LAW: The Contractor's Side

Taking the challenge out of DBE goals

Article December 28, 2000
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As I write, state DOTs across the country are currently setting their annual DBE goal and deciding how much of it they can meet by “race neutral” (no contract goals) measures. In the wake of the Supreme Court’s rulings in City of Richmond v. J.A. Croson, 488 U.S. 469 (1989) and Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995), and the newly revised U.S. DOT regulations, this process raises a potential constitutional challenge.

In the Croson and Adarand cases, the Supreme Court made clear that to be constitutional, a “race based” contracting program must be “narrowly tailored” to meet the compelling governmental interest of remedying discrimination. In its explanation of the revised regulations, U.S. DOT asserts that Congress has provided the compelling governmental interest. At the same time, U.S. DOT makes it clear that state DOTs can no longer rely on the federal 10%“aspirational” goal, but must instead establish their own annual DBE goal. In other words, it is up to the state DOTs to establish a narrowly tailored remedy. As explained below, I believe the guidance provided by U.S. DOT on goal setting, if followed, almost will ensure a challenge that the remedy is not narrowly tailored.

Study session

Although other forms of evidence may be used to determine a narrowly tailored annual DBE goal, perhaps the most effective is a well done disparity study. If conducted correctly by a qualified expert, a disparity study may provide a constitutionally sound base on which to base a DBE goal. Unfortunately, disparity studies are very expensive; and, as George LaNoue points out in an article “Minority Business Programs and Disparity Studies,” a poorly executed disparity study will not help if the program is attacked in the courts. The evidence used must be scientifically sound in order to withstand legal scrutiny. In the past several years, many cities have paid substantial fees to so-called experts, only to find their work worthless in court.

Most state DOTs do not have disparity studies upon which to base an annual DBE goal. As a result, they must work with the information they have. As state DOTs have worked to establish their annual DBE goal for the next fiscal year, many discovered they have inadequate data to determine what the level of DBE participation would be absent discrimination.

Most state DOTs have data on the capacity of pre-qualified prime contractors. Many also know the identity of approved subcontractors who have worked on past projects. However, I know of no state DOTs which have information on the capacity of their subcontractors, suppliers and truckers.

Parental guidance

In 49 CFR §26.45, U.S. DOT sets forth guidance and a methodology to be used by a state DOT in determining its annual DBE goal. U.S. DOT states, “Your overall goal must be based on demonstrable evidence of the availability of ready, willing and able DBEs relative to all businesses . . .” In explaining this provision, U.S. DOT also states:

(1) . . . the recipient’s (state DOT’s) overall goal represents the best estimation of the participation level expected for DBEs in the absence of discrimination;

(2) . . . the purpose of the overall goal and, in fact, the DBE program as a whole is to achieve a “level-playing field” for DBEs seeking to participate in federal-aid transportation contracting; and

(3) one universally available form of evidence that all recipients should consider is the proven capacity of DBEs to perform work on DOT-assisted contracts.

The new regulations provide a detailed two-step process for recipients to use in setting their DBE goals. In step one, state DOTs must begin their goal-setting process by determining a base figure for the relative availability of DBEs based on the number of firms. U.S. DOT gives examples of approaches that recipients may take toward determining a base figure. One of the greater challenges state DOTs will face in this step is comparing apples with apples, ensuring that the scope of businesses included in the numerator is as close as possible to the scope included in the denominator. According to U.S. DOT, using as close as possible to the same SIC codes and geographic base is very important. In step two, recipients must adjust to the base figure.

Interestingly, U.S. DOT does not require, or even suggest, that an adjustment be made to account for the major changes U.S. DOT has made in the regulations. First, no mention is made of the fact that the most successful DBE firms will be eliminated by the $750,000 net worth provision. Second, under the new regulations, actual DBE participation will be counted more restrictively because any work subcontracted by a DBE to a non-DBE and trucking done by non-DBE owned trucks will not count toward the state DOT goal under the new regulations. As a result, if state DOTs follow the approach suggested in the new regulations, their annual DBE goal will be set on a basis different than how they will count DBE participation during the year. To avoid a challenge, state DOTs will need to make adjustments to account for the significant changes in the new DBE regulations.

Due to the timeliness of DBE goals, the continuation of the August column will run in October.

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