Concrete Works v. City and County of Denver:
A Mile High Reversal in Affirmative Action Trends
I. Legal Background: Strict Scrutiny Standard of Review in Public Contracting Affirmative Action Programs
A. Croson
The controlling legal precedent that sets forth the guidelines for lawful minority and women business programs enacted by state agencies and local governments using local dollars is the U.S. Supreme Court decision in City of Richmond v. J.A. Croson, 488 U.S. 469 (1989).
In the Croson decision, the U.S. Supreme Court struck down the City of Richmond’s minority business enterprise (MBE) program that mandated that the City would attempt to require its prime contractors to subcontract at least 30 percent of their construction contract dollars to minority-owned firms. In analyzing this case under the Fourteenth Amendment, the Supreme Court, for the first time, adopted a “strict scrutiny” standard for testing the legality of race-conscious affirmative action programs.
In applying the strict scrutiny standard in Croson, the U.S. Supreme Court employed a two-prong analysis. First, the City was required to demonstrate a compelling governmental interest for using race-conscious criteria in the awarding of contracts. This requirement would have been satisfied if the City had demonstrated that its MBE program was remedial in nature to correct the effects of identified discrimination in the public and/or private sector local marketplace. Second, the City was required to demonstrate that its MBE program was narrowly tailored to address the effects of that identified discrimination. In this regard, factors considered by the Court included whether there were ethnic groups benefiting from the program for which there was no evidence of discrimination; whether the size of the MBE participation goal was flexible and rationally related to a relevant disparity in the marketplace; whether consideration was given to less restrictive race-neutral remedies; and whether the program contained sunset provisions or other means for periodic review to assure that it would not outlive its intended remedial purpose.
In Croson, the Supreme Court held that the City’s program failed to satisfy either prong of the strict scrutiny test. Richmond failed to demonstrate that its program was necessary to remedy the effects of discrimination in the marketplace. Accordingly, its program also was not narrowly tailored.
The Court reasoned that the City’s showing of a mere statistical disparity between the overall minority population in Richmond (50 percent African American) and awards of prime contracts to minority-owned firms (0.67 percent to African American firms) was an irrelevant comparison and insufficient to raise an inference of discrimination. Justice O’Connor stated that the relevant statistical comparison was one between the percentage of minority firms available and willing to participate in the construction industry (including prime contractors and subcontractors) and the percentage of prime and subcontract dollars awarded to those minority firms. In addition, particularized anecdotal accounts of discrimination could establish a compelling interest for a local government to institute a race-conscious remedy. However, conclusory claims of discrimination by City officials would not suffice.
As for the second prong of the strict scrutiny test, the Supreme Court held that Richmond’s MBE program, on several grounds, was not narrowly tailored to redress the effects of discrimination. First, the program extended to a long list of ethnic minorities (e.g., Aleuts) for which the City had established no evidence of discrimination. Therefore, the scope of the program was overly broad.
Second, the Court held that the 30 percent goal for MBE participation in the Richmond program was an inflexible, rigid quota and was an arbitrary figure not rationally related to relevant disparities. The Court also criticized the City’s lack of inquiry into whether a particular MBE seeking racial preference had suffered from the effects of past discrimination.
Third, the City of Richmond failed to consider race-neutral alternatives to remedy the under-representation of minorities in contract awards.
The fourth and final flaw was that the Richmond MBE program contained no sunset provision or mechanism for periodic review to assess continued need. Accordingly, the Richmond program could have outlived the need for any remedy.
B. Adarand
Croson only considered race-based remedies voluntarily enacted by state and local governments. On June 12, 1995, the U.S. Supreme Court issued another decision that essentially extended the “strict scrutiny” standard of review to federally enacted race-based classifications in Adarand Constructors, Inc. v. Peña, 115 S. Ct. 2097 (1995). In Adarand Constructors, Inc. v. Peña, a narrow five to four majority decided that even a relatively modest voluntary remedy where a racial classification is used to create a rebuttable presumption of social and economic disadvantage can only pass constitutional muster if it serves a “compelling interest” and is “narrowly tailored” to achieve that objective.
The racial preference at issue in Adarand was a Subcontractor Compensation Clause (“SCC”) imposed by the Central Federal Lands Highway Division (a part of the U.S. Department of Transportation). The SCC terms provided that the prime contractor, Mountain Gravel, would receive additional compensation if it hired disadvantaged business enterprise (DBE) subcontractors. Mountain Gravel sought subcontractor bids for guardrail work, and plaintiff Adarand was the low bidder. However, Adarand was not certified as a DBE. DBEs were defined by the Department of Transportation as businesses that were at least 51 percent owned and controlled by socially and economically disadvantaged individuals. The racial preference and strict scrutiny was implicated by virtue of a rebuttable presumption in the law that socially and economically disadvantaged individuals include Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and other minorities, or any other individual found to be disadvantaged by the Small Business Administration pursuant to Section 8(a) of the Small Business Act. Adarand was not awarded the subcontract because Mountain Gravel decided to take advantage of this Subcontractor Compensation Clause by hiring a certified DBE firm instead.
In writing the majority opinion for the Court, Justice O’Connor stated that the strict scrutiny standard of review to be imposed on any federal program containing racial classifications was identical to that imposed in Croson. Nevertheless, Justice O’Connor was careful to point out that this “strict scrutiny” was not intended to be “strict in theory, but fatal in fact.” It was a standard that had been met in the past and could be met in the future. She further observed, “Government is not disqualified from acting in response to the unhappy persistence of both the practice and the lingering effects of racial discrimination against minority groups in this country.”
The implications of the Adarand I decision are that strict scrutiny will be applied in testing the legality of any government program (federal, state, or local) that contains a racial classification. In response to the Adarand I decision, the federal government is now required to conduct its own disparity study and/or develop its own factual predicate for any of its affirmative action programs. To the extent local governments are required and authorized by federal legislation to implement race-conscious affirmative action programs, they may rely upon the federal government’s factual predicate as a defense to a constitutional challenge. However, to the extent a local government adopts race-conscious goals or remedies that exceed the requirements of a federal program or that go beyond that which it is required to do under the federal law, that local government will be responsible for developing its own factual predicate to establish that its actions are narrowly tailored to remedy identified discrimination.
This case was subsequently remanded to lower courts for further proceedings to determine facts as to whether there was a compelling interest and whether this remedy was narrowly tailored. Upon remand, the District Court granted Adarand’s motion for summary judgment. The District Court found a compelling governmental interest for the program, but ruled that the program was not narrowly tailored. (“Adarand II”) On March 4, 1999, the Tenth Circuit Court of Appeals vacated that most recent District Court decision on grounds of mootness as Plaintiff Adarand had been certified as a DBE and no longer had apparent standing to challenge the DBE program. The Tenth Circuit Court of Appeals denied Adarand’s appeal on this issue on May 19, 1999. Adarand appealed to the U.S. Supreme Court. Then, on January 12, 2000, the U.S. Supreme Court vacated this Tenth Circuit ruling as to mootness and remanded the case back to the Tenth Circuit for the purpose of obtaining a ruling on the merits of the appeals of the trial court’s decision.
However, in the interim, the Secretary of the Department of Transportation had suspended the use of the Subcontractor Compensation Clause, and in 1999 had issued new regulations under the Transportation Equity Act for the 21st Century (TEA – 21) for the enforcement of the DBE program in light of the Supreme Court’s 1995 decision in Adarand I. (See 49 CFR Part 26 (1999)). Those new regulations pertained almost exclusively to the application of the disadvantaged business enterprise program to procurements wherein federal funds are used for highway projects let by states and localities.
