Pentagon Will End Job Pacts Based on Race

The Pentagon will announce early this week that it is repealing an affirmative-action rule that prevented white-owned firms from competing last year on contracts worth $1 billion, according to White House and Justice Department officials.

The announcement, expected Monday or Tuesday, comes four months after the Supreme Court ruled that it is almost always unconstitutional for federal agencies to use “racial classifications” in awarding contracts.

After that ruling, President Clinton said he continued to support federal affirmative action, but he also ordered a government-wide review of contracting rules to see which ones could not be defended.

In recent weeks, Administration lawyers concluded that they could not justify the Pentagon’s “Rule of Two,” which allows contracting officers to close off bidding to white-owned businesses if at least two qualified, minority-owned firms were available to do the work.

“This was blatantly unconstitutional,” said a Justice Department official who took part in the review. “We couldn’t defend it.”

In 1994, the Pentagon awarded contracts worth $5.4 billion to small, disadvantaged businesses (SDBs), which are defined as those owned by blacks, Latinos, Asians or Native Americans. Of that, $1 billion was awarded in closed competitions under the Rule of Two, the official said.

“This is an ugly duckling,” said a congressional aide in describing the Rule of Two. “It sits out there easy to see. They had no choice but to repeal it.”

Administration officials had tentatively planned to announce the policy change Thursday but postponed it until this week. They denied speculation they did not want to announce the dropping of an affirmative-action policy so close to last Monday’s “Million Man March” in Washington.

Justice Department lawyers said the repeal was prompted in part by pending lawsuits.

In late June, shortly after the Supreme Court ruled, a Minnesota construction firm that repaired roads on military bases filed a lawsuit after it was shut out of bidding for contracts at the White Sands Missile Range in New Mexico.

Before 1994, the firm, C.S. McCrossan Construction Co., had twice won contracts to repair roads at White Sands. But last September, a procurement officer at the base announced that for new contracts, including road work, “only SDBs are permitted to submit bids.”

“They basically put up a sign that says, ‘No Whites Need App” said an attorney for the construction firm.

McCrossan, a white male, asserted that this exclusionary policy violated his rights to equal protection under the Constitution.

Justice Department lawyers have delayed responding directly to the lawsuit, citing the Administration’s review of affirmative action. On Friday, however, a department attorney called McCrossan’s lawyer in Las Cruces, N.M., and said the case was about to be resolved.

“We were told there will be announcement Monday or Tuesday that will moot the case,” said Kelly P. Albers, McCrossan’s lawyer.

Though the Rule of Two is a Pentagon procurement regulation, Defense Department officials said it originated with Congress.

In 1987, Congress ordered the Defense Department to award at least 5% of its contract dollars to small, disadvantaged businesses. The law authorized contracting officers to reach that goal through several means, including inflating the bids of white-owned firms by 10% and establishing “less than full and open competition” for certain contracts. The Rule of Two was adopted as a way to close off full competition.

Because most of the Pentagon’s procurement dollars go for huge contracts to build aircraft, ships or other costly items, procurement officers must focus their smaller contracts on minority-owned firms in order to achieve the 5% goal set by law. Contracts for maintenance, road repairs and security are at the top of this category.

Over the past few weeks, lawyers for several civil rights groups and the Minority Business Enterprise Legal Defense Fund have urged Administration officials to preserve the Pentagon rule and fight the matter in court. They have played down the Supreme Court ruling, which came in the case of Adarand vs. Pena, arguing that it does not require a pullback on affirmative action.

Within the White House and Justice Department, opinions have been split. Some advocates in the department’s civil rights division have insisted on holding fast to the “race-conscious” rules for contracts, while others have argued for revising programs that give explicit preferences based on race. In the end, both sides concluded that the Pentagon policy went too far.

The Administration’s decision may fall short of mollifying critics of contract set-asides, including Republicans in Congress.

“This looks to be tinkering around the edges,” said a Republican committee lawyer. “It is small step in the right direction, but only a small step.”

Albers said he was waiting to see what replaces the Rule of Two. He said he would object if the Pentagon substituted a requirement that the Pentagon lop 10% off the prices of bids by minority-owned firms for purposes of calculating the low bidder.

“In Adarand, the Supreme Court specified that the problem was a race-based classification system,” he said.

“If they just change the rule a bit and retain the racial classification system, this lawsuit will not go away.”