author: TRASK, Circuit Judge:

text:
    IDAHO POWER COMPANY, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
    No. 26368.
    United States Court of Appeals, Ninth Circuit.
    April 10, 1973.
    As Amended April 30, 1973.

      Frank Norton Kern (argued), Lawrence C. Wilson, Reid & Priest, New York City, for petitioner-appellant.
    William A. Friedlander (argued), Johnnie Walters, Asst. Atty. Gen., Tax Division, Dept. of Justice, K. Martin Worthy, Chief Counsel, IRS; Meyer Rothwacks, Elmer J. Kelsey, Gordon S. Gilman, Tax Division, Dept. of Justice, Washington, D. C., for respondent-appellee.
    Before TRASK and CHOY, Circuit Judges, and McGOVERN, District Judge.

       Honorable Walter T. McGovern, United States District Judge, for the Western District of Washington, sitting by designation.

   TRASK, Circuit Judge:

The taxpayer, Idaho Power Company, appeals from a Tax Court decision denying taxpayer’s depreciation deduction on equipment used in the construction of capital improvements. Under the Tax Court decision the taxpayer was ordered to pay deficiencies, in income taxes for the taxable years 1962 and 1963 in the amounts of $73,023.47 and $50,342.21, respectively.

The Tax Court ruled against the taxpayer on the single issue — -whether the taxpayer is entitled to deduct depreciation on depreciable equipment to the extent such equipment is used in the construction of its own capital assets. The Tax Court treated the depreciation as a cost of the construction of the new facilities and ruled such costs must be capitalized as part of the basis of the property constructed under section 263 of the Internal Revenue Code of 1954. We agree with the taxpayer’s position that the current depreciation should be treated as a current deduction under section 167 of the Code. The decision of the Tax Court is therefore reversed.

The taxpayer is a public utility engaged in the production, transmission and sale of electricity. Since at least 1929, the taxpayer has regularly constructed additional transmission and distribution facilities using its own employees and equipment for a major part of the work. In 1962 it constructed $7,139,940.72 worth of facilities and in 1963, $5,642,342.79 worth. In some years it has used as many as 300 employees in construction and at the time of trial 140 were engaged in such work in question. During the years, the taxpayer has owned cars, trucks, trailers and radio equipment which have been used in part to operate and maintain existing facilities and in part to construct new capital assets.

On its books the taxpayer capitalized the depreciation to the extent the equipment was used in the construction of capital assets in accordance with accounting procedures prescribed by the Federal Power Commission and adopted by the Idaho Public Utilities Commission. On its income tax returns for 1962 and 1963, however, the taxpayer deducted all depreciation on its transportation equipment, including depreciation on the equipment to the extent it was used in construction. Such equipment was depreciated over a composite life of ten years. All other costs allocable to the constructed facilities, except pension contributions, social security taxes and motor vehicle taxes, which were also deducted currently, were capitalized by the taxpayer. This included costs of operating and maintaining such equipment. The Commissioner of Internal Revenue disallowed and capitalized the deduction for depreciation on taxpayer’s equipment to the extent that such equipment was used in the construction of capital assets and allowed instead a deduction for depreciation of the amounts so capitalized over the useful life of the property so constructed. The construction, consisting principally of transmission and distribution facilities, had useful lives of 30 years or longer. The result of this adjustment was the net disallowance by the Commissioner of depreciation claimed by the taxpayer during the years 1962 and 1963 in the respective amounts of $140,429.75 and $96,811.95.

I. THE DEPRECIATION DEDUCTION

A re-examination of the purpose of the depreciation deduction, its place in the statutory scheme and its history will assist us in solving the problem. It is the basic theory of depreciation that capital assets which are used in the business should not be exhausted without a provision for their replacement. To that end depreciation over the life of the asset provides the means by which the taxpayer can recover its cost. One way of expressing this very practical approach was that of the Supreme Court in Knoxville v. Knoxville Water Co., 212 U.S. 1, 13-14, 29 S.Ct. 148, 152, 53 L.Ed. 371 (1909):

“A water plant, with all its additions, begins to depreciate in value from the moment of its use. Before coming to the question of profit at all the company is entitled to earn a sufficient sum annually to provide not only for current repairs but for making good the depreciation and replacing the parts of the property when they come to the end of their life. The company is not bound to see its property gradually waste, without making provision out of earnings for its replacement. It is entitled to see that from earnings the value of the property invested is kept unimpaired, so that at the end of any given term of years, the original investment remains as it was at the beginning. It is not only the right of the company to make such a provision, but it is its duty to its bond and stockholders, and, in the case of a public service corporation at least, its plain duty to the public. If a different course were pursued the only method of providing for replacement of property which has ceased to be useful would be the investment of new capital and the issue of new bonds or stocks. This course would lead to a constantly increasing variance between present value and bond and stock capitalization — a tendency which would inevitably lead to disaster either to the stockholders or to the public, or both.”

Although that case did not involve an income tax problem, it states the underlying theory of the deduction.

The purpose of the depreciation allowance under the Code is “to permit the taxpayer to recover his capital investment in wasting assets free of income tax.” 4 Mertens, Law of Income Taxation § 23.04. The Supreme Court has said that the purpose of the depreciation deduction is to create a fund to restore the property, to the extent of the investment of the taxpayer, at the end of its useful life:

“The end and purpose of - it all is to approximate and reflect the financial consequences to the taxpayer of the subtle effects of time and use on the value of his capital assets. For this purpose it is sound accounting practice annually to accrue as to each classification of depreciable property an amount which at the time it is retired will with its salvage value replace the original investment therein.” Detroit Edison Co. v. Commissioner, 319 U.S. 98, 101, 63 S.Ct. 902, 904, 87 L.Ed. 1286 (1943).

In Massey Motors, Inc. v. United States, 364 U.S. 92, 96, 80 S.Ct. 1411, 1414, 4 L.Ed.2d 1592 (1960), the Supreme Court allowed a depreciation deduction on automobiles used by dealers or their employees, explaining:

“Such assets, employed from day to day in business, generally decrease in utility and value as they are used. It was the design of the Congress to permit the taxpayer to recover, tax free, the total cost to him of such capital assets; hence it recognized that this decrease in value — depreciation—was a legitimate tax deduction as business expense. It was the purpose of § 23(l) and the regulations to make a meaningful allocation of this cost to the tax periods benefited by the use of the asset.”

The issue here does not affect the amount of the depreciation to which the taxpayer is entitled. Whether it is spread over a ten-year life or a thirty-year life, the amount remains the same. It does affect the timing of the recovery of the depreciation and thus might have a vital effect on the ability of a taxpayer to maintain and replenish its equipment inventory without depleting its working capital or burdening its borrowing capacity.

The legislative history of the depreciation deduction clearly supports our decision in favor of the taxpayer. “Prior to the enactment of the Internal Revenue Code of 1954, the statutory provisions for depreciation were singularly brief.” 4 Mertens, supra at § 23.01. Section 23(l) of the 1939 Act contained only a bare statement similar to the general rule in section 167(a) of the 1954 Act, and a two sentence paragraph stating the method of computation as between a life tenant and a remainderman. When Congress adopted the Internal Revenue Code of 1954, however, it gave particular attention to liberalized depreciation allowances. It provided for the use of new methods and rates, in addition to the standard straight line method. These included a declining balance method, a sum of the years-digits method and a fourth method which was any one consistently applied so long as the total at the end of each year did not exceed the allowances which would have resulted from the use of the declining balance method.

Further, the report of the Ways and Means Committee on H.R. 8300, which became the Internal Revenue Code of 1954, stated at the beginning of its discussion of this subject:

“Your committee’s bill provides for a liberalization of depreciation with respect to both the estimate of useful life of property and the method of allocating the depreciable cost over the years of service.” H.R. No. 1337, 83rd Cong., 2nd Sess., 1954 U.S.Code Cong. & Admin.News at 4047.

The report emphasized the importance of the liberalized policies of the bill. It pointed out its reliance upon the use of an improved declining balance method of computing depreciation which “concentrates deductions in the early years of service and results in a timing of allowances more in accord with the actual pattern of loss of economic usefulness.” Id. at 4048.

