Government contractor is denied work because of reverse discrimination. Details of government racial preference!

Case 1:
Fay Communications, Inc.
versus
U.S. Small Business Administration

Legal Documents
Injunction and Discovery

Judge's Final Order

The Set Up: In 1987, Fay Communications, Inc. (Fay) was a growing, ambitious video production company with a dedicated staff of four very hard working individuals. The firm was growing rapidly, and had revenues of $600,000 in 1986 (up from $250,000 in 1985, and up from $125,000 in 1984). Among Fay's clients was the Federal Emergency Management Agency (FEMA), which accounted for about 37% of FayComm's revenue. FayComm had been providing production services to FEMA for several years, and was looking forward to bidding on a large, new contract which was going out for bid.

In July 1987, Mr. Clay Hollister, program officer for the pending FEMA contract, visited Fay Communications' offices and informed them they were the wrong color! Hollister told Fay that the contract was now going to be set aside for an "historically disadvantaged" minority firm named Technical Resources, Inc. (TRI).

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According to Dun and Bradstreet, in 1987 TRI had 100 employees (vs. Fay's four employees), and over $10 million in annual revenue (vs. Fay's $600,000 annual revenue). 100% of TRI's revenue derived from "minority set-aside contracts" (gifts without competitive bidding) while none of FayComm's revenue derived from set-aside contracts.

During the July 1987 meeting, Mr. Hollister indicated that the set-aside would have the benefit to FEMA of allowing the agency to bypass the lengthy and time-consuming competitive procurement process. FEMA denied any complicity in the set-aside decision; according to FEMA, the U.S. SBA had taken the matter out of FEMA's hands, and had "set-aside" the procurement under the terms of the Section 8(a) minority set-aside program. (This is apparently untrue: discovery documents showed that the letter from SBA to FEMA in this matter "requested" that the project be set-aside. See "Legal Documents: Discovery Documents".)

Mr. Tim Fay, president and principal owner of Fay Communications, felt this was extremely racist, and said so. Subsequently, Fay Communications sued the U.S. Small Business Administration for the right to bid openly, fairly, and competitively on the procurement. On Sept. 24, 1987, Fay filed for a preliminary injunction in United States District Court for the District of Columbia, Civil Action No. 87-2494-LFO, "Fay Communications, Inc., Plaintiff, v. James Abdnor, Administrator, Small Business Administration, and United States of America, Defendants." Judge Louis Oberdorfer, presiding.

Fay's motion for a preliminary injunction was granted by Judge Oberdorfer. (See also Filings and Judge's Orders.)

Outcome: The injunction remained in effect for several months, during which time the Judge ordered that TRI (the so-called "disadvantaged firm") was not to receive any "pre-contract" cost payments pertaining to the contested project. Nonetheless, in violation of the Order, TRI did receive substantial "pre-contract" cost payments from FEMA during this interval. (Neither FEMA nor TRI were sanctioned for this violation of the Judge's order!)

During one subsequent hearing on this matter, with the U.S. Attorney's office representing the SBA, presiding Judge Oberdorfer actually leaned over the bench and screamed at the U.S. Attorney "Do you mean to tell me that if the "minority firm" can demonstrate that it is not competent to do the work, and that it therefore cannot win the award in open, competitive bidding, then that lack of competence qualifies them to be given the contract?" The Judge couldn't believe it, but that's how the law was written.

In the end, Judge Oberdorfer was powerless. Amazingly, the law stated that this could take place. The give-away to this large, well-funded firm (TRI) was allowed to proceed. Mysteriously, overnight Fay Communications stopped receiving requests for bids from government agencies. At the same time, several other contractors informed Fay that a certain large minority-owned firm (which cannot be named here) was making false, defamatory, and misleading statements about Fay Communications to them and to government agencies.

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In 1988, as a direct result of the "blacklisting" by the federal government and repeated slander to potential government clients by the unnamed minority-owned firm, Fay Communications' severely declining revenue forced them to close their offices, lay off their staff, and liquidate all the staff retirement funds. Mr. Fay personally was forced to liquidate all the equity in his modest home. But the firm did pay its substantial legal bills, and has doggedly persevered. Fay Communications remains in business today, much to the dismay of the federal government, the U.S. SBA, and the unnamed minority firm.

Be sure to also see $$$ Costs to FayComm. ($395,011.00!)

Today: Like any small business (actually, microscopic business), Fay Communications depends upon word of mouth and referrals by satisfied customers. But in 1997, 10 years later, the racism continues! From 1987 to the present, Fay has received numerous calls from federal agencies stating, in effect, "We like the work you did for so-and-so, can you do it for us? Are you a minority? No? Too bad. We can't do business because you are not owned by a minority!"

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As recently as October, 1997, Mr. Fay received a call from another well-known federal agency (who may be named here in the future). "Mr. Fay, we have a copy of your most recent CD-ROM training program, and it is excellent. We really need to do something like this since our previous contractor really 'hosed us'. We'd like to work with you. Are you a minority-owned firm?" (See Note) End of conversation.

Mr. Fay was devastated following this phone call. Here was an agency who really liked his work, which had direct evidence of the excellence of his work, and which was openly enthusiastic about it, and which agency had the discretionary funds available to hire Mr. Fay's firm to do the work. Yet, because Fay was not an approved minority, he was summarily excluded from even the possibility of doing the work.

(Note: After making several inquiries about this agency and the project, FayComm learned the following: (a) The agency had terminated the previous contractor in the middle of the project for cause (for incompetence); and (b) The terminated contractor was -- you guessed it -- an official, registered "historically disadvantaged firm" who had been given the contract without competitive bidding! Oh, well, you get what you pay for!)

Analysis: The Section 8(a) set-aside program enshrines the federal government's structural discrimination against small businesses who are not owned by "preferred minorities". It does this by requiring federal agencies to "set-aside" a fixed percentage of their annual contracting work for non-competitive gifts to minority firms.

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In practice, federal agencies use this rule as a "loophole" to "fast track" smaller contracts in the range of $5,000 to $1,000,000 for which the formal competitive bidding process is seen as unduly burdensome! Thus, this rule effecively obliterates all "non-minority" businesses whose expertise is in this price range!

In other words, non-minority firms are simply not allowed to bid on most of these smaller contracts!

Be sure to see also "Legal Documents: Discovery Documents" to see just how easy it is for an 'historically disadvantaged' firm to get the U.S. SBA to force a government agency to give the contract to the minority firm! Nice work if you can get it!

Under Construction: Additional Fay Communications, Inc. filings in the U.S. District Court (Civil Action No. 87-2494-LFO) are being put on-line for visitors to this site to examine. The record of unfair discrimination is clear, and it is unambiguous, and adversity.net will continue to expose it to public scrutiny.