Fordice Const. Co. v. Marsh, Civ. A. No. W81-0028(W).

• Decision Date: 14 March 1990
• Docket Number: Civ. A. No. W81-0028(W).
• Citation: 773 F. Supp. 867
• Parties: FORDICE CONSTRUCTION COMPANY and Four F Corporation, Intervenor-Plaintiffs, v. John MARSH, Secretary of the Army of the United States; Samuel P. Collins, Jr., Colonel, Corps of Engineers, U.S. Army; and the United States Army Corps of Engineers; Michael Cardenas, Administrator, Small Business Administration; and the United States Small Business Administration, Defendants.
• Court: U.S. District Court — Southern District of Mississippi

773 F. Supp. 867

FORDICE CONSTRUCTION COMPANY and Four F Corporation, Intervenor-Plaintiffs, v. John MARSH, Secretary of the Army of the United States; Samuel P. Collins, Jr., Colonel, Corps of Engineers, U.S. Army; and the United States Army Corps of Engineers; Michael Cardenas, Administrator, Small Business Administration; and the United States Small Business Administration, Defendants.

Civ. A. No. W81-0028(W).

United States District Court, S.D. Mississippi, W.D.

March 14, 1990.

Lee Davis Thames and Luther T. Munford, Jackson, Miss., for intervenor-plaintiffs.

Daniel E. Lynn, Asst. U.S. Atty., Jackson, Miss., Helen M. Golberg, U.S. Small Business Admin., John M. Gadzichowski, Roger A. Calaizzi, and Martin G. Hacala, U.S. Dept. of Justice, Civ. Rights Div., Employment Litigation Section, Washington, D.C., for defendants.

Thomas E. Chandler and David K. Flynn, U.S. Dept. of Justice, Washington, D.C., for defendants on appeal.

MEMORANDUM OPINION AND ORDER

WINGATE, District Judge.

Tried to the court without a jury on an earlier day, this case presents the question of whether the assignment of eleven contracts by the Army Corps of Engineers (Corps) to the Small Business Association (SBA) in fiscal year 1981 for minority enterprise consideration in accordance with 15 U.S.C. § 637(a)(1)(C) violated the rights of the plaintiffs under 42 U.S.C. § 2000d which bars racial discrimination in government program participation.¹ The plaintiffs are non-minority competing contractors in the Vicksburg, Mississippi, market who rely upon small-business contracts let through the SBA. The eleven contracts in question represent 100% of the small-business contracts to be let in the Vicksburg, Mississippi, area for fiscal year 1981. The plaintiffs were precluded from bidding on any of the eleven contracts because said contracts were assigned only for minority contractor bidding under what is commonly known as the SBA § 8(a) program. This court is asked to declare that this 100% assignment discriminated against the plaintiffs and constituted arbitrary federal agency action, relief from which may be sought in the form of a non-monetary injunctive or mandatory decree in accordance with 5 U.S.C. § 702. Pursuant to Rule 52, Federal Rules of Civil Procedure, the court now announces its findings of fact and conclusions of law.

JURISDICTION

Bringing this action pursuant to 42 U.S.C. §§ 1981 and 2000d, the plaintiffs also claim denial of due process and equal protection under the Fifth and Fourteenth Amendments of the Constitution of the United States. Declaratory relief is sought in accordance with 5 U.S.C. § 701 et seq., and 28 U.S.C. §§ 2201 and 2202. Because a federal question is presented, the plaintiffs assert jurisdiction in accordance with 28 U.S.C. § 1331. Original jurisdiction of a civil rights claim is also asserted under 28 U.S.C. § 1343. Jurisdiction is also said to be based upon 28 U.S.C. §§ 1346 and 1361, since the action is one against agencies of the United States which seeks to compel officers of the United States to perform duties owed the plaintiffs.

THE SBA § 8(a) PROGRAM

The federal government generally contracts for its services and property pursuant to general procurement, protective procurement, or negotiated contracts. In protective procurement only those persons who are members of a class of persons designated by Congress to receive federal assistance and protection are invited to submit bids. The SBA is the federal agency created to assist small-business concerns in securing contracts with the federal government. See, Jets Services, Inc. v. Hoffman, 420 F.Supp. 1300, 1303 (M.D.Fla. 1976). Where a federal agency commits some of its contracts to SBA for bids to be taken only from SBA certified small-business concerns, a "small-business set-aside" is created. The term "set-aside" means that the contract has literally been set aside for small-business bidding only, Id. at page 1303, and, thus, falls into the protective procurement category.

