LAW: The Contractor's Side

Court rejects MBE disparity study

Cordell Parvin / December 28, 2000

In last month's LAW column (May, 1996, I offered opinions on how a constitutional
analysis of Minority Business Enterprise (MBE) and Disadvantaged Business
Enterprise (DBE) programs in the transportation-construction industry might
be litigated based on disparity studies. This month I will discuss a 1995
federal district court decision analyzing the disparity study done by the
city of Philadelphia.

In 1984, nine contractor associations sued the city of Philadelphia, challenging
the constitutionality of its ordinance establishing a 15% MBE goal. In 1990
and 1992, the federal district court granted summary judgment in favor of
the contractors on the ground the city failed to produce sufficient evidence
of past discrimination in the Philadelphia construction industry.

On appeal, the Third Circuit found the city's disparity study-done after
the ordinance was enacted-created an inference of racial discrimination
that the contractors would have to rebut at trial. In Contractors Association
of Eastern Pennsylvania, Inc. v. City of Philadelphia 893 F.Supp. 419 (E.D.
Pa 1995), the federal district court held that:

  • The city of Philadelphia's 15% MBE "goal" violated the equal-protection
    clause of the U.S. Constitution,
  • The city failed to demonstrate a compelling government interest in enacting
    the 15% goal based on past racial discrimination, and
  • The city failed to show that the 15% goal was "narrowly tailored"
    to remedy identified prior discrimination.

During the trial, the contractors presented the testimony of Dr. George
R. LaNoue to show that the disparity study, conducted by Dr. Andrew F. Brimmer,
was scientifically and methodologically flawed. As shown below, Dr. LaNoue
clearly won the battle of the experts.

For his study, Dr. Brimmer purportedly examined statistical, historical
and anecdotal evidence relating to participation of MBEs in the Philadelphia-area
construction industry. Based on his review of the federal government's Census
of Construction Industries, the city's directory of Philadelphia-area MBEs
and the city's 1982 report to Congress containing the dollar value of city-financed
prime contracts awarded to minorities from 1979 through 1981, Dr. Brimmer
concluded there was a substantial statistical disparity in MBE participation
as compared to their availability.

Dr. Brimmer measured participation by MBEs (the numerator) by dividing the
dollar amount of prime contracts awarded to MBEs ($667,501) by the total
of all contracts awarded ($419,779,641). He measured availability of MBEs
(the denominator) by dividing the city-furnished figure of 1995 MBEs by
the federal census figure of 8,050 construction firms. He calculated the
disparity index by dividing the participation rate (0.1%) by the availability
rate (2.4%).

After the Third Circuit narrowed the inquiry, Dr. Brimmer calculated "alternative
disparity ratios" to reflect the disparity for black-owned contractors.
Finally, he concluded that the 15% set-aside for black contractors was "narrowly
tailored" because it provided an incentive for black contractors to
"respond vigorously" to cure racial disparities.

The federal district court attacked virtually every aspect of Dr. Brimmer's
analysis. First, the court noted that a statistical disparity, standing
alone, does not prove discrimination. Dr. Brimmer had relied on testimony
of minority contractors before the City Council and historical discrimination
against blacks in local trade unions; he concluded that discrimination in
trade unions in the 1960s had had a seriously adverse impact on these contractors'
ability to enter and advance through industry ranks 20 years later.

The court criticized Dr. Brimmer's methodology for a host of reasons, many
of which dealt with his failure to determine that black contractors were
qualified, willing and able to perform city contracts. The court noted that,
instead of measuring whether qualified, willing and able black contractors
were excluded, Dr. Brimmer assumed every black contractor who was available
was equally qualified, willing and able to perform city public works contracts.

