`A Hand Up, But Not A Handout'

When Gary L. Ennis went into the highway construction business in 1977, he figured that big-time road builders would pave a path to his door. As a Native American, Ennis could help Maine contractors meet their federally mandated goal of placing 10% of their highway business with minority- and women-owned companies. But he soon found himself in a rut: General contractors saw him as a quota-filler and relegated him to low-margin jobs. Or they helped women relatives and friends set up companies to get the work. "The big contractors found a way to meet the letter, but not the spirit, of the law," he says.

Disgusted, Ennis quit construction in 1988. But unlike the swelling ranks of affirmative-action foes, he thinks the programs should be reformed, not abandoned. "Racism is alive and well," says Ennis, now a parish administrator for Catholic Charities Maine in Caribou, Me. "It's a good idea to help people with a hand up, but not a handout."

His experience highlights the mixed record of affirmative action in federal contracting--America's quarter-century-old effort to help build a minority business class. A look at the minority contracting programs at the Small Business Administration and the Defense and Transportation Depts. shows that these big "set-aside" and preference plans fall short of their goals.

As Ennis found, the programs are subject to abuse by white contractors using minority "front" companies. Federal agencies focus on meeting numerical goals and neglect the training that could help minority companies survive outside the sheltered world of government preferences. And the programs can create resentment by shutting out some struggling white-owned companies.

PRIME TARGET. But where bureaucrats have provided technical support and advice as well as contracts, minority businesses have thrived. "You have to bring minority contractors into the business networks," says Timothy Bates, a Wayne State University professor and expert on minority contracting. "There has to be some effort to push back the barriers."

Such successes could get lost in the growing clamor to end affirmative action. GOP Presidential hopeful Senator Phil Gramm of Texas pledges to wipe out all federal "quotas, preferences, and set-asides." Senate Majority Leader Bob Dole (R-Kan.) is scrutinizing the 166 federal preference programs identified by congressional researchers. President Clinton, scrambling to

placate white voters without alienating blacks, has ordered his own review of affirmative action.

Public resentment often focuses on hiring preferences--the policy first mandated by President Johnson in a 1965 executive order that required government contractors to take "affirmative action" to hire and promote more women and minorities. But hiring policies are ultimately up to the private sector. The federal contracting programs, on the other hand, give agencies power to bend purchasing rules so that a small percentage of federal contracts goes to "disadvantaged" companies. It's those programs that are most vulnerable to the congressional ax.

The most criticized set-aside program is the Small Business Administration's 8(a) plan. Under the 1969 program, the SBA certifies 5,400 minority- and women-owned companies as "socially and economically disadvantaged." These companies-- ranging from janitorial and construction to computer service outfits--can contract with federal agencies without competitive bidding.

The SBA is supposed to help these businesses develop survival skills during the nine years they can stay in the program. But 42% of the companies that graduated between 1990 and 1993 have folded or shrunk. Intended "to give minorities the license to hunt and to teach them to hunt," the plan is now "a hand-holding program," says Walter Larke Sorg, a Nixon Administration official who helped found the 8(a) program. The SBA says the failure rate of 8(a) companies mirrors the rate for all small businesses. But in August, it announced plans to beef up its mentoring efforts, a tacit admission that they were wanting.

LUCKY FEW. The lack of competitive bidding, even among themselves, keeps minority companies from learning the ropes. And federal agencies can play favorites rather than hassle with bidding. So a handful of companies ends up benefiting. In 1994, 1% of participating companies got 25% of the program's $4.4 billion pool, the General Accounting Office found, while 56% got no contracts.

Some agencies will go to great lengths to stick with an 8(a) company they already know. A 1994 GAO study of an Energy Dept. office found that it shortened a contract's length and relaxed the requirement on skill levels to keep the price below the SBA's $3 million ceiling for noncompetitive awards to 8(a) companies. When that deal expired, the agency rehired the firm. Energy says it's now trying to use more companies.

