Government contracting programs that promote small business contracting opportunities support certain types of "disadvantaged" business owners, among other small business owners. Some policies are agency-specific and some are government-wide (i.e., applicable across agency procurement activities). The programs generally aim to help create a diversified, competitive federal supplier market and national economy. Three terms that are similar but not interchangeable in terms of their meaning for government programs are: Small Disadvantaged Businesses (SDBs), Disadvantaged Business Enterprises (DBEs), and Minority Business Enterprises (MBEs). This Insight defines these terms and clarifies which programs use them.
Small Disadvantaged Businesses (SDBs)
SDBs are small businesses (according to Small Business Administration size standards) that are at least 51% owned and controlled by "socially and economically disadvantaged" individuals or groups (groups include recognized Indian tribes, Alaska Native Corporations, Community Development Corporations, and Native Hawaiian Organizations) and meet criteria described in Small Business Administration (SBA) regulations at 13 C.F.R. §124.1001. Owners must be both socially and economically disadvantaged. Per 13 C.F.R. §124.103(a), "Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities." SDBs may be owned by individuals identifying as racial or ethnic minorities but not necessarily so. Per 13 C.F.R. §124.104(a), "Economically disadvantaged individuals are socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities." Individuals who wish to claim economic disadvantage must document net worth, personal income, and asset limitations, as outlined at 13 C.F.R. §124.104(c)(2)-(4). Firms whose owners meet the definitions in these regulations may self-certify their disadvantaged status, and may be subject to "status protests" and punitive action if they misrepresent themselves. They may also be eligible for the SBA's 8(a) Business Development program (see CRS In Focus IF12458). To be considered for federal contracting preferences, SDBs must register with the federal online System for Awards Management (SAM.gov).
The federal government has maintained annual goals for SDB participation in federal contracting and subcontracting. The current goal is 5% of contract award dollars and 5% of subcontract award dollars. There are five types of firms for which there are government-wide statutory procurement goals: small businesses, SDBs, women-owned small businesses, service-disabled veteran-owned small businesses, and Historically Underutilized Business (HUB) Zone small businesses.
SDBs include participants in the SBA's 8(a) Business Development program but not all SDBs are in the program. While 8(a) program participants must apply for certification by the SBA, SDBs that are not 8(a) program participants do not apply to the SBA to have their firms designated as SDBs; SDBs are self-certified. An agency may count an award to an 8(a) program participant towards its SDB contracting goal.
Disadvantaged Business Enterprises (DBEs)
Disadvantaged Business Enterprises (DBEs) are relevant to the U.S. Department of Transportation's (DOT's) grant assistance programs. Both state and local government entities may receive DOT grant assistance. While DBE is a term used by DOT for DOT purposes, DBEs are defined by criteria from both SBA and DOT regulations. DBEs must meet SBA size standards and DOT social and economic disadvantage criteria. The DOT definition of "socially and economically disadvantaged" differs from that of the SBA. DOT's regulations regarding DBEs can be found at 49 C.F.R. Part 26, and include a net worth limit that is higher than the SBA's limit for SDBs. The DOT definition of social disadvantage explicitly mentions women while the SBA definition does not. DBEs may be owned by individuals identifying as racial or ethnic minorities but not necessarily so.
There are no federal contracting preferences for DBEs. The DBE program applies to the contracts awarded by state and local governments that receive certain DOT grants. For more information, see CRS In Focus IF12055.
Minority Business Enterprises (MBEs)
Minority Business Enterprise (MBE) is a term most relevant to the Minority Business Development Agency (MBDA), an agency in the Department of Commerce whose mission is to promote the growth and competitiveness of MBEs. MBDA programs offer a network of local business development centers and other initiatives, such as advocacy and research on behalf of MBEs. MBE is not a term used by federal contracting programs; there are no contracting preferences for MBEs.
MBDA's authorizing statute defines an MBE as a firm that is at least 51% owned and controlled by one or more socially or economically disadvantaged individuals. The statute defines the term "socially or economically disadvantaged individual" to mean someone who
has been subjected to racial or ethnic prejudice or cultural bias (or the ability of whom to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities, as compared to others in the same line of business and competitive market area) because of the identity of the individual as a member of a group, without regard to any individual quality of the individual that is unrelated to that identity.
The agency's authorizing statute noted that the agency may presume that the term "socially or economically disadvantaged individual" includes any individual who is a member of a group identified in 15 C.F.R. §1400.1, as well as others noted in 15 U.S.C. §9501(15)(B). For more information about MBDA and its history and mission, see CRS Report R46816.