Small and Disadvantaged Business Enterprises

Small Business Reorganization Act of 1997: This law mandated that the Small Business Administration assist small businesses through the Small Business Enterprise Program (SBE), Small Disadvantaged Business Program (SDB), and businesses located in Historically Underutilized Business Zones (HUBZones) in obtaining a larger share of public works construction contracts.

What is an SDB?:  Small Disadvantaged Businesses are small businesses that are at least 51% owned and controlled by a socially and economically disadvantaged individual or individuals. African Americans, Hispanic Americans, Asian Pacific Americans, Subcontinent Asian Americans, and Native Americans are presumed to qualify. Other individuals can qualify if they show by a preponderance of the evidence that they are disadvantaged.  All individuals must have a net worth of less than $750,000, excluding the equity of the business and primary residence. This definition applies to federal government projects where programs are intended to help federal agencies achieve the government-wide goal of 5 percent SDB participation in prime contracting.

Methods of Enforcement: The use of "set-asides," whereby certain public construction contracts are designated as being only available to small or disadvantaged businesses is the main method of enforcement for the policies.  Alternatively, quotas and bid-penalties against "non-qualified" contractors can be used to direct contracts to small and disadvantaged businesses. 

Problems and Controversy: These programs have resulted in a hodge-podge of programs with differing regulations and certification procedures.  Confusion has been created for participants in these programs and problems have plagued the administration of these programs.  Because the programs have become cumbersome and difficult to manage they are looked upon as troublesome and controversial by many in the industry.  Recent Court decisions have found some of these programs, or certain program parameters, to be unlawful because they amount to reverse discrimination against non-minority contractors.