To the "disadvantaged" go the spoils? - minority business contracts

Public Interest, Wntr, 2000 by George R. La Noue

The benchmark study

In 1996, the Justice Department proposed that "benchmark limits" be created for each industry. These benchmarks were intended to represent the "level of minority contracting that one would reasonably expect to find in a market absent discrimination or its effects." The benchmark limits were also supposed to guide the decision of whether minority preferences were even necessary for that industry.

In 1998, the benchmark study--the first federal attempt at a disparity study--was released by the Department of Commerce. Since the report was so brief, lacked details about its methods, and did not offer any specific conclusions, Congressional staff members assumed that a more comprehensive follow-up report would soon be made available. When that did not happen (no such document existed), the Senate and House Judiciary Committees asked to meet with the benchmark study's authors. A meeting was scheduled a few weeks later at the White House, but no Commerce Department personnel attended. The Justice Department and White House officials knew practically nothing about the benchmark study's methodology, and scarcely any helpful information was exchanged. The Justice Department and White House officials promised that further questions could be faxed to the benchmark study's authors. The faxed inquires were never answered.

On the surface, the benchmark study appeared to measure disparities in the availability of SDBs and their use during fiscal year 1996. To account for the different conditions in the various industries, the study based its calculations on two-digit Standard Industrial Codes (SIC). The study found a disparity between SDB availability, or capacity, and SDB utilization in 40 of the 68 comparisons selected. This disparity, said the study's authors, justified the imposition of the 10 percent bid preferences.

But, upon closer examination, the study is contradictory and implausible. SDBs are, by definition, small disadvantaged businesses. Yet, in several of the Standard Industrial Codes, SDBs were estimated to have an extraordinary capacity to supply federal procurement. For example, SDB capacity was estimated at 33.1 percent in SIC 50 (wholesale trade-durable goods). In SIC 58 (eating and drinking establishments), SDBs were estimated to cover 80.5 percent of the federal government's required capacity. This suggests that something was wrong with the study's calculations.

Data-collection problems

Initially, the benchmark study used census data in the form of the Survey of Minority Owned Business Enterprises (SMOBE) to measure the availability of minority firms for federal contracts. While many studies on contracting discrimination have been based on census data, not one has survived judicial scrutiny. The data are obsolete. Further, information on which firms have bonding and licensing or which ones are willing to engage in federal contracting is not available in census data. But the Commerce Department did not finally abandon the SMOBE data until a pilot study revealed that the data were insufficient.