B-209518 L/M, DEC 28, 1982

B-209518 L/M, DEC 28, 1982

PRECIS-UNAVAILABLE

FRANK R. WOLF, HOUSE OF REPRESENTATIVES:

THIS RESPONDS TO YOUR OCTOBER 6, 1982 LETTER ON BEHALF OF MR. TOM ST. DENIS, PRESIDENT OF INTERNATIONAL UNDERWRITERS INC. THE CORRESPONDENCE ENCLOSED WITH YOUR LETTER SHOWS THAT FOR A NUMBER OF YEARS, MR. ST. DENIS' FIRM HAS BEEN INVOLVED IN CONTRACTS WITH THE INTERNATIONAL COMMUNICATION AGENCY TO PROVIDE MEDICAL INSURANCE FOR FOREIGN STUDENTS VISITING THE UNITED STATES. MR. ST. DENIS IS CONCERNED THAT THE NEXT CONTRACT IS BEING AWARDED TO THE SMALL BUSINESS ADMINISTRATION (SBA) UNDER THE SECTION 8(A) PROGRAM, RATHER THAN AWARDED COMPETITIVELY. UNDER THAT PROGRAM, ESTABLISHED PURSUANT TO SECTION 8(A) OF THE SMALL BUSINESS ACT (THE ACT), 15 U.S.C. SEC. 637(A) (SUPP. IV 1980), THE SBA ENTERS INTO CONTRACTS WITH GOVERNMENT AGENCIES WITH PROCURING AUTHORITY AND ARRANGES FOR PERFORMANCE BY LETTING SUBCONTRACTS TO SOCIALLY AND ECONOMICALLY DISADVANTAGED SMALL BUSINESS CONCERNS. MR. ST. DENIS ALSO QUESTIONS WHETHER THE FIRM THAT HAS BEEN SELECTED FOR THE AWARD IN ISSUE ACTUALLY QUALIFIES FOR THE 8(A) PROGRAM.

OUR REVIEW DOES NOT INDICATE ANY ILLEGALITY OR IMPROPRIETY IN EITHER THE PLACEMENT OF THE CONTRACT IN THE 8(A) PROGRAM OR THE SELECTION OF THE SUBCONTRACTOR. THE ACT AUTHORIZES THE CONTRACTING OFFICER "IN HIS DISCRETION" TO LET A CONTRACT TO THE SBA UPON WHATEVER TERMS AND CONDITIONS THE TWO AGENCIES AGREE. THE EXERCISE OF THIS BROAD DISCRETION IS SUBJECT TO CHALLENGE ONLY WHERE THERE IS A SHOWING OF FRAUD OR BAD FAITH ON THE PART OF GOVERNMENT OFFICIALS. MR. ST. DENIS MAKES NO ALLEGATION ABOUT FRAUD OR BAD FAITH.

MR. ST. DENIS BELIEVES THAT THE FIRM THE SBA HAS SELECTED FOR THE SUBCONTRACT, E.G.BOWMAN AND COMPANY, SHOULD NOT BE ELIGIBLE FOR THE 8(A) PROGRAM BECAUSE IN HIS VIEW IT IS NOT A SOCIALLY AND ECONOMICALLY DISADVANTAGED SMALL BUSINESS. THE BASIS FOR MR. ST. DENIS' COMPLAINT APPEARS TO BE A SEPTEMBER 1982 MAGAZINE ARTICLE INDICATING THAT E.G.BOWMAN AND COMPANY IS A SUCCESSFUL FIRM.

THE CRITERIA FOR DETERMINING WHETHER A FIRM IS ECONOMICALLY DISADVANTAGED ARE IN THE ACT ITSELF AND THE IMPLEMENTING REGULATIONS AND GUIDELINES. THE ACT STATES THAT A SOCIALLY AND ECONOMICALLY DISADVANTAGED SMALL BUSINESS CONCERN IS A SMALL BUSINESS CONTROLLED AND OWNED (AT LEAST 51 PERCENT) BY SOCIALLY AND ECONOMICALLY DISADVANTAGED INDIVIDUALS AND THAT ECONOMICALLY DISADVANTAGED INDIVIDUALS ARE:

