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IMMEDIATE RELEASE

Release No: 568-95
October 25, 1995

DEPARTMENT OF DEFENSE SUSPENDS "RULE OF TWO" SET-ASIDE CONTRACT PROGRAM

The Department of Defense has suspended its "rule of two" set-aside contract

program for "small disadvantaged businesses" (SDBs). DoD took this action, on the advice of the Justice Department, as part of the government's on-going review of all federal affirmative action programs in light of the Supreme Court's June decision in Adarand v. Pena.

Deputy Secretary of Defense John White said suspension of the "rule of two" does not reflect any change in the Department's commitment to bring SDBs into the defense industrial base. White's instruction to the Service Secretaries and Directors was to "redouble your efforts to achieve this objective."

Under the "rule of two" set-aside program, a DoD prime contract is reserved for SDBs -- primarily minority-owned firms -- whenever two or more such firms are available and qualified to bid. An SDB's bid cannot win if it is more than 10% above the fair market price.

Under Secretary of Defense Paul G. Kaminski further stated: "I have directed all DoD contracting activities to use their utmost skill and existing authorities to increase awards to SDBs. I have also personally called leaders in the defense industry to tell them of the impact of Adarand on DoD programs and to ask their assistance in substantially increasing subcontract support to SDBs." Kaminski said he has been gratified by the positive responses he has received.

In each of fiscal years 1992 through 1994, the Department exceeded its statutory goal of awarding 5% of funds obligated for contracts and subcontracts to small disadvantaged businesses, Historically Black Colleges and Universities, and minority institutions. Through the first three-quarters of fiscal year 1995, the Department has awarded $5.4 billion of its prime contracts and subcontracts to these groups. Contracts awarded under the "rule of two" accounted for $1 billion of SDB awards in fiscal year 1994 and $516 million through the first three-quarters of fiscal year 1995. While the Department believes that it will continue to exceed its overall 5% goal, there will be a reduction in prime contract awards made to SDBs. In addition to participating in an interagency working group chaired by the Justice Department, the DoD has established a working group that is looking for ways in which DoD can expand contract and subcontract opportunities for small businesses and SDBs.

DoD's actions are in furtherance of President Clinton's July directive to all agencies to review, under the overall direction of the Attorney General, all federal affirmative action programs to ensure that they meet the standard announced in June by the Supreme Court in Adarand v. Pena. Associate Attorney General John Schmidt, who is in charge of the review for the Justice Department stated: "Although the Supreme Court overwhelmingly held that affirmative action is lawful under appropriate circumstances, Adarand established a more stringent constitutional standard, which must be met. We are undertaking a serious and deliberate review to ensure that programs meet the constitutional test while carrying out the federal government's long-recognized and statutorily mandated responsibility to provide opportunity for those who traditionally have been excluded."