On September 25, 2000, the 10th Circuit Court of Appeals held that, by virtue of the new regulatory framework under which the DOT’s state and local DBE program now operates, the DBE program satisfied the “strict scrutiny” standard as enunciated by the Supreme Court in Adarand I and was constitutional. Specifically, the 10th Circuit Court of Appeals relied upon the extensive factual predicate compiled by the Congress and the federal government and represented in its record Appendix as “the compelling interest.” The Court cited from a voluminous record, in great detail, to establish a strong basis in evidence of ongoing discrimination affecting the highway construction industry. The Court held this record to be sufficient to provide a “compelling interest” for the DBE program. Adarand Constructors, Inc. v. Slater, 228 F.3d 1147, at 1176-1187 (10th Cir. 2000). (“Adarand III”) The 10th Circuit also held that the new DBE regulations were narrowly tailored to remedy the discrimination identified in the factual predicate. However, the old Subcontractor Compensation Clause originally challenged by Adarand was not narrowly tailored and was therefore held to be unconstitutional under the strict scrutiny standard.
Adarand petitioned the Supreme Court to review this latest decision by the 10th Circuit Court of Appeals. The Supreme Court initially granted Adarand’s petition for writ of certiorari to review this decision and to determine whether the Court of Appeals had misapplied the strict scrutiny standard announced in Adarand I. However, following the submission of briefs and oral arguments, on November 27, 2001, the Supreme Court noted a shift in the posture of the case due to the new regulations and the suspension of the SSC program that was originally at issue in Adarand I. The Supreme Court then dismissed Adarand’s writ of certiorari as being “improvidently granted.” Adarand Constructors, Inc. v. Mineta, 534 U.S. 103 (2001) (“Adarand IV”) This meant that the Supreme Court had refused to rule on the merits of Adarand’s appeal. Accordingly, the 10th Circuit Court of Appeals decision upholding the constitutionality of the new DBE program regulations issued under TEA – 21 was not disturbed and therefore remains valid law.
C. Equal Protection Analysis
1. The Compelling Interest
Croson and subsequent cases (with one or two exceptions) have been clear that strict scrutiny does not require jurisdictions to prove discrimination before they are allowed to enact race and gender-conscious programs. Rather, a jurisdiction is required to have a strong basis in evidence of discrimination approaching a prima facie case. In this instance, a prima facie case would be one in which the government presented sufficient evidence that, viewed in a light most favorable to the government’s case, establishes, on its face, all of the requisite elements of a claim of marketplace discrimination.
The discrimination that provides the basis of the “compelling interest” for government remedial relief may be in one of two forms: (a) discrimination that the government itself has engaged in that has resulted in the underutilization of ready, willing, and able M/WBEs in government contracts; or (b) “passive participation” by the government in rewarding, supporting, or contributing to the perpetuation of the effects of private discrimination.
A significant statistical disparity between the availability of ready, willing, and able M/WBE firms seeking to obtain contracts with the government and the actual utilization of such M/WBE firms by the government may give rise to an inference of discrimination. That inference of discrimination may be buttressed by anecdotal or qualitative evidence that tends to show that racial or gender discrimination is, in part, the cause of such significant statistical disparities.
The court decisions that have explained and refined the passive participant concept have further declared that if evidence exists that a governmental entity is infusing public funds into a discriminatory industry, the governmental entity has a compelling interest in remedying the effects of such discrimination. Accordingly, wherever “passive participation” in private discrimination forms the basis for a government’s “compelling interest,” its factual predicate for remedial relief should demonstrate the linkage between local government procurement and any evidence of discrimination within the private marketplace.
2. Narrow Tailoring of Remedies
Post-Croson cases also have given considerable direction as to how remedies might be narrowly tailored. A number of lower court decisions have favorably cited jurisdictions’ prior examination of neutral remedies in assessing whether programs were narrowly tailored. Examples are provided below.
a. Consideration of Neutral Alternative Remedies.
In Concrete Works I, the District Court evaluated Denver’s consideration of neutral remedies (even though it also spoke of Denver’s good faith efforts program as a “neutral remedy”). (The Tenth Circuit did not address any of the narrow tailoring issues in its decision.) The Court found that Denver enacted its ordinance after or in conjunction with race-neutral means of increasing MBE/WBE participation. The Court cited the following neutral measures:
•Eliminating prequalification requirements,
•Breaking down projects to facilitate small business participation,
•Implementing bond guarantee programs,
•Enacting a prompt payment ordinance,
•Developing a contractor mentor program and a pre-apprenticeship program,
•Improved instructional resources for inexperienced contractors, and
•City and contractor information outreach.
Some race-neutral measures were not available to the City; for example, payment and performance bonds were required by state law. In sum, the Court held that the City had fulfilled this element of the narrow tailoring requirement by considering these neutral measures. [Concrete Works of Colorado, Inc. v. City and County of Denver, 823 F.Supp. 821 (D. Co., February 26, 1993)]
In Coral Construction, the Ninth Circuit held that, while strict scrutiny requires serious consideration of race-neutral alternatives, strict scrutiny does not require exhaustion of every possible such alternative, however irrational, costly, unreasonable and unlikely to succeed such alternative might be. Particularly, an entity cannot be faulted for failing to exhaust race-neutral alternatives that are outside its authority. Also, the jurisdiction cannot be required to devote “precious tax dollars” to projects where potential for success is marginal at best. The Court referred favorably to King County’s implementation of training sessions for small businesses and dissemination of information on accessing small business assistance programs in finding that the County had fulfilled its burden of considering race-neutral alternative programs. [Coral Construction Co. v. King County, 941 F.2d 910 (9th Cir. 1991), cert. denied, 112 S. Ct. 875 (1992)]
Also, in Associated General Contractors of California, the Ninth Circuit held that an MBE program should be instituted either after, or in conjunction with, race-neutral measures. The Court held that the City of San Francisco considered race-neutral alternatives, but rejected them as not viable. The Court also found that the City had attempted to address discrimination in City contracting through a past race-neutral ordinance. [Associated General Contractors of California, Inc. v. Coalition for Economic Equity, et. al, 950 F.2d 1401 (9th Cir. 1991), cert. denied 112 S. Ct. 1670 (1992)]
The District Court decision in Bilbo Freight Lines, Inc., et al. v. Dan Morales, et al. also illustrates the importance of first examining neutral measures. The Court held that the State of Texas could have considered new standards and procedures for obtaining intrastate trucking certificates that would have made it more economically feasible for all small business applicants. The Court concluded that, for political reasons, gender and race-neutral solutions were not adopted. [Bilbo Freight Lines, Inc., et al. v. Dan Morales, et al, C. A. No. H-93-3808 (S.D. TX, Feb. 3, 1994)]
The District Court in Contractors Association of Eastern Pennsylvania held that there was no evidence that the City of Philadelphia actually reviewed the effectiveness of the two programs the City cited as the “neutral measures” it considered. Further, the Court found that the evidence suggests that the previous programs cited as insufficient by the City had actually been successful. And, the Court found that the City had not attempted to remedy barriers to all firms created by the City’s procurement procedures. The Court urged the City first to consider relaxing its prequalification and bonding requirements for economically-disadvantaged contractors of all races. Training and financial assistance programs for all disadvantaged contractors were other neutral remedies suggested by the Court. Further, the Court indicated that the City could vigorously enforce the anti-discrimination provisions of the City Charter and the Procurement Department’s standard contracting requirements. In Contractors III, the Third Circuit held that the record supports the District Court’s finding that alternatives to race-based preferences were available that would have been either race-neutral or, at least, less burdensome to non-minority contractors. Because the City failed to consider or adopt these alternatives, its race-based program was not narrowly tailored. In reaching this conclusion, the Court pointed specifically to the City’s failure to consider a credit program for small or minority contractors. The City’s apparent consideration of the alleged failure of the federal Small Business Administration to increase the number of minority and women-owned businesses “is not constitutionally adequate consideration of the potential effectiveness of race-neutral measures for a particular industry in a particular locality.” [Contractors Assoc. of Eastern Pennsylvania, Inc. v. City of Philadelphia, 739 F. Supp 227, 6 F.3d 990 (3rd Cir. 1993)]
The Eleventh Circuit in Engineering Contractors Association of South Florida agreed with the District Court that Dade County had not seriously considered most of the race and ethnicity-neutral alternatives available to it for remedying the effects of discrimination against MBEs. The Court criticized the County for failing to ferret out and respond to instances of discrimination potentially occurring in the County’s own contracting process. The Court found that the County had taken no steps to “inform, educate, discipline, or penalize its own officials and employees responsible for the misconduct. The first measure every government ought to undertake to eradicate discrimination is to clean its own house and to ensure that its own operations are run on a strictly race and ethnicity-neutral basis.” The Court also criticized the County for failing to pass local ordinances to outlaw discrimination by local contractors, subcontractors, suppliers, bankers or insurers. It is important to note that the Eleventh Circuit did not hold the County to this level of “narrow tailoring” when considering its WBE program. [Engineering Contractors Ass’n v. Metropolitan Dade County, 943 F. Supp. 1546 (S. D. Fla., 1996), aff’d, 122 F.3d 895 (11th Cir. 1997)]
In a recent decision in Hershell Gill Consulting Engineers, Inc. v. Miami-Dade County, 333 F. Supp.2d 1305 (S.D. Fla., Aug. 24, 2004), the District Court held that Miami-Dade’s MBE program was not narrowly tailored due to a failure to adequately consider a variety of race- and gender-neutral alternatives. Specifically, the Court held:
• Although “narrow tailoring” does not require exhaustion of every conceivable race-neutral alternative, it does require serious, good faith consideration of workable race-neutral alternatives, and the County failed to show the necessity of the relief chosen because the efficacy of alternative remedies had not been sufficiently explored.
