Federal Rules Spell Out Qualifications : How Is ‘Disadvantaged’ Decided?
What is a “disadvantaged business enterprise?”
What is “hands-on” management?
These are the most important questions surrounding airport contracts involving prominent people such as Betty Dixon, Bishop H. H. Brookins, John Mack and Herman J. Russell, a successful Atlanta builder.
City and federal officials are now investigating contracts at Los Angeles International Airport that were granted under programs designed to aid “disadvantaged” businesses. The questions center on whether some participants qualified for such contracts, given their wealth and the absence of day-to-day participation in the airport businesses.
There are now a host of federal programs that attempt to put minorities and women on an equal footing in business settings where they have historically been the victims of discrimination, according to Franklin Lee, general counsel of the Minority Business Enterprise Legal Defense and Education Fund, a nonprofit Washington organization.
Federal rules, Lee and several other legal experts said, have a presumption that certain groups are “disadvantaged.” These include blacks, Latinos, American Indians, Asian-Americans, Aleuts and women.
Lee said the individuals must be both “socially and economically disadvantaged.”
However, the term “economically disadvantaged” in the world of federal contracts means something quite different than it does in everyday conversation, according to Robert Ashby, an attorney with the Department of Transportation in Washington who has worked on these issues for several years.
“Disadvantaged” in this context, Ashby said, does not mean poor. “It means disadvantaged relative to the white male entrepreneur you’re competing against to get a contract,” he said.
There are federal guidelines, revised from time to time to reflect changing economic circumstances, specifying what it means to be disadvantaged. For example, Ashby said, a woman or minority electrical contractor could qualify as disadvantaged if his or her business had average gross revenues that did not exceed $14 million over the last three years. This means that the person could have a substantial business and still be eligible, he said.
For example, Ashby said, a man who headed a $100-million-a-year construction company would not be deemed disadvantaged. One of Betty Dixon’s partners in Mir Kanon Inc., the “disadvantaged business enterprise” that runs shops at Los Angeles Airport in a joint venture with Duty Free Shoppers, a San Francisco-based multinational company, is Herman J. Russell, whose Atlanta-based construction company had 1987 revenues of $141 million.
Another criterion, said Lee of the minority business enterprise law group in Washington, is a limitation on personal wealth. He said that until recently the individual could have a net worth of up to $750,000 and be eligible. However, he said that had been lowered to $250,000 in recent reform legislation.
The definition of “socially disadvantaged” is less clear, but it might include being unable to live in certain neighborhoods because of segregation or being unable to join a particular country club, Lee said. It is possible that a black person or a woman who is no longer “economically disadvantaged” by virtue of business success could still be “socially disadvantaged,” Lee said. But he stressed that in order to qualify to participate in one of these programs, the individual must fit both criteria.
The other major issue in the Los Angeles Airport controversies is the question of how active the minority or women owners have to be in the day-to-day operations of the business. Both Betty Dixon and John Mack, head of the Los Angeles Urban League, have acknowledged that they have not had a great deal of day-to-day contact with their businesses.
Transportation Department lawyers Miguel Rovira and Ashby said federal rules state that the person has to be more than a passive investor or one who simply attends a few meetings from time to time. “The regulations state clearly on the face that the person has to have day-to-day control over the operations,” Rovira said.
That does not mean, however, that each owner has to be at the business every day, he said. He said a variety of factors are taken into consideration to determine whether the individual’s participation is sufficient.
These could include how much time is spent at the business, how much time is spent on off-site meetings about the business, how much time the person spends on the telephone dealing with affairs of the business, whether the individual has access to the company’s books or has hiring and firing authority, among other considerations. All the determinations are made on a case-by-case basis.
In particular, Ashby said, if an owner lives outside the city where the “disadvantaged business” is operating, that should immediately raise “a red flag” that would prompt further inquiry about the owner’s degree of participation.
In Dixon’s partnership, five of the 10 owners, including Dixon, live outside Los Angeles. She lives in Washington, three of the partners live in Atlanta and one lives in Alabama.
Brookins, a participant in the food service contract, moved from Los Angeles to Washington last summer.
