LAW: The Contractor's Side

State MBE statute unconstitutional

Article December 28, 2000
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As expected, contractors continue to contest state statutes and local ordinances requiring MBE/WBE/DBE (Minority/Women/Disadvantaged Business Enterprise) participation on public works contracts. In September 1997, the United States Court of Appeals for the Ninth Circuit ruled in Monterey Mechanical Co. v. Wilson, et al, 125 Fed. 3rd 702 (9th Cir.), that a California state statute requiring general contractors to subcontract percentages of work to minority, women, and disabled veteran-owned subcontractors, or demonstrate good-faith efforts to do so, was unconstitutional. Although the case involved construction of a utilities upgrade at a state university, the 9th Circuit's analysis of standing of the general contractor and its dealing with the good-faith efforts portion of the statute might be instructive to the roadbuilding industry.


California Poly (the university) solicited bids for a utility upgrade that would connect all buildings to a central heating and air conditioning plant and would add a new electrical distribution system. Monterey Mechanical submitted the low bid of $21,698,000, but was not awarded the contract. Instead, the University awarded the contract to the second lowest bidder, Swinerton and Walberg, whose bid was $318,000 higher than Monterey Mechanical's bid. The university found that Monterey Mechanical had failed to subcontract the specified percentages of work to minority, women and disabled veteran subcontractors, or demonstrate good-faith efforts to do so. Swinerton and Walberg did not meet the specified percentages of participation, but it did comply with the "good faith" effort requirement.


Monterey Mechanical protested the contract award, then sued the university's trustees and Swinerton and Walberg for a declaratory judgment, injunction, and damages. The United States District Court denied Monterey Mechanical's request for a preliminary injunction based on the judge's legal conclusion that Monterey Mechanical had a low probability of being successful. Monterey Mechanical appealed.


General contractor has standing


The 9th Circuit reversed of the district court's decision and remanded the case back to the district court to reconsider the preliminary injunction in light of the court's determination of the unconstitutionality of the statute.


First, the court addressed the district court's conclusion that Monterey Mechanical lacked standing to challenge the statute. The 9th Circuit disagreed. It found that minority and women business enterprises who were bidding as general contractors could have used their own work to satisfy the goals and as a result not have to subcontract the work to MBEs and WBEs or show a "good faith" effort. As a result, the court concluded that the extra requirements imposed costs and burdens on non-minority general contracts that preclude them from competing on an equal basis with MBEs and WBEs. The court also was convinced that a general contractor, while suffering no discrimination in itself, risked liability by a law requiring that it discriminate, or make a good-faith effort to discriminate, against others on the basis of their ethnicity or sex.


Having found standing, the court then turned to the constitutional issues. The state argued that Monterey Mechanical's constitutional challenge should fail because the statute treats all general contractors alike. Once again, the 9th Circuit found that the statute does not treat all contractors alike because it allows minority or women business enterprises to satisfy the goals by allocating the percentage of work for its group to itself.


Quotas unnecessary


Next, the university argued that the statute only required good-faith efforts and did not impose rigid quotas. While the court agreed that the statute did not impose rigid quotas, it did establish firm requirements in the nature of the good-faith efforts necessary to meet the percentage goals. Only those firms that are not owned by a minority or a women must comply with the good-faith efforts requirements. Given that fact, the outreach (good-faith efforts) the statute requires is not from all equally, or to all equally.


The court concluded that there was no evidence whatsoever to justify the race and sex discrimination. The legislative findings do not say that California State University, or California state government, has in the past actively or passively discriminated against disadvantaged groups. Instead, the legislative findings say that markets, prices and personal opportunities will be advanced by "the policy of the state to aid the interest of minority, women and disabled veteran business enterprises" while phrases in the legislative finding say that and imply that these enterprises have an "economically disadvantaged position."


Finally, the court found that the list of groups receiving the benefits of the statute are far too broad, including groups highly unlikely to have been discriminated against in the California construction industry. For example, the statute includes Aleuts, a distinct people native to the western part of the Alaska peninsula who have not likely suffered discrimination at the hands of the University or the State of California in the award of construction contracts. For these many reasons the court found the statute unconstitutional.


Comment


Contractors continue to contest the validity of statues or ordinances requiring percentages of a contract to be awarded to firms owned by minorities and women. Generally, the contractors have been successful. In fact, a week after the decision discussed in this column, the 11th Circuit ruled that the Dade County Florida Minority and Women Business Enterprise Programs are unconstitutional.

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