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Return to Case 25 "White Female Denied Work by Automakers Due to Skin Color"

(Official U.S. SBA document, unedited)
MEMORANDUM OF UNDERSTANDING
between the
UNITED STATES AUTOMAKERS
and the
U.S. SMALL BUSINESS ADMINISTRATION

WHEREAS General Motors Corporation, Ford Motor Company, and Chrysler Corporation ("the Automakers") have voluntarily initiated a program to improve opportunities for small disadvantaged businesses in the automotive industry; and

WHEREAS the Small Business Administration (SBA) has programs and resources available to assist the Automakers in this initiative;

THEREFORE the Parties (SBA, General Motors Corporation, Ford Motor Company, and Chrysler Corporation) agree to the following pilot program:

SUMMARY:

          By means of this Memorandum of Understanding (MOU), the Parties agree to a public-private partnership designed to improve opportunities for small businesses owned by socially and economically disadvantaged individuals. This partnership will significantly enhance the initiative originated by the Automakers known as "Tier 1/Tier 2" by providing the Automakers with resources and program recognition of the Federal government.

This is a special initiative by the Parties.

BACKGROUND:

General Motors Corporation (General Motors), Ford Motor Company (Ford), and Chrysler Corporation (Chrysler) have implemented a minority supplier program where Tier 1 suppliers (companies selling goods and services directly to the Automakers) are given a target to purchase from certified minority companies that are Tier 2 suppliers (companies selling goods and services to the Automakers through a Tier 1 Company). Many minority suppliers are also small disadvantaged businesses (SDBs).

OBJECTIVES:  

The objectives of this Tier 1/Tier 2 Pilot Agreement are:

• Expand minority supplier market opportunities.
• Increase opportunities for minority-to-non-minority strategic alliances.
• Make more developmental assistance available to minority suppliers.
• Provide purchase opportunities during periods of industry-wide supplier rationalization.
• Target supplier outreach toward inclusion of 8(a) certified companies.

Based on 1997 volumes, these projections reflect a five percent (5%) target:

• General Motors will increase its Tier 1/Tier 2 subcontract awards to SDBs by $1 billion, resulting in Tier 1 subcontract awards of $2.2 billion and Tier 2 subcontract awards of $800 million in 2000, the third and final year of the pilot.
• Ford will increase its Tier 1/Tier 2 subcontract awards to SDBs by $900 million, resulting in Tier 1 subcontract awards of $2.5 billion and Tier 2 subcontract awards of $800 million in 2000, the third and final year of the pilot.
• Chrysler will increase its Tier 1/Tier 2 subcontract awards to SDBs by $1 billion, resulting in Tier 1 subcontract awards of $1.5 billion and Tier 2 subcontract awards of $1 billion in 2000, the third and final year of the pilot.

Each year the three Automakers will sponsor, in aggregate, at least ten SDB executives for a formal minority business executive program such as that at the Amos Tuck School of Business at Dartmouth College or the University of Wisconsin, for a total of 30 SDB executives during the three years of the pilot.

PILOT PROGRAM:

For their part, the Automakers shall:

1. Use the following definitions:

Small Business (SB): An enterprise organized for profit that is independently owned and operated, that meets the applicable size standard, and that otherwise meets the criteria set forth in the Code of Federal Regulations (CFR), Title 13, Part 121.

Small Disadvantaged Business (SDB): A small business that is owned and controlled by one or more socially and economically disadvantaged individuals as set forth in 13 CFR, Part 124.

8(a) Company: A small disadvantaged business that is certified by the U.S. Small Business Administration to participate in the 8(a) Program.

Publicly traded minority companies: For purposes of this pilot program only, a special classification of small business concern owned and controlled by socially and economically disadvantaged individuals as set forth in 13 CFR, Part 124, and wherein (a) socially and economically disadvantaged individuals hold not less than 10 percent of the outstanding common stock, or an amount equal to the current controlling stock ownership (whichever is greater), at any point in time; (b) socially and economically disadvantaged individuals control the day-to-day operations of the firm; (c) socially and economically disadvantaged individuals control the Board of Directors; (d) no less than 25 percent of the employees of the firm, including management, are socially and economically disadvantaged; and (e) the publicly traded minority company demonstrates ongoing outreach into the disadvantaged community. If the Automaker receives information that a non-SDB individual, group, or entity may have acquired an amount of the outstanding common stock greater than that held by the socially and economically disadvantaged individuals who hold the largest block of common stock, the Automaker shall determine if this is true, and if so, immediately terminate the firm from the pilot program.

