Every time I believe the highway construction industry has heard the end of the Adarand litigation, another decision is issued prolonging the story. On Sept. 25, the 10th Circuit issued the sixth Adarand decision. It is possible the case may go back to the Supreme Court for a third time.
In the decision, the 10th Circuit looked specifically at the new DBE regulations and found the TEA-21 DBE program to be constitutional. As in other MBE/DBE cases, the court considered whether there was a "compelling interest" underlying the program and whether it was "narrowly tailored."
In considering the compelling interest prong, the 10th Circuit noted that in the Adarand case the Supreme Court stated that there may be a compelling interest that supports enactment of race-conscious measures. In this instance, the government identified the compelling interest of using racial presumptions as "remedying the effects of racial discrimination and opening up federal contracting opportunities to members of previously excluded minority groups."
The 10th Circuit stated that while the government’s articulated interest is theoretically compelling, the court had to determine whether the actual evidence offered by the government supported the theory. The court pointed to evidence that Congress had repeatedly considered the issue of discrimination in government construction contracts, finding that racial discrimination, and its continuing effects, have distorted the market for public contracts.
The government presented evidence that demonstrated, to the satisfaction of the court, the existence of two kinds of discriminatory barriers to minority subcontracting enterprises: (1) formation of qualified minority subcontracting enterprises due to private discrimination; and (2) fair competition between minority and non-minority subcontracting enterprises, again due to private discrimination.
The government also presented evidence in the form of local disparity studies of minority subcontracting and studies of local subcontracting markets after removal of affirmative action programs.
In considering the barriers to formation, the court believed the government’s contention that prime contractors often refuse to employ minority subcontractors due to "old boy" networks—based on a familial history of participation in the subcontracting market—from which minority firms have been excluded. The government successfully asserted that because the construction industry is "family dominated" minorities who are not part of construction families have been, and will continue to be, excluded. The 10th Circuit also found race-based denial of access to capital had stymied formation of minority subcontracting enterprises.
The court then turned to the barriers to competition by existing minority enterprises, concluding that the government presented evidence to show discrimination by prime contractors, private sector customers, business networks, suppliers and bonding companies; and that that discrimination makes for a decidedly uneven playing field for minority subcontracting enterprises. In a nutshell, the court believed the government’s contention that prime contractors continue to discriminate against minority subcontractors.
The 10th Circuit completely discounted arguments in opposition, stating Adarand and others had "utterly failed to meet their ‘ultimate burden’ . . ." In reality, it appears to me the court took the government arguments at face value without looking behind the conclusions. On that basis, the court concluded the government had met its burden of presenting a compelling interest.
Tailoring doesn’t fit
Turning to the question of "narrow tailoring," the court was guided by Supreme Court cases that stated such determination should be made by: (1) the efficacy of alternative remedies; (2) the flexibility and duration of the relief; (3) the relationship of the numerical goals to the relevant market; and (4) the impact of the relief on the rights of third parties.
The court noted that Congress had carefully examined and rejected race-neutral alternatives before enacting the program in question. The court then turned to the new DBE regulations under TEA-21.
Specifically, it found the new DBE regulations to be narrowly tailored because they: (1) require recipients to meet the maximum feasible portion of their overall goal by using race-neutral means; (2) have increased the flexibility by specifically adding an express waiver provision allowing recipients to seek waivers and exemptions; (3) include a far more rigorous process by which recipients (state DOTs) set aspirational goals based on demonstrable evidence of the availability of ready, willing and able DBEs with adjustments based on the capacity of DBEs to perform needed work, disparity studies and other evidence; (4) do not require recipients to actually meet the goals they set; (5) require the federal agencies to rigorously examine, in a verifiable manner, the reasonableness of the DBE programs given the particular local conditions; and (6) require recipients to ensure that DBEs are not "so over-concentrated in a certain type of work as to unduly burden the opportunity of non-DBE firms to participate."
While the 10th Circuit went far afield from the FHWA’s Subcontractor Compensation Clause by focusing on the new DBE regulations, the conclusions reached are not surprising. I believe strongly that the new DBE regulations, on their face, are constitutional.
The real issues are whether: (1) the U.S. DOT will actually reasonably consider waivers which goes to the flexibility of the program; (2) states are setting goals based on the percentage of work that could be done by ready, willing and able DBEs; and (3) states are attempting to achieve as much of their goal as possible by race-neutral means.