Piliero, Mazza & Pargament, PLLC  Vol. 3, Issue 6   November/December 2001

An Update for Federal Contractors and Commercial Businesses


AFFIRMATIVE ACTION UPDATE Supreme Court Hears Oral Argument in Adarand Case

GOVERNMENT CONTRACTS Service Contract Reform Bill Introduced in House Subcommittee

LABOR LAW An Employer’s Guide to Using Employee Medical Information for Evacuation Procedures

SMALL BUSINESS DoD’s 1207 Program Subject to “Strict Scrutiny”

SMALL BUSINESS Senator Bond Introduces Bill to Assist Small Businesses


Supreme Court Hears Oral Argument in Adarand Case

On October 31, 2001, the United States Supreme Court once again heard oral argument in the latest chapter of the Adarand case. The case involves the constitutionality of the Department of Transportation’s (DOT) revised Disadvantaged Business Enterprise (DBE) program. The program requires the inclusion in certain highway construction contracts of a clause that provides a 10% bonus to prime contractors using DBEs as subcontractors.

The Supreme Court's landmark decision in 1995 held that the DOT’s race-conscious program must undergo “strict scrutiny,” which requires a showing that the program is “narrowly tailored” to achieving a “compelling interest.” Since then, the DOT revised its program in an effort to comply with the more rigorous standard. Nonetheless, Adarand Constructors, a non-minority owned contractor, has continued to challenge the constitutionality of the revised program in Federal court.

Last year, the U.S. Court of Appeals for the 10th Circuit upheld the constitutionality of the revised program, finding that DOT’s changes for DBE participation, including race-neutral requirements, such as economic disadvantage, were “narrowly tailored.” The 10th Circuit also found that the government had “compelling interests” in eliminating the effects of discrimination. The Court recognized evidence that DBEs faced barriers to forming businesses and engaging in fair competition, due to discrimination by prime contractors, unions, lenders, business networks, suppliers and bonding companies.

Earlier this year, the Supreme Court agreed to again hear the case. After several months of briefing the issues, oral arguments took place on October 31, 2001.

Adarand argued that the 10th Circuit incorrectly applied a more lenient standard of scrutiny in reviewing the constitutionality of the SCC program. Adarand contended that the strict scrutiny standard articulated in case precedent requires a determination that the particular DBE seeking a racial preference has suffered from the effects of past discrimination by the Federal government. Adarand also argued that the barriers identified by the 10th Circuit are easily susceptible to race-neutral solutions; therefore, the program cannot be considered “narrowly tailored.” Adarand asserted that these barriers do not demonstrate a “strong basis in evidence” of discrimination, but rather, describe the same difficulties faced by any new entrant into an established industry. Finally, Adarand maintained that “strict scrutiny” requires that there be a showing of “racially motivated patterns of deliberate exclusion in the highway construction industry.” Adarand asserted that the 10th Circuit did not examine whether the federal government played a role in causing the alleged racial disparities.

The Government argued that the revised program “differs substantially” from the one that was in effect when the Supreme Court first reviewed the case, and that the DOT’s changes have eliminated any issues relating to constitutionality. The Government noted that, notwithstanding the program=s racial presumption, the implementing regulations seek to limit DBE status to firms owned by individuals who have suffered the effects of discrimination, i.e., those who are economically disadvantaged in part because of the discrimination. The Government also noted that state and local recipients of federal aid must assess the local market to determine whether there is a need for race-conscious remedies given the extent of the effects of discrimination in their jurisdictions.



Service Contract Reform Bill Introduced in House Subcommittee

IOn November 1, 2001, Representative Tom Davis (R-Va.) introduced the Services Acquisition Reform Act (SARA), which is designed to eliminate barriers to the federal government=s acquisition of services largely by improving management of service contracts. Last year, federal government service contracting totaled $87 billion.

