Senate Bill Backed Despite Wedtech Scandal : Panel Bolsters Minority Business Aid

The Senate Small Business Committee on Tuesday approved legislation designed to strengthen the federal government’s program of fostering businesses owned by women and members of minority groups.

The committee also approved a fiscal 1989 reauthorization of Small Business Administration programs at about the same spending level as this year, some $5.3 billion.

The minority businesses aid program, under Section 8 (a) of the Small Business Act, has come under sharp criticism and public scrutiny because of the Wedtech case and other scandals, although it also has had its successes.

Under the program, created in 1968, certain government procurement contracts are set aside for companies owned and controlled by women and members of minority groups who are both socially and economically disadvantaged. Since there is no competitive bidding, the process has been viewed by critics as particularly vulnerable to abuse.

Companies can participate for five years but could receive a two-year extension.

The Senate measure calls for an eight-year fixed program term, with no provision for extensions. A companion House bill provides for a nine-year term.

Eligibility Requirement

The voice-vote approval of the bill came after Sen. Barbara Mikulski, (D-Md.), proposed an amendment, and then withdrew it, to provide for a 10-year program. Then, the committee accepted her amendment calling for a study of the program.

The committee-approved measure also requires that participating concerns show that 30% of their business comes from competitive contracts outside the program after five years to be eligible for new contracts in the sixth year. The percentage remains the same in year six, but increases to 50% for the seventh and eighth years of participation.

The House version also calls for a varying mix of competitive contracts but recommends that they be goals and not requirements.

Mikulski unsuccessfully proposed that the Senate bill be changed from “requirements” to “goals.”

“We don’t want to create ‘contract junkies,’ but we’re putting the burden on small business when it should be put on the SBA, which has administered the program in a arbitrary and confusing way,” she said.

Cancellation Clause

A staff study showed that 30% of the businesses fail after they leave the program.

Similar to the House legislation, the measure provides that contracts can be terminated by the government if the business is transferred or sold during the initial year of performance.

The committee also approved several amendments sponsored by Sen. Carl Levin (D-Mich.) as an outgrowth of the Wedtech case, requiring unconditional ownership and a yearly certification of ownership.

Wedtech Corp., a Bronx, N.Y., military contractor founded by a businessman born in Puerto Rico, benefited from the federal program. In four years, it was awarded more than $250 million in military contracts in which there was no bidding.

Wedtech, which has filed for reorganization under the U.S. Bankruptcy Code, has been the subject of at least five state and federal criminal investigations.

There have been allegations that its executives bribed federal officials and conspired to obtain government contracts through fraud and misrepresentations.