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The Pentagon will terminate a major affirmative action program in response to a recent Supreme Court decision that narrowed the scope of contract awards based on race or ethnicity, Defense Secretary William Perry said Sunday.

"We have to obey the law of the land," Perry said on NBC's "Meet the Press." "This program cannot continue in its present form. We will try our best to achieve its objectives through other ways."The Washington Post reported Sunday that the Pentagon will announce Monday or Tuesday that it will stop using the so-called "rule of two" program under which $1 billion worth of business was funneled to minority firms last year.

The rule, applicable to all Defense Department contracting business since 1987, states that only small, disadvantaged businesses can compete for a contract if at least two such qualified firms express an interest in bidding for it.

The Post quoted officials as saying almost all businesses defined as disadvantaged under the program are minority-owned.

Perry said the Justice Department has reviewed the program in light of last summer's Supreme Court ruling. "We have discussed that with them and believe we have to change this program." But he stressed that "we will do everything we can to continue to get some of the objectives of assisting minority programs without using this particular rule."

The Pentagon program is the first major effort to assist minority-owned businesses to be affected by the high court's ruling that there must be strong legal justification for affirmative action programs.

After that decision, the Clinton administration launched a review of all government affirmative action programs.

In a speech in Texas last week President Clinton repeated that reforms in affirmative action are necessary, but that he will resist attempts by Republicans to end all such programs on the basis that race and gender should not be factors in fair competition for contracts.

"I want to mend affirmative action, but I do not think America is at a place today where we can end it," Clinton said.

Officials told the Post the rule of two was particularly vulnerable because it is the only federal set-aside program under significant federal court challenge. A New Mexico contractor has challenged the law under which the rule is applied and federal prosecutors have notified the contractor's lawyers that they believe the suit will be moot after suspension of the rule, the paper said.