In some agencies, minority programs have spurred bitter complaints from white, male-owned rivals that they're being squeezed out of the government market. The Defense Dept., for example, has set a seemingly modest goal of placing 5% of its vast contracts with disadvantaged businesses. But with 60% of the military's funds spent on aircraft, ships, and other big-ticket items, smaller contractors--white and minority--are crowded into such remaining areas as construction, computer services, and maintenance. Defense spends only 10.3% of its contracting budget on construction, for example, but gets 29.5% of its minority purchases in that sector.

Within those areas, Defense rules require purchasing officers to limit bidding to minority firms whenever such suppliers are available. The result can be painful for white contractors: Bob McCallie's engineering firm may lose the $150,000-plus computer management contract it has held since 1989 at the Air Force's Strategic Command near Omaha. The Air Force wants to switch the job, without bids, to a black-owned firm near St. Louis. Defense concedes its contracting causes problems: "Any program designed to favor one segment will, by definition, hurt others," says Tim J. Foreman, a procurement analyst.

When minority companies get the support they need, they can take off--without resentment from white-male companies. The Transportation Dept. asks the states to grant 10% of their federal highway money to minority- and women-owned businesses. Vermont sets a higher hurdle: Contractors there have to meet a 20% benchmark.

The state now boasts almost 50 successful minority- and women-owned companies that it helped cultivate. It spends only $5,000 a year on technical assistance--mostly on accounting courses--and gives informal advice to fledgling entrepreneurs. That apparently helps, judging from the number of companies that once got such advice and are now winning bids without special support. "A business should be competitive enough to get work without government incentives," says Lorena R. Laprade, president of L&D Safety Marking Corp., a Berlin (Vt.) highway line-striping company that got breaks. The company has grown from three employees in 1985 to 26. Proven track records like L&D's help alleviate resentment from companies that don't get assistance.

"WORTH THE GAMBLE." Many of Vermont's general contractors hire minority- or women-owned companies, even after they have filled their quota, because "they have the expertise," says Kim Smalley of Pike Industries Inc., a highway-paving contractor in Tilton, N.H. Vermont officials often promote such businesses across state lines.

Augusta (Me.)-based Bridgecorp hired African American Jesse R. Watkins II to do the painting work on a $4.5 million Vermont bridge project even though it had met its minority requirement. Watkins was new to the painting business, but Vermont officials vouched for him. "We felt it was worth the gamble," says Ken Burrill, Bridgecorp's president.

The state of Vermont knows what American businesses have discovered, too: that buyers need to cultivate their suppliers to get the best performance. Similar attention from the federal government could help nurture the strong minority businesses it set out to seed 30 years ago. That would hasten the day when numerical goals and special preferences can fall by the wayside.

The Reach of Affirmative Action The Congressional

Research Service found 166 provisions in federal law offering preferences based on race, gender, or ethnicity. A sampling:


The Small Business Administration certifies 5,400 companies as socially and economically disadvantaged. Other federal agencies can award contracts to these companies without competitive bidding. After nine years, these companies must graduate from the program.

RESULT In 1994, such companies won $4.4 billion in federal contracts.


The Federal Communications Commission gives advantages to minority- and women-owned companies buying radio and TV stations. For wireless telephone licenses, disadvantaged companies get discounts, financing help, and tax credits.

RESULT Minorities own 323 radio and TV stations, or 2.9% of the total, up from 0.5% in 1978.


Under a 1965 executive order, 112,000 companies and colleges doing business with the federal government must spell out goals and timetables for minority and female hiring and promotions.

RESULT EEOC surveys of large employers show blacks' share of management jobs has risen from less than 1% in 1966 to 5.3%; women's share, from 9.3% to 30.5%.


How To Make Minority Preferences Work

FOSTER COMPETENCE Just handing out contracts to minority- and women-owned companies doesn't promote entrepreneurship. Government agencies need to provide technical assistance and management advice so companies can handle the job.

REQUIRE COMPETITIVE BIDDING Minority- and women-owned companies should compete for some federal contracts among themselves or in the open market. The more they can withstand the rigors of the marketplace, the likelier they can succeed without government supports.

SET LIMITS Once a minority company can stand on its own, it should no longer get special breaks. This ensures that the companies that need help the most get the support and prevents others from milking the system.

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