Minority Business Enterprise Development and the Small Business Administration's 8(A) Program: Past, Present. and (Is There a) Future?

• Author: Major Thomas Jefferson Hasty, III
• Pages: 01

I. Introduction

Our Nation8 e c o m i c growth and ability to compete in the znternalionvl narkelplace depends OR tiLe full participation of all members of OUT society, Mimrily business-men and mmen have helped to eqand OUT economy through innovation, hard work, and by taking advantage of the oppm-tunities available in our free market systems. These entrepreneurs have become an indispensable force in o w economy, and they will continue to play (I key role

in OUT eflororls to ezppand America8 share of world markets 1

Cantraly to this statement, compelling evidence exists that minority businesses are a severely underutilized national resource.2 According to data compiled in the latest census conducted in 1987, minority busmesses account for less than nine percent of the total of all llnited States In 1987, 1.2 million minority owned firms generated gross receipts of Sii.84 billion, which represents an increase of $43 4 billion over the 1982-87 period.' However, all firms in the United States had gross receipts of $1.99 trillion; therefore,

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minority firms were only permitted to "participate" in a mere 3 So% of the national total j

It has long been the poiicy of the federal government to help small businesses owned by minorities became fuiip cornpetitire and \?able busmess concerns 6 Congress has recognized that ''in troubled economic times minority business has been traditionally that segment oi the economy 'ha first. hit hardest. and hit longest The federal gmemrnent implements a wide range of socioeconomic programs through ihe federal procurement process and uses federal procurement agency dollars. speciiicaiig appropriated for goods and senwes, to support these programs Federal assistance comes in many iorms and includes preferential treatment m obtaining procurement contracts and subcontracts, management and technical assistance. grants for education and trainmg. loans and loan guarantees. and surety banding assistance

These affirmative action programs include the use of minority business "set.asides' that have grown significantly far more than a decade.1° Va'anous types of set-asides exist which include. but are not limited to, agency specific set-aside programs and set-asides created by Congress that explicitly establish percentages of expenditures earmarked far mmonty businesses 11 One oi the programs with the greatest impact on the deveiopmenrai efforrs designed to increase smaii business participation in government contracts 1s the Small

Business Administration's (SBA) 8(a) program 12 This program provides preferential treatment in obtaining federal procurement contracts to "small disadvantaged businesses" enrolled in the program.

The opportunities created by set-asides, preferential procurement poiicies, and similar programs have induced better-educated, younger minority entrepreneurs to create and expand firms in the

skill-intensive and capital-intensive lines of business where the presence of minority-owned firms traditianally has been mlnimal.lg Hawever, minority-owned businesses lag behind their nonminority counterparts in several important respects.L4 In comparison to non-minorities, minority-awned businesses: (1) are less profitable as a soup: (21 have an incidence of nonprofitabllity that is over four times greater than nonminorities; (3) are highly leveraged and thus vulnerable to delinquency on debt obligations, making actual failure more likely; and (4) are a younger group of iirms.16

In an effart to combat this problem, Congress established the 8(a) program The primary purposes of the 8(a) program, BS manda ted by Congress, 01e as follows: (1) to foster business ownership by individuals who are both socially and economically disadvantaged; (2) to promote the competitive viability of these businesses by pro.

viding cantract, financial, technical, and management assistance; and (3) to expand the federal government's procurement program far product5 and services from small businesses owned by individuals who are both socially and ecanamically disadvantaged.10 TheSBA administers the 8(a) program through its central aiflce in Wash- LaBatei. supra note io, sf 67

Yd.at61.

Illd.

IBH R REP No. 056, supra note 7 , at 3. This congre9donal mandate resulted from a thoroueh review Of the 8(al procam conducted in the mld-lO70r in which Conmess found, with specific reference to the S(a1 program, the fouowmg. (

1. Thal the ~pportunity fnr full wIIIcIP~tIonm DYT free enter- pnse system by meisiiy and eeonomieaiiy dlsadYanmged persons in essential Lf we me to obtain roclpl and eeanomlc eealify for such per-sons and improve the functioning of our national economy.

