ve been discriminated against individually as opposed to there being this sort of broad and general presumption that discrimination and social disadvantage stems directly from one’s race or ethnicity.

Eric White We’re speaking with Kendra Perkins Norwood. She is a partner at Reed Smith. And it’s obviously that a question of philosophy is at the heart of this argument. So in seeing things from the other side of the philosophy and saying, if you have a blanket policy that covers all minority owned or women owned small businesses, is the government losing out on really rewarding or awarding contracts to the best candidate? If a decision is pretty much done before even bids are submitted just because of who a person is. Was that the argument that the folks who challenged these cases or the plaintiffs in these cases, is that the argument that they were bringing forth?

Kendra Perkins Norwood That’s in general, the argument that’s been advanced. But I think it’s a flawed one simply because these contracts aren’t being awarded simply by default if your being a member of this protected group or some side group. It’s really about sort of trying to level the playing field, if you will. So it’s not that it necessarily needs to be a lower quality service or product. It’s not that it needs to be one that hasn’t received as scrutiny an evaluation by the agency that’s seeking out the work. But it just sort of allows companies that otherwise may not be able to compete, giving them an opportunity to take advantage of opportunities that have been set aside strictly for companies that in everyday competitions may not be able to compete. So I think that sort of a false narrative that’s been advanced where it’s sort of, well, these companies are not qualified or they are not giving the most competitive offers and not offering the best value to the government. And I think that’s certainly not the case because even with a set aside contract, the government is still going to be required to evaluate the quality of the proposal that’s before them. So I think that’s just sort of noise, if you will.

Eric White Let’s just get down to the ground of who this is actually affecting. What are you hearing from these firms who do fall under these categories? Are they worried that they’re going to have to change their approach? Are they thinking that maybe these programs aren’t for us and it’s not even worth it for them to attempt to apply for them? What is the reaction on their part?

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Kendra Perkins Norwood I don’t think so. And I think that there is a strong public policy priority and objective on the part of the federal government to ensure that despite these rolling, there are opportunities to make sure that everyone’s operating on a level playing field. So companies, I’ve spoken with many clients of mine who do have some anxiety around what’s going to happen to my business if these these programs continue to be under attack. But I am optimistic that there is just a policy objective on the part of the federal government to ensure that these opportunities continue. And so, again, we’ll likely see some revamped programs, some restructured programs, some adjustments to the criteria in the way that social disadvantage and other criteria are assessed.

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