During a hearing before the House Subcommittee on Technology and Procurement Policy, Representative Davis outlined the draft legislation, which contains six titles. The first title provides for comprehensive acquisition training that is designed to move the government into what Representative Davis refers to as a “business management culture.” Under this title, a centralized acquisition workforce training fund would be created by taking five percent of all fees collected through the GSA Schedule program. The fund would be used to establish a training center that would utilize private sector best practices to ensure that the entire acquisition workforce receives consistent and uniform training.

The second title attempts to eliminate agency-to-agency barriers that exist in the acquisition of services, in part, by creating a Chief Acquisition Officer within every federal agency to oversee the process of service contracting. The third title would authorize the use of additional contract types in service procurement, and also provide for increased use of award-term contracts and multiple year contracting. The bill would also emphasize past performance as an important evaluation criterion in award decisions. Representative Davis noted that many contracting officials have been hesitant to use alternate contract types, and that the bill is an attempt to reverse this trend.

The fourth title would expand the definition of commercial services in Part 12 of the FAR, which would provide for more streamlined acquisition of services falling within that definition. This title would also create a preference for performance-based acquisition (similar to those in recent Department of Defense authorization bills), ensure that commercial liability titles be included in service contracts, and ease organizational conflict-of-interest restrictions.

The fifth title focuses on information technology (IT) acquisitions. It would provide an exemption for these acquisitions from the Trade Agreements Act and the Buy American Act, and authorize cooperative purchasing for state and local governments. The last title would update several socioeconomic titles that have not been updated, including thresholds for procurements under the Davis-Bacon Act and the Service Contract Act.

The subcommittee is expected to meet to mark up the legislation in the near future; however, it is unclear at this time whether this will occur before Congress recesses for the holidays. The Legal Advisor will continue to track this legislation and report on its progress in the 107th Congress.



An Employer’s Guide to Using Employee Medical Information for Evacuation Procedures

AIn light of the events of September 11th, many employers have reevaluated their company’s evacuation procedures to ensure a timely and safe evacuation of employees. In particular, many employers may want to consider special evacuation assistance for employees with disabilities. However, many employers may be concerned how the Americans with Disabilities Act (ADA) and the Rehabilitation Act affect the ability of the employer to ask present and potential employees about their disabilities and to share disability information with fellow workplace members. The following is a summary of what employers may ask for purposes of creating an emergency evacuation plan.

Generally, employers may ask employees to identify if they will need assistance in an evacuation due to a disability or medical condition. Because some employees may have disabilities that may not be visible but require assistance, the question is appropriate. Additionally, the employer has a right to ask because a disabled employee who appears to need assistance under an evacuation plan may actually not need this assistance.

There are three situations when an employer may ask an employee whether they have a disability for purposes of evacuation assistance. First, an employee may be asked after a job offer is made, but before employment actually begins. Second, an employer may periodically survey all employees on the matter, provided that they state that self-identification is voluntary and they explain the purpose for the request. Third, an employer may ask an employee with a known disability whether their disability will require assistance in the event of an emergency. In all of these situations, the employer should tell employees that the information is confidential and will only be shared with those who bear responsibilities relating to the evacuation plan.

An employer may also ask a disabled employee what specific type of assistance will be needed. In these matters, a general memorandum to all employees asking what type of assistance is necessary would be appropriate. It must be remembered, though, that an employer is only entitled to the information that is necessary to provide assistance to the disabled employee.

In an actual emergency, the scope of individuals who can be made aware of an employee’s disability increases. Generally, the ADA requires that employers maintain the confidentiality of medical and disability information of all employees and applicants. However, the ADA provides an exception that allows an employer to share this confidential information with first aid and safety personnel. Thus, in an emergency, an employer may alert medical personnel to the employee’s disability. Under this exception, the employer may also share this information with those who assist the evacuation, including floor coordinators, “buddies” who are responsible for evacuating with the disabled employee, building security personnel who ensure that the building has been evacuated, and other personnel that are responsible for ensuring safe evacuation.