   (81 That many such pe~oruare soclalls disadvantaged beesure of

   thelr ldentlfleation 88 members of certain COUPS that have Buffered the effect8 of diseriminafon. pmetlees Or Similar lnvldiaus cireumnlances overwhichthey have nocontrol; (C) That aueh groups include, but are not llmaed fa, Black Ameri-cans, Hl8panie Ametieanii, Xative Americans, and other minotitiea,

   (Dl mat rt 11 in the national lnteleit to expeditloudly amebarate the eondltmns of soelsily and economleaily disadvantaged coups,

   (El That such conditions can be improved by prowding the maxi. mum PraEticable oppartunlty for the development of smaU bumnes con-cerns owned by members of aoeially and eCOODmlCaUy dlssdvmfaged @-"Pa: (F) That auch development can be matelially advanced through the procurement by the Urufed States of BmiCles, equipment, euppue~, bewiees, matenah, and COn(itmcfion work from rueh concerns; and (G) That BUch pmcuremenla slm benefit the United Stater by encourasq the expsniion of mppPe19 for such procurement thereby encouralw competition mom such avpphers and pmmotlng economy m such proeuremenfr.

   Id

   ington D C.. with ten reaonal offices and more than sixty district off,ces."

   The 8(a) program has provided many benefits to minority enrrepreneuri. For example. as a result of 0(a) program participation. many firms have been created that aould not otherwise have had the resources to go into busmess.lY Addmanally, many firms have stayed in busmess because of 0(a) program support, while others hare increased sales and income, resolved bonding problems, and impraied credit capabilities 1s However, almost from its inception the 0(a) program has been plagued with mqor problems and contro-versy concerning Lts admimitratmn These problems prompted the often-cited phrase that 'the 0(a) program has done too much far too few for too lo"g."20

   hscal year (FY) 1992 marked the twenty-fourth year of the 8(a) program. Since 1960, &a) program participants have received Over 79,000 coniracts valued at over 839 billion 21 During FY 1992. the 4509 firms paflicipating in the 8(a) program received nearly 84.02 billion in contracts and modifications 22 This represents an increase over the previous fiscal years. In FY 1901, there u-ere 3922 firms inthe 0(a) program.23 These 8(a) contractors received 4386 new contracts and over 16,600 modifications to new and existing contracts, all of which totaled $3.77 billion 21 In FY 1990, the 8(a) program awarded 8924 new contracts and over 14,300 modifications for a total of S3.83 biilion.25

   In 1988, Congress enacted the Business Opportunity Deveiopment Reform Act of 1988 (BODRA),2B which represented the first mqor revision of the 8(a) program in ten years.2' Congress enacted BODRA because, over the years, the 8(a) program had been unable to achieve its goal of developing disadvantaged firms into viable businesses.28 This legislation made Significant changes in the 8(a) program to improw its organization and participation standards, business development activities, and averall management

   In January 1992, the General Accounting Office (GAO) issued a report that contained findings indicating that the SBA had difficulty Impiementlng many of the changes mandated by the BODRA.30 Moreover, the GAO found that a lack of reliable data on many pra-gram activities hindered the SBA's ability to effectively manage the 8(a) program in a manner consistent with the BODRA'srequirement^.^'

   The BODRA also established the Cornm~saon on Minority Busi-ness Development (CMBD or Congress created the Commission to assess the operations of all federal programs (including the 8(a) propram) designed to promote and foster the development of minority owned businesses to ascertain "whether the purposes and objectives of such program[s] are being At the end of its tenure, the CMBD issued a final report34 to the Congress and the President that contained detailed findings, conclusions, and recommendations for statutory or regulatory changes necessary to further the growth and development of minority businesse5.36

   The CMBD's final report included several significant proposals ior promoting national economic development through Stimulating minority business programs. One of these proposals concerned the SBA's administration of the 8(a) program. The Commission concluded that the SBA had failed to fully utilize Its authonty to provide

   V'ub L. No 100-666, 102 Slat 3881 (19881 lhereinaffer BODRAl Z'ProbiemnmRsslructxunng, mpianofe 17,at 18"Id at 3ZBId at 20at 10.3LId32BODRA. supra note 26, 9 5Qi(a)'aid 6 605(bXlI(AIadsee Fino1 Report. a n a note 2 The Commisiion w a required to ir~ue an mterlmreponbyDecember31. 1990andaflnalrepanwithinaneyearoffheinterim repon. BQDRA,mmnote26, ~505(bX21(A1,(81, (C).

   laBODRA, Supra note 26, 8 iO5(b)(2)(Cl The Cornmiision's pmpoied flndingp and cmclu3mna represented the culmination of acfivllie~that covered 42 states and 100 Clues, lncludlng I8 hearing, and town meetme and testimony from mole than 600 witnesses Ftnol mort, =pro note 2. at XJI

   meaningful business development assistance to firms enrolled in the 8(a) program.g6 As such, the Commission recommended removing most of the SBA's authority under the Small Business Act regarding the 8(a) program and vesting it in a new statutorily created administration within the Department of Commerce.3'...