2. Observe the following guidelines for determination of size and disadvantaged status:

Federal statute allows large prime contractors acting in good-faith to accept written representations (i.e., self-certifications) from small, small disadvantaged, and small women-owned businesses as to their size and socio-economic status. However, the Automakers may wish to offer their Tier 1 suppliers the option of requiring third-party certifications from small businesses claiming disadvantaged status if they wish to do so.

Third-party certification from the same source ensures consistency, objectivity, and reasonableness in applying identical certification standards across all Tier 1 and Tier 2 participants. Significant cost savings can be realized by using one certifying organization. Moreover, the use of a single certifying organization simplifies administrative control and records keeping. General Motors, Ford, and Chrysler may wish to reserve this option themselves, on a case-by-case basis, when they have reason to question the validity of a self-certification claiming small or disadvantaged status. Accordingly, for purposes of the subject pilot program, the Parties agree to the following procedures:

a. General Motors, Ford, and Chrysler may accept self-certifications from small, small disadvantaged, and small women-owned businesses as to their size and socio-economic status using a format similar to that in subparts 52.219-1 of the Federal Acquisition Regulations and including the notice of penalty for false certification contained in 52.219-1(d)(2);

b. On a case-by-case basis, when they have reason to question the validity of a self-certification claiming small or disadvantaged status, General Motors, Ford, and Chrysler may require a supplier to obtain third-party certification; and

c. General Motors, Ford, and Chrysler may advise their Tier 1 suppliers that for purposes of this pilot program, they may elect to require third-party certifications from any small business claiming disadvantaged status if they wish to do so. The Automakers will not apply undue pressure on their Tier 1 suppliers to require third-party certifications from their Tier 2 suppliers if they do not wish to do so.

SBA will monitor and evaluate this method of certification to determine, at the conclusion of the pilot, if it results in greater opportunities for small disadvantaged businesses by removing doubt as to the legitimacy of their status.

3. Comply with the following reporting requirements:

a. At the end of the first quarter of 1998, and annually thereafter, each of the Automakers shall submit a special pilot program report to SBA for the prior calendar year. Here the Automakers will report total subcontract/purchase order payments to small disadvantaged businesses (SDBs) and publicly traded minority companies (see Definitions on page 3) under the Tier 1/Tier 2 concept for the twelve months ending December 31st of the reporting period, as illustrated below:

Tier 1/Tier 2 Reporting Example:

b. Total subcontract/purchase order payments to small disadvantaged businesses (SDBs) and publicly traded minority companies must be reported separately. A notation must also be made of total payments to SDBs that are 8(a) certified.

c. This method of reporting is applicable only to the special pilot program report indicated above; it may not be used on the SF-294 (Subcontracting Report for Individual Contracts) or the SF-295, neither of which permit credit for subcontracting at lower tiers. Each of the Automakers will continue to submit annual subcontracting plans to their procuring agencies to the extent required by any Government contracts they may have and will report achievements against the goals in their plans.

d. Tier 2 subcontract awards are not intended to abrogate or replace the Automakers' Tier 1 efforts.

e. Tier 1 purchases as a percent of overall purchases must grow over the prior year to gain Tier 2 credit towards pilot program accomplishments.

f. Each of the three Automakers must also provide SBA with a final report within 90 days following the end of the pilot. In addition to providing the dollar amount of subcontract awards to small disadvantaged businesses and publicly traded minority companies, the final report shall summarize the results of this initiative and shall make a formal recommendation regarding its continuation or expansion. It shall also address the pros and cons of expanding the initiative to the women-owned small business community. This report will summarize program accomplishments as follows:

(1) increase in purchasing awards to SDB suppliers at the Tier 1 level;

(2) increase in purchasing awards to Tier 2 SDB suppliers from

Tier 1 companies;

(3) use of 8(a) companies as subcontractors/suppliers;

(4) growth of revenues for the publicly traded minority companies; and

(5) number of 8(a) company executives sponsored to participate in executive education programs.

g. SBA will not require any additional reports or forms from General Motors, Ford, or Chrysler in conjunction with this pilot.

4. Provide all large business Tier 1 suppliers with the Automakers' supplier lists of SDBs, including 8(a) companies, with useful products or services.