• The County failed to show that its use of a small business program for construction had been ineffective, and / or that such a race-neutral approach would have been ineffective if applied to A&E contracts.
However, in Adarand, the District Court had found the record of Congress’ earlier use of race-neutral measures prior to incorporating race-based initiatives into the Small Business Administration programs to be sufficient to pass this aspect of narrow tailoring.
b. Flexibility and waivers.
In a number of cases courts have examined whether individual jurisdictions had incorporated flexibility and waivers into their programs, or whether the jurisdictions had applied rigid numerical quotas. For example, the Ninth Circuit approved of King County’s allowances for waivers when neither an MBE nor a WBE were available to provide needed goods or services or when available MBEs and WBEs had given price quotes that were unreasonably high. The Ninth Circuit made similar findings related to the flexibility of San Francisco’s bid preference program. [Coral Construction v. King County, 941 F.2d 910 (9th Cir. 1991), cert. denied 112 S. Ct. 875 (1992); Associated General Contractors of California, Inc. v. Coalition for Economic Equity, et. al, 950 F.2d 1401 (9th Cir. 1991), cert. denied 112 S. Ct. 1670 (1992)]
In Concrete Works I, the District Court also examined Denver’s ordinance for flexibility and opportunities for waivers and concluded that the City passed this test. Contractors had opportunity for waivers, goals were set on a project-by-project basis and goals were set only where there were qualified MBE/WBEs available. A bidder was not required to use an MBE or WBE as a subcontractor if the MBE or WBE failed to submit the lowest bid or was otherwise unqualified to perform the work.
In O’Donnell, the Court of Appeals held that the District of Columbia’s “annual goal” of 35 percent MBE participation was inflexible: “As enacted, the percentage became far more than merely a hope, a wish or an aspiration.” The Court concluded that the 35 percent figure served as a requirement and thus violated the narrow tailoring standard set forth in Croson. [O’Donnell Construction Co. v. District of Columbia, 762 F. Supp. 354 (D.D.C. 1991), rev’d, 963 F.2d 420 (D.C. App. 1992)]
c. Limitation of remedies to identified discrimination and to firms affected by discrimination.
There are three parts to this element of narrow tailoring. First, courts have held that the remedies be limited to racial and ethnic groups for which evidence of discrimination exists. Second, Croson and post-Croson decisions have indicated that the remedies should be limited to eradicating discrimination that occurs within the boundaries of the enacting jurisdiction. Finally, the remedies should focus upon the particular forms of identified discrimination.
In Associated General Contractors of California, the Ninth Circuit commented favorably on the City of San Francisco’s system for extending remedies only to those minority groups found to have previously received a lower percentage of specific types of contracts than their availability to perform such work would suggest. For example, remedies were not extended to Asian or Hispanic-owned architecture and engineering firms. The ordinance further limited the program to minority-owned firms that were economically disadvantaged. Denver’s graduation provisions for MBEs and WBEs in its program also were cited favorably by the District Court in Concrete Works I. (Denver also required firms to have been in the construction business for at least three months to be eligible for the program.)
The Court of Appeals for the District of Columbia found an absence of any findings with respect to discrimination against Hispanics, Asian Americans, Pacific Islanders or Native Americans, all of whom were included in the District of Columbia Minority Contracting Act’s definition of “minority.” This is one of the reasons the Court concluded that the District’s program failed the narrow tailoring test (see O’Donnell). The District Court in RGW also examined evidence of discrimination against individual minority groups (African Americans, Hispanics and Asians) in ruling on BART’s motion to dissolve or modify the Court’s preliminary injunction. Moreover, the preliminary injunction was only dissolved in two of four counties comprising BART’s service area due to completed disparity studies for those two counties. [O’Donnell Construction Co. v. District of Columbia, 762 F. Supp. 354 (D.D.C. 1991), rev’d, 963 F.2d 420 (D.C. App. 1992); RGW Construction, Inc. v. San Francisco BART, ___ F. Supp. ___ (Slip Op. N.D. Calif., Nov. 25, 1992)]
The District Court’s decision in Concrete Works I also considered whether Denver’s goals program remedied only identified discrimination. Concrete Works argued that Denver’s ordinance indiscriminately lumped ethnic groups together for the purpose of determining whether their members had suffered from discrimination. The Court held that it was not necessary that the City extend benefits only to MBEs that had individually demonstrated that they had been affected by discrimination. Citing Coral Construction, the Court reasoned that since Denver had shown evidence of systemic discrimination, it was fair to presume that an MBE was victimized by the discrimination. The Court also commented favorably on Denver’s evidence of disparities for all four racial minority groups included in the remedies.
Court decisions have differed somewhat on the issue of geographic limitation of remedies. In Coral Construction, the Ninth Circuit held that King County’s program failed the narrow tailoring requirement because the program included many minority-owned firms that were outside the geographic boundaries of King County. While some of these firms had indicated that they had been discriminated against in the particular geographic areas in which they operated, there was no specific evidence that they had attempted to do business within King County. (In fact, the MBE that was awarded the contract over Coral Construction because of King County’s MBE price preference was an Oregon-based firm.) The Court held that the proper question in choosing to extend a remedy was whether the business had been discriminated against in King County. The issue was not business location but business participation. Upon a finding of discrimination within the King County business community, an MBE could be presumptively eligible for relief if it had previously sought to do business within the County. [Concrete Works of Colorado, Inc. v. City and County of Denver, 823 F.Supp. 821 (D. Co., February 26, 1993); Coral Construction v. King County, 941 F.2d 910 (9th Cir. 1991), cert. denied 112 S. Ct. 875 (1992)]
Similarly, the District Court in RGW held that remedies could be extended only to firms located within the jurisdiction of the public entity or to those that had attempted to become or were active participants in the business communities lying within the boundaries of the jurisdiction.
