By: Edward T. DeLisle, Kayleen Egan & Maria L. Panichelli
Is the Small Business Administration’s (“SBA”) minority business development program, also known as the “8(a) Program” unconstitutional? The legality of the program has been a hot topic of debate over the year, most recently due to a significant DC District Court case. That case, Rothe Development Inc. v. U.S. Department of Defense et al., C.A. 1:12-cv-00744, began in 2012 when Rothe Development, Inc. (“Rothe” or “the Company”) filed suit against the Department of Defense (“DOD”) and the SBA, claiming that the 8(a) program violates the Fifth Amendment due process clause.
The Company argued that race-based laws are constitutional only when they’re narrowly tailored to address a historic wrong. Claiming that there was not sufficient evidence of historic discrimination in federal contracting, Rothe argued that the DOD and the SBA did not have a compelling government interest justifying the racial classification of businesses. Rothe further argued that the remedial effect of the 8(a) program was speculative, and that the 8(a) program was not narrowly tailored to remediate discrimination. According to the company, the government was increasingly setting aside contracts for minority-owned or minority-controlled businesses, and the 8(a) program unfairly prevented it from competing for those contracts by giving companies owned by members of disadvantaged racial groups an unconstitutional advantage.
In May of this year, two conservative interest groups, the Pacific Legal Foundation (“PLF”) and the Mountain States Legal Foundation (“MSLF”), joined in, filing amicus briefs. These groups argued that the 8(a) program unconstitutionally deprived Rothe (and similarly situated companies) equal protection under the law, in violation of the Due Process Clause of the Fifth Amendment. Therefore, the NAACP Legal Defense and Educational Fund, Asian Americans Advancing Justice and the Leadership Conference on Civil and Human Rights fired back, filing their own amicus briefs and arguing that Congress was justified in enacting the 8(a) Program because discriminatory policies and practices have prevented the business development of minority entrepreneurs throughout our nation’s history.
The case now sits before the DC District Court on cross-motions for summary judgment, prompting small business insiders to wonder if Rothe will successfully lodge yet another challenge to minority owned businesses. That’s right, Rothe has filed numerous suits challenging the constitutionality of small business programs over the past few years, most recently Rothe Development Corp. v. U.S. Department of Defense, where Rothe successfully challenged a practice employed by DOD, NASA and U.S. Coast Guard to adjust prices by up to 10 percent to assist “small disadvantaged businesses” and to help the agencies meet the small, disadvantaged contractor goal. Rothe also previously intervened in a case filed by DynaLantic Corp., which protested the DOD’s decision to set aside a contract for military simulation and training services for minority-owned businesses. In that case, a D.C. District judge ruled that the 8(a) program was generally constitutional, but found that the DOD couldn’t use the program in the context of military simulation contracts because there was no evidence of discrimination in that industry.
Indeed, over the past few years, the federal courts have dealt two significant blows to government programs designed to increase the amount of contracts awarded to minority businesses. If the latest Rothe challenge is successful, it would be a huge blow to such programs. Considering almost 16 billion dollars in federal contracts were awarded to 8(a) contractors in 2012, this ruling could significantly change the way government contracts are awarded. We will keep you posted as this case progresses. Stay tuned for more updates.
Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.
Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.
Kayleen Egan is a Summer Associate at Cohen Seglias.