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Set-Aside Act Amended to Remove State Contract Set-Asides for Minority Owned and Female Owned Business
by John D. Cromie and John T. Fojut
The New Jersey Set-Aside Act for Small Businesses, Female Businesses and Minority Businesses, N.J.S.A. 52:32-17, et seq., (the "Set-Aside Act") recently underwent significant modification, the result of which was to eliminate its applicability to minority owned and female owned businesses. As a result of the State's Joint Adopted Emergency Amendments and Joint Adopted Concurrent Amendments, N.J.A.C. 12A:10A and 17:14, the Set-Aside Act's provisions that required or permitted the State to set aside contracts for bidding by only minority owned and female owned businesses were repealed effective July 9, 2003.
The State filed emergency amendments on July 9, 2003 in order to conform the Set-Aside Act and its implementing rules with a Consent Decree entered in GEOD Corporation, et al. v. State of New Jersey, et al., Civil Action No. 01-2656 (SRC), U.S. District Court for the District of New Jersey. By statute, the emergency amendments expired on September 7, 2003. Thereafter, through the operation of the normal rulemaking procedures, on September 7, 2003 the Joint Adopted Concurrent Amendments - which are substantially similar to the emergency amendments - became effective and will remain so until September 4, 2008, when they will be ripe for re-adoption. In addition to the amendments, the Set-Aside Act was further altered by Executive Order 71, which is discussed in more detail below.
In GEOD Corp., GEOD Corporation and several of its corporate officers sued the State and several of its executive officers, alleging that the Set-Aside Act violated the Equal Protection Clause of the U.S. Constitution. GEOD Corporation alleged that the Set-Aside Act's provisions regarding minority owned and female owned businesses are not "narrowly tailored" to redress the State's "compelling interest" in remedying discrimination in State contracting against minority owned and female owned businesses.
The Consent Decree established that the Set-Aside Act does violate the U.S. Constitution's Equal Protection Clause. The decree established, further, that the violation of the Equal Protection Clause required that a permanent injunction be entered against the State's set-aside of contracts for bidding by only minority owned and female owned businesses, and, against the establishment of State contract dollar targets paid to minority owned and female owned businesses.
Removing all references to minority owned and female owned businesses are not the only changes that have been made to the Set-Aside Act by the amendments. The list below highlights other notable changes:
1. Small businesses have been re-classified as having no more than 100 full-time employees and as being in one of two categories: (a) those having gross revenues that do not exceed $1 million; and (b) those having gross revenues that do not exceed the applicable annual revenue standards set forth in 13 CFR ¤121.201 (13 CFR ¤121.201 establishes "size standards" for industry classifications of "small businesses" expressed in annual receipts in millions of dollars. The reader is encouraged to consult 13 CFR ¤121.201 for specific industry revenue standards, as the list is too lengthy to reproduce in this article). Small businesses will be registered with the New Jersey Commerce Commission in one of the two categories discussed above. Moreover, the amendments establish certain set-aside contracts for bidding by small businesses in either or both of the categories of small businesses. Additionally, it should be noted that the amendments also set forth the possibility that the State's Commerce Commission may limit participation by small businesses in set-aside contracts to "businesses whose individual owners do not exceed $750,000 in personal net worth." The New Jersey Commerce Commission has indicated in the "Agency Responses to Public Comments" section of the New Jersey Register that "[a]t this time, it is not the intention of the Commerce Commission to limit participation in the State Small Business Set-Aside Program to businesses whose individual owners personal net worth does not exceed $750,000.";
2. At least 15 percent of the dollar value of a State agency's contracts must be awarded to small businesses. Specifically, of that 15 percent, at least 5 percent of the dollar value of a State agency's contracts must be awarded to small businesses whose gross revenues do not exceed $1 million; and, at least an additional 10 percent of the dollar value of a State agency's contracts must be awarded to small businesses who gross revenues do not exceed the applicable annual revenue standards set forth in 13 CFR ¤121.201. Notably, while the above discussed 15 percent set-aside is established by the amendments, in Executive Order 71, promulgated on October 2, 2003, Governor McGreevey increased the small business set-aside from 15 percent to 25 percent. Thus, 25 percent is the effective and operative set-aside percentage.
3. A business must be registered as a small business by the Commerce Commission on the date the bid or bid proposal is received and opened;
4. The right to an informal hearing prior to a contract award if set-aside designation is withdrawn has been removed from the Set-Aside Act; and,
5. The subcontracting provisions applicable to State agencies at N.J.A.C. 12A:10A-4.1(d) and 17:14-4.1(d) have been removed from the Set-Aside Act (N.J.A.C. 12A:10A-4.1(d) and 17:14-4.1(d) establish remedial set-aside program goals and procedures applicable to state agencies).
In sum, concomitant to compliance with the Consent Decree, the amendments are believed to greater effect the goal of protecting and growing the State's small businesses - the backbone of the State's economy. Small businesses comprise over 98% of businesses in New Jersey according to one study. It is suggested that most minority owned and female owned businesses fall within the parameters of "small businesses" as defined by the amended Set-Aside Act. By targeting a State agency's set-asides to small business based on gross revenues, small companies will bid against other small companies - and not against large businesses. Proponents of the amendments contend that these changes engender fair competition, which will result in a greater economic health for the State.
On-line applications for certification as a small business are available at www.state.nj.us/commerce/. Applications for certification as a minority owned or female owned business are also available at that web site, for, although the State may no longer set-aside a State agency's contracts for minority owned and female owned businesses, the State may still register those companies for statistical and outreach purposes.
Published in the ÒNew Jersey Constructor.Ó Permission from the Associated General Contractors of NJ, Publisher.
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