Eligibility of Community Development Corporations to Participate in Small Business Administration Procurement Programs

O ctober 23, 1979

79-77 MEMORANDUM OPINION FOR THE ACTING
ASSOCIATE ATTORNEY GENERAL

Small Business Administration and Community
Services Administration—Eligibility of Community
Development Corporations for Participation in
Certain Government Procurement Programs (15
U.S.C. § 637(a), 42 U.S.C. § 2985a)

This responds to your request for our opinion with respect to a question
of statutory construction as to which there is disagreement between the
Small Business Administration (SBA) and the Community Services Ad­
ministration (CSA). The question is whether community development cor­
porations (CDCs), which are financed by CSA, may participate in SBA’s
program to increase the use of small businesses as Government procure­
ment contractors. The issue arises because of an apparent conflict between
the legislation governing SBA and that governing CSA’s activities.1 For
the reasons that follow, it is our opinion that the two statutes can be
satisfactorily reconciled in a manner that gives effect to Congress’ intent
to allow CDCs to participate in these SBA programs.
The statutes in question are § 742(a)(2) of the Economic Opportunity
Act, as amended, 42 U.S.C. § 2985a(a)(2), and § 8(a) of the Small Business
Act, as amended, 15 U.S.C. § 637(a). In order to participate in SBA’s so-
called “ § 8(a)” program, which is designed to assure that a greater share
of Government procurement contracts are awarded to small businesses, an

'W e understand that this issue is presently involved in litigation being handled by the Civil
Division. Delta Foundation, Inc., et at. v. Weaver, et al., Civ. No. 79-1662 (D .D .C .). In that
case, Electro National C orp., the wholly owned subsidiary o f a C D C (Delta Foundation,
Inc.), has claimed the right to participate in the SBA small business procurem ent program .
We have been inform ed that apart from the question o f the statutory propriety o f the cor­
poration’s participation because it is owned by a CDC, there is no other factor that would
bar the corporation from participation.

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applicant must be “ socially and economically disadvantaged.” 15 U.S.C.
§ 637(a)(1)(C). Such a concern is one
(A) which is at least 51 per centum owned by one or more
socially and economically disadvantaged individuals; or
in the case of any publicly owned business, at least 51 per
centum of the stock of which is owned by one or more so­
cially and economically disadvantaged individuals; and
(B) whose management and daily business operations are
controlled by one or more of such individuals. [15
U.S.C. § 637(a)(4).]
This is the definition adopted by Congress in the SBA amendments of Oc­
tober 24, 1978. By its terms, the definition is focused on directing
assistance to individuals; this theme is confirmed in the legislative history
of the SBA amendments.2
Several days after the passage of the SBA amendments, Congress passed
amendments to the Economic Opportunity Act. In an amendment to
§ 742(a)(2), approved November 2, 1978, Congress stated:
Within 90 days * * * the Administrator of the Small Business
Administration, after consultation with the Director [of the
CSA], shall promulgate regulations to insure the availability to
community development corporations o f * * * programs
under § 8(a) of the Small Business Act. [42 U.S.C. § 2985a(a).]
The legislative history of this provision emphasizes the mandatory nature
of the Small Business Administrator’s responsibility to make available
§ 8(a) programs to CDCs. For example, the Senate report states:
Although the 1972 amendments to the Economic Opportunity
Act specified that the Small Business Administration should
prescribe such regulations as were necessary and appropriate to
insure the availability of Small Business Administration (SBA)
programs to CDC’s, SBA has failed to issue any regulations and
has refused, either directly or indirectly, to make its programs
available to community development corporation enterprises.
The 1972 amendments were intended “ to lead to the issuance
of guidelines that will maximize the availability o f SBA programs
to CDC’s receiving financial assistance under the title VII
program.”
S. 2090 would revise the 1972 language to mandate that the
SBA “ promulgate regulations to insure the availability to com­
munity development corporations of such programs as shall fur­
ther the purposes of this title, including programs under section
8(a) of the Small Business A ct.” SBA regulations enabling CDC’s
to participate in the procurement preference minority set aside

2See, e.g., S. Rept. 1070, 95th Cong., 2d sess. 25 (1978); H . C onf. Rept. 1714, 95th C ong.,
2d sess. 20-21 (1978).