Subsequent decisions suggest a somewhat broader definition of the market area for which firms could be presumptively eligible for relief. For example, in Contractors II the Third Circuit found that Philadelphia’s ordinance was geographically targeted to Philadelphia businesses “as waivers and exemptions are permitted where there exists an insufficient number of MBEs within the Philadelphia Standard Metropolitan Statistical Area.” (6 F.3d 990) Upon remand, the District Court also approved of the limitation of the preference to the Philadelphia Metropolitan Area, but found that, as applied, the program was not geographically limited to this area. (839 F.Supp. 419)
The decisions in Concrete Works I also weighed in on the use of the local metropolitan area as the relevant area for which firms could be presumptively eligible for relief. The District Court approved of Denver’s extension of remedies to MBE/WBEs that had been in the construction business within the Denver Metropolitan Area. Firms from outside this local market could participate in the program only if they could show that they had been affected by City-sponsored discrimination or that they had attempted to work in the Denver Metropolitan Area in the period prior to the ordinance.
In Bilbo Freight Lines, the District Court struck down a State of Texas program to give preferential treatment to minorities and women in the issuance of certificates to conduct intrastate trucking operations. The District Court deemed the perceived barriers to entry and participation in the intrastate industry to be race and gender-neutral, affecting all small businesses. The Court found no evidence of gross statistical disparities between the number of minority and women-owned firms in the relevant market that were qualified to seek intrastate trucking authority and the number of minorities and women holding such authority. The statistical evidence presented by the State appeared to pertain to underutilization of existing MBE and WBE trucking firms, not disparities in the number of MBE and WBE trucking firms in existence. The Court did not deem this relevant to the awarding of certificates. This underscores the importance of particularized findings of discrimination and remedies that are narrowly tailored to redress the identified discrimination. The decision suggests that the Court was interested in statistical evidence of disparities in the rates of business formation or ownership as a justification for a preference that eased market entry for MBEs; however, this evidence apparently was not produced. [Bilbo Freight Lines, Inc., et al. v. Dan Morales, et al, C. A. No. H-93-3808 (S.D. TX, Feb. 3, 1994)]
Similarly, the District Court in RGW held that some data pertaining particularly to MBE utilization in subcontracting was probably necessary to determine whether there is a strong basis in evidence for taking remedial action with respect to subcontractors. The Court also appeared to question whether subcontracting goals programs for commodities purchases were supportable given a lack of data on subcontracting for commodities purchases (the disparity study in question did not explain whether there were no separate data for commodities subcontracting, or whether there was an absence of subcontracting in the jurisdiction’s purchasing contracts).
The Third Circuit’s decision in Contractors III also held that a subcontracting-focused program was not narrowly tailored since there was no evidence of discrimination presented for subcontracting. “We do not suggest that an appropriate remedial program for discrimination by a municipality in the award of primary contracts could never include a component that affects the subcontracting market in some way. We hold, however, that a program, like Philadelphia’s current one, which focuses almost exclusively on the subcontracting market, is not narrowly tailored to address discrimination by the City in the market for prime contracts.” [Contractors Association of Eastern Pennsylvania, Inc. v. City of Philadelphia, 91 F.3d 586 (3rd Cir. 1996), cert. denied 519 U.S. 1113 (1997).]
d. Burden on the rights of third parties.
In Concrete Works II, the Federal District Court criticized the City of Denver for failure to take regular action to discipline its own employees for discriminatory conduct, failure to adopt adequate means to receive and investigate claims of discriminatory conduct by its employees, and failure to provide administrative remedies for resulting harms. The Court was especially critical of the City’s efforts to pass off the burden of these remedial programs to third party contractors at the same time the City itself was unwilling to take effective measures regarding misconduct by its own employees.
e. Goal setting.
Programs often contain two types of goals: annual goals that might be used as benchmarks for yearly evaluation of the operation of the program, and project-specific goals for MBE/WBE participation on a particular contract. Some jurisdictions subject to legal challenge have not distinguished between these two types of goals; the annual goal for MBE or WBE participation has been automatically applied as the project-specific goal.
Denver’s ordinance was an example of where a system of annual goals (16 percent MBE and 12 percent WBE participation in the City’s construction contracts measured by dollars), separate from project-by-project goals (which could be set at zero), had been favorably reviewed by the courts in Concrete Works I. There was no requirement that the City had to meet the 16 percent and 12 percent annual goals. Likewise, Denver did not require that a contractor meet the project-specific goals; meeting the goals was but one avenue of complying with the “good faith” component of the program.
The Third Circuit found the City of Philadelphia to be on weaker ground in supporting its 15 percent goal for utilization of minority-owned construction firms. In practice, Philadelphia usually applied the 15 percent annual goal as the project-specific goal for each contract. The City’s disparity study found availability of minority-owned construction firms to be 2.4 percent. In spite of the weakness in goal setting, the Third Circuit in Contractors II reversed the District Court’s grant of summary judgment on this point as the Court believed the City had created a dispute of fact on whether the minority preference in the ordinance was narrowly tailored. The Court stated, “We do not believe the goal must correspond precisely to the percentage of available contractors. Indeed, Croson does not impose this requirement. … Furthermore, imposing a 15 percent goal for each contract may reflect the need to account for those contractors who receive a waiver because insufficient minority businesses are available, and the contracts exempted from the program.” (6 F.3d 990) Upon remand, the District Court held that the 15 percent goal for minority participation was not selected for a remedial purpose. The Court found evidence that the minority composition of the local population, if anything, was the information used by the City to establish the goal. The Court criticized the City for setting this goal without collecting and considering information on availability of minority-owned firms in the Philadelphia area. In Contractors III, the Third Circuit agreed that the record indicated that the goals were established considering only the minority composition of the local population. “Council made no effort ... to determine how the Ordinance might be drafted to remedy particular discrimination--to achieve, for example, the approximate market share for black contractors that would have existed, had the purported discrimination not occurred. However, the Third Circuit also stated “We do not suggest that the percentage of the preferred group in the universe of qualified contractors is necessarily the ceiling for all set-asides. It well may be that some premium could be justified under some circumstances.” [Contractors Assoc. of Eastern Pennsylvania, Inc. v. City of Philadelphia, 6 F.3d 990 (3rd Cir. 1993)]
In O’Donnell, the Court of Appeals for the District of Columbia cited the goal setting process as one of the flaws in the District of Columbia’s Minority Contracting Act which contributed to its finding in favor of the plaintiff. The Court held that the goal of 35 percent MBE utilization established in 1983 was not supported by any facts. The Council had some statistics at its disposal when it originally enacted a goal of 25 percent in 1977, but failed to support the increase in the goal to 35 percent with any findings. [O’Donnell Construction Co. v. District of Columbia, 762 F. Supp. 354 (D.D.C. 1991), rev’d, 963 F.2d 420 (D.C. App. 1992)]
Similarly, in Associated Utility Contractors, the Federal District Court for Maryland noted that the City of Baltimore enacted Ordinance 610 in 1990 to replace prior 1986 Ordinance 790 based upon the findings of a City Task Force. Prior Ordinance 790 had established set-aside goals of 20% of the value of subcontracts to be awarded to MBEs and 3% to WBEs. No disparity statistics had been offered to justify the prior Ordinance. It was supported only by a City Council finding that general societal discrimination had disadvantaged M/WBEs. The new Ordinance 610 did not establish any M/WBE goals, but mandated a procedure by which set-aside goals were to be established each year by the City for each category of contracting (e.g., public works, professional services, concession and purchasing contracts). However, as applied, the City used the program to simply reapply the old goals of 20% and 3% across the board for all contract categories. These same goals were adopted without variation and without support for each year from 1990 through 1999. No annual study was ever undertaken. Indeed, the City did not even collect the data that would have permitted such analysis. The City’s disparity study was only commenced after the filing of this lawsuit. [Associated Utility Contractors v. City of Baltimore, 218 F.Supp.2d 749 (D. Md., Sep 9, 2002)]
f. Periodic review and sunset provisions.