The report continued:

“More liberal depreciation allowances are anticipated to have far-reaching economic effects. The incentives resulting from the changes are well timed to help maintain the present high level of investment in plant and equipment. The acceleration in the speed of the tax-free recovery of costs is of critical importance in the decision of management to incur risk. The faster tax writeoff would increase available working capital and materially aid growing businesses in the financing of their expansion. For all segments of the American economy, liberalized depreciation policies should assist modernization and expansion of industrial capacity, with resulting economic growth, increased production, and a higher standard of living.” Id.

Obviously the decision of the court below does not permit the purpose of either the statute, the regulations, the legislative history or the eases interpreting them from being achieved. The assets, for which a depreciation deduction is sought here, have a useful life of ten years. No dispute appears to exist as to this point. If the plain language of the statute is to be followed, the taxpayer should by depreciation allowances recover the cost of those assets within that ten-year period. Yet such costs will not be fully recovered for 30 years if the Commissioner’s determination requiring transfer of the depreciation to the new asset is applied.

II. TAXPAYER’S ARGUMENT

The taxpayer argues that deductions specifically allowed and set out under the Internal Revenue Code of 1954 should not be capitalized even though incurred by the taxpayer in constructing facilities for its own use. Such deductions include interest (section 163), taxes (section 164) and depreciation (section 167). These particular deductions, expressly enumerated in the Code, differ from the general deduction for ordinary and necessary business expenses, which is not available whenever the amount expended is determined to be a capital expenditure rather than a current business expense. This interpretation of the Code’s overall scheme is in harmony with the Tax Court’s decision in All-Steel Equipment Inc., 54 T.C. 1749 (1970), rev’d on other grounds, 467 F.2d 1184 (7th Cir. 1972).

The issue there was whether certain expenditures for taxes, losses and research and experiment where to be included in the cost of inventory (comparable to the capitalization of expenditures for capital assets). Because these three items are expressly listed in the Code as proper deductions under sections 164, 165 and 174, they are not to be deferred even though they relate to inventory or capital items. The Tax Court explained:

“Secondly, the petitioner contends that the respondent also erred in his determination by requiring the inclusion of certain costs in inventory even though the current deductibility of such costs is expressly authorized by the Code and regulations. The expenditures referred to by the petitioner involve costs incurred for repairs, taxes, losses, and research and experiment. We agree with the petitioner that such expenditures are currently deductible and are excludable from inventory costs.
“Deductions for taxes, losses and research and experiment are expressly authorized in the year the taxes are paid or accrued, the losses are sustained, or the research and experimental expenditures are paid or incurred. Secs. 164, 165, 174. Neither the statutory provisions nor the regulations indicate in any way that such deductions are limited to current expenses as distinguished from capital expenditures for the acquisition of capital assets or inventory. To the contrary, it has been held that deductions expressly granted by statute are not to be deferred even though they relate to inventory or capital items. Montreal Mining Co., 2 T.C. 688 (1943); Spring Valley Water Co., 5 B.T.A. 660 (1926); Pacific Coast Redwood Co., 5 B.T.A. 423 (1926). See also Joe W. Stout, 31 T.C. 1199 (1959), affirmed and modified on other issues sub nom. Rogers v. Commissioner, 281 F.2d 233 (C.A. 4, 1960). Cf. sec. 266; Rev. Rul. 141, 1953-2 C.B. 101. Moreover, section 174 expressly states that research and experimental expenditures may be treated ‘as expenses which are not chargeable to capital account.’ ” 54 T.C. at 1759.

Depreciation, under section 167, is likewise expressly listed as a proper deduction and no exception is made should it relate to a capital item.

The precise issue of this case was raised in an early railroad case. Great Northern Ry. Co., 30 B.T.A. 691 (1934). The railroad there, like the taxpayer here, used its equipment for the construction of additions to the taxpayer’s property. The court reversed the Commissioner’s determination and held that the full amount of depreciation of the equipment, including the period that it was used for construction, should be allowed. The court decided the equipment was used by its owner in a trade or business as the taxpayer maintained and that “it is a part of the regular business of a railroad to construct additional capital facilities for the transaction of its business as a common carrier.” 30 B.T. A. at 708. The allowance of the depreciation deduction rather than capitalization of such costs was deemed appropriate because the statutory conditions for the deduction were satisfied.

In further support of its position, taxpayer points out that section 263 providing for capital expenditures states:

“(a) . . . No deduction shall be allowed for—
(1) Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate.” (Emphasis supplied).

The use of the term “paid out,” argues the taxpayer, was not without significance. There is nothing in the Internal Revenue Code which says that for purposes of section 263 depreciation is an amount “paid out” or an “expenditure.” On the contrary in construing other sections, the decisions have held that depreciation is not an amount “paid out.” In section 170(a)(1), for example, a deduction is allowed for “. any charitable contribution payment of which is made within the taxable year.” It has been held that an allowance for depreciation is not a payment within the meaning of this section. Thus in Orr v. United States, 343 F.2d 553 (5th Cir. 1965), a taxpayer used his automobile and airplane in work for the Methodist Church. The court held that a charitable deduction was not permissible to the extent of the depreciation arising from such activity because such an allowance was not a payment.

“It is entirely possible, as the taxpayer suggests, that Congress and its Committees were not thinking of depreciation when they used the word ‘payment’. The absence of any evidence as to whether Congress focused on this problem provides no basis for extending the meaning of payment to include ‘depreciation’. A depreciation expense is an indispensable element in accounting. But it is not a ‘payment’, not a transfer of money or property. We are bound by plain, prosaic language of the statute.” 343 F.2d at 556.

In Clinton H. Mitchell, 42 T.C. 953 (1964), the Tax Court said:

“Depreciation is a ‘decrease in value.’ Massey Motors, Inc. v. United States, 364 U.S. 92 [80 S.Ct. 1411, 4 L.Ed.2d 1592]. It is not a payment,, or expenditure, or an out-of-pocket expense. Hence, it cannot be considered as a contribution, payment of which is made within the taxable year.” 42 T.C. at 973.

As another example, we note that section 213 of the Internal Revenue Code provides for deduction of medical and dental expenses equal to:

“(1) the amount by which the amount of the expenses paid during the taxable year . . . exceeds 3 percent of the adjusted gross income, . . ."

In Maurice S. Gordon, 37 T.C. 986 (1962), it was held that depreciation on an automobile used to transport a taxpayer’s son to a doctor could not qualify as a medical expense upon the ground that it was not “an amount paid.”

“The statute permits the deduction for ‘expenses paid’ and ‘amounts paid’ and respondent correctly interprets the statute as permitting deduction for ‘medical expenses actually paid.’ Sec. 1.213-1 (a), Income Tax Regs. Depreciation is a ‘decrease in value’. Massey Motors Inc. v. United States, 364 U.S. 92, 96 [80 S.Ct. 1411, 4 L. Ed.2d 1592], Any allowance for depreciation is not an ‘expense paid’ or ‘amount paid.’ ” 37 T.C. at 987.

It appears to us there is both merit and judicial support for the taxpayer’s argument here.

III. THE TAX COURT DECISION

The Tax Court disposed of the taxpayer's arguments by emphasizing that depreciation incurred in the acquisition of capital assets should be treated as part of the cost thereof. In Revenue Ruling 59-380, 1959-2 Cum.Bull. 87, the Internal Revenue Service specifically dealt with the issue in this case:

“Depreciation sustained on construction equipment owned by a taxpayer and used in the erection of capital improvements for its own use is not an allowable deduction, but shall be added to and made a part of the cost of the capital improvements. So much thereof as is applicable to the cost of depreciable capital improvements is recoverable through deductions for depreciation over the useful life of such capital improvements.
“In the instant case the capital improvements constructed constitute property to be used in the trade or business or property held for the production of income. However, the building equipment used in the construction cannot be considered as property used in the regular trade or business of the taxpayer.”

In a recent case factually similar to this case, the Court of Claims followed Revenue Ruling 59-380. Southern Natural Gas Co. v. United States, 412 F.2d 1222, 1264-1269, 188 Ct.Cl. 302 (1969). The taxpayer contends the court’s decision was erroneously based on incorrect assumptions. We agree. First, the Court of Claims could see no reason “for carving out a special exception for depreciation” on the automotive equipment of the company to the extent it was used to construct additional pipelines for its own capital improvements. Neither the Southern Natural Gas Company nor the Idaho Power Company, however, was seeking a special exception. Both based their claims on the express language of the Internal Revenue Code authorizing a depreciation deduction.