DoD’s 1207 Program Subject to “Strict Scrutiny”

The U.S. Court of Appeals for the Federal Circuit has held that the Department of Defense (DOD) Section 1207 program must undergo “strict scrutiny” in order to determine whether the program is constitutional. The Federal Circuit’s ruling in Rothe Development Corp. v. United States, Fed. Cir., No. 00-11171, August 20, 2001, will require the Government to demonstrate the constitutionality of the program by showing that the program is “narrowly tailored” to achieving a “compelling interest.”

The Section 1207 program is designed to increase participation by small disadvantaged businesses (SDBs) in defense contracts. To achieve this objective, the program establishes a department-wide goal that five percent of the total dollar amount obligated for defense contracts and subcontracts annually be awarded to SDBs. In addition, under the program, SDBs are given a 10% price evaluation adjustment in contracts procured using full and open competition (i.e., the bids of non-minority firms are increased by up to 10%). Use of the 10% price evaluation preference was suspended by Congress for 1998 and 1999 because the DOD met its 5% SDB goal in each of those years.

In Rothe, Rothe Development Corporation, a company owned by a Caucasian woman, lost a bid for a computer system maintenance contract to SDB owned by a Korean-American as a result of the application of the 10% price evaluation adjustment. Rothe filed suit challenging the constitutionality of the DOD’s use of the evaluation preference, asserting that it violated equal protection rights afforded under the Fifth Amendment. In 1999, the Federal District Court ruled in favor of the Government, and Rothe appealed to the Federal Circuit Court.

According to the Federal Circuit, the lower federal court used an overly deferential standard, rather than the more stringent strict scrutiny required by the Supreme Court’s Adarand decision. Therefore, it remanded the case back to the lower court with instructions to apply the “detailed, skeptical, and non-deferential analysis” that is required in a “strict scrutiny” review.

The Federal Circuit also gave the lower court instructions for determining whether or not there was a “strong basis in evidence” sufficient to justify the racial classification. In particular, the Court stated that only evidence of discrimination existing prior to implementation of the 1207 program could be used, and not post-enactment evidence. The Federal Circuit cautioned that if the pre-enactment evidence is insufficient to maintain the program, then the program must be invalidated.

At present, the case is once again before the Federal District Court in the Western District of Texas for a determination of constitutionality in accordance with the directions of the Federal Circuit. However, given the heightened attention on the case, and the significance of the Court’s ruling, it is very possible that the case will again be appealed to the Federal Circuit.



Senator Bond Introduces Bill to Assist Small Businesses

The ranking Republican of the Senate Small Business and Entrepreneurship Committee, Senator Christopher “Kit” Bond (R-Mo.), introduced a bill that he stated will “stimulate the small business engine of our economy.” It is hoped that the bill will result in immediate opportunities for small businesses.

The legislation, entitled the “Small Business Leads to Economic Recovery Act of 2001,” S. 1493, would increase to $300,000 the ceiling for small business set-asides of Department of Defense (DOD) architectural and engineering services and construction design contracts. Presently, contracts less than $100,000 are reserved for small businesses.

In addition, the bill would require that GSA Federal Supply Schedule contracts below $100,000 be reserved for small business. For property or services not on the schedules that are valued at less than $100,000, the agency would be required to set aside the acquisition for competition among small businesses listed on the SBA’s PRO-Net system and DOD’s Centralized Contractor Registration System. To strengthen these requirements, the bill would also require that, after an initial six-month evaluation period, 25 percent of the dollar value of all contracts less than $100,000 be awarded to small businesses during the first year following enactment. This threshold would be increased to 50 percent in subsequent years.

Finally, the bill would exempt from the 8(a) and HUBZone sole-source ceilings, contracts for property and services that are awarded with funds from the recent appropriations legislation passed in response to the terrorist attacks, i.e., the “2001 Emergency Supplemental Appropriations Act for Recovery From and Response to Terrorist Attacks on the United States.”

At present, the 8(a) and HUBZone programs have sole-source ceilings of $3 million for service contracts and $5 million for manufacturing contracts.


888 17th Street, NW
Suite 1100
Washington DC 20006
202.857.0200 Fax


© by Piliero, Mazza and Pargament, PLLC. All rights reserved. Disclaimer