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 program, should be issued immediately. [S. Rept. 892, 95th
Cong., 2d sess. 25 (1978); quotation concerning legislative intent
from S. Rept. 792, 92d Cong., 2d sess. 40 (1972).]
The amendment was further explained in the Senate report as limiting
SBA’s discretion: “ [l]anguage which indicated ‘as may be necessary and
appropriate’ was deleted because it was cited by SBA as a reason for not
issuing regulations.” Id. at 38. Congress, in enacting this provision antici­
pated action by the SBA alone to make the § 8(a) program available to
CDCs:
The amendment which establishes eligibility for Community
Development Corporations (CDC) for the Small Business Ad­
ministration Section 8(a) set-aside program will not require CSA
modification of its existing regulations and has little, if any, CSA
regulatory impact. The amendment will, however, have a
substantial favorable economic impact on the approximately
fifty CDCs presently funded by CSA, since CDCs will be eligible
for the first time to participate in the federal procurement set-
aside program. [Id. at 29.]
In the light o f the clear direction to the SBA contained in § 742(a)(2) and
confirmed by the legislative history, there is little room for an argument
that the SBA is unable to allow CDC participation in § 8(a) programs. To
the extent that there is an argument it rests on the notion that a CDC (or
wholly owned affiliate of a CDC) is by definition not an organization
“ owned” by individuals as required by the definition for “ socially and
economically disadvantaged” organizations set forth above. A CDC is
either “ a nonprofit organization responsible to residents of the area it
serves which is receiving financial assistance under part A of this.sub­
chapter [VII],” or is “ any organization more than 50 per centum of which
is owned by such an organization, or otherwise controlled by such an
organization, or designated by such an organization for the purpose of
this subchapter.” 42 U.S.C. § 2981a.
The individual ownership requirement of § 8(a) cannot be read to ex­
clude CDCs from participation in the program. Congress must be pre­
sumed to know that CDCs by definition are not more than 51 percent indi­
vidually owned, yet it mandated their participation. Section 742 must,
therefore, be read to include control by the same individuals as the SBA
Act is intended to benefit.3
This interpretation is compelled by the legislative history and does not
render either statute ineffective. C f , M orton v. Mancari, 417 U.S. 535,

’The CSA m akes the argum ent that ownership insofar as it means title cannot be frac­
tionalized since one may either have absolute title or may share title in an undivided fashion,
as in joint tenancy or tenancy in com m on. The CSA thus takes the position that the phrase
“ 51 per centum ow ned” must m ean a corporate or contractual arrangement under which 51
percent control resides in socially and economically disadvantaged individuals. We need not
decide whether, in all cases, this is a reasonable interpretation o f the term “ ownership” as
used in § 8(a).

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551 (1974). CDCs assist in the development of similar businesses con­
ducted by similar people as does the SBA § 8(a) program. Furthermore,
the 51 percent rule in the SBA Act was intended particularly to get at the
quite different problem of use of eligible disadvantaged individuals as
“ fronts” to obtain assistance for otherwise ineligible businesses. S. Rept.
95-1070, 95th Cong., 2d sess. 16 (1978).
The Small Business Administrator, pursuant to § 742(a)(2), has the
obligation to confer with the Director of CSA and to prescribe regulations
to effectuate these legal conclusions and thus to insure the availability to
CDCs of § 8(a) programs. This must be done expeditiously, as the time
period for compliance specified in the statute has already passed.

Larry A . Ham m o nd
D eputy Assistant A ttorney General
Office o f Legal Counsel

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