Second, the Court of Claims was concerned that a double recovery of cost would result if a depreciation deduction were currently allowed on the equipment —first, when the depreciation was deducted and second when the constructed asset was depreciated or sold. This assumption is patently incorrect. There is no possibility of double recovery because the cost basis of the capital asset would not include the depreciation theretofore deducted.

Third, the court harbored an unfounded fear that the interpretation urged by the appellant if pushed to its logical conclusion would leave the taxpayer without a basis for self-constructed assets. A taxpayer’s actual expenditures for labor and materials, however, must be capitalized as part of the basis of the capital improvements under the requirements of section 263 which provides for capitalization of amounts “paid out” for capital assets. Such expenses have to be capitalized even though they are expended for self-constructed assets. Also, as we have noted above, the costs of operating and maintaining the equipment must be capitalized. For these reasons we are not persuaded by South- em Natural Gas and we conclude that Revenue Ruling 59-380 is an improper and incorrect interpretation of the law.

Furthermore, the strong factual record in this case supports the taxpayer’s contention that equipment used to construct its own capital improvements is used in the trade or business of the taxpayer as section 167 requires. The continuity and regularity of taxpayer’s construction activities, the number of employees engaged in construction and the amounts expended on construction all point to the conclusion that construction of facilities is a major aspect of the taxpayer’s trade or business. These activities are auxiliary operations incident to the taxpayer’s principal trade or business of producing, transmitting, distributing and selling electrical energy within the meaning of section 167. We, therefore, are constrained to distinguish this case from Southern Natural Gas where the court determined the taxpayer’s equipment was not used in the taxpayer’s trade or business to the extent it was used to construct capital assets.

Other cases cited by the Tax Court concerning oil and gas leases are factually distinguishable from the self-constructed capital asset eases. In L. W. Brooks, Jr., 50 T.C. 927 (1968), and Producers Chemical Co., 50 T.C. 940 (1968), the issues involved the allocation of operating costs between two taxpayers — the operator’s working interest in a leasehold and his production payment toward acquisition of the leasehold. These cases are analogous to allocation of costs between a life tenant and a remainderman. They are inapposite here where there is only one taxpayer involved. Likewise, Ben Perlmutter, 44 T.C. 382 (1964), aff’d, 373 F.2d 45 (10th Cir. 1967), cited by the Tax Court, was decided on a question of fact. No legal issue was raised as to the validity of a depreciation deduction for vehicles used in construction. The extent of their úse, if any, was questionable and the issue thus was inconsequential. We do not deem it to be in point on the issue before us.

The judgment is reversed.

      . “§ 263. Capital expenditures

      (a) General Rule. — No deduction shall be allowed for—
      (1) Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate. This paragraph shall not apply to—
      (A) expenditures for the development of mines or deposits deductible under section 616,
      (B) research and experimental expenditures deductible under section 174,
      (O) soil and water conservation expenditures deductible under section 175, or
      (D) expenditures by farmers for fertilizer, etc., deductible under section 180.”

      . “§ 167. Depreciation

      (a) General Rule. — There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence) —
      (1) of property used in the trade or business, or
      (2) of property held for the production of income.
      (b) Use of certain methods and rates. —For taxable years ending after December 31, 1953, the term ‘reasonable allowance’ as used in subsection (a) shall include (but shall not be limited to) an allowance computed in accordance with regulations prescribed by the Secretary or his delegate, under any of the following methods:
      (1) the straight line method,
      (2) the declining balance method, using a rate not exceeding twice the rate which would have been used had the annual allowance been computed under the method described in paragraph (1),
      (3) the sum of tlie years-digits method, and
      (4) any other consistent method productive of an annual allowance which, when added to all allowances for the period commencing with the taxpayer’s use of the property and including the taxable year, does not, during the first two-thirds of the useful life of the property, exceed the total of such allowances which would have been used had such allowances been computed under the method described in paragraph (2).”

      . It should be noted that the taxpayer in Spring Valley Water Co., 5 B.T.A. 660 (1926), charged interest payments on funds borrowed for construction of a dam to its capital account as required by law for public utilities. The taxpayer was allowed a current deduction for such payments, notwithstanding the method of accounting used for its books. The fact that the taxpayer in the case at bar was required to capitalize the depreciation on its books for purposes of the Federal Power Commission and the Idaho Public Utilities Commission is likewise irrelevant as to the proper tax treatment of depreciation deductions. See Old Colony Ry. Co. v. Commissioner, 284 U.S. 552, 562, 52 S.Ct. 211, 76 L.Ed. 484 (1931); Mine Hill & Schuylkill Haven R. R. Co. v. Smith, 184 F.2d 422 (3rd Cir. 1950), cert. denied, 340 U.S. 932, 71 S.Ct. 496, 95 L.Ed. 673 (1951).

      . The Treasury Regulations under the 1954 Internal Revenue Code are to the same effect:
      “§ 1.167 (a)-1. Depreciation in General.
      (a) Reasonable alloxoanee. Section 167(a) provides that a reasonable allowance for the exhaustion, wear and tear, and obsolescence of property used in the trade or business or of , property held by the taxpayer for the production of income shall be allowed as a depreciation deduction. The allowance is that amount which should be set aside for the taxable year in accordance with a reasonably consistent plan (not necessarily at a uniform rate), so that the aggregate of the amounts set aside, plus the salvage value, will, at the end of the estimated useful life of the depreciable property, equal the cost or other basis of the property as provided in section 167(g) and section 1.167(g)-l.”

      . Supra note 2.

      . The Ways and Means Committee noted:
      “The depreciation allowances under this method, therefore, [declining-balance] are considerably larger in the early years of the life of a property than those resulting from the straight-line method. The declining-balance method at twice the appropriate straight-line rate will write off approximately 40 percent of the cost of an asset in the first quarter of its service life and two-thirds of the cost in the first half of its life.” H.R. No. 1337, 83rd Cong., 2nd Sess., 1954 U.S.Code Cong. & Admin.News at 4047.

      . Depreciation was apparently, not before the court in All-Steel Equipment, Inc.

      . The revenue laws have uniformly required that a depreciation deduction be allowed for “property used in the trade or business.” 4 Mertens, Law of Federal Income Taxation § 23.03.

      . The Court of Claims approved the decision of the Trial Commissioner. Neither the taxpayer nor the United States took exception to the Commissioner’s finding on the issue involved here.

      . A revenue ruling, as distinguished from a regulation or a Treasury decision, does not have the force and effect of law. It is merely the opinion of a lawyer in an agency. A revenue ruling in conflict with revenue statutes is, therefore, without any force. See, e. g., Bartels v. Birmingham, 332 U.S. 126, 67 S.Ct. 1547, 91 L.Ed. 1947 (1947); Stubbs, Overbeck & Assoc. Inc. v. United States, 445 F.2d 1142 (5th Cir. 1971); Lincoln Savings & Loan Ass’n v. Commissioner, 422 F.2d 90 (9th Cir. 1970), rev’d on other grounds, 403 U.S. 345, 91 S.Ct. 1893, 29 L.Ed.2d 519 (1971); 1 Mertens, supra at § 3.20.

      . The undisputed testimony of the Superintendent of Engineering and Construction for the company was that construction was undertaken by the company because it thus obtains a better facility at less cost and because contractors are not always available to perform the work. R.T. at 22.

      . The Tax Court here stated, “ [o]bviously the acquiring of capital improvements whether by purchase or construction is appropriate if not vital to petitioner’s continued operation of its business of producing and selling electric energy . . . ” C.T. at 41-42.


source: Caselaw Access Project

author: WISDOM, Circuit Judge:

license: Public Domain

text:
    RAY BAILLIE TRASH HAULING, INC., et al., Plaintiffs-Appellees, v. Thomas S. KLEPPE, Administrator, Small Business Administration, et al., Defendants-Appellants.
    No. 72-1163.
    United States Court of Appeals, Fifth Circuit.
    April 18, 1973.
    Rehearing and Rehearing En Bane Denied June 18, 1973.