"*** SOCIALLY DISADVANTAGED INDIVIDUALS WHOSE ABILITY TO COMPETE IN THE FREE ENTERPRISE SYSTEM HAS BEEN IMPAIRED DUE TO DIMINISHED CAPITAL AND CREDIT OPPORTUNITIES AS COMPARED TO OTHERS IN THE SAME BUSINESS AND WHO ARE NOT SOCIALLY DISADVANTAGED. ***"

THE SBA'S REGULATIONS IMPLEMENTING THE 8(A) PROGRAM ARE IN TITLE 13 OF THE CODE OF FEDERAL REGULATIONS, PART 124 (1982). THE REGULATIONS STATE THAT IN DETERMINING THE DEGREE OF "DIMINISHED CREDIT AND CAPITAL OPPORTUNITIES" UNDER THE STATUTORY PROVISION QUOTED ABOVE, THE SBA WILL CONSIDER PERSONAL AND BUSINESS ASSETS, NET WORTH, AND INCOME AND PROFITS WITH RESPECT TO THE INDIVIDUAL AND THE CONCERN, AND THE BONDING CAPABILITY AND AVAILABILITY OF FINANCING OUTSIDE EQUITY CAPITAL AND MARKETS FOR THE FIRM. 13 C.F.R. SEC. 124.1-1(C)(4)(II).

SBA'S STANDARD OPERATING PROCEDURE (SOP) 80-05 COMPLEMENTS THE REGULATIONS BY PROVIDING INTERNAL POLICIES, PROCEDURES, REQUIREMENTS AND GUIDELINES. SECTION 8(C) OF SOP CHAPTER 2 ESSENTIALLY REPEATS THE STATUTORY AND REGULATORY PROVISIONS, AND ADDS:

"IN GENERAL, IT IS NOT THE INTENT OF THE 8(A) PROGRAM TO ALLOW PARTICIPATION BY INDIVIDUALS OF SOCIALLY AND ECONOMICALLY DISADVANTAGED GROUPS WHO HAVE ACCUMULATED SUBSTANTIAL WEALTH AND UNLIMITED GROWTH POTENTIAL *** AND WHO CAN PROVIDE FOR THEMSELVES THE TYPES OF ASSISTANCE AVAILABLE THROUGH THE 8(A) PROGRAM. IS ALSO NOT THE INTENT OF THE 8(A) PROGRAM TO EXCLUDE PARTICIPATION BY INDIVIDUALS OF SOCIALLY AND ECONOMICALLY DISADVANTAGED GROUPS WHO, WHILE THEY MAY HAVE ACHIEVED MODERATE FINANCIAL SUCCESS, STILL ARE UNABLE TO COMPETE AND GROW ON EQUAL TERMS IN THE MARKETPLACE AND WHO CANNOT PROVIDE FOR THEMSELVES, THE TYPES OF ASSISTANCE AVAILABLE THROUGH THE 8(A) PROGRAM BECAUSE OF TRADITIONAL CULTURAL, RACIAL OR SOCIAL BARRIERS.

"A COMPARISON SHALL BE MADE OF THE 8(A) APPLICANT'S BUSINESSES AND FINANCIAL PROFILE WITH PROFILES OF NONDISADVANTAGED INDIVIDUALS IN THE SAME OR SIMILAR LINE OF BUSINESS AND COMPETITIVE MARKET AREA."

