LAW: The Contractor's Side

Disparity continues to plague DBE firms

Article December 28, 2000
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Last September, most state DOTs were scurrying to finalize their DBE programs for submission to the U


Last September, most state DOTs were scurrying to finalize their DBE programs for submission to the U.S. Department of Transportation (U.S. DOT) by the Sept. 30 deadline. My column for that month questioned both the legality and the practicality of guidance provided by U.S. DOT for state DOTs to set their annual DBE goals. I predicted that if the U.S. DOT’s guidance was followed, someone would likely challenge a state on the basis that the remedy (the annual DBE goal and the race-based portion) was not narrowly tailored to meet the compelling governmental interest of remedying discrimination.


On March 7, Judge Richard Matsch issued a lengthy opinion finding the city of Denver’s ordinances establishing mandatory MBE and WBE goals in construction contracts unconstitutional. Admittedly, this case did not in any way address the 1999 U.S. DOT revisions to the DBE regulations. However, I believe Matsch has identified problems with setting goals that also may be applied to the guidance provided by U.S. DOT.


These studies need work


Concrete Works of Colorado, Inc. v. City and County of Denver, 2000 WL 266307 (D. Colo.) was the case decided by Matsch. Concrete Works of Colorado Inc. (CWC) filed suit against the city and county of Denver claiming it had lost three contracts because it had failed to comply with the city ordinances requiring bidders on city construction contracts to use city-certified MBEs and WBEs as suppliers or subcontractors. After a long history of decisions on summary judgments, a complete trial before the judge was held in 1999.


In support of its program, Denver relied on disparity studies conducted in 1990, ’95 and ’97. In discussing the disparity studies, Matsch noted that they may be persuasive as evidence in litigation of this type. He also noted that the probative value of statistical disparity studies depends upon whether the data used provides meaningful measurements of the number of minority firms "qualified" and "willing and able to perform a particular service" as well as the number actually used in public contracting, directly or indirectly.


The city’s consultants testified that the capacity of business firms cannot be measured objectively and that the data on the subject could not be obtained from the contractors. Matsch noted that the disparity studies and the opinion testimony based on them did not address the actual qualifications and capacities of the MBEs and the WBEs in the Denver area. He noted that the researchers assumed that all the MBEs and WBEs reported by the Census Bureau as existing in the six county metropolitan area were available to work within the same time constraints involved in the contracts. They justified the use of such an "implausible assumption" by accepting, without qualification, that size elasticity means that all of those MBEs and WBEs could grow at will to develop capacity to meet the contract requirements of every project.


Matsch said that the value of reported results of disparity studies begins with the articulation of some working hypotheses, which he listed. To determine whether apparent racial, ethnic and gender differences in the performance of Denver area construction industry firms are the result of intentional discrimination practiced against them by their competitors, certain questions had to be answered. Matsch said that the disparity studies did not answer the questions because the consultants designing them made no effort to address them or any equivalents to them. He noted that under the direction of the Croson and Adarand cases, the court must look at these studies skeptically and under strict scrutiny to determine whether they provide strong evidence that non-minority contractors systematically exclude W/MBEs from business opportunities that would be available to them but for their race, ethnicity and gender.


Code of difference?


The Tenth Circuit, which had reversed the summary judgment for the city, did so because of questions about the statistical evidence offered in the studies. That court noted that Denver’s reliance on the percentage of MBEs and WBEs available in the marketplace could overstate the ability of MBEs or WBEs to conduct business relative to the industry as a whole because M/WBEs tend to be smaller and less experienced than non-minority firms. A disparity index calculated on the basis of the absolute number of MBEs in the local market may show greater underutilization than does data that takes into consideration the size of the MBEs and WBEs. The judge noted that the SIC classifications break down the construction industry into specialties, but the Denver disparity studies made no effort to separate MBEs and WBEs according to the SIC classifications.


The U.S. DOT guidance suggests that in the first step of setting an annual goal a state DOT determines relative availability of DBEs based on the number of firms. U.S. DOT does suggest that using as close as possible to the same SIC codes and geographic bases is important. However, using the same SIC codes does not by itself address the fact that large non-DBE prime contractors constructing $100 million of work in a year may have the same SIC code, and thus be counted the same as DBE prime contractors constructing an annual volume of $10 million of work a year.


In my opinion, until goal setting includes an analysis of size and capacity of firms, DBE goals will always be overstated and subject to challenge. As I have argued for several years, the greater the disparity between the DBE goal and the actual capacity of DBE firms, the greater the likelihood that legitimate DBE firms will fail.


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