Defense Contracting

DEFENSE CONTRACTING -- (Senate - December 20, 2005)

Mr. KENNEDY. Mr. President, I commend the House and Senate conferees for their agreement to extend the Defense Department program to prevent defense contracting firms supporting or subsidizing the kind of discrimination that has long been a problem in such contracting. The extension through September 2009 is clearly needed to achieve that important goal.

Defense contracting has long been dominated by old-boy networks that make it very difficult for African-Americans, Latinos, Asians, and Native Americans to participate fairly in these opportunities, or even obtain information about them. Minorities historically have been excluded from both public and private construction contracts in general, and from Federal defense contracts in particular. Since its adoption, the Defense Department's effort, called the 1207 program, has helped level the playing field for minority contractors. Extending the program was a priority, since it's clear there is much more to do.

Since the program was first enacted in 1986, racial and ethnic discrimination has continued to be a substantial obstacle to minority participation in Federal contracts. In some cases, overt discrimination prevents minority- owned businesses from obtaining needed loans and bonds. Prime contractors, unions, and suppliers of goods and materials have consistently preferred to do business with white contractors rather than minority firms.

Minorities have been consistently underutilized in government contracting. In 1996, the Urban Institute released a report documenting minority firms received only 57 cents in government contracts for every dollar they should have received based upon their eligibility.

For specific racial groups and women, the disparities were even greater. African-American owned firms received only 49 cents on the dollar; Latino-owned firms, 44 cents; Asian-American owned firms, 39 cents; Native American-owned firms, 18 cents.

These statistics are particularly troubling, because they exist despite affirmative action programs in many jurisdictions. Without such programs, the problem would be worse. The Urban Institute report found that

disparities for minority- and women-owned firms were greatest in the areas where no affirmative action program was in place. For African Americans, the percentage dropped from 49 percent to 22 percent, for Latinos from 44 percent to 26 percent, for Asians from 39 percent to 13 percent, and for Native Americans from 18 percent to 4 percent. These figures show that affirmative action is not only effective, but still urgently needed.

We've also seen repeated reports of bid shopping and of minority businesses being denied contracts despite submitting the lowest bid.

Also, the Department's decision to award a growing number of defense contracts noncompetitively has excluded minority-owned businesses from a significant number of contracting opportunities. No-bid contracts also hurt white-owned businesses, but they disadvantage minority-owned firms in particular.

These problems affect a wide variety of areas in which the Department offers contracts, and the problems are detailed in recent studies.

A 2002 Dallas study found that minority business enterprises were significantly disadvantaged in obtaining contract work. Evidence in that report also suggests that discrimination takes place in subtle ways, such as by making unrealistic demands on minority contractors, or refusing to pay them on time. A Hispanic-American contractor noted that on several occasions, he and other minority contractors were not informed of bid opportunities with government agencies, even though they performed services in the field. A Native American contractor in goods and other services noted that some customers visit his company and walk out, once they see the owner is not a white man. Many minority firms reported being consistently underestimated by white prime contractors who assume they are not capable of doing the work because they are minority-owned. Minority firms expressed concern that they will never become large enough to compete for larger contracts if they are denied a chance to prove themselves on smaller contracts.

In Cincinnati, a 2002 study found that ``bid shopping'' by prime contractors continues to harm minority firms. The firms also reported numerous obstacles in seeking work in the city, such as denial of opportunities to bid, lack of response to minority presentations for bidding, limited financing, problems obtaining bonds, slow pay, predatory business practices, and stereotypical attitudes that minorities are incapable of performing good work.

A 2003 study of contracting in Ohio found racial prejudice in both the public and private sectors. A State inspector was alleged to have expressed hatred for African Americans in ugly terms. An African-American professional service contractor said that his prime contractor deliberately sabotaged his work by breaking his equipment. A state inspector conceded to an African-American contractor that he was requiring him to do more expensive work than he would have required of a large white-owned contractor doing an identical job nearby. Banks and unions sometimes contribute to the obstacles by discriminating against minorities in awarding financing.

A 2004 study in Alameda, CA, also found significant underutilization of minority-owned firms.

I have received a letter from an African-American business owner, Mr. John McDonald, explaining the difficulties minority firms face in the contracting business and I ask unanimous consent to have it printed in the RECORD.

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