E.G.BOWMAN AND COMPANY WAS ADMITTED TO THE 8(A) PROGRAM IN DECEMBER 1980, AND THE SBA INFORMALLY ADVISES THAT THIS IS THE SECOND 8(A) SUBCONTRACT AWARDED TO THE FIRM. IN RESPONSE TO YOUR LETTER WE REQUESTED AND RECEIVED FROM THE SBA A COPY OF THE DOCUMENTS APPROVING E.G.BOWMAN AND COMPANY FOR 8(A) PROGRAM PARTICIPATION, WHICH INDICATE THAT THE FIRM WAS FOUND ECONOMICALLY DISADVANTAGED PURSUANT TO CHAPTER 2, SECTION 8(C) OF SOP 80-05. THEY SHOW THAT WHILE THERE WAS SOME CONCERN WITHIN THE SBA'S REGIONAL OFFICE ABOUT WHETHER E.G.BOWMAN AND COMPANY WAS ECONOMICALLY DISADVANTAGED, THE SBA'S ASSOCIATE ADMINISTRATOR FOR MINORITY SMALL BUSINESS DETERMINED THAT E.G.BOWMAN AND COMPANY, "A MODERATELY SUCCESSFUL BUSINESS," QUALIFIED UNDER THE 8(A) CRITERIA BASED ON A COMPARISON WITH NONDISADVANTAGED INDIVIDUALS IN THE SAME OR SIMILAR LINE OF BUSINESS AND MARKET AREA.

THE ASSOCIATE ADMINISTRATOR IS THE OFFICIAL EXPRESSLY AUTHORIZED BY THE ACT TO DECIDE WHETHER INDIVIDUALS OR FIRMS MEET THE DEFINITION OF AN ECONOMICALLY DISADVANTAGED PERSON OR CONCERN. 15 U.S.C. SEC. 637(A)(8).

WE HAVE NO INDICATION THAT E.G.BOWMAN AND COMPANY'S SITUATION HAS CHANGED SINCE DECEMBER 1980 WITH RESPECT TO MEETING THE ELIGIBILITY CRITERIA. WHILE A FIRM CAN BE TERMINATED FROM THE 8(A) PROGRAM IF IT NO LONGER MEETS THE ELIGIBILITY STANDARDS AFTER A PROPER HEARING, THAT ELIGIBILITY DETERMINATION IS THE SBA'S STATUTORY RESPONSIBILITY.

WE DO POINT OUT, HOWEVER, THAT E.G.BOWMAN AND COMPANY HAS A FIXED PROGRAM PARTICIPATION PERIOD BEGINNING FROM THE FIRST SUBCONTRACT AWARD AND ENDING IN APRIL 1986, WHICH THE SBA SET PURSUANT TO THE ACT'S REQUIREMENT THAT THE AGENCY ESTABLISH A SET PERIOD FOR A FIRM'S PARTICIPATION IN THE 8(A) PROGRAM. 15 U.S.C. SEC. 636(J)(10)(A) (SUPP. IV 1980). THE PURPOSE IS TO INSURE THAT NO FIRM REMAINS IN THE PROGRAM INDEFINITELY TO THE INJURY OF OTHER FIRMS THAT COULD BENEFIT FROM 8(A) ASSISTANCE.

FINALLY, YOU ASK WHAT OPTIONS ARE AVAILABLE TO MR. ST. DENIS WITH RESPECT TO PURSUING HIS COMPLAINTS.

THE APPROPRIATE FORUMS WITH WHICH TO PURSUE THE ADVISABILITY OF THE 8(A) SET-ASIDE ARE THE SBA AND THE INTERNATIONAL COMMUNICATION AGENCY. THE CORRESPONDENCE ENCLOSED WITH YOUR LETTER, HOWEVER, SHOWS THAT THOSE AGENCIES ALREADY HAVE CONFIRMED TO YOUR OFFICE AND TO MR. ST. DENIS THEIR POSITION THAT THE SET-ASIDE IS AN APPROPRIATE IMPLEMENTATION OF THE PURPOSES OF THE 8(A) PROGRAM. FURTHERMORE, AS EXPLAINED ABOVE, IN VIEW OF THE BROAD DISCRETIONARY AUTHORITY THAT THE ACT GIVES THE SBA WITH RESPECT TO MANAGING THE 8(A) PROGRAM, WE WOULD HAVE NO LEGAL BASIS TO OBJECT TO THE SBA'S JUDGMENTAL DECISIONS IN THIS MATTER.

WE HAVE ENCLOSED FOR YOUR INFORMATION A COPY OF THE SBA'S REGULATIONS FOR THE 8(A) PROGRAM, AND RELEVANT PARTS OF SOP 80-05 AND THE MATERIAL THE SBA FURNISHED REGARDING E.G.BOWMAN AND COMPANY'S ADMISSION INTO THE PROGRAM.