The U.S. Supreme Court in Adarand reiterated that a program must be appropriately limited such that it will not last longer than the discriminatory effect it is designed to eliminate. Several lower courts have examined provisions for the periodic review and sunset provisions meant to comply with these requirements. In Concrete Works I, the limit of Denver’s ordinance to five years’ duration and measures for periodic review were favorably reviewed by the District Court. The Court of Appeals in O’Donnell criticized the District of Columbia’s MBE program for its lack of sunset provisions. In Contractors Association of Eastern Pennsylvania, the District Court found Philadelphia’s program not to be narrowly tailored in part because the City had approved an eleven and one-half year extension of the ordinance without a review of the appropriateness and efficacy of the program.
D. Title VI Implications
For those institutions of higher education that receive federal financial assistance from the U.S. Department of Education, Title VI of the Civil Rights Act of 1964 provides prohibitions against discrimination to ensure that no person is denied benefits on the ground of race, color or national origin. [42 U.S.C. §200d-1] However, this general prohibition is limited by provisions that permit the educational institution to administer programs where the recipient must take affirmative action to overcome the effects of prior discrimination undertaken by the institution. Moreover, even in the absence of such prior discrimination by the institution, a recipient of such federal funds may also administer programs to take affirmative action to overcome the effects of conditions which resulted in limiting participation by persons of a particular race, color, or national origin. [34 C.F.R. §100.3(b)(6)(i) and (ii)]
E. Proposition 209 Implications
For those state institutions that are located in states such as the State of California and the State of Washington that have adopted constitutional ballot initiatives prohibiting the use of race and gender in connection with public contracting, it is irrelevant whether the strict scrutiny standard under the 14th Amendment can be satisfied. An absolute prohibition within a State Constitution against the use of race-based affirmative action remedies in the realm of public contracting appears to deny race-based affirmative action remedies to victims of discrimination even when such remedies are deemed necessary to satisfy a compelling government interest to remedy the ongoing effects of marketplace discrimination. [See, Coral Construction, Inc. v. City and County of San Francisco, (Civ. No. 421249) Sup. (CA Superior Ct., July 26, 2004); C&C Construction v. Sacramento Municipal Utility District, et al., 2004 Cal. App. LEXIS 1529 (Ca. Ct. App. 2004); Hi-Voltage Wire Works, Inc. v. City of San Jose, 24 Cal.4th 537, 12 P.3d 1068, 101 Cal.Rptr.2d 653 (S.Ct. Nov. 30, 2000)]
F. Prospects for a Diversity Rationale: Grutter and Gratz
As important as they are, the Supreme Court decisions in Grutter v. Bollinger, 123 S. Ct. 2325 (2003) and Gratz v. Bollinger, 123 S. Ct. 2411 (2003), failed to resolve the legality of the remedial use of race to achieve diversity in all areas of public life. In particular, affirmative action as practiced to achieve diversity in student admissions is fundamentally different from that employed by colleges and universities for the purpose of dispensing public contracts. Michigan’s central argument – that the measured use of race as one factor in the admission of students is justified by the social and educational benefits of a diverse student body – cannot be persuasively applied to the building of a new library or campus dormitory. The wrongs that government seeks to redress in public contracting are somewhat different from those the admissions office struggles to remedy, and so, too are the remedial approaches.
II. Recent Reversal in Trends: Satisfying the Strict Scrutiny Standard
Until fairly recently, the broader questions of how to defeat discrimination and resultant disparity in public contract awards without tripping over the Equal Protection Clause have remained largely unanswered. However, recent court decisions have finally provided state and local governments with a more detailed road map for solving this dilemma.
A. Adarand v. Mineta
This significant reversal in legal trends began in 2000 with the 10th Circuit Court of Appeals’ decision upholding the constitutionality of the new federal Disadvantaged Business Enterprise Program for the Department of Transportation. This decision marked the first decision since Croson wherein the constitutionality of a race-conscious contracting program was upheld on the merits for satisfying the “strict scrutiny” standard. The 10th Circuit carefully reviewed an extensive Congressional Record in support of “the Compelling Interest” for the revised program and noted significant changes to the functioning of the program that included flexibility in goal-setting, combined with heavy reliance on race- and gender-neutral approaches to provide a narrowly tailored remedy. (See, e.g., 49 C.F.R. Appendix D, Subpart B, §26.51 regarding the process for setting contract-specific goals in addition to overall annual goals for DBE contract participation.) The Supreme Court declined to disturb the 10th Circuit opinion holding this program to be supported by a strong basis in evidence establishing ongoing effects of discrimination, and narrowly tailored approaches to remedying that discrimination. [Adarand Constructors, Inc. v. Slater, 228 F.3d 1147, at 1176-1187 (10th Cir. 2000), cert. denied Adarand Constructors, Inc. v.Mineta, 534 U.S. 103 (2001).]
B. Concrete Works v. City and County of Denver
Following on the heels of this decision, in the Concrete Works case the 10th Circuit then illustrated how a local government may also comply with the 14th Amendment and offer tailored preferences to groups that, according to credible data, have been or are discriminated against in the private sector of the marketplace. [Concrete Works of Colorado v. City and County of Denver, 321 F.3d 950 (10th Cir. 2003), cert. denied 124 S. Ct. 556 (2003).] This was the first appellate court decision to uphold the constitutionality of a local government minority business enterprise program under the strict scrutiny standard based upon the merits of trial record evidence.
1. Case Background
Denver’s MBE Program had been established in 1990 and set an annual goal of 16 percent for construction dollars to be spent with MBE subcontractors, and 12 percent to be spent with women business enterprise (“WBE’) subcontractors. Specific contract spending goals varied according to the availability of MBEs and WBEs offering the relevant commodities and services. Concrete Works allegedly lost three contracts with Denver because, as a prime contractor, it had failed to comply with spending goals enforced under the ordinance. After the City’s motion for summary judgment was first granted and then, on appeal, rejected, the case went to trial in 1999.
At issue were the constitutionality of the 1990 ordinance and the revisions of the law passed by Denver in 1996 and 1998. The district court sided with Concrete Works and enjoined the City from enforcing the three affirmative action laws, leading to the appeal before the Tenth Circuit.
In its 99-page decision, the Tenth Circuit Court of Appeals held that “[t]o withstand [Concrete Works’] challenge, the race-based measures in the ordinances must serve a compelling governmental interest and must be narrowly tailored to further that interest.” To demonstrate its interest is compelling, the Court insisted, Denver must meet two criteria: “First, it must identify the past or present discrimination ‘with some specificity’… Second, it must also demonstrate that a ‘strong basis in evidence’ supports its conclusion that remedial action is necessary.” Citing Croson, the Court stated that Denver need not prove discrimination, but may rely on empirical and anecdotal evidence of disparity to infer it. Moreover, the City needn’t show that it directly discriminated against minority or women owned firms; even if it played a passive role in an industry plagued with racial and gender discrimination, it could take tailored, remedial action.
