Washington, DC March 5, 2020 – The Center for Individual Rights (CIR) today filed suit on behalf of Ultima Services Corporation (Ultima), challenging the constitutionality of a federal rule that sets aside government contracts for “disadvantaged” companies, and presumes that companies owned by members of certain racial and ethnic groups are “disadvantaged.” The suit was filed against the U.S. Department of Agriculture (USDA), the Secretary of Agriculture, the Small Business Administration (SBA), and the Administrator of the SBA. The race-based set-aside rule violates the Fifth Amendment’s prohibition on racial discrimination.
Section 8(a) is a set-aside program administered by the SBA that awards federal government contracts to small businesses owned and operated by “socially disadvantaged individuals.” In determining which companies qualify for the Section 8(a) program, the SBA presumes that members of certain racial and ethnic minority groups are “socially disadvantaged.” As a result, 8(a) contracts are awarded to small businesses on the basis of race. Sometimes 8(a) firms compete with one another, and other times 8(a) firms are awarded “sole source” contracts outright and face no competition.
Ultima is owned by business woman and entrepreneur, Celeste Bennett. For more than fifteen years, her company has performed administrative and technical support services contracts for the Natural Resources Conservation Service (NRCS) — an agency of the USDA — in offices around the country. Ultima has consistently performed to the satisfaction of the NRCS, and until recently, its contracts were regularly renewed. Ultima lost the right to compete for a substantial number of NRCS administrative services contracts when the USDA abruptly and without justification began awarding them under Section 8(a).
Celeste Bennett is a white woman, so Ultima does not qualify as an 8(a) firm. Ultima is thus excluded from competing for many administrative services contracts with the NRCS on the basis of Bennett’s race. Being excluded from these contracts will have serious consequences for Ultima because administrative services contracts make up the core of its business.
“My company was being harmed through no fault of its own and should get the opportunity to compete” said Bennett. “When I inquired as to why the NRCS, whose contracting department is severely understaffed, would terminate a contract that had time and money available to continue services and that was performing to the NRCS’ satisfaction, the contracting agent responded that the NRCS has to meet certain socio-economic goals.”
The Fifth Amendment prohibits laws and regulations that discriminate on the basis of race, unless they are narrowly tailored to serve a compelling governmental interest. By using race based presumptions to determine who qualifies for the 8(a) program, the SBA has instituted a racially discriminatory policy in violation of the Fifth Amendment.
The application of the 8(a) program to administrative services contracts is particularly arbitrary because there is no history of governmental discrimination in the relatively new administrative services industry. Courts have consistently held that the government must prove that it has actively or passively participated in discrimination in the field in which it seeks to apply the 8(a) program.
In DynaLantic Corp. v. Department of Defense, the U.S. District Court for the District of Columbia reaffirmed the principle that, in order to justify the application of the 8(a) program in a specific industry, “the government must provide evidence demonstrating there were eligible minorities in the relevant market… that were denied entry or access notwithstanding their eligibility.”
Absent evidence demonstrating specific discriminatory governmental practices in the administrative services industry, the government has no compelling interest in awarding such contracts on the basis of race.
CIR filed suit in the Federal District Court for the Eastern District of Tennessee.
About The Center for Individual Rights
The Center for Individual Rights is a nonprofit public interest law firm that defends individual rights, with particular emphasis on civil rights and free speech. CIR provides free legal representation to deserving clients whose individual rights are threatened. Learn more about CIR’s work at www.cir-usa.org.