Special Report: ENTERPRISE: Government: MINORITY CONTRACTING
GOOD GOVERNMENT, OR '60S RELIC?
For Joseph A. Gomez, the Small Business Administration's 8(a) program was a mixed blessing. The program, which steers government procurement contracts to small and disadvantaged businesses, helped the 53-year-old businessman land a much-needed job with the Federal Aviation Administration in 1985. His electrical contracting business was struggling to complete a private job in the wake of a joint-venture partner's bankruptcy, leaving virtually no time to develop new business. Gratefully, Gomez nabbed the $200,000 FAA contract to install an approach lighting system at a New Hampshire airport. The deal helped his business ride out that lean period.
But Gomez' 8(a) work also worked against him. He says his company became too reliant on the SBA contracts, losing some of its edge. That made it tougher to boost non-8(a) business as he neared the end of his nearly nine years in the program. Gomez has built the business back up to $2 million a year in sales after business slumped when he left 8(a) in 1990. But at the time, he says, "I frankly didn't know if I could find enough work to survive."
Gomez' experiences--both good and bad--highlight the complexity of the debate over 8(a). Critics charge that the scandal-ridden program has failed the minority community, fostering dependence and often benefiting only a few businesses run by wealthy owners. And a June Supreme Court decision limiting the scope of federal affirmative-action programs has put 8(a) clearly in the sights of Republicans such as House Small Business Committee Chairwoman Jan Meyers (R-Kan.). While the Clinton Administration argues that 8(a) needs to be fixed, not killed, Meyers will be pushing for its elimination next spring. "I probably would have supported this 20 years ago," she says. "But I don't think it is necessary now."
Few can dispute that 8(a) has been invaluable for many minority-owned small businesses, which at last count made up 9% of all small businesses. The program, created in 1969, has awarded contracts worth an estimated $48 billion to small companies that are operated and more than half-owned by minority entrepreneurs. Such deals have been critical for businesspeople such as Santos F. Garza, whose security systems company, Counter Technology Inc., has been in the program for five years. Garza, the child of Hispanic migrant workers, says the program gave her a track record in large systems jobs. That has helped her win a number of commercial contracts, including a deal signed last year to provide security systems for the new Austin airport. Explains Garza: "Without 8(a), we wouldn't have been able to bid and win big commercial contracts. That [Austin] contract put us on the map."
Still, weak oversight made abuse of the program all too common. One example: Because the SBA's formula for determining whether a company qualifies for the program does not include the owner's equity in the business or his or her home, some 8(a) firms are run by millionaires.
STRUCTURAL FLAWS. Plenty of companies took advantage of such lax regulation. A General Accounting Office investigation earlier this year determined that an 8(a) participant, I-NET Inc., excluded some revenues from financial statements, allowing it to remain eligible for the program in 1991 and 1992. But SBA allowed the company to remain in 8(a) for 18 months after learning of the problem from its own auditors. In that time, I-NET landed over $62 million in additional 8(a) contracts. I-NET officials say their accounting methodology complied with applicable accounting principles and was fully disclosed to the SBA.
There also have been structural flaws in the program. At the end of fiscal 1994, the top 50 of the 5,100 certified 8(a) companies won 25% of the $4.4 billion in contracts awarded. While that level of concentration is not uncommon in government contracting, it limits the number of firms that gain from a program meant to spur business among minority entrepreneurs outside the mainstream.
Part of the problem is the tendency to steer labor-intensive contracts to 8(a) outfits. Government agencies often target construction, building management, and security guard contracts for 8(a) companies. As a result, high-tech companies contend that contracting officers are less likely to tap them for 8(a) work. And some participants, such as Willie E. Davis, who runs a systems integration company in Union, N.J., find the local SBA staff of little help. "They wouldn't know a business opportunity if it jumped up and bit them in the face," insists Davis, who has been in 8(a) more than a year without landing a contract.
The SBA is trying to clean up the program. It has sought since 1993 to push out companies that have grown too large or too rich. In the past 18 months, more than 500 companies have been terminated from the program. The SBA also is examining its calculations of a business owner's net worth to determine if it should bar wealthier individuals from 8(a). And a new computer system finally rolled out this summer will help monitor whether businesses in the program still meet the guidelines for assistance.
Meanwhile, the SBA is stepping up efforts to give 8(a) participants managerial assistance. The SBA sets targets for companies to develop non-8(a) business, but last year, 63% of those near the end of their stint in the program did not hit those goals. And the SBA plans to address concerns of participants such as Gomez who want more 8(a) contracts awarded competitively--which could help more companies survive after leaving. Currently, most 8(a) contracts are negotiated and do not involve price competition.
POOR SUBSTITUTE? Still, these much-needed reforms may come too late. A bill has been introduced in the House that would eliminate race as a factor that can be considered in granting a government contract. And Senator Christopher S. Bond (R-Mo.) is drafting legislation that could replace 8(a) with a government contracting plan aimed at small businesses located in distressed urban or rural communities--regardless of race.
That, many minority small-business owners argue, would be a poor substitute. But if the Clinton Administration is unable to fight back the attacks on 8(a), it may be the best they can hope for.By Amy Barrett in Washington