LAW: The Contractor's Side

More court challenges to DBE programs

Cordell Parvin / December 28, 2000

We have now arrived at the post-Croson, post-Adarand era of challenges to
state, local and federal government Minority Business Enterprise (MBE) programs
and Disadvantaged Business Enterprise (DBE) programs. As I write this month's
column, Adarand is back at the federal district court in Colorado and cases
have been filed in other parts of the country challenging the constitutionality
of MBE and DBE programs.

In the 1989 Croson decision, the U.S. Supreme Court-applying a strict-scrutiny
standard-struck down a local government MBE program on the grounds that
the city of Richmond had not shown a compelling government interest to have
an MBE program and had not shown its program was narrowly tailored to meet
that interest. Justice O'Connor, writing for the majority, made it clear
that a government body must have proper findings that racial discrimination
existed in public contracting, and that the remedy chosen was necessary
to cure the problem.

Justice O'Connor also made it clear that the disparity between the number
of contracts awarded to minority firms and the minority population is not
the appropriate test. Instead, the appropriate test is whether there is
a significant statistical disparity in the number of qualified minority
and nonminority firms willing and able to perform a particular type of work,
and the number of those firms employed by the government entity and its
prime contractors.

The Croson decision created the "Disparity Study Industry." Since
1989, cities and states have paid as much as $1 million to law firms, accounting
firms, sociologists and politically connected individuals and entities to
find a disparity to justify MBE/DBE programs. Interestingly, had the cities
and states used those funds to support a race-neutral small-business program
or remedy the effects of actual discrimination suffered by individuals,
minority and disadvantaged contractors would have likely been better served.

In June 1995, the Supreme Court decided the Adarand case (see LAW, July
1995, p 8). While the Supreme Court did not strike down federally funded
MBE/DBE programs, it ruled that such programs should be judged by the same
strict-scrutiny standard applied in the Croson case. Justice Scalia would
have struck down all race-based preferences, but he pointed out that a race-neutral
program that, in the end, would result in a greater benefit to minorities
would be constitutional.

Since the Adarand decision, some proponents of MBE/DBE programs have called
for a national disparity study. I can only imagine how much that will cost.
The disparity-study approach has led to litigation challenging state and
local government MBE/DBE programs, and will lead to litigation challenging
federal programs.

In the litigation, nonminority contractors seek to recover damages suffered
as a result of being denied work and seek to recover their attorney's fees
under the Civil Rights statutes. Those are fairly high stakes for the government
entity whose MBE/DBE program will rise or fall on the strength of its disparity

In the remainder of this column, I will examine the issues that might arise
in litigation of transportation construction-industry MBE/DBE programs.
Next month I will discuss a case decided in 1995, analyzing a disparity
study done by the city of Philadelphia.

The first issue in transportation construction MBE/DBE disparity analysis
is determination of the relevant market. I believe it needs to be limited
to highway heavy construction rather than all contracts, or even all construction
contracts, issued by the government entity. It also needs to be limited
to a reasonable geographical area.

Because the government entity may not enact race-based programs unless it
determines that qualified, willing and able MBE/DBE have been excluded from
participating in public contracting, the next question must focus on the
meaning of "qualified," "willing" and "able."

Presumably, "willing" means they must be certified as a MBE/DBE.
What criteria should be used to determine "qualified" and "able"?
Arguably, those terms would require a certain amount of experience, expertise,
net worth and access to necessary equipment.

The next questions is whether the disparity is measured in terms of number
of contracts, dollar volume of contracts or number of contractors. That
choice can obviously influence the study results.

A final issue of great importance is whether the remedy chosen by the government
entity has resulted in an undue impact on a limited segment of the industry.
The U.S. DOT DBE program, as administered by states and localities, is a
subcontract program. Almost the entire burden of the program falls upon
nonminority subcontractors who would like to perform seeding, sodding, striping,
traffic control, signage, guardrail and related specialty subcontract work.

Those firms, including Adarand Constructors, are the ones who are denied
opportunities. They will likely be the contractors seeking to recover damages
for loss of work on federally funded highway projects and will seek their
attorney's fees.

Parvin is a shareholder in the law firm of Leonard, Hurt & Parvin,
P.C., which has offices in Austin, Tex.; Dallas; Houston; Richmond, Va.;
and Washington, D.C. Leonard, Hurt & Parvin provides services for the
construction industry, including claim preparation and analysis, negotiation,
environmental law, alternative-dispute resolution, privatization financing,
labor law and litigation. You may write him in care of the editor.

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