      Robert W. Rust, U. S. Atty., Chief, Civil Div., Clemens Hagglund, Asst. U. S. Atty., Miami, Fla., John N. Mitchell, U. S. Atty. Gen., Dept. of Justice, Thomas S. Kleppe, Administrator, S. B. A., Walter H. Fleischer, Joseph B. Scott, Dept. of Justice, Washington, D. C., for defendants-appellants.
    Alexander Boskoff, Washington, D. C., Bernard Jaffe, Miami, Fla., for plaintiffs-appellees.
    Before WISDOM, THORNBERRY and GODBOLD, Circuit Judges.
   WISDOM, Circuit Judge:

On reconsideration sua sponte, we withdraw our opinion dated January 5, 1973 and issue the following opinion.

* * *

In this case the plaintiffs attack the Small Business Administration’s program for awarding government procurement contracts to small business concerns owned by “socially or economically disadvantaged persons.” 13 C.F.R. § 124.8-1 (c). The district court held that the section 8(a) program is not authorized by statute and denies due process and equal protection in violation of the Fifth and Fourteenth Amendments. We reverse.

I.

The plaintiffs-appellees, Ray Baillie Trash Hauling, Inc., Leonard Santo, d/b/a L & J Waste Service, and C. Lewis Jones, d/b/a Southern Florida Sanitation Company of Dade County, Inc., are engaged in the business of collecting and hauling refuse to disposal sites. They qualify as small business concerns under both the Small Business Act, 15 U.S.C. § 631 et seq., and the applicable regulations of the Small Business Administration. All American Waste, Inc., named as a defendant, is a black-owned firm that competes with the plaintiffs in the business of collecting and hauling refuse and also qualifies as a small business concern. The dispute in the present case relates to a contract for the collection and removal of refuse from Homestead Air Force' Base in Homestead, Florida. In 1968 and 1969, the Small Business Administration and the Department of the Air Force, pursuant to a joint program, set aside the contracts for placement with small business concerns. The Air Force awarded the contracts after formal advertising and competitive bidding restricted to small business concerns. Jones and Santo successfully bid for the contract in 1968 and 1969 respectively.

In 1970, the Small Business Administration promulgated new regulations establishing a “section 8(a) program” providing for assistance to small business concerns owned by disadvantaged persons. 13 C.F.R. § 124.8-1. As part of the program, the SBA secured a prime contract from the Air Force for the collection and removal of refuse from the Homestead base for a two year period commencing July 1, 1970. The SBA then negotiated a similar subcontract with All American for the performance of the services in the prime contract between the SBA and the Air Force for a one year period commencing July 1, 1970 at $65,000

Upon being advised that the SBA intended to enter into a second subcontract with All American for the performance of the prime contract services at Homestead for the fiscal year 1971, the plaintiffs demanded an opportunity to compete for the contract. They did not apply for participation in the program and they did not contend that they were eligible. The SBA rejected the demand and later executed the second subcontract with All American. On June 29, 1971, the plaintiffs commenced the present action for injunctive and declaratory relief in the District Court for the Southern District of Florida. The defendants were the Administrator of the Small Business Administration, the Secretary of the Department of the Air Force, the Contracting Officer assigned to Homestead Air Force Base, and All American Waste, Inc. In the complaint, the plaintiffs sought a permanent injunction enjoining the SBA from letting the Homestead contract under the section 8(a) program without competitive bidding. At the same time, they filed a motion for a temporary restraining order and a preliminary injunction.

With the consent of the parties, the district court issued an order directing that the second subcontract be held in abeyance for thirty days and that the prior contract with All American be extended until further order. Later orders of the court extended this period until judgment on the merits.

On October 29, 1971, the district court entered its judgment. 334 F.Supp. 194. The court found that the SBA’s section 8(a) program, providing for assistance to small business concerns owned by disadvantaged persons, was not authorized by the Small Business Act and violated the federal statutes requiring competitive bidding in government procurement. The court also found that the primary criterion for the program was race, col- or, and ethnic origin, that whites were ineligible for program benefits except on a token basis, and that the plaintiffs, as “non-minority” owned firms, were denied due process and equal protection of the laws. The court concluded that the subcontract awarded to All American was illegal and ordered that the Homestead contract be awarded as soon as possible on the basis of the maximum competitive bidding practicable among the plaintiffs and other similarly situated small business concerns. The defendants appealed.

II.

At the outset, we must confront two questions relating to our ability to hear and decide the merits of the parties’ contentions: first, whether the present case is moot; and second, whether the plaintiffs have standing to litigate the issues raised in their complaint.

The question of mootness arises from the fact that All American did not satisfactorily perform its responsibilities under the contract. The Air Force terminated the contract with All American on October 1, 1971, and has since negotiated a refuse contract, under 10 U.S.C. § 2304(a)(2), with one of the plaintiffs for the duration of the fiscal year 1972. A ease is not moot, however, if there is a reasonable expectation that the act complained of will be repeated. United States v. W. T. Grant Co., 1953, 345 U.S. 629, 73 S.Ct. 894, 97 L.Ed. 1303. The Court has been advised that the SBA intends to continue its section 8(a) program, including future awards of the Homestead contract. We conclude, therefore, that a real controversy exists and that the appeal may proceed. See also, American Bible Society v. Blount, 3 Cir. 1971, 446 F.2d 588; Atlantic Richfield Co. v. Oil, Chemical and Atomic Workers International Union, AFL-CIO, 7 Cir. 1971, 447 F.2d 945.

The question of the plaintiffs’ standing is considerably more difficult. In general, to have standing to litigate, a party must show that he has incurred, or is in immediate danger of incurring, some direct and personal injury resulting from the violation of a constitutional or statutory right designed to protect that party. Moose Lodge No. 107 v. Irvis, 1972, 407 U.S. 163, 92 S.Ct. 1965, 32 L.Ed.2d 627; Sierra Club v. Morton, 1972, 405 U.S. 727, 92 S.Ct. 1361, 31 L. Ed.2d 636; Laird v. Tatum, 1972, 408 U.S. 1, 92 S.Ct. 2318, 33 L.Ed.2d 154; Association of Data Processing Organizations, Inc. v. Camp, 1970, 397 U.S. 150, 90 S.Ct. 827, 25 L.Ed.2d 184; Barlow v. Collins, 1970, 397 U.S. 159, 90 S.Ct. 832, 25 L.Ed.2d 192. To be sure, even a slight injury may suffice in some circumstances. See Flast v. Cohen, 1968, 392 U.S. 83, 88 S.Ct. 1942, 20 L.Ed.2d 947. Yet the fundamental principle remains inviolate: one who has no personal stake in the outcome of the controversy always lacks standing.

In the case at bar, the plaintiffs challenge the SBA’s section 8(a) program on two separate grounds. First, the plaintiffs contend that the SBA lacked the statutory and constitutional authority to establish its section 8(a) program. Second, assuming there is authority for establishing the section 8(a) program, the plaintiffs contend that the SBA has administered the program in an unconstitutional manner by discriminating on the basis of race, color, or ethnic origin.

Turning to the first of these issues, we conclude the plaintiffs have standing to litigate the question of the statutory and constitutional authority for establishing the section 8(a) program. The plaintiffs allege not only that they have been injured by the SBA’s action removing government procurement contracts from competitive bidding, but also that the section 8(a) program enabled All American to receive a premium price above that which would have prevailed under competitive bidding and that All American has since used this premium to submit low bids for private commercial contracts, thus causing the plaintiffs to lose some of their customers to All American. In these circumstances, the injury to the plaintiffs is manifest. Moreover, as small business concerns, the plaintiffs are arguably within the zone of interests intended to be protected by the Small Business Act. See Association of Data Processing Organizations, Inc. v. Camp, supra. We therefore find that the plaintiffs have standing to litigate the first issue. For the present, we pretermit the question of the plaintiffs’ standing to litigate the issue of the SBA’s alleged discrimination in administering the section 8(a) program.

III.

