NCPA - National Center for Policy Analysis

Race-Based Contracting Grows

May 7, 1997

Despite a Supreme Court decision nearly two years ago that appeared to spell the beginning of the end of racial preferences, only one federal program has been eliminated, and contracts with minority firms under race-based set-asides have increased.

  • In the 1995 case of Adarand Construction Inc. vs. Pena, the Supreme Court ruled that race-based programs were Constitutional only if there was quantifiable evidence of discrimination.
  • In 1996, minority-owned businesses received $10.9 billion in government contracts -- up from $8.5 billion in 1992.
  • Minority-owned firms are automatically classified by the feds as socially and economically disadvantaged, regardless of how successful they are.

The Clinton administration is moving to insulate preferential contracts to minority-owned firms from challenges under the law with new rules which direct that affirmative-action remedies be used only when there is "clear evidence" of discrimination in an industry.

  • The administration's new approach will be based on a Commerce Department study of some 80 industries designed to determine where minority firms have experienced discrimination in the award of government contracts.
  • From this the administration intends to develop benchmarks to estimate the level of minority participation in an industry that would exist had discrimination not occurred.
  • The administration will then compare that hypothetical benchmark to the percentage of dollars awarded to minority firms through government contracts.

Using the benchmarks, minority bidders will receive a "price credit" of up to 10 percent -- making their bid automatically lower by that amount and thus more competitive. Clinton administration officials say they expect the number of minority contracts to continue to grow under the rules.

However, in some industries, such as building and highway construction, minority firms probably now receive a larger percentage of contracts than their numbers warrant. Minority firms in those areas might lose government contracts.

Source: Hilary Stout and Eva M. Rodriguez, "Government Contracts to Minority Firms Increase Despite Court's 1995 Curb on Affirmative Action," Wall Street Journal, May 7, 1997


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