The disparity report also was inaccurate because it included black firms
located outside Philadelphia and black firms that were not construction
contractors. In addition, Dr. Brimmer never measured the number of nonminority
contractors who were qualified, willing and able to perform city public
works contracts. In sum, the court found Dr. Brimmer failed to measure the
"relevant statistical pool" necessary to perform an accurate disparity

The court continued to blast the credibility of Dr. Brimmer's statistical
study because it did not accurately measure the extent of black participation
in the Philadelphia construction industry in the years before the enactment
of the ordinance establishing the 15% MBE goal. Dr. Brimmer's study had
only focused on black participation in city-financed prime construction
contacts, and it did not measure black participation in subcontracting.

It also completely ignored substantial black participation in millions of
dollars of federally assisted public works contracts, including two of the
largest public works projects let by the city in recent history. Without
measuring black participation in these aspects of the construction industry,
the court found it was impossible to evaluate-and misleading to speculate
about-the overall representation of blacks in construction expenditures
awarded by the city.

As a result of the glaring omissions in Dr. Brimmer's report, the court
concluded the report was unreliable, not significant and thus not actionable.
The court found Dr. Brimmer's approach so long on shortcomings that it could
have no confidence in either the scientific nature of Dr. Brimmer's opinions
or in the validity of the factors as he crafted them to purportedly support
his opinions.

The evidence uncovered at trial suggested that the low level of black participation
in city-financed prime contracts in the three years immediately preceding
the city's ordinance was not caused by racial discrimination. Instead, the
court found that any statistical disparities could be directly attributed
to two factors: the low availability of black contractors in the Philadelphia
construction industry and their sizable participation in federally assisted
public works projects at that time.

Even though Philadelphia's anti-discrimination policies were in place at
least three years before the enactment of the ordinance requiring the 15%
MBE goal, no evidence was presented at the trial that complaints about discrimination
in the Philadelphia construction industry had ever been reviewed or investigated.
The court observed that, as in the Croson case, "the complete silence
of the record concerning enforcement of the city's own anti-discrimination
ordinance flies in the face of the [city's] vision of a 'tight-knit industry,'
which has prevented blacks from obtaining the experience necessary to participate
in construction contracting."

The court pointed out the city had many legitimate race-neutral weapons
at its disposal-both to punish and prevent discrimination, and remove arbitrary
barriers to minority advancement. These included simplification of the bidding
process, relaxation of bonding requirements and training and financial aid
for disadvantaged entrepreneurs of all races. The city could also act to
prohibit discrimination in the provision of credit or bonding by local suppliers
and banks. The court concluded the city had the means to enhance city contracting
opportunities for disadvantaged contractors of all races but chose not to
use them.

The court rejected the city's argument that the 15% MBE goal was necessary
to remedy "persuasive racial discrimination in the Philadelphia construction
industry." The court found there was no evidence that any of the minority
groups mentioned by the city had suffered from racial discrimination, and
the data available was insufficient to indicate the number of Philadelphia-area
MBEs actually capable of performing city contracts. The court noted that
the legislative history of the ordinance was replete with references proving
the city's enactment was motivated by racial and gender politics, and not
remediation of any specifically identified discrimination.

A statement by one of the original sponsors of the ordinance was particularly
damning: "We didn't do a study to see whether or not 10% was proper
for women or the percentage for minorities was correct. We knew that there
were a lot of women out there and a lot of minorities out there, and they
didn't get their share. And we set a goal. And it was pretty arbitrary.
And we sought to encourage. And that's what this does."

As I stated in last month's column, the constitutionality of MBE/WBE/DBE
programs will be determined, in large part, by the quality of disparity
studies. I believe most disparity studies done for cities and states suffer
from the same problems as Dr. Brimmer's study. Simply stated, the studies
have been done to justify a predetermined result and typically fail to consider
the number of qualified, willing and able MBEs. I also believe cities and
states would provide a greater benefit to MBEs by spending their money on
business-development programs.

Parvin is a shareholder in the law firm of Leonard, Hurt & Parvin,
P.C., which has offices in Washington, D.C.; Dallas; Houston; Austin, Tex.;
and Richmond, Va. 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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