2. Denver’s MBE Program Features
Upon a thorough review of a 10,000 page trial record, the 10th Circuit noted the following significant features of Denver’s MBE program:
• The Mayor’s Office of Contract Compliance (MOCC) could set individualized M/WBE participation goals for specific City construction and professional design projects. On some projects, goals were set at zero.
• Bidders could satisfy good faith efforts requirements by demonstrating they sought to subcontract with M/WBEs but were unsuccessful, or they rejected a certified M/WBE because it was not qualified or did not submit the lowest bid.
• The 1996 Ordinance was amended by expanding the definition of “covered contracts” to include limited categories of privately financed projects on City-owned land; refined procedures for M/WBE certification and graduation; mandated use of M/WBEs on change orders and expanded sanctions for improper behavior by M/WBEs or non-minority firms in failing to perform affirmative action commitments.
• The 1998 Ordinance reduced annual goals from 16% to 10% for MBEs and from 12% to 10% for WBEs on construction and professional design projects. Also, M/WBE prime contractor bidders were prohibited from counting self-performed work towards satisfaction of project M/WBE goals.
3. Legal Standards
There were several key legal standards that were set forth by the 10th Circuit in establishing the legal framework for its decision:
• Denver could meet its burden by demonstrating that it had a “strong basis in evidence” that supported its conclusion that remedial action was necessary to remedy effects of past or present private discrimination, when such discrimination was identified with some specificity. The City was not required to conclusively prove the existence of past or present discrimination.
• The City could rely upon a combination of statistical and anecdotal evidence of public and private discrimination.
• A plurality of the Supreme Court has held that a governmental entity may use its spending powers to remedy private discrimination if it is identified with particularity.
• Denver could take measures to remedy its own discrimination “or even to prevent itself from acting as a passive participant in a system of racial exclusion practiced by elements of the local construction industry.” (citing Croson and Concrete Works II).
• Once Denver had met its burden of showing a strong basis in evidence that a remedy is required, plaintiff CWC had to introduce “credible, particularized evidence to rebut Denver’s initial showing of a compelling interest.” Rebuttal evidence may consist of a neutral explanation for the statistical disparities, or by showing Denver’s statistics are flawed; that disparities shown by statistics are not significant or actionable; or by presenting contrasting statistical data. However, the burden of proof at all times remains with the plaintiff to demonstrate the unconstitutionality of the MBE program.
• Gender-based remedial measures trigger intermediate scrutiny by the courts. Denver must establish an “exceedingly persuasive justification” for such measures. Denver can meet this burden by demonstrating that the gender-based preferences “serve important governmental objectives” and are “substantially related to achievement of those objectives.”
• The 9th and 11th Circuits have held that under intermediate scrutiny, the substantial government interest prong of the inquiry can be satisfied by a showing of societal discrimination in the relevant economic sector. No showing of government involvement in that private discrimination is required. However, the 10th Circuit did not need to resolve this issue because it found that the evidence satisfied the “strict scrutiny” standard and a fortiorari the intermediate scrutiny standard as well.
4. Evidence of Compelling Interest
There were several different types of evidence that the City convincingly used to make its case that it had a compelling interest to remedy private sector discrimination:
a. Government Reports, Records, and Hearings
• Historical evidence of construction contracting practices prior to 1990: former City affirmative action officials testified minority contractors were available, but were effectively barred from City contracts due to rules, guidelines, and biases of the City. A voluntary program to promote MBE participation had little impact on how City projects were bid due to lack of enforcement.
• In 1977, Minority Contractors Association filed a grievance with HUD that MBEs were not being used on federally-funded projects in violation of federal statutes. HUD issued a report that stated City failed to take reasonable actions to overcome the effects of conditions which resulted in limited participation of minority contractors on those federal contracts.
• GAO led an investigation into DPW’s compliance with federal affirmative action requirements. The 1978 GAO report concluded DPW contracting practices had a significant negative effect on MBE participation. These practices included requiring contractor prequalification, limited advertising on most bids, and inadequate time to submit a proposal or bid. From 1975 to 1977, only 4.96% of contract dollars were awarded to minority firms.
• In 1979, US DOT threatened to withdraw funds from Stapleton Airport unless measures were taken to increase minority participation. US DOT sent a letter to Denver’s Mayor asserting that Denver’s prequalification requirement, while neutral on its face, was unjustified and operated to bar minority contractors from obtaining DPW contracts. US DOT directed the City to eliminate or modify the prequalification and to adopt an affirmative action program.
• City Council public hearings in 1983 and 1988 produced testimony from MBE contractors and other individuals regarding utilization of MBEs on local construction projects and specific examples of discrimination encountered in Denver construction industry, including:
• MBE contractor testimony that they worked on projects that had federal requirements for MBE participation, but were almost completely excluded from City projects without affirmative action requirements.
• Stipulation from a representative of the Associated General Contractors of Colorado that there was discrimination in the construction industry against minorities and women.
• Testimony about the current MBE and WBE utilization on DPW projects, an assessment of MBE and WBE utilization on DPW projects, an assessment of MBE / WBE overall capabilities, the extent and impact of any past discriminatory practices or barriers to MBE/WBE participation, and the identification of special problems affecting MBEs and WBEs in specific areas of the construction industry.
• Responses from local contractors to questionnaires regarding these issues.
b. Disparity Study Evidence
The following compelling disparity study evidence was presented by the City:
• 1990 BBC disparity study regarding the DPW construction contracts determined that data showing MBE and WBE participation on most DPW construction projects was “tainted” by the effect of federal and City affirmative action programs in place for over a decade. So, this disparity study focused on utilization of MBE and WBE construction and design firms on City bond projects from the 1970s and 1980s that were not subject to affirmative action programs and found significant statistical disparities in the utilization of MBE and WBE firms on those projects. Because DPW contracts only accounted for 2% of all construction dollars in the Denver MSA, the 1990 disparity study also examined MBE/WBE utilization in the overall Denver MSA construction market and found significant disparities based upon census data and telephone surveys. Anecdotal evidence from interviews and testimony from public hearings from MBEs, WBEs, majority-owned construction firms, and government officials suggested that Denver employees and private contractors engaged in conduct designed to circumvent the goals program (e.g., use of change orders to avoid putting new work out for bid, characterizing major construction projects as “remodeling” because remodeling projects fell under the auspices of the Dept. of General Services which had no goals program for MBEs. Other identified evidence of resistance to use of MBEs and WBEs included:
• Prime contractors repeatedly calling WBEs for bids that they knew were out of business and counting those calls as “good faith” efforts to satisfy requirements of the goals program.
• Bid shopping to prevent MBEs and WBEs from submitting the lowest bid.
• Additional disparity studies in 1991 and 1995 also separately calculated disparity indices for firms with paid employees and with no paid employees, and average revenue per employee for Denver MSA construction firms based upon census data.
• Rates of self-employment for Blacks, Hispanics, and women persisted even after controlling for education and length of work experience (less than half as likely as whites to own their own businesses).