5. Target supplier outreach activity toward inclusion of 8(a) companies at both Tier 1 and Tier 2. Use PRO-Net and/or the 8(a) list to be provided by SBA quarterly to accomplish this objective.

6. Offer SDBs -- at either Tier 1 or Tier 2 -- technical and other types of assistance as may be necessary and appropriate to meet the requirements of the automotive industry for quality and delivery, examples of which might include:

a. Assign technical personnel to designated firms as may be appropriate to assist in improving manufacturing efficiency levels, identifying internal costs, and addressing other key operational issues;

b. Provide automotive matchmaker activities designed to bring Tier 1 suppliers together with small disadvantaged businesses;

c. Provide training to designated firms through a vehicle such as the Consortium for Supplier Training (CST) to enhance supplier performance in areas such as customer support, technology, delivery, price, and quality, including QS 9000; and

d. Ensure that these companies are included in management training funded by the Automakers such as the minority business executive programs at the Amos Tuck School of Business at Dartmouth College and the University of Wisconsin.

OTHER PILOT PROGRAMS AND INITIATIVES FOR WOMEN:

SBA has recently developed a number of other initiatives to improve opportunities for small businesses, especially those owned by socially and economically disadvantaged individuals and by women. As part of this agreement, the Automakers will support other SBA pilot programs and initiatives that seek to improve opportunities for SDBs and women-owned small businesses. Examples of how the Automakers might support these initiatives include the following activities:

1. Participate as speakers or panelists in Dollar$ and Sense for Women-owned Business workshops to discuss opportunities for women-owned small businesses in the automotive industry.

2. Participate in SBA's 8(a) Subcontracting Initiative in which assistance is provided to 8(a) companies, particularly those owned by women, in marketing to large business Federal prime contractors. (The Automakers will encourage participation by Tier 1 suppliers.)

For its part, the SBA shall:

1. Offer formal government recognition of this pilot program.

2. Assist the large business Tier 1 suppliers in identifying SDBs with products and services that they need.

3. Provide the Automakers, quarterly, with a list of 8(a) companies and their capabilities in ASCII format.

4. Schedule and facilitate annual performance reviews with auto companies

at the end of each year of the pilot program. These reviews will be utilized to assess the overall progress of the pilot as well as to address specific performance measures within the parameters of the agreement.

PUBLICLY TRADED MINORITY COMPANIES:

For the purposes of this pilot program, the Parties intend to recognize publicly traded small business concerns owned and controlled by socially and economically disadvantaged individuals as set forth in 13 CFR, Part 124, and as modified and further defined in this agreement (see Definition on page 3). The purpose of this initiative is to monitor subcontract awards to such firms and to evaluate, at the conclusion of the pilot, its impact on the total dollars awarded to minority businesses, including the publicly traded companies. Publicly traded minority companies cannot be included on the SF-294 or SF-295 under Small Disadvantaged Business; however, for purposes of this pilot, publicly traded minority companies will be recognized and reported as such on the special report to SBA (see page 4, item 3).

OTHER PROVISIONS:

In accordance with Federal regulation, SBA remains the final authority in the Federal government for determining size and socio-economic status. The Automakers, however, reserve the right to determine whether any given supplier meets other qualifications for participation in this program.

PERIOD OF THE PILOT:

This pilot program will remain in effect for thirty-six (36) months from the date of execution of this MOU, unless terminated by any party prior to that date. A party may terminate by giving 30 days written notice to the other parties.

RESPONSIBLE PARTIES:

Each of the Parties to this agreement has designated the following officials to be responsible for its implementation:

1. SBA

Name: Judith A. Roussel
Title: Associate Administrator for Government Contracting
Telephone Number: (202) 205-6460

2. GENERAL MOTORS:

Name: J. David Allen
Title: Director, Minority Supplier Development
Telephone Number: (810) 986-6518 

3. FORD MOTOR COMPANY:

Name: Dr. Renaldo M. Jensen
Title: Director, Minority Supplier Development
Telephone Number: (313) 594-7338

4. CHRYSLER CORPORATION:

Name: Diana Mercer-Pryor
Title: Executive, Special Supplier Relations
Telephone Number: (248) 576-8094

[Original SBA document link: http://www.sba.gov/outreach/big3/mou.html ]

END Case 25 Docs:  U.S. SBA Quota Agreement with Big Three Automakers