As stated in the regulations promulgated by the SBA, the purpose of the section 8(a) program is “to assist small business concerns owned by disadvantaged persons to become self-sufficient, viable businesses capable of competing effectively in the market place.” 13 C. F.R. § 124.8-1 (b). Authority for the program is derived from section 8(a) of the Small Business Act, 15 U.S.C. § 637(a), empowering the SBA to enter into all types of contracts (including contracts for supplies, services, construction, research, and development) with other departments and agencies of the federal government and to arrange for the performance of such contracts by negotiating or otherwise letting subcontracts to small business concerns. In awarding subcontracts under the section 8(a) program, the SBA limits eligibility to small businesses “owned or destined to be owned by socially or economically disadvantaged persons.” 13 C.F.R. § 124.8-1 (c). As the regulations recognize, this “often includes, but is not restricted to, Black Americans, American Indians, Spanish Americans, Oriental Americans, Eskimos and Aleuts.” Id.

The district court held that the SBA’s section 8(a) program was statutorily unauthorized, that the SBA’s powers under section 8(a) of the Small Business Act are limited to periods of emergency, and that the SBA was bound by other statutes requiring government procurement contracts to be awarded competitively. We disagree.

A. The declared policy of the Small Business Act is to “aid, counsel, assist, and protect . . . the interests of small-business concerns in order to preserve free competitive enterprise [and] to insure that a fair proportion of the total purchases and contracts or subcontracts for property and services for the Government ... be placed with small-businesses enterprises.” The Act is premised on the idea that “the essence of the American economic system of private enterprise is free competition,” “[that] the preservation and expansion of such competition is basic not only to the economic well-being but to the security of this Nation,” and that “[s]ueh security and well-being cannot be realized unless the actual and potential capacity of small business is encouraged and developed.” 15 U.S.C. § 631.

To accomplish this goal, Congress vested the Small Business Administration with broad powers and responsibility over the economic life of small business concerns. The SBA is authorized to make loans to small business concerns, to provide technical and managerial aids, and to assist small business concerns in obtaining government contracts. 15 U.S.C. §§ 636, 638, 644. Most importantly, in section 8(a) of the Act the SBA is authorized to enter into procurement contracts with other federal agencies and to arrange for the performance of those contracts by subcontracting with small business concerns. 15 U.S.C. § 637(a). This section unequivocally states that the SBA is empowered to let subcontracts to “small business concerns or others.” 15 U.S.C. § 637(a)(2). In accordance with this statutory mandate, the SBA adopted its section 8(a) program through which government procurement contracts are awarded to small business concerns owned by disadvantaged persons.

The plaintiff contends, however, that the section 8(a) program is unauthorized because it is not specifically mentioned in the statute. This argument is without merit. The complex and volatile nature of problems, including allocation of government procurement contracts, often causes Congress to cast its statutory provisions in general terms, leaving to the agency the task of spelling out the specific regulations and programs. In this manner, agency expertise may be fully employed in dealing with such problems. The agency may evaluate the competing alternatives and formulate the policy best suited to the attainment of the statutory goal. Furthermore, the agency is left free to respond to the demands of changing circumstances or conditions unanticipated by Congress. Indeed, an agency could easily be prevented from serving its intended purpose if burdened with specific statutory regulations and programs.

So it is with the case at bar. Congress has declared that the actual and potential capacity of small business concerns must be developed and that a fair proportion of total purchases and contracts of the federal government must be placed with such firms. 15 U. S.C. § 631. It has given the SBA the statutory authority and necessary discretion in awarding subcontracts to accomplish that goal. The discretion as to which firms shall receive subcontracts and the decision as to what regulations shall govern procurement is left to the SBA. 15 U.S.C. § 637. It must select the programs that will insure the economic development of small business concerns and provide for their participation in government procurement contracts. The SBA has responded by adopting a program which reflects its judgment of priorities in light of current facts. It is not the duty of the courts to evaluate the arguments regarding allocation of government procurement contracts or to consider the wisdom of the present programs. American Trucking Ass’ns v. Atchison, T. & S. F. Ry., 1967, 387 U.S. 397, 87 S.Ct. 1608, 18 L.Ed.2d 847. Rather, our task is limited to determining whether the SBA has abused its discretion or exceeded its statutory authority in adopting the section 8(a) program. There is ample indication that small business concerns owned by disadvantaged persons have traditionally received a disproportionally small number of government procurement contracts. It is certainly reasonable, therefore, for the SBA to make a special effort to alleviate this imbalance. Section 8(a) of the Act provides the authority to do so.

Furthermore, the plaintiffs cannot complain because a specific type of small business concern is the primary beneficiary of the present program. It is well settled that an agency need not “strike at all evils at the same time,” Semler v. Dental Examiners, 1935, 294 U.S. 608, 610, 55 S.Ct. 570, 571, 79 L.Ed. 1086, but may “reform may take one step at a time, addressing itself to the phase of the problem which seems most acute.” Williamson v. Lee Optical Co., 1955, 348 U.S. 483, 489, 75 S.Ct. 461, 465, 99 L.Ed. 563. See Katzenbach v. Morgan, 1966, 384 U.S. 641, 86 S.Ct. 1717, 16 L.Ed.2d 828; Roschen v. Ward, 1929, 279 U.S. 337, 49 S.Ct. 336, 73 L.Ed. 722. Since the present program is a reasonable means of promoting the statutory goal, we find that the SBA has not abused its discretion or exceeded its statutory authority.

The SBA’s program is also supported by congressional and presidential mandates issued after the passage of the Act. The first of these mandates is contained in the 1967 Amendment to the Economic Opportunity Act, 42 U.S.C. § 2701 et seq. This amendment directs the SBA to “assist in the establishment, preservation, and strengthening of small business concerns . with special attention to small business concerns (1) located in urban or rural areas with high proportions of unemployed or low-income individuals, or (2) owned by low-income individuals.” 42 U.S.C. § 2901. In addition, the Administrator of the SBA is specifically instructed to “take such steps as may be necessary and appropriate, in coordination and cooperation with the heads of other Federal departments and agencies, so that contracts, subcontracts, and deposits made by the Federal Government or in connection with programs aided with Federal funds are placed in such a way as to further the purposes of this subchapter.” 42 U.S.C. § 2906c(a). (emphasis added.)

In response, the plaintiffs contend that the Economic Opportunity Act prohibits the awarding of the subcontract in the present case since section 2949(2) provides that financial assistance may not include the procurement of plant or equipment, or goods or services. 42 U.S.C. § 2949(2). This section, however, clearly applies to grants in kind and does not preclude awards of subcontracts for the performance of services. On the contrary, financial assistance through contract awards is expressly approved by the Act. 42 U.S.C. § 2906c(a).

The presidential mandates for the SBA’s section 8(a) program are found in Executive Orders 11458, 11518, 11625. In the first order, issued March 5, 1969, the President instructed the appropriate federal departments and agencies to establish programs to strengthen minority business enterprise. Exec.Order No. 11458, 34 Fed.Reg. 4937 (1969). In the second order, issued March 21, 1970, the President called for increased representation of the interests of small business concerns, particularly minority-owned business concerns, within federal departments and agencies. Exec.Order No. 11518, 35 Fed.Reg. 4939 (1970). In the third order, issued October 13, 1971, the President directed all federal departments and agencies to “continue all current efforts to foster and promote minority business enterprises.” Exec.Order No. 11625, 36 Fed. Reg. 19967 (1971). In terms substantially identical to the SBA’s section 8(a) program, the order defines “minority business enterprise” as “a business enterprise that is owned or controlled by one or more socially or economically disadvantaged persons.” Id.

The SBA’s section 8(a) program clearly promotes the goals articulated in both the 1967 Amendment to the Economic Opportunity Act and the executive orders. We conclude that there is ample support for the section 8(a) program.

B. In reaching the conclusion that the SBA’s powers under section 8(a) of the Small Business Act may be used only in periods of emergency, the district court relied on the fact that the statutory prototype of section 8(a), sections 714(b)(1)(B), (C), and 714(b)(2) of the Defense Production Act Amendments of 1951, was first enacted to increase the participation of small business concerns in the production of war material during the Korean War. Defense Production Act Amendments of 1951, 65 Stat. 140, 141, §§ 7.14(b)(1) (B), (C), and 714(b)(2). In addition, the court noted that the regulations first promulgated by the SBA after the passage of section 8(a) stated that the authority to subcontract would be used only in periods of emergency. 13 C.F.R. § 124.8-1 (1958).