The 8(a) program is established as part of the Small Business Act which is codified at 15 U.S.C. § 637(a). In order to further the policy of encouraging minority business enterprises, Congress authorized the SBA to act as an intermediary between the Government and minority businesses and to contract with governmental agencies such as the Corps. The SBA then "arranges for the performance of such procurement contracts by negotiating or otherwise letting subcontracts to socially and economically disadvantaged small business concerns." See, 15 U.S.C. § 637(a)(1)(C).² Hence, socially and economically disadvantaged small-business concerns are then a sub-set within the class of protective procurement contractors, entitled to their own special consideration. Because of the strong policies inherent in the § 8(a) program, contracts may be awarded without competition and at rates higher than those at which a non-§ 8(a) business could perform. In Re Exquisito Services, Inc., 823 F.2d 151, 154 (5th Cir.1987).

SBA's role under § 637(a)(1)(C) is to contract for services and to train minority small-business concerns by having them perform the services, thereby enabling them to gain valuable experience and eventually to become independently competitive. See, In Re Exquisito Services, Inc., supra, at p. 154. However, this is not SBA's exclusive role under the Act. The statute makes clear that SBA's responsibility extends to both minority and non-minority small-business concerns to see that both have the maximum practicable opportunity to participate in government contracts. A fair reading of applicable portions of the Act suggests that neither minority nor non-minority small-business concerns should be awarded contracts to the exclusion of the other.³

Other pertinent aspects of the § 8(a) program are that the SBA shall develop and implement an outreach program to inform and recruit eligible small-business concerns. 15 U.S.C. § 637(a)(10). To the maximum extent practicable, awards of contracts shall be to contractors within the county or state where the work is to be performed. 15 U.S.C. § 637(a)(11). No small-business concern shall be deemed eligible for any assistance pursuant to this subsection unless the SBA determines that with contract, financial, technical and management support the small business concern will be able to perform contracts which may be awarded to such concern under paragraph (1)(C) and has reasonable prospects for success in competing in the private sector. 15 U.S.C. § 637(a)(7). This last consideration, the "reasonable prospects for success in competing in the private sector," has been referred to in this litigation as "graduation." The purpose of the § 8(a) program is to train, then release the eligible participant to the open competitive market, although the successful participant may continue to be eligible for small-business set-asides of the non-§ 8(a) variety after "graduation" from the program.

THE CORPS-SBA INTERFACE PURSUANT TO § 8(a)

As previously stated, the SBA is empowered by 15 U.S.C. § 637(a) to act as an intermediary between a federal agency, in this case the Corps, and eligible protective procurement contractors. SBA may solicit Corps contracts through the Corps Small and Disadvantaged Business Utilization Officer, also referred to as the SADBU. If the SBA has not solicited the Corps for contracts, the SADBU may take the initiative. Once the Corps has undertaken to create a set-aside with some of its contracts, it has a duty to evaluate the set-aside in accordance with 32 C.F.R. § 1705.5.⁴ One of the regulatory requirements is to conduct an impact study to determine the effect of a set-aside on the proposed area. According to the SADBU for the Corps, a 10% set-aside was considered minimal, hence an impact study would not be absolutely necessary when only a 10% set-aside was contemplated. Properly initiated and carried out, a set-aside effort would begin with a list of eligible contractors provided by the SBA. The Corps would then evaluate the § 8(a) eligible contractors in juxtaposition to non-§ 8(a) eligible contractors in order to determine the size or percentage of its proposed set-aside. This did not occur in the case sub judice. As this opinion shall demonstrate, the Corps conducted no impact study. Instead, in order to improve the § 8(a) showing in the area, all contracts available for small-business set-aside were assigned for exclusive § 8(a) consideration.

STATEMENT OF THE CASE

The case involves a joint claim for declaratory judgment sought by the intervenor-plaintiffs, Fordice Construction Company and Four F Corporation (hereinafter plaintiffs), pertaining to the assignment of the aforesaid eleven contracts by the United States Army Corps of Engineers (Corps) to the Small Business Administration (SBA) in accordance with the Small Business Act § 8(a), 15 U.S.C. § 637(a)(1)(C). Because all eleven contracts available for small-business set-asides to be let by the Corps in the Vicksburg area in 1981 were set-aside for § 8(a), three local non-minority contractors, including the above named plaintiffs, who were eligible for small business set-aside contracts, but not for § 8(a) set-aside contracts, brought this action pursuant to 42 U.S.C. §§ 1981 and 2000d, and 5 U.S.C. § 551 et seq., seeking to enjoin the 100% set-aside to the SBA under § 8(a). A temporary restraining order was granted by this court, Honorable Judge Dan Russell presiding. While the order was in effect, the parties obtained permission from the court for the Corps to dispose of the eleven contracts. Six were not funded and were therefore not awarded. Of the five remaining contracts, two were submitted for the SBA's § 8(a) program while three others were let under competitive bidding. Four F Corporation, one of the plaintiffs in this cause, received two of the three contracts. The district court thereafter dismissed the case as moot since all eleven contracts had...