This Virginia Bill Expands Affirmative Action in State Contracting
The bill creates a new program to increase agency spending on small businesses, particularly those owned by women, minorities, and disabled veterans.
Virginia lawmakers recently passed a bill requiring state agencies to privilege bids for government contracts made by small businesses, especially those owned by women, minorities, and disabled veterans. In Orwellian fashion, the bill includes a clause prohibiting discrimination against bidders on the basis of "sex," "race," or "status as a service disabled veteran."
On Saturday, the Virginia General Assembly sent House Bill (H.B.) 61 to Democratic Gov. Abigail Spanberger's desk. The bill, which passed along party lines earlier this month, establishes the Small SWaM Business Procurement Enhancement Program to increase the percentage of discretionary spending not just to small businesses in general, but "small women-owned, small minority-owned, or small service disabled veteran-owned" businesses specifically, by 3 percent each year until the state reaches its target of 42 percent.
While it could be argued that the bill only discriminates in favor of small businesses, including those owned by women, minorities, and disabled veterans, the data collection required by the bill reveals its true intention: The department must conduct a study every five years only on the "statistical disparities between the availability and utilization of women-owned and minority-owned businesses" in order to update statewide procurement "goals for women-owned and minority-owned businesses" and to recommend "narrowly tailored procurement policies" to eliminate such disparities.
The program also sets aside $10,000–$200,000 procurements for small SWaM businesses who enjoy a "price preference" over non-SWaM businesses of up to 5 percent. Meaning, if a non-SWaM business offers to repair potholes on Route 58 for $190,500 and a SWaM business offers to render the exact same service for $200,000, the more expensive offer must be accepted.
The bill is sure to face legal challenges. In January, Assistant Attorney General Harmeet Dhillon called the bill "illegal" and said it would "not survive court challenge." In addition to its dubious legality, the bill has an ambiguity problem. H.B. 61 directs the Department of Small Business and Supplier Diversity to defray the costs of projects designed to overcome the "special problems" of small SWaM businesses. The bill does not specify what special problems are faced by SWaM businesses, but these problems clearly do not include preferential access to government contracts.
Meanwhile, as the bill incentivizes state agencies to spend more money than necessary on contracts, it wastes even more taxpayer dollars by piling on paperwork and burdensome administration.
Each agency is required to designate a "SWaM business procurement enhancement liaison" and to submit to the department a yearly SWaM business procurement plan detailing precisely how it will increase spending on such businesses. The bill also requires non-SWaM prime contractors to include "a SWaM business subcontracting plan" on bids over $200,000; requires the department to collect data on compliance with these plans; and permits the department to bar prime contractors from government contracts for up to a year if found to have not made "good faith" efforts to comply with their subcontracting plans.
Joe Lonsdale, managing partner of technology investment firm 8VC and co-founder of Palantir, notes that mandatory minority contracting requirements "add anywhere from around 5% to 25% extra to the costs of government projects."
With H.B. 61 now on her desk, Spanberger can either veto the bill or do nothing and let it become law in April. If she opts for the latter, not only will Virginia become more profligate, but it will fail to uphold Virginians' constitutional right to equality under the law.