We are not persuaded by this restrictive interpretation of section 8(a). There can be no more reliable an indication of legislative intent than the specific statutory words selected by Congress in delineating the powers conferred.. Section 8(a) unambiguously provides that the SBA is empowered to act “whenever it determines that such action is necessary.” 15 U.S.C. § 637(a). This broad mandate answers the argument that Congress intended to restrict section 8(a) to periods of emergency.

We therefore conclude that the SBA’s authority to use its powers under section 8(a) is not limited to periods of emergency.

C. As an additional ground for its decision, the district court held that section 8(a) prohibits the SBA’s action awarding the Homestead contract to All American without formal advertising or competitive bidding. Again, we disagree.

Section 8(a) empowers the SBA to arrange for the performance of prime contracts by “negotiating or otherwise letting subcontracts.” 15 U.S.C. § 637(a)(2). The statute does not require the SBA to engage in competitive bidding. The plaintiffs contend, however, that to construe the phrase “or otherwise letting” as permitting the SBA to dispense with competition would be inconsistent with the congressional intent expressed in other statutes requiring competition in government procurement. These statutes recognize, however, that competition may be dispensed with when other statutes so provide, 41 U.S.C. § 252(c)(15), or when the purposes of the relevant program make it impractical to secure competition. 41 U.S.C. § 252(c)(10). Both exceptions are applicable here.

First, section 8(a) of the Small Business Act clearly constitutes specific statutory authority to dispense with competition. 15 U.S.C. § 637(a). It provides that the SBA may let subcontracts by negotiation or any other method.

Second, competition is impractical in the present case. The purpose of the Act is to assist small business concerns. The Act is based on the premise that such firms are unable to compete effectively in the marketplace and therefore cannot secure government procurement contracts awarded through competitive bidding. By increasing their participation in government procurement, however, these firms can eventually become self-sufficient, viable businesses capable of competing effectively in the marketplace. Private negotiation of subcontracts is the best means of accomplishing this goal. To require competitive bidding would be contrary to the basic rationale of the Act. Even if competition were limited to small business concerns, there would still be many small business concerns that would never receive government procurement contracts. This result would clearly frustrate the congressional intent to assist small businesses.

Kleen-Rite Janitorial Services, Inc. v. Laird, D.Mass.1971, [September 21, 1971, No. 71-1968], supports the SBA’s authority to institute the section 8(a) program. In Kleen-Rite, the plaintiff sought to enjoin the SBA and the Department of Defense from awarding a subcontract for janitorial services to a small business concern owned by socially and economically disadvantaged persons. In denying the injunction, the court held that the SBA had specific statutory authority to administer its section 8(a) program and that there was no statutory or constitutional duty to offer the subcontract for competitive bidding.

Space Services of Georgia, Inc. v. Laird, D.C.D.Conn.1972, [No. 15,170; August 17, 1972] and Fortec Constructors v. Kleppe, D.D.C.1972, 350 F.Supp. 171, also uphold the legality of the section 8(a) program. The present case is on all fours with those cases.

We conclude, therefore, that subcontracts under the section 8(a) program may be awarded on a noncompetitive basis.

D. The plaintiffs also contend that in awarding the Homestead contract the SBA violated section 124.8-1(d)(3) of the applicable regulations, which provides that “procurements [under section 8(a)] will not be considered where ... (3) ... small business concerns are dependent in whole or in significant part on recurring Government contracts.” 13 C.F.R. § 1248-1 (d) (3). It is clear from the evidence presented to the district court, however, that the plaintiff who had previously been awarded the Homestead contract failed to perform the required services and abandoned the contract after nine and a half months. Thus, the SBA was not depriving the plaintiffs of a renewal of an existing contract by placing the Homestead contract under the section 8(a) program.

E. Finally, the plaintiffs contend that the SBA’s section 8(a) program, by using the government’s lending and contracting power to enhance All American’s competitive position, violates due process. In effect, the plaintiffs argue that the section 8(a) program enabled All American to receive a premium price above that which would have prevailed under competitive bidding and that All American has since used this premium to submit low bids for private commercial contracts, causing the plaintiffs to lose some of their customers to All American.

It has long been recognized that the government, like private individuals and businesses, has the power “to determine those with whom it will deal, and to fix the terms and conditions upon which it will make needed purchases.” Perkins v. Lukens Steel Co., 1939, 310 U.S. 113, 127, 60 S.Ct. 869, 876, 84 L.Ed. 1108. In exercising this power, of course, the government remains subject to the constitutional requirement of due process. But in the case at bar we cannot accept the plaintiffs’ argument that the section 8(a) program is unconstitutional because the plaintiffs may be disadvantaged competitively. There is no constitutional duty to offer government procurement contracts for competitive bidding. The SBA has the statutory authority to assist small business concerns through private placement of contracts. We have already held that the SBA has not abused its discretion in adopting the section 8(a) program. The program may produce some inequalities among small business concerns as a class. But in the area of socio-economic legislation, the government’s action must be upheld if it is rationally related to a proper government purpose. Dandridge v. Williams, 1970, 397 U.S. 471, 90 S.Ct. 1153, 25 L.Ed.2d 491; Walters v. St. Louis, 1954, 347 U.S. 231, 74 S.Ct. 505, 98 L. Ed. 660. We hold that it is.

IV.

We now consider the district court’s decision that the SBA’s section 8(a) program is unconstitutional because “the primary criterion for eligibility is race, color, or ethnic origin” and that the' “[p]laintiffs have been excluded from consideration because of their race.” As we have stated, to have standing to litigate, a party must show that,he has incurred or is in immediate danger of incurring some direct and personal injury resulting from a statutory or constitutional right designed to protect that party. Moose Lodge No. 107 v. Irvis, supra; Sierra Club v. Morton, supra; Laird v. Tatum, supra; Association of Data Processing Organization, Inc. v. Camp, supra. In this case the plaintiffs have failed to meet that requirement with respect to the issue of the SBA’s alleged discrimination in administering the section 8(a) program. The plaintiffs never applied for participation in the section 8(a) program. Furthermore, they do not even contend that they are socially or economically disadvantaged and therefore eligible for participation in the program. Thus, whatever the outcome of the litigation, the plaintiffs will not be directly affected.

Most directly in point is Moose Lodge No. 107 v. Irvis, supra. There, the Supreme Court held that the plaintiff did not have standing to litigate the question involving the membership qualifications of the Moose Lodge because he did not attempt to become a member; he did have standing to litigate the issues concerning the Lodge’s guest policies because he was refused service while a guest. In discussing the standing requirement, the Court stated, 407 U.S. at 92 S.Ct. at 1968, 32 L.Ed.2d at 634:

Any injury to appellee from the conduct of Moose Lodge stemmed not from the Lodge’s membership requirements, but from its policies with respect to the serving of guests of members. Appellee has standing to seek redress for injuries done to him, but may not seek redress for injuries done to others. [Citations omitted]. While this Court has held that in exceptional situations a concededly injured party may rely on the constitutional rights of a third party in obtaining relief, Barrows v. Jackson, 346 U.S. 249, 73 S.Ct. 1031, 97 L.Ed. 1586 (1953), in this case appellee was not injured by Moose Lodge’s membership policy since he never sought to become a member.

It follows from Moose Lodge that the plaintiffs in the present case have no standing to litigate the issue of racial discrimination in the administration of the section 8(a) program because they did not even apply for participation in the program.

In Space Services of Georgia v. Laird, supra, the district court dismissed a similar challenge to the SBA’s section 8(a) program on the ground that the plaintiff could “complain that there is discrimination in the administration of the program only if he had tried to become a member of the class eligible for the program.” Again, in Fortec Constructors v. Kleppe, supra, the district court held that the plaintiff had no standing to raise the issue of racial discrimination because he had not applied for participation in the program. The court concluded that “[since] the plaintiffs have never sought to be eligible for the section 8(a) program, and never having had an 8(a) contract to gain, they cannot now allege that a contract was lost .... Solely on the basis of some generalized interest in the fair administration of a program, plaintiffs cannot attack the award as racially discriminatory.”

In effect, the plaintiffs are asking this Court to resolve a question that is not now before us. We must decline the invitation. See United States v. Raines, 1960, 362 U.S. 17, 80 S.Ct. 519, 4 L.Ed. 2d 524. Otherwise, the grasp of our decree would exceed its proper reach. We therefore conclude that it was error for the district court to consider the issue of racial discrimination in the administration of the program.

