The Road to Civil Rights
Disadvantaged Business Enterprises
On October 13, 1971, President Nixon approved Executive Order 11625 ("Prescribing Additional Arrangements for Developing and Coordinating a National Program For Minority Business Enterprise"). It began:
The opportunity for full participation in our free enterprise system by socially and economically disadvantaged persons is essential if we are to obtain social and economic justice for such persons and improve the functioning of our national economy.
Among its instructions on achieving full participation, the order stated:
Each Federal department or agency shall, within constraints of law and appropriations therefore, continue all current efforts to foster and promote minority business enterprises and to support the program herein.
In response, FHWA issued a regulation requiring States to take affirmative actions to increase participation of minority business enterprises (MBE) in Federal-aid highway construction programs (23 CFR 230, Subpart B).
Progress increased after Secretary William T. Coleman, Jr., became the first African-American to serve as Secretary of Transportation (1975-1977). On July 23, 1975, FHWA and the Commerce Department's Office of Minority Business Enterprise signed a memorandum of understanding on ways to increase participation of MBE's in Federal-aid construction programs. Among other things, FHWA agreed to review the feasibility of setting goals for MBE contracts and subcontracts and assist in identifying capable minority construction contractors, vendors, suppliers, equipment dealers, and service companies.
FHWA issued regulations on November 21, 1975, to promote increased use of MBE's in Federal-aid highway activity. States would have to identify MBE's, ensure prime contractors using subcontractors took affirmative action to consider MBE's, and report MBE participation to FHWA quarterly.
In the Notice of Proposed Rulemaking (NPRM), published in the Federal Register on May 17, 1979 (p. 28928), the Department explained its decision to include women-owned businesses (WBE) among MBE's. Women comprise 51 percent of the population, and so are not a minority, but at the time they owned only 4.6 percent of businesses; the gross receipts of women-owned businesses totaled 0.3 percent of all United States business receipts in 1972. The notice continued:
Because there was never before a program for woman-owned businesses, statistics on their participation in DOT contracts are not available. It is clear, however, that their degree of involvement is minimal. Women have not traditionally participated in either the construction or transportation fields in which the bulk of DOT contracts are let.
On March 31, 1980, the Department issued a comprehensive regulation that required all recipients of Federal funding to adopt an MBE program, including setting goals for MBE participation in Federal-aid contracts and provisions for helping MBE's succeed in carrying out the contracts. The regulation extended the definition of "MBE" to include women's business enterprises. The preamble to the Final Rule explained:
The final rule refers to small business concerns owned and controlled by one or more minority persons or by women. The Department is aware that women are not by definition a minority. But to simplify drafting, we will include businesses owned and controlled by women under the general heading of MBE. This will avoid the necessity of repeating "minority-owned enterprises and women-owned enterprises." The Department, however, has retained the substantive provision of the NPRM that requires recipients to set separate goals for businesses owned and controlled by minorities and women. As several commenters noted, separate goals are necessary to permit minority-owned and women-owned firms to participate equitably in the program.
Contracting with MBE's gradually increased, from $27.8 million in FY 1975 to $366.5 million in FY 1981 or 4.23 percent of approximately $8.75 billion of obligated funds for the year. Federal Highway Administrator Ray Barnhart summarized the results:
Without the level of dedication and involvement, the FHWA's MBE program in FY 1981 would not have achieved such results. The MBE program is not a deferred dream of FHWA. Our record shows a positive escalation of minority involvement in the highway industry. This is encouraging progress in participation and increased opportunities by minority business firms." [Johnson, William E., "Minority Business Enterprise Shows 1981 Gains," FHWA News, June 1982, p. 1]
The Surface Transportation Assistance Act (STAA) of 1982 formalized this administrative requirement, thanks to Representative Parren J. Mitchell (D-Md.) of Baltimore. Mitchell had taught sociology at historically black Morgan College (now Morgan State University) but his family had been involved in the Civil Rights Movement for many years; his brother Clarence M. Mitchell, Jr., worked for the NAACP in Washington. In 1970, Mitchell defeated nine-term Democratic incumbent Samuel Friedel in the primary by 38 votes, aided by a third candidate who siphoned votes away from Friedel. When Mitchell won the election in November, he became the first African-American to represent Maryland in the U.S. House of Representatives (January 3, 1971, to January 3, 1987). [Not in My Neighborhood, p. 205]
On December 6, 1982, he introduced an amendment on the House floor during debate on the STAA that required that not less than 10 percent of the amounts authorized "shall be expended directly with small business concerns owned and controlled by socially and economically disadvantaged individuals."
Mitchell explained that a similar measure had been added to the Public Works Act of 1977. The Supreme Court had found the measure constitutional in a 1980 case and "the amendment met with enormous success":
In light of the disproportionate unemployment enjoyed by minorities as of this time, and in light of the success of the public works amendment in mixing together county, State, and local governments with minority business provisions, I would urge the passage of my amendment.
The Nation had been in a prolonged recession that had begun in the late 1970s. Mitchell shared the concern about unemployment. He said that "the November unemployment figures [show] 10.8 percent of Americans are out of work," but for black Americans unemployment was "an atrocious level of 20 percent." That total did not include the "millions of individuals who have given up total hope and thus are no longer seeking employment."
While the 1982 STAA was expected to create nearly 300,000 jobs, Representative Mitchell was concerned that "the twin forces of racism and economic discrimination will once again raise their ugly heads." He added that small businesses owned and controlled by socially and economically disadvantaged individuals had made major contributions in the past. "The small minority business community can play a major role in assisting this Nation to reduce the 20-percent black unemployment figure.
The House agreed to the Mitchell amendment, which was modified in conference with the Senate and incorporated into Section 105 ("Authorizations") as subsection (f):
Except to the extent that the Secretary determines otherwise, not less than 10 per centum of the amounts authorized to be appropriated under this Act shall be expended with small business concerns owned and controlled by socially and economically disadvantaged individuals as defined by section 8(d) of the Small Business Act (15 U.S.C. section 637(d)) and relevant subcontracting regulations promulgated pursuant thereto.
Implementing this provision was a challenge for the Reagan Administration, which opposed affirmative action mandates. Given the introductory clause, "Except to the extent that the Secretary determines otherwise," the Department treated the provision as requiring each State transportation department to establish a goal that it would try to attain - as long as accumulated national contracting equaled 10 percent. States with small numbers of minorities set low goals, while others set goals far exceeding 10 percent, allowing FHWA to comply with the statutory requirement. Because the firms involved were small and often inexperienced, they would be used mostly as subcontractors to nonminority, nondisadvantaged prime contractors.
The Surface Transportation and Uniform Relocation Assistance Act of 1987 continued the 10 percent DBE goal, and stated that, "women shall be presumed to be socially and economically disadvantaged individuals for purposes of this subsection" (Section 106(c)).
Congress has included variations of the Mitchell DBE provision in subsequent legislation and so it remains a key part of contracting. The FHWA approves each State's DBE program and its annual goals to ensure compliance with all DBE program requirements. The main objective is to ensure that DBE firms, including WBE firms, have an opportunity to participate in Federal-aid contracts.