• Telephone survey examined construction firms doing business in Denver MSA, collected info on firm revenue, length of time in business, ethnic / gender status of ownership, work history with the City, and other characteristics. Survey data was used to calculate relative availability and utilization. Survey data disparities were more accurate than those obtained from 1987 Census because the survey was more recent, had narrower focus, and unlike Census data, included “C” corporations.
c. Current Availability Estimates
A 1997 NERA study estimated availability of MBE/WBEs. It focused on those construction specialties from which most City’s construction projects relied upon and where the City spent most of its dollars. Data on City construction projects from 1991 – 1996 were collected (including name of project, name and address of each prime and subcontractor, task performed, contract type, amount paid to each contractor, and total value of each project). DIA Airport contract dollars were excluded from the analysis because they were not representative of typical City projects. Public library projects funded by the 1990 Library Bond Program were prorated. Each construction task was assigned a four-digit SIC code. The total number of firms in a four-digit SIC code was identified through the Dun & Bradstreet Marketplace database. The number of M/WBEs was obtained from a directory compiled by BBC of 29 different sources. NERA then successfully located 1002 of 1283 M/WBEs in the directory. Adjustments were made for possible over-counting through estimates derived from samples of firms taken from the Dun & Bradstreet Marketplace Database. The final result was a weighted average of availability for each racial / gender group. Availability was calculated separately for both prime contractors and subcontractors. NERA also calculated disparity ratios on a statewide basis using the most recent census data from 1987, since 60% of all construction dollars statewide came from the Denver MSA.
d. Self Employment Rates
NERA’s 1997 study also examined self-employment rates in the construction industry using Public Use Microdata Samples (“PUMS”) of 1990 Census of Population and Housing (sampling 3075 individuals working in the construction industry). Data collected from PUMS included race, whether an individual was self-employed, or worked for someone else, sex, marital status, age, education, access to capital including dividend and interest income, spouse’s income, home ownership, number of children living at home, and “personal handicaps.”
e. Potential Availability Estimates
NERA then performed two probit regressions using this PUMS data for the Denver MSA and for the State of Colorado, and concluded in both cases, African Americans, Hispanics, and Native Americans had lower self-employment rates than whites. NERA then compared actual availability with potential availability of MBEs if they were to form businesses at the same rates whites that had the same characteristics.
f. Relative Earnings
The NERA 1997 study used linear regression analysis to compare business owners with similar years of education, age, geographic market, and other similar demographic characteristics and found that African Americans, Hispanics, Native Americans and women had lower earnings than white males with similar characteristics.
g. Anecdotal Evidence (Surveys)
NERA also administered a mail survey to obtain anecdotal evidence on experiences in the construction industry. The survey included questions about various barriers affecting business success including commercial loans, bonding, quotes from suppliers, bidding on public and private contracts (as prime contractor and as subcontractor), receiving payments for subcontract work, double standards in performance, unnecessarily restrictive contract specifications, and how often prime contractors who use a firm as a subcontractor on public sector projects with M/WBE goals or requirements also use the same firm on public or private sector projects without M/WBE goals or requirements. 58% of minorities and 41% of women indicated they were “seldom or never” used on non-goals projects.
Survey results were subjected to regression analysis to determine if factors such as firm size, experience, age, number of employees, level of revenues explained the difference in reported experiences between white firms and M/WBEs. The results showed that with only one exception relating to difficulties resulting from previous dealings with an agency, M/WBEs had greater difficulties with the identified barriers than did non-M/WBEs with similar characteristics. Also, a follow-up telephone survey of non-responding mail survey recipients was undertaken to see if there was a response bias to the mail survey results. There was a response bias, in that M/WBEs were less likely to respond to the mail survey. So, racial disparities in reported adverse experiences in the construction industry were likely larger than what they appeared to be based upon mail survey responses.
h. Anecdotal Evidence (Trial Testimony)
Trial testimony provided the evidence of the following forms of marketplace discrimination:
• Double Standards. Testimony from a Senior V.P. of a large majority construction firm stated that when he worked in Denver he received credible complaints from minority and women construction firms that they were subject to different work rules than majority firms.
• Racial Epithets. The same large construction firm V. P. testified that he frequently observed graffiti containing racial or gender epithets written on job sites in the Denver MSA.
• Refusals to Deal, Unfair Denial of Contract Awards, Stereotypical Attitudes. The same large construction firm V. P. testified that, based on personal experiences, he believed that many majority-owned firms refused to hire minority or women-owned subcontractors because they believed those firms were not competent.
• Unfair Denial of Contract Awards, Slow Payment, Price Discrimination by Suppliers, Double Standards in Performance, and Unequal Access to Relevant Employment Experience. M/WBEs testified that their bids were rejected even when they were the low bidder, and they were paid more slowly than majority subcontractors, charged higher prices by suppliers than white competitors, experienced difficulty joining trade unions, and experienced double standards in performance as compared to their majority counterparts. M/WBEs extensively testified detailing the difficulties of M/WBEs in obtaining credit; WBEs were required to have husbands or fathers as co-signers or in negotiations for loans.
• Stereotypical Attitudes, Jobsite Harassment. M/WBEs testified about racially and gender-motivated harassment experienced by M/WBEs at work sites. Women were called “bitches” and Blacks were called “nigger” or “dumb nigger”. One 73-year-old truck driver was called a “dumb f---ing Mexican.” M/WBE employees were physically assaulted and fondled, spat upon with chewing tobacco, and pelted with two-inch bolts thrown by males from a height of 80 feet.
5. Narrow Tailoring
In the first trial of this case in 1992, Judge Finesilver found on summary judgment that Denver’s MBE program was narrowly tailored. The 10th Circuit Court of Appeals ruled that CWC only appealed that ruling on the grounds that there was no compelling interest to support the program. Accordingly, CWC failed to preserve this issue for appeal and waived any challenge to the narrow tailoring conclusion reached by the district court. Therefore, the Denver MBE program is held to be narrowly tailored.
C. Other Successful Defenses
Following the Concrete Works decision, the momentum shift in the successful defense of race- and gender-conscious contracting programs continued. Other decisions include the following:
1. Sherbrooke Turf, Inc. v. Minnesota DOT (consolidated with Gross Seed below)
The district court granted the government’s motion for summary judgment in this challenge to the constitutionality of Minnesota’s current DOT DBE program on November 14, 2001. The court also denied plaintiff’s cross-motion for summary judgment. The case was brought by Sherbrooke Turf, Inc., a non-disadvantaged sodding contractor. Sherbrooke appealed to the U.S. Court of Appeals for the Eighth Circuit. The argument, which was consolidated with the Gross Seed case argument, was held on May 15, 2003. In the consolidated appeal, the Eighth Circuit upheld the trial courts’ decisions affirming the constitutionality of the DBE program. After consolidation with the Gross Seed case below, this decision was appealed to the U.S. Supreme Court. On May 17, 2004, the U.S. Supreme Court denied certiorari on the appeal. This means that the constitutionality of the federal Disadvantaged Business Enterprise program has been upheld on the basis that there is a sufficient “compelling interest” for the program, and that the disadvantaged business enterprise program is narrowly tailored. Under federal regulations, State DOT’s are required to set any DBE subcontracting goals on a contract-by-contract basis. [See Gross Seed Co. v. Nebraska Dept. of Roads, 345 F.3d 964 (8th Cir. 2003)]
2. Gross Seed Co. v. Nebraska Dept. of Roads
Gross Seed Co., a non-disadvantaged highway construction subcontractor challenged Nebraska’s DOT DBE program in a lawsuit filed on March 21, 2000. After extensive discovery and a two-week trial on the merits, on May 6, 2002, the court upheld the constitutionality of the program. At trial, the government introduced the testimony of two expert witnesses and several DBE owners. In addition, the court considered over 175 exhibits. Gross Seed appealed the judgment and the case before the United States Court of Appeals for the Eighth Circuit. The Eighth Circuit heard consolidated oral arguments in this case and in Sherbrooke Turf, Inc. v. MinnDOT on May 15, 2003. The Eighth Circuit then affirmed the trial court decision upholding the constitutionality of the DBE program. After consolidation with the Sherbrooke Turf case above, this decision was appealed to the U.S. Supreme Court. On May 17, 2004, the U.S. Supreme Court denied certiorari on the appeal. This means that the constitutionality of the federal Disadvantaged Business Enterprise program has been upheld on the basis that there is a sufficient “compelling interest” for the program, and that the disadvantaged business enterprise program is narrowly tailored. Under federal regulations, State DOT’s are required to set any DBE subcontracting goals on a contract-by-contract basis. [Gross Seed Co. v. Nebraska Dept. of Roads, 345 F.3d 964 (8th Cir. 2003), cert. denied 124 S.Ct. 2158 (2004)]
3. Western States Paving Co. v. Washington DOT
A Washington State-based non-disadvantaged asphalt and paving contractor, Western States Paving Co., filed a complaint on April 10, 2000 challenging the constitutionality of Washington’s DBE program. The government prevailed on summary judgment and the case was dismissed. This case is now pending appeal before the 9th Circuit Court of Appeals. [Western States Paving Co. v. Washington State Dept. of Transportation, (Civ. No. 03-35783) (W.D. Wash., Sept. 3, 2003) appeal pending (9th Cir.)]