The decision of the district court must be

Reversed.

      . Section 2 of the Small Business Act defines “small business concerns” as follows :
      For the purposes of this chapter, a small-business concern shall be deemed to be one which is independently owned and operated and which is not dominant in its field of operation. In addition to the foregoing criteria the Administrator, in making a detailed definition, may use these criteria, among others: Number of employees and dollar volume of business. Where the number of employees is used as one of the criteria in making such definition for any of the purposes of this chapter, the maximum number of employees which a small-business concern may have under the definition shall vary from industry to industry to the extent necessary to reflect different characteristics of such industries and to take proper account of other relevant factors. Pub.L. 85-536, § 2 [3], July 18, 1958, 72 Stat. 384.
      15 U.S.C. § 632.

      . Section 8(b) (11) of the Small Business Act authorizes the SBA to set aside contracts for placement with small business concerns. The SBA has the power:
      (11) to make studies and recommendations to the appropriate Federal agencies to insure that a fair proportion of the total purchases and contracts for property and services for the Government be placed with small-business enterprises, to insure that a fair proportion of Government contracts for research and development be placed with small-business concerns, to insure that a fair proportion of the total sales of Government property be made to small-business concerns, and to insure a fair and equitable share of materials, supplies, and equipment to small-business concerns ;
      15 U.S.C. § 637(b)(11).

      . In 1968, Jones was the successful bidder and received a contract price of $42,245. In 1969, Santo was the successful bidder and received a contract price of $49,166.

      . The SBA contends that the contract price was arrived at by computing estimated cost plus allowance for a reasonable profit. The district court found that the contract price includes a premium designed to enhance All American’s competitive position against the plaintiffs and other similarly situated small business concerns.

      . The regulations governing the section 8 (a) program provides, in pertinent part:
      § 124.8-1
      (a) General. Section 8(a) of the Small Business Act authorizes SBA to enter into all types of contracts (including supply, services, construction, research and development) with other Government departments and agencies and subcontract the preformance of such contracts.
      (b) Purpose. It is the policy of SBA to use such authority to assist small concerns owned by disadvantaged persons to become self-sufficient, viable businesses capable of competing effectively in the marketplace.
      (c) Eligibility. To be eligible for an 8(a) subcontract, a concern must be owned or destined to be owned by socially or economically disadvantaged persons. This category often includes, but is not restricted to, Black Americans, American Indians, Spanish Americans, Oriental Americans, Eskimos and Aleuts. If a concern is not presently controlled by such persons, the firm having such control must execute a divestiture agreement providing for divestiture of control by the divesting company over the concern within a reasonable period of time. The existence of control is a question of fact for administrative determination under the circumstances of each case. Divestiture of at least 51 percent of the stock will create a rebuttable presumption of divestiture of control.
      (d) Procurement selection criteria. Procurements will be selected which are determined suitable for performance by an SBA subcontractor. However, procurements will not be considered where:
      (1) Public solicitation has been issued ;
      (2) There is a reasonable possibility of an award being made to disadvantaged contractors under normal competitive procedures, or
      (3) Where small business concerns are dependent in whole or in significant part on recurring Government contracts.

      . Section 8(a) of the Small Business Act, 15 U.S.C. § 637(a), provides :
      (a) It shall be the duty of the Administration and it is empowered, whenever it determines such action is necessary—
      (1) to enter into contracts with the United States Government and any department, agency, or officer thereof having procurement powers obligating the Administration to furnish articles, equipment, supplies, or materials to the Government. In any case in which the Administration certifies to any officer of the Government having procurement powers that the Administration is competent to perform any specific Government procurement contract to be let by any such officer, such officer shall be authorized in his discretion to let such procurement contract to the Administration upon such terms and conditions as may be agreed upon between the Administration and the procurement officer ; and
      (2) to arrange for the preformance of such contracts by negotiating or otherwise letting subcontracts to small-business concerns or others for the manufacture, supply, or assembly of such articles, equipment, supplies, or materials, or parts thereof, or servicing or processing in connection therewith, or such management services as may be necessary to enable the Administration to perform such contracts.

      . See e. g., FTC v. Sperry Hutchinson Co., 1972, 405 U.S. 233, 92 S.Ct. 898, 31 L.Ed.2d 170; Permian Basin Area Rate Cases, 1968, 390 U.S. 747, 88 S.Ct. 1344, 20 L.Ed.2d 312; United States v. Southwestern Cable Co., 1968, 392 U.S. 157, 88 S.Ct. 1994, 20 L.Ed.2d 1001; American Trucking Ass’ns v. Atchison, T. & S. F. Ry., 1967, 387 U.S. 397, 87 S.Ct. 1608, 18 L.Ed.2d 847; American Power & Light Co., 1946, 329 U.S. 90, 67 S.Ct. 133, 91 L.Ed. 103; Tagg Bros. & Moorhead v. United States, 1930, 280 U.S. 420, 50 S.Ct. 220, 74 L.Ed. 524; FRC v. Nelson Bros. Bond & Mortgage Co., 1933, 289 U.S. 206, 53 S.Ct. 627, 77 L.Ed. 1166; FTC v. Grate, 1930, 253 U.S. 421, 40 S.Ct. 572, 64 L.Ed. 993; United States v. Shreveport Grain & Elevator Co., 1932, 287 U.S. 77, 53 S.Ct. 42, 77 L.Ed. 175; See K. Davis, Administrative Law Treatise, § 2.01-2.16.

      . As the court noted in Kendler v. Wirtz, 3 Cir. 1968, 388 F.2d 381, 383,
      A mere difference of judgment between a person disadvantageous^ affected by agency action and the responsible head of the agency over the merits of particular administration action as a means of achieving a legislative objective, when Congress has assigned authority to make and act upon such determinations to the agency, is not judicially reviewable. . . . [T] he statutory standard is expressed in such general concepts that it requires and must contemplate the exercise of discretion in choice among various rational alternatives none of which can fully satisfy all demands of competing interests.
      The area of government contract awards has long been recognized as one in which special deference should be shown to the discretion of the administrative agency. Perkins v. Lukens Steel Co., 1940, 310 U.S. 113, 60 S.Ct. 869, 84 L.Ed. 1108. The agency, of course, may not act arbitrarily. Scanwell Laboratories v. Shaffer, 1970, 137 U.S.App.D.C. 371, 424 F.2d 859; Gonzalez v. Freeman, 1964, 118 U.S.App.D.C. 180, 334 F.2d 570.

      . The limited extent to which minority business enterprises participate in federal government procurement indicates that these firms have received a disproportionately small number of contract awards. According to the Report of the President’s Advisory Council on Minority Business Enterprise, at 5 (1971) “current figures place minority-owned businesses variously between 55,000 and 165,000, from a total of more than 5.5 million, or between one and three percent of the total business community.” In Fiscal Year 1971 federal government procurement contracts let to minority-owned businesses (blacks, Indians, Puerto Ricans, Mexican Americans, and others) totalled $143.8 million. The SBA’s section 8(a) program accounted for $66 million of this amount. Dept. of Commerce, Progress of the Minority Business Enterprise Program, at 9 (1972). The federal government’s procurement contracting during this same period exceeded $45 billion. Secretary of the Defense, Military Prime Contract Awards and Subcontract Payments or Commitments — July 1970 - June 1971, at 7-8 (1971) ; General Services Administration, Procurement By Civilian Executive Agencies, Period July 1, 1970 - June 30, 1971, (1971). Thus, minority-owned businesses participated in about one-third of one percent of the total dollar volume of federal government procurement during the Fiscal Year 1971. Although no figures were presented comparing contract awards to non-minority-owned small business firms with awards to minority-owned small business firms, it is apparent that in general minority-owned small business firms have received a disproportionately small share of federal government procurement contracts.

      . We hold that the Small Business Act alone provides sufficient authority for the SBA’s section 8(a) program. We discuss these additional authorities, however, because we find they show convincingly that the SBA has not abused its discretion or exceeded its statutory authority.

