Appeals Court Upholds 8(a) Program Against Constitutional Challenge

By Pamela J. Bethel

The U.S. Court of Appeals for the D.C. Circuit has upheld the Small Business Administration’s 8(a) business development program, which provides for contracting preferences to small business owners, against a constitutional challenge that the program involves impermissible racial classifications.

The decision in Rothe Development, Inc. v. U.S. Department of Defense and Small Business Administration, which was issued on September 9, 2016, unequivocally represents a big win for the program and for the small businesses that have benefited from it for decades. In this ruling, the court squarely rejected the plaintiff’s central contention – that the 8(a) program is race-based and therefore requires special scrutiny from the courts to determine whether it is constitutional.

The challenge to the program was filed by a federal contractor that did not qualify for the 8(a) program because it was not owned by someone who experienced racial or ethnic prejudice or cultural bias. The challenge was supported by several conservative and libertarian nonprofit groups. Earlier, the U.S. District Court for the District of Columbia had also rejected this challenge.

In its decision, the appeals court relied heavily on the fact that, as it noted, “Congress considered and rejected statutory language that included a racial presumption. Congress chose instead to hinge participation in the program on the facially race-neutral criterion of social disadvantage, which it defined as having suffered racial, ethnic, or cultural bias.”

That was the decisive factor for the appeals court majority. The 8(a) program is all about individual experiences of discrimination, not about race or ethnicity by itself.

“Section 8(a),” the court wrote, “uses facially race-neutral terms of eligibility to identify individual victims of discrimination, prejudice, or bias, without presuming that members of certain racial, ethnic, or cultural groups qualify as such. That makes it different from other statutes that either expressly limit participation in contracting programs to racial or ethnic minorities or specifically direct third parties to presume that members of certain racial or ethnic groups, or minorities generally, are eligible. Congress intentionally took a different tack with section 8(a), opting for inclusive terms of eligibility that focus on an individual’s experience of bias and aim to promote equal opportunity for entrepreneurs of all racial backgrounds.”

Interestingly, the court noted that the Small Business Administration need not be entirely blind to race, under prevailing constitutional principles.

The court wrote, “Policymakers may act with an awareness of race— unaccompanied by a facial racial classification or a discriminatory purpose — without thereby subjecting the resultant policies to the rigors of strict constitutional scrutiny.”

Since the court did not find that the 8(a) program was racially based, it determined that it did not have to apply the very exacting test of “strict scrutiny” to see if it passed muster. Instead, in order to be constitutional, the program simply had to have a “rational basis,” and the court, without hesitation, found that it did have one.

The court wrote, “The point of such sheltered markets is to provide disadvantaged business owners opportunities to gain management experience and build performance records— chances they might otherwise lose to competitors unhindered by the disadvantages they have experienced as a result of bias and prejudice. The program therefore provides the benefits socially and economically disadvantaged individuals most need to participate on fair terms in the national economy.” That was a more than adequate rational basis for the 8(a) program.

The ruling serves to remove a cloud that shadowed the 8(a) program – the possibility, however unlikely, that a federal court might find it unconstitutional. Eligible small businesses now can proceed to try to qualify for the program and to continue to reap its desirable benefits. And the federal government can continue to administer the program and to give small businesses their fair share, as Congress intended.

 

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