III. Elements of a Successful Defense of MBE Programs
A. Consideration and Use of Innovative Neutral Remedies
Recent court decisions have suggested that local governments consider a broad array of innovative race- and gender-neutral programs and remedies as part of the narrow tailoring of remedies for marketplace discrimination. Among these neutral remedial approaches are the following:
1. Small Business Enterprise programs
2. Small Local Business Enterprise Programs
3. Emerging Business Programs
4. Private sector working capital funds
5. Linked Deposit Policies and Capital Access Programs
6. E-commerce solutions (including automated centralized bidder registration process to facilitate industry-specific electronic outreach to prospective bidders, bid rotations, small contract award rotations)
7. Technical Assistance Referral Network
8. Debriefing of Losing Bidders
9. Bonding and Insurance Waivers or Requirement Reforms
10. Procurement Process Reforms (including re-packaging of smaller bid packages, multi-prime contracts, job order contracting, restrictive contract specification review, expedited payment of invoices, subcontract bid depositary)
11. Commercial Non-Discrimination Policies With Enforcement Mechanisms
B. Verifiable Data Gathering
A mandatory, centralized, web-based centralized bidder registration process is the key to establishing a verifiable and self-renewing database of ready, willing, and able firms seeking to sell goods and services to the college or university. This is important for determining if there is a disparity in the award of contracts to any ethnic or gender group. It is also extremely important for undertaking outreach and soliciting bids in a fair and appropriately targeted fashion. This approach lays the foundation for conducting a defensible (and considerably less expensive) disparity study. It also enables the setting of narrowly tailored annual and contract-specific goals for various categories of firms and industries.
The primary functionalities of such a centralized bidder registration should be as follows:
1. The CBR process should be at no cost to the bidder firms and shall be internet web-based and accessible for on-line application and editing by prospective bidder firms;
2. Every business that seeks to bid on government contracts, to receive a government contract or subcontract, or to receive payment for work performed and / or for goods or services delivered on behalf of the government, should be required to register through the CBR process. Each such business firm should be required to have a valid and current unique vendor identification number that has been assigned during the CBR process prior to being eligible to submit a bid, to receive a contract award, or to receive a payment from the government. Prime contractors that submit invoices or bills to the government shall be required to identify their government vendor identification numbers, as well as the government vendor identification numbers for all subcontractors and suppliers and the claimed value of their respective goods or services provided for which the invoice seeks reimbursement or payment. They should also be required to reflect on the invoices the commodity or industry codes (as assigned by the government for that contract) for the goods or services supplied.
3. The centralized bidder registration form should include, at a minimum, the following data fields:
a. Firm name;
b. Address;
c. Phone number;
d. Fax number;
e. E-mail address;
f. Web site address;
g. Firm point of contact;
h. NIGP or NAICS codes for classification of good and services sold by the firm;
i. Ownership status (e.g., MBE, WBE, DBE, SLBE, SBE, or other business enterprise);
j. Taxpayer Identification Number or Employer Identification Number;
k. Business license number;
l. Interest in bidding with political subdivisions, agencies, and public authorities;
m. Contractors’ license numbers (if applicable); and
n. Narrative description of commodities, supplies, or services provided.
4. The information submitted by prospective bidders should be password protected for editing purposes only;
5. Upon completion of the CBR registration form, a bidder shall be assigned a unique vendor identification number by the CBR Process system. The vendor identification numbers should expire after one year. On an annual basis, each vendor or prospective bidder should be notified (by e-mail and by hard copy mail) and advised in advance of the expiration to renew or edit the information in its centralized bidder registration form in order to maintain a valid vendor identification number.
6. The data and software configuration for this CBR process should be compatible and integrated with the financial software used by the government for accounting and vendor payment purposes. Each payment made by the government to a vendor should also be tracked in the automated system by vendor identification number and by NIGP or NAICS codes representing the services or product types delivered and paid for. Similarly, each payment to a prime contractor should be tracked in the automated system with subtotals for each subcontractor’s portion (by NIGP or NAICS code) of the overall invoice, as well as the overall payment amount made directly to the prime contractor.
7. The software used for this CBR process should include the functionality for searching, sorting, and randomly selecting vendors by firm name, by NIGP or NAICS codes, by ownership status, by address, by e-mail address, and by vendor identification number. In addition, the CBR process should provide the capability of searches of the vendor database by key words.
8. The on-line form for the CBR process should contain links to online applications for MBE, WBE, DBE, SBE certification (as well as any other socio-economic government programs that provide assistance to subclasses of government vendors), and also to the online government application forms for various business licenses.
9. The CBR system should be capable of generating e-mail alerts regarding contract opportunities that are narrowly targeted to that subset of registered bidders that have indicated an interest in supplying the types of goods or services required by those contracts.
10. A statewide CBR system is preferable and should permit use by cooperating political subdivisions (e.g., counties, cities, towns, university systems, public authorities) within the State, and should permit CBR registrants to identify which subdivisions they are interested in bidding with.
C. Disparity Studies – Multi-jurisdictional efforts
Many school systems and university systems have successfully piggy-backed on state or local government disparity study efforts by joining in a multi-jurisdictional disparity study. This usually results in a substantial cost savings since often the defined markets for construction, goods, and services are similar and the availability analysis costs and anecdotal evidence gathering costs can be shared by the study participants.
D. Public Hearings
Upon completion of a disparity study, the findings and recommendations of the study should be formally introduced to policy makers at a public hearing. Additional evidence and community feedback regarding recommended remedies should also be gathered at such a public hearing.
E. Findings
Policy makers should consider the totality of all gathered evidence to make specific findings regarding the existence and nature of any effects of marketplace discrimination. There should also be a decision by policy makers regarding acceptance or modification of proposed findings from the disparity study consultant.
F. Policy Development Features
M/WBE Policy should be carefully crafted to reflect findings and to address any identified barriers, including race- and gender-neutral barriers that may be adversely affecting the participation of M/WBE firms on university contracts. Race- and gender-neutral remedies should be considered first and evaluated to determine whether they will likely be effective, in and of themselves, to remedy the effects of any identified discrimination. Where appropriate, such neutral remedies should be adopted and implemented. To the extent such neutral remedies are determined to be insufficient to fully remedy the effects of identified discrimination they should be combined with narrowly-tailored race- and gender-conscious remedies.