      . The plaintiffs argue that the 1967 Amendment defines eligibility in terms of low-income, not social and economic disadvantage. 42 U.S.C. § 2901. The plaintiffs would conclude that the Amendment cannot provide support for the SBA’s program. This restrictive interpretation fails for three reasons. First, the broad goal of the Economic Opportunity Act and the 1967 Amendment clearly contemplates that the beneficiaries of the Act need not be defined exclusively in terms of income. The Act states that its purpose is to eliminate “the paradox of poverty in the midst of plenty’’ and that the nation can achieve its economic and social potential only if “every individual has the opportunity to contribute to the full extent of his capabilities and to participate in the workings of our society.” The Senate Committee on Labor and Public Welfare, in its Report on the 1967 Amendments to the Economic Opportunity Act, recognized that achievement of the statutory goal required that disadvantaged minorities be included in the programs established by the Act: “The Committee feels that an important priority of the anti-poverty effort must be to expand the opportunities for a stake in the community economic life for low-income persons and minority group members, especially in the urban ghetto.” S.Rep.No.563, 90th Cong., 1st Sess. 65 (1967). (emphasis added.)
      Second, the House and Conference Reports of the 1967 Amendment state that the Administrator of the SBA has the responsibility for defining “low income”, and that “such definition need not correspond with the definition of ‘low income’ as used elsewhere in the act.” 1967 U.S. Cong, and Admin.News, pp. 2485, 2596; H.R. Final Report No. 866, 90th Cong., 1st Sess. (1967); Conference Report No. 1012, 90th Cong., 1st Sess. (1967), U.S. Code Cong. & Admin.News, p. 2428. When an administrative agency is charged with the responsibility for defining a broad statutory term, the agency’s construction must be accepted if it has a reasonable basis in law. NLRB v. Hearst Publications, 1944, 322 U.S. 111, 64 S.Ct. 851, 88 L.Ed. 1170; Gray v. Powell, 1941, 314 U.S. 402, 62 S.Ct. 326, 86 L.Ed. 301. The legislative history clearly indicates that factors other than income may be considered. Indeed, it is unlikely that many persons who own small businesses are impoverished in the strict sense. Even for the Act to have meaning, therefore, it is necessary to read the term “low-income individuals” in a broad manner. We conclude that the SBA’s construction of the term has a reasonable basis in law.
      Finally, the standards for determining eligibility under the SBA’s section 8(a) program contemplate that income will be an important factor. 13 C.F.R. § 124.8-1. In these circumstances, we find plaintiffs’ contention that the 1967 Amendment is inapplicable to be without, merit.

      . The SBA’s section 8(a) program was instituted in 1968. The plaintiffs argue that executive orders issued after that date cannot be- considered in determining the authority for the program. We find this contention unsupported. The relevant period for the present case is the date when the second Homestead contract was awarded, 1971. Since the executive orders were issued before that date, they may be considered as authority. Furthermore, we note that executive orders have the force and effect of law. See Farkas v. Texas Investment Corp., 5 Cir. 1967, 375 F.2d 629. cert. denied 389 U.S. 977, 88 S.Ct. 480, 19 L.Ed.2d 471.

      . The Defense Production Act Amendments of 1951 were designed to insure the participation of small business concerns in the production of material for the Korean War. The Amendments authorized the Small Defense Plants Administration (SDPA) to enter into contracts with other government agencies and to subcontract with small business concerns “without regard to any other provision of law except the regulations prescribed under Section 201 of the First War Powers Act, 1944, as amended.” Act of July 31, 1951, ch. 275, § 110, 65 Stat. 140-141. Section 201 of the War Powers Act authorized contracting “without regard to the provisions of law relating to the making, performance, amendment or modification of contracts,” whenever such action would facilitate the prosecution of the war. On February 2, 1951, President Truman issued Executive Order No. 10210, 16 Fed.Reg. 1049, authorizing certain federal agencies, including the Department of Defense, to exercise the subcontracting power granted by section 201. The order stated that “advertising competitive bidding, and bid, payment, performance or other bonds or other forms of security need not be required.”
      In 1953, Congress established the Smali Business Administration as the peacetime successor to the SDPA. The Small Business Act of 1953 conferred the subcontracting power upon the SBA but did not state, as did the earlier Amendments, that it could be exercised “without regard to .any other provision of law.” Act of July 30, 1953, ch. 282, 67 Stat. 235.
      In 1958, Congress enacted the second Small Business Act. The Act provided that the SBA could use the subcontracting power “whenever it determines that such action is necessary” and that it could arrange for the performance of subcontracts “by negotiating or otherwise letting” 15 U.S.C. § 637(a)(2).

      . The 1958 regulations provided, in pertinent part:
      13 C.F.R. § 124-8.1
      (a) During periods of emergency determined by the Administrator to warrant exercise by SBA of its prime contract authority, SBA will review procurement plans and programs of other Government departments and agencies to determine the contracts for property, equipment, supplies, or materials which SBA should undertake to furnish to the Government through the exercise of its prime contracting authority. Upon making such determination, SBA will make the certification provided for in section 8(a)(1) of the Small Business Act and will enter into a formal contract with the procuring agency. Thereafter, SBA will widely publicize its requirements and fully utilize its facilities listing in soliciting bids or proposals. Awards will then be made to the best qualified supplier, price and other factors considered.
      The regulations promulgated by the SBA in 1970, of course, contain no such limitation. Congress has often criticized the SBA’s initially restrictive interpretation of its powers. See note 15 infra. The SBA is certainly entitled to re-evaluate its position in these circumstances. As the Supreme Court noted in American Trucking Ass’n v. Atchison, T. & S. F. Ry., 1967, 387 U.S. 397, 416-417, 87 S.Ct. 1608, 1618, 18 L.Ed.2d 847,
      [W]e agree that the Commission, faced with new developments or in light of reconsideration of the relevant facts and its mandate, may alter its past interpretation and overturn past administrative rulings and practice, [citing cases]. In fact, . . . this kind of flexibility and adaptability . . . is an essential part of the office of a regulatory agency.

      . Congress has stated on several occasions that section 8(a) can be used peacetime. In 1960, for example, the Final Report of the Select Committee on Small Business, referring to the SBA’s initial position that section 8(a) could be used only in periods of emergency, stated:
      It is the conclusion of the committee that the [SBA’s] interjiretation of this S.ection is too narrow and limited; that it was the intention of Congress that it would he used whenever necessary to assure that small business receives its fair share of Government procurement and not just in ‘national emergency.’ The committee believes that small business is not getting its fair share, and that there could very well be instances wherein the assuming of prime contracts by SBA for the purpose of letting subcontracts to small businesses would be feasible.
      H.R.Final Rep.No. 2235, 86th Cong., 2d Sess. 81 (1960) (emphasis added.) See Hearings before Subcomm. of the Comm, on Banking and Currency, 87th Cong., 1st Sess., at 262-264 (1961); Hearings on H.R. 4525 Before the Comm, on Banking and Currency, 84th Cong., 1st Sess., at 97 (1955).
      The plaintiffs point out that the SBA, in a report presented to the House Committee considering the legislation which became the Small Business Act of 1958, stated that it believed its authority to subcontract was limited to periods Of emergency. In American Trucking Ass’n v. Atchison, T., & S. F. Ry., supra, the Supreme Court commented on the reliability of such reports in determining legislative intent:
      We do not regard [an agency’s report to Congress] as legislative history demonstrating a congressional construction of the meaning of the statute. . The advocacy of legislation by an administrative agency — and even the assertion of the need for it to accomplish a desired result — is an unsure and unreliable, and not a highly desirable, guide to statutory construction. 387 U. S. at 417, 87 S.Ct. at 1619.

      . The Federal Property and Administrative Services Act of 1949, 41 U.S.C. § 252 (c) (15), provides that competition may be dispensed with where negotiation is “otherwise authorized by law.” The regulations promulgated pursuant to the Act cite several examples, including “negotiation permitted by the Small Business Act.” 41 C.F.R. § 18-3.217-3.

      . The 1967 Amendments to the Economic Opportunity recognized this fact by specifying that subcontracts were to be “placed in such a way as to further the purposes of this subchapter.” 42 U.S.C. § 2906c(a). Again, Congress avoided imposing any requirement of competitive bidding on the